India Shelter Finance Corporation Limited — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

India Shelter Finance Corporation reported a strong Q3 FY25, with AUM growing 36% YoY to ₹7,619 crores and PAT up 54% YoY to ₹96 crores. The company maintained its operational efficiency with Opex to AUM at 4.3% and kept credit costs and spreads in line with guidance. While a marginal uptick in 30+ DPD was noted, management expressed confidence in Q4 improvements and continued growth in Tier-2/3 geographies.

Highlights

  • AUM grew 36% YoY to ₹7,619 crores, demonstrating strong demand in affordable housing.

  • PAT increased 54% YoY to ₹96 crores, with RoE improving to 15.1% and RoA stable at 5.5%.

  • Opex to AUM reduced to 4.3% for Q3FY25, reflecting operational efficiency.

  • Credit cost maintained at 50 bps and spreads consistently above 6%, in line with guidance.

  • Branch network expanded to 265 branches, adding five new branches this quarter and 42 in the first nine months of FY25.

Concerns

  • Marginal uptick in 30+ DPD to 3.7% in Q3FY25, though management expects stabilization in Q4.

  • Sequential growth in home loan portfolio slowed to 5% from 8-9% in prior quarters.

  • BT out rate remains at 5.5%, higher than some peers, indicating competitive pressure.

Key financials

  1. AUM ₹7,619 Cr +36%YoY
  2. PAT ₹96 Cr +54%YoY
  3. RoA 5.5%
  4. RoE 15.1% +0.4%QoQ
  5. Portfolio Yield 14.9% +0.1%YoY
  6. Cost of Fund 8.8%
  7. Credit Cost 50 bps
  8. DPD 30 3.7%
  9. Stage-III 1.2%
  10. Opex to AUM 4.3% -0.1%QoQ

What they filed

Q1 FY27: revenue up 19.7%, net profit up 20.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue282 304 327 361 369 +31%390 +28%411 +26%432 +20%
Net profit90 96 108 119 122 +36%124 +29%140 +30%143 +20%
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.

Capital allocation

high confidence
  • Debt Debt disclosed Cost 8.8%
    Our cost of fund is stable at 8.8% in spite of increase of about 30 basis points in the MCLR by banks in the last 12 months. Our marginal cost of funds for the quarter is 8.8%.
  • Liquidity Undrawn ₹450 Cr
    We have an undrawn sanction of Rs. 450 crores from National Housing Bank as well.

Guidance & targets

Branch Expansion

  • New branch additions Branch Expansion · each year for the next few years · High confidence 40-45
    We guided for 40 to 45 branches each year for the next few years, on that note, we opened 42 new branches in the first nine months of this financial year.

    — Rupinder Singh

AUM Growth

  • AUM growth rate AUM Growth · next few years · High confidence 30% to 35%
    We guided for an AUM growth of 30% to 35% for the next few years and continue to grow as per the plan.

    — Rupinder Singh

Opex Efficiency

  • Opex to AUM ratio Opex Efficiency · ongoing · High confidence reduction
    There is a reduction in Opex to AUM and it currently stands at 4.3% for Q3FY25.

    — Rupinder Singh

Credit Cost

  • Credit cost Credit Cost · ongoing · High confidence 40 to 50 bps
    On the asset quality front, we guided for a credit cost in a range of 40 to 50 bps and is maintained at this level.

    — Rupinder Singh

Spreads

  • Spreads Spreads · ongoing · High confidence around 6%
    Our spread continues to remain in the range of 6% as per the guidance.

    — Rupinder Singh

Asset Mix

  • Proportion of fixed rate book Asset Mix · down the line 12 months · Medium confidence around 40%

    Previously 50% → around 40%

    At this point of time, 50% fixed rate, down the line 12 months, you can expect that we should be able to bring down the fixed rate book to around 40%.

    — Ashish Gupta

What to watch in Q4 FY25

30+ DPD trend

Next quarter (Q4 FY25)
Current 3.7% (up 10 bps QoQ)
Target Stabilization/reduction

Why it matters

Key indicator of asset quality and effectiveness of collection efforts, especially after the marginal uptick.

