Fedbank Financial Services Limited — Q4 FY25 earnings call

Call held 29 Apr 2025

Management summary

Fedbank Financial Services reported a robust Q4 FY25, with strong AUM growth driven by gold loans and mortgage segments. Despite elevated delinquencies in the small mortgage portfolio, management outlined focused corrective actions in collections and a strategic pivot towards higher ROA/ROE businesses. The company aims for continued growth while maintaining stable margins and improving capital adequacy.

Highlights

  • AUM reached ₹15,812 crores, growing 6% QoQ and 29.7% YoY.

  • Gold AUM grew 13% QoQ and 48.1% YoY to ₹5,880 crores, with tonnage growth of 18% YoY.

  • Net Interest Income (NII) for Q4 FY25 was ₹283.4 crores, up 34.6% YoY.

  • Operating Profit for Q4 FY25 increased by 20.9% YoY to ₹131.2 crores.

  • Net Profit for Q4 FY25 stood at ₹71.7 crores, a 5.9% YoY increase.

  • Gross Stage 3 increased to 2% from 1.8% QoQ, with credit cost at 1% for Q4 FY25.

  • Small Ticket LAP disbursals touched ₹270 crores in Q4 FY25, a growth of 58% QoQ.

  • Doorstep gold loan AUM more than doubled in FY25, now constituting 15% of total gold AUM.

Concerns

  • Elevated delinquencies in small mortgage portfolio

  • Collection infrastructure lagging behind business growth

Key financials

  1. AUM ₹15,812 Cr +29.7%YoY
  2. Net Interest Income ₹283.4 Cr +34.6%YoY
  3. Operating Profit ₹131.2 Cr +20.9%YoY
  4. Net Profit ₹71.7 Cr +5.9%YoY
  5. Gross Stage 3 2% +11.1%QoQ
  6. Credit Cost 1% +42.8%YoY
  7. ROA (Full Year) 1.8% -25%YoY
  8. Capital Adequacy 21.9% +0.14%QoQ
  9. Debt-Equity Ratio 4.03 +1.3%QoQ

What they filed

Q1 FY27: revenue up 29.6%, net profit up 52.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue513 530 536 517 535 +4%555 +5%616 +15%670 +30%
Net profit65 19 72 75 80 +23%88 +363%101 +40%114 +52%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of AUM
₹23,660 Cr Total
  • Mortgage (LAP) ₹8,062 Cr 34.1%
  • Gold Loans ₹5,880 Cr 24.9%
  • Medium Ticket LAP ₹4,394 Cr 18.6%
  • Small Ticket LAP ₹3,668 Cr 15.5%
  • Unsecured Business Loans ₹1,656 Cr 7.0%

Guidance & targets

Asset Quality

  • Credit Cost Asset Quality · FY26 · Medium confidence around 1% plus or minus 10 bps
    But as far as the credit cost is concerned, I am expecting it to stay around 1% plus or minus 10 bps. So I am seeing the credit cost hovering around that range.

    — Parvez Mulla, MD & CEO

  • PCR Asset Quality · after rebuild phase · Low confidence stabilize somewhere in between
    So it will stabilize somewhere in between, depending because, see, the incremental flows will happen at a incremental different PCR, like whatever the model suggests.

    — Parvez Mulla, MD & CEO

AUM Growth

  • Overall AUM Growth (including BL) AUM Growth · next year · Medium confidence around 12% to 15%
    then you will see around 12% to 15% growth.

    — Parvez Mulla, MD & CEO

  • AUM Growth (excluding BL) AUM Growth · next year · Medium confidence about 25% to 30%
    If you remove that from the base, you will see about 25% to 30% AUM growth is what we are targeting.

    — Parvez Mulla, MD & CEO

Gold Loans

  • Doorstep Gold AUM % of Total Gold Loans · next one year to two years · Medium confidence 18% to 22%

    Previously 15% → 18% to 22%

    In the next one year to two years, we want to take it up by 3% or 4% points. That means you will see that 15% number going to about 18% to 22% in the next one year to two years.

    — Parvez Mulla, MD & CEO

Profitability

  • Net Interest Margin (NIM) Profitability · going forward · Medium confidence stable
    Ajit, we expect the net interest margin to be stable.

    — Parvez Mulla, MD & CEO

Small Ticket LAP

  • Disbursement Growth Small Ticket LAP · from here · Medium confidence keep on increasing
    So you mentioned that disbursement should keep on increasing from here.

    — Aditya, Analyst

Risks & concerns

  • Elevated delinquencies in small mortgage portfolio

    high

    Management stated this required immediate attention and is investing in strengthening collection infrastructure.

    Management acknowledged

  • Collection infrastructure lagging behind business growth

    high

    Hiring for middle layer and field level collections is in progress, expected to complete by Q1 FY26.

    Management acknowledged

  • Flows into Stage 2 and Stage 3 assets

    medium

    Management expects some flows in the near term but normalization by year-end FY26.

    Management acknowledged

  • Impact of new RBI guidelines on gold loans

    low

    Management believes guidelines clarify LTV interpretation, creating a level playing field, with only a short-term transition blip.

