CSL Finance — Q4 FY25 earnings call

No, no, no. I don't know, Sir. Neither it was 9.4 ever. We never had 9.4, and neither it was 10.8. Our weighted average cost of borrowing was 11.12, and it went up to 11.22.

Management corrects the analyst's figures, clarifying the actual increase in cost of borrowing and its relation to the rating upgrade.

Asked by Sanjay

We are already managing 700 crores under the co-lending model, which is not under out book but which is being managed by us. So effectively we want to have a decent mix of both wholesale and retail. Our target was to increase our retail in last two years and we have targeted ourself to increase to 60% by FY27 and still we will strive for that. We may not be able to achieve that 60%, but definitely we will be in the range of 50 to 60% in next 18 to 24 months.

Management outlines its strategy for AUM mix, emphasizing a balanced approach between wholesale and retail, and clarifies that scale is not a barrier for wholesale growth.

Asked by Sanjay

First, the more with diversified lender book we have, there sometimes initially lender comes with the small exposure and it helps us to grow our book size, help us to make borrowings much easier and the more the lenders it becomes more comfortable for other lenders to board in and to increase their exposure. So, it is always better for NBFC to have a diversified lenders with us and in terms of negotiations and the supply of debt to us.

Management explains the strategic advantage of a diversified lender base for easier borrowing, better negotiation terms, and increased comfort for other lenders.

Asked by Sanjay

but our focus will remain on SME in terms of we are still, we have thought that in first two quarters we will not be giving any target because we missed that target. We gave very first time and we missed the target last year and so we will be more confident and after seeing these two quarters, we'll be able to give a better guidance but definitely to grow what we have been growing in last 2-3 years, that should be the bare minimum growth which we should be targeting as a company.

Management indicates a cautious approach to providing immediate AUM targets after missing previous ones, suggesting a period of consolidation before aggressive growth targets are set.

Asked by Dhwanil Desai

Overall number should eventually go down, right, because that's the idea of kind of maturing branches becoming more and more profitable so? Definitely. It has to come down. It is only that the performance was sub par in last year on the SME side and the projecting numbers have started taking up from this year, you will see that this percentage will come down and if you compare with the industry, I would say still we have because of our mix with wholesale, our overall cost to income and overall employee cost is far better

Management confirms expectations of improved operating leverage as new branches mature and SME performance recovers, leading to a reduction in employee cost as a percentage of revenue.

Asked by Dhwanil Desai

It's only that we are hiring, we are starting with the one product which we are a little lower IRR targeting the prime borrowers. But at the same time, we will be targeting with a little higher IRR less than 10 lakh kind of segment. So, the weighted IRRs will remain same more or less and the names will be the same. It's only that our product horizon will increase and in certain branches where you are able to target prime borrowers' mode which are based in bigger city.

Management clarifies the strategic rationale for introducing a lower-yield product to target prime borrowers and expand the product horizon, aiming to maintain overall weighted IRRs.

Asked by Dhwanil Desai

So, you're right that sometimes when the external situations are bad, we tend to be little cautious. But so, as we frankly what happened in SME, whenever we wanted to accelerate, now we have built our technology part, our policies has been laid out and what we have learned in last two years that we have to stick to our parameters and we will not dilute on ad hoc basis just to achieve numbers and that is where the slippages start coming up. And now the whole team is aligned to that thing and the one good thing is that I mean due to regulatory changes also that earlier lot of SME cases, reasonable sanctions used to happen but actual disbursement was not there due to a large proportion of cancellation, which has been completely stopped and now our cancellation is practically 0 for last 3-4 years.

Management confirms that significant operational and strategic changes have been implemented, leading to better credit control and reduced cancellations, positioning the company for future growth.

Asked by Ankit Gupta

SME we said we are comfortable going four times and retail wholesale 1 and half to 2 times and that is also the initial leverage and as we reach the threshold so, we'll be comfortable with the higher leverage and sometimes we have to see what is the industry scenario and how and to what extent the banks are and the lenders are comfortable with.

Management provides specific leverage comfort levels for different segments (wholesale and initial retail phase) and acknowledges the influence of external industry conditions on leverage decisions.

Asked by Nirvana Laha