We witnessed a marginal uptick in 30+ to 3.7% in Q3FY25, forward flow stabilized in December and traction looks positive going forward.

Risks & concerns

  • Marginal uptick in 30+ DPD

    medium

    30+ DPD increased by 10 bps compared to last quarter, reaching 3.7% in Q3FY25.

    Management acknowledged, expects control and q4 improvement

  • Competitive pressure on BT out rates

    medium

    BT out rate remains at 5.5%, higher than some peers, driven by customers moving to larger institutions in competitive Tier-2 markets.

    Analyst acknowledged, has in-house mechanisms to retain customers

  • MP Portfolio Stress

    medium

    Previous team exit led to heightened stress in MP, but new sales and collection resources are in place, and the situation is largely under control.

    Management acknowledged, new team in place, no further deterioration, expects recovery

  • Lag in benefit from repo rate cuts

    low

    Only one-third of borrowings are repo-linked, while the larger part is MCLR-linked with a one-year reset, causing a 6-8 month lag for rate cut benefits.

    Management acknowledged, explained

Q&A highlights

6 direct
Asset Quality & 30+ DPD uptick Direct
So, there's a 10 bps higher when compared to the last quarter. But what we see, things are not beyond control. That is the first thing. This is a tough time for the entire industry largely, but seeing the process that we put on, the collection mechanism that we put on, I think that's working decently well. So, this blip I think not for long days anymore. I think we'll be able to control in the coming quarters.

Addresses a key concern about asset quality deterioration, with management acknowledging the uptick but expressing confidence in control and Q4 improvement.

Asked by Vivek Ramakrishnan, DSP Mutual Fund

Fee Income Growth & Co-lending Contribution Direct
Secondly, our co-lending arrangement with banks are gradually picking up. So, our co-lending disbursement is about 8% of the total disbursement. So, as that particular business is picking up, that has higher proportion of fees to the India Shelter. So, that is also contributing to the growth in fees income.

Explains the drivers behind higher fee income growth, highlighting the increasing contribution from co-lending.

Asked by Sonal, Asian Market Securities

Fixed vs Floating Rate Book & Future Mix Direct
At this point of time, 50% fixed rate, down the line 12 months, you can expect that we should be able to bring down the fixed rate book to around 40%.

Provides a clear target for the company's asset mix, indicating a strategic shift towards a higher proportion of variable rate loans.

Asked by Sonal, Asian Market Securities

Impact of Repo Rate Cuts on Cost of Funds Partial
I believe as the repo rate down comes in, so we will have to wait for the reaction of the banks how they react to it, how much benefit they like ultimately pass on to us. So, if you look at our borrowing profile, around one-third of the total borrowings are linked to repo rate... But the larger part of the borrowing is linked to MCLR wherein we will have to remain dependent on when the bank will pass it on and what kind of frequency we have in terms of reset.

Highlights the lag effect of repo rate changes on the company's cost of funds due to the MCLR-linked borrowing profile, suggesting benefits will not be immediate.

Asked by Sonal, Asian Market Securities

Home Loan Sequential Growth Slowdown Direct
So, there are small tweaks we keep doing here and there. And if you see overall, we have to maintain, that is 60:40 ratio, right, that we are always consistent about. So, on quarter-on-quarter there may be small changes here and there. So, there is nothing we have changed for one product or we have not done about certain products.

Addresses concerns about slowing home loan growth, attributing it to minor portfolio adjustments to maintain the overall 60:40 home loan to LAP ratio rather than a fundamental issue.

Asked by Raghav Garg, Ambit Capital

MP Portfolio Stress & Stabilization Direct
So, our new resource, the lead is there both in sales and collection. And yes, it will take some time to come to correct, but things are large in control. So, it's no further deterioration which is coming from there. Coming back to the previous position, little time you have to give to them and we are confident we will bring that position back very soon.