    Both downplayed

Areas of evasion (2)

  • Specific quarterly guidance for Cost to Income Ratio
  • Specific ROA guidance for FY26 (referred to as a calculation)

Q&A highlights

3 direct
Strategy for ST LAP vs MT LAP growth Direct
Renish, the strategy remains same. The strategy is to focus on the ST LAP business and the gold business together. We have always articulated our twin-engine strategy. And last time also, I reiterated that we will be focusing on our ST LAP business and gold business and our gold business growth has come in on tonnage growth as well as price growth and it is healthily growing.

Clarifies that the strategic focus on ST LAP and gold loans remains, despite MT LAP's higher growth in Q4, attributing it to a rebuild phase in ST LAP.

Asked by Renish from ICICI

Gold loan LTV and regulatory compliance Direct
On the LTV side, see our average LTV on the book is about 66%. In fact, when the new draft guidelines had come in, we had corrected all our processes and our sourcing LTV had dropped and most of the growth in Q4 has come with the reduced instructions on LTV and complying with the guidelines.

Addresses concerns about high LTVs near regulatory limits, clarifying that average LTV is well within limits and new originations comply with updated guidelines.

Asked by Mayank Mistry from JM Financial

Confidence in increasing small ticket LAP disbursals despite rising GNPA Direct
our analysis told us that we have a localized problem, and that localized problem needs to be addressed with localized resources. We are seeing some encouraging signs there. And wherever we are seeing flows, we are guiding you accordingly that there could be flows there. But we know that if you put the resources there, and you also understand putting resources in Q4, people don't move organizations in Q4. It's typically joining happens in Q1.

Explains that the issue is primarily collection infrastructure lagging, not underwriting, and that investments in manpower are being made, with results expected from Q1 FY26.

Asked by Aditya from Securities Investment Management

3 min read 6 chapters

Detailed narrative

Q4 FY25 Financial Performance and AUM Growth

Fedbank Financial Services reported a strong Q4 FY25, with overall AUM reaching ₹15,812 crores, marking a 6% QoQ and 29.7% YoY growth. Net Interest Income for the quarter was ₹283.4 crores, up 34.6% YoY, contributing to a full-year NII of ₹1,071 crores (32% YoY growth). Operating profit for Q4 FY25 grew 20.9% YoY to ₹131.2 crores, and net profit increased 5.9% YoY to ₹71.7 crores. The company's capital adequacy improved to 21.9% from 21.6% QoQ, and the debt-equity ratio marginally increased to 4.03.

Asset Quality and Collection Infrastructure Strengthening

Gross Stage 3 increased to 2% in Q4 FY25 from 1.8% in Q3 FY25, primarily due to elevated delinquencies in the small mortgage portfolio. Credit cost for the quarter stood at 1% (vs 0.7% last year), with full-year credit cost at 1.8% of average total assets. Management acknowledged that collection infrastructure lagged business growth and is actively investing in strengthening it, including hiring senior leadership and field-level resources, expected to be completed by Q1 FY26. They anticipate some flows into Stage 2 and 3 in the near term, but expect normalization by year-end FY26.

Gold Loan Business Outperformance

The gold loan business had a 'fantastic year and quarter,' with AUM growing 48.1% YoY to ₹5,880 crores, aided by an 18% YoY tonnage growth. The average LTV on the gold loan book stands at 66%, well within the 75% regulatory limit. The doorstep gold loan initiative has been highly successful, more than doubling its AUM in FY25 to constitute 15% of the total gold AUM. Management aims to increase doorstep gold AUM to 18-22% of total gold AUM in the next one to two years.

LAP Business Strategy and Rebuild Phase

The company's twin-engine strategy continues to focus on Small Ticket LAP (ST LAP) and gold loans. While ST LAP faced challenges, disbursals picked up to ₹270 crores in Q4 FY25, a 58% QoQ growth, as the business is in a rebuild phase with new leadership and processes. Medium Ticket LAP (MT LAP) AUM scaled up handsomely, growing 44% YoY to ₹4,394 crores, while maintaining stable yields. Management emphasized focusing on a mix of high-yield (ST LAP) and low-risk (MT LAP) businesses within the LAP segment.

Net Interest Margin and Cost Management

Yields increased by 43 bps over the fiscal year, while the cost of borrowings rose by 30 bps, resulting in a pure spread expansion of 13 bps. Management expects NIM to remain stable going forward, supported by a large proportion of floating-rate borrowings. Operating expenses grew 28% YoY for the full year. While investments in growth and collections will continue, the company aims to keep core OPEX stable to reducing, with specific initiatives on manpower, technology, and premises optimization.

Regulatory Environment and Off-Balance Sheet Growth

The off-balance sheet book grew 75% YoY to ₹3,973 crores as of March 31, 2025, comprising gold loans in partner books (₹1,131 crores), unsecured business loans (₹440 crores), and mortgage loans (₹2,408 crores). Management views recent RBI draft guidelines on gold loans as healthy, clarifying LTV interpretation and creating a level playing field, expecting only a short-term transition impact. The company continues its strategy of deleveraging the balance sheet through co-lending and direct assignment to improve capital adequacy.

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