Provides an update on the previously acknowledged stress in the MP portfolio, indicating that new leadership is in place and the situation is under control with no further deterioration.

Asked by Varun, Kotak Securities

PMAY-2.0 Scheme Participation & Impact Partial
Our disbursement in the PMAY started, about 15%, 20% of the total home loan borrowers are eligible for the PMAY Scheme. But the data entry on the PMAY portal has just started... next one quarter we will be able to present a better picture of the success of PMAY Scheme at that time.

Clarifies the company's involvement and potential impact of the new PMAY scheme, indicating that while disbursements have started, a clearer picture of its success will emerge next quarter.

Asked by Shreya Shivani, CLSA

January Collections vs December Direct
So, exactly on that basis, I am giving this confidence because when January is better than December, then only we can give this kind of indication. But these are the early indications as we see that. Still there two months and I think we are positive about the progress around that time.

Provides an early positive indicator for Q4 asset quality, suggesting that collection trends improved in January compared to December.

Asked by Chintan Shah, ICICI Securities

2 min read 7 chapters

Detailed narrative

Strong AUM and Profitability Growth

India Shelter Finance Corporation reported a robust Q3 FY25, with Assets Under Management (AUM) growing 36% year-on-year to ₹7,619 crores. This growth was supported by a 29% increase in disbursements, totaling ₹879 crores for the quarter. Profit After Tax (PAT) saw a significant 54% year-on-year increase, reaching ₹96 crores, while Return on Equity (RoE) improved to 15.1% and Return on Assets (RoA) remained stable at 5.5%.

Operational Efficiency and Stable Margins

The company demonstrated improved operational efficiency, with the Opex to AUM ratio reducing by 10 basis points quarter-on-quarter to 4.3% in Q3 FY25. Portfolio yield stood at 14.9%, an increase of 10 basis points year-on-year, while the cost of funds remained stable at 8.8%. Consequently, the company consistently maintained its spreads above 6%, in line with its stated guidance.

Asset Quality Trends and Management Actions

A marginal uptick in 30+ DPD was observed, reaching 3.7% in Q3 FY25, an increase of 10 basis points from the previous quarter. However, Stage-III assets remained stable at 1.2%, with a Provision Coverage Ratio (PCR) of 25%. Management indicated that forward flow stabilized in December and expressed confidence in controlling the situation, expecting Q4 to show improvement based on historical trends and thorough collection mechanisms.

Strategic Branch Expansion and Market Focus

India Shelter continued its horizontal expansion strategy, adding five new branches in Q3 FY25, bringing the total network to 265 branches. For the first nine months of the financial year, 42 new branches were opened, aligning with the annual target of 40-45 new branches. The company's focus remains on deepening its presence in Tier-2 and Tier-3 geographies, which contribute 90% of its AUM, leveraging strong growth potential in these markets.

Evolving Asset Mix and Funding Profile

The company's asset book currently comprises 50% fixed-rate loans, with a strategic goal to reduce this to approximately 40% within the next 12 months by increasing variable rate disbursements. On the borrowing side, about 90% of the company's funds are variable rate. While one-third of borrowings are linked to the repo rate, the larger portion is MCLR-linked, implying a 6-8 month lag for any benefits from potential repo rate cuts to reflect in the cost of funds.

PMAY-2.0 Scheme Update

The company has started disbursements under the PMAY-2.0 scheme, with 15-20% of its home loan borrowers being eligible. Data entry on the PMAY portal has recently commenced. Management anticipates that a clearer picture of the scheme's success rate and its contribution to overall disbursements will be available in the next quarter, as more data becomes available.

Employee Engagement and Attrition Management

India Shelter has expanded its ESOP policy to cover 25% of its employees, including branch managers and above, up from 10% previously. This initiative aims to enhance employee engagement and retention. While overall attrition stands at 37-38%, attrition for employees with over one year of tenure is significantly lower, in the range of 15-17%, indicating the effectiveness of retention strategies for experienced staff.

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