Skip to content

    SBFC Finance Q1 FY26 earnings call

    SBFC
    Financial Services·26 Jul 2025
    Management Summary

    SBFC Finance Limited reported a strong Q1 FY26 with a profit after tax of INR 101 crores and AUM growth of 30% YoY. The company demonstrated improved spreads and operational efficiency, leading to an enhanced ROE of 13.53%. However, management acknowledged rising stress in smaller ticket sizes and expects a 15-20 bps increase in credit costs for the full year, while maintaining confidence in its growth trajectory through tightened underwriting and strategic focus.

    Highlights

    5

    • Profit after tax reached INR 101 crores, a significant milestone for the company.

    • AUM grew robustly by 30% YoY and 7% QoQ, reaching INR 9,351 crores.

    • ROE improved to 13.53%, up from 12.3% in Q1 FY24, indicating enhanced profitability.

    • Net Interest Spreads expanded by 14 bps QoQ to 8.67%, driven by an 11 bps increase in yields and a 3 bps reduction in borrowing costs.

    • Operating expenses (Opex) decreased by 3 bps QoQ to 4.59%, reflecting improved operating leverage and efficiency.

    Concerns

    3

    • Credit cost is expected to inch up by 15-20 bps from the current 1.11% for the full year.

    • Observed stress in smaller ticket sizes and deterioration in bureau scores, leading to tighter credit filters.

    • 1+ DPDs have been inching up and collection efficiency has dropped, partly due to political risk in Karnataka and broader economic headwinds.

    Key financials

    Single quarter

    13 metrics
    1. 01Profit After Tax₹101 Cr+28.0%YoY
    2. 02AUM₹9,351 Cr+30%YoY
    3. 03Yield18.0%
    4. 04Cost of Borrowing9.3%
    5. 05Spread8.7%

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Liquidity disclosed

    Company sits in almost 2x more liquidity than the regulatory minimum.

    Guidance & targets

    6
    CategoryTargetPriority
    AUM Growth
    Quarter-on-quarter AUM growth
    5-7%
    		High
    Cost of Operations
    Reduction in cost of operations
    50 basis points
    		High
    Credit Cost
    Increase in credit cost
    15-20 basis points
    		High
    ROE
    Return on Equity
    15%
    		High
    Disbursal Growth
    Disbursal growth
    20%
    		Medium
    ROA
    Return on Assets
    4.2-4.25%
    		Medium

    What to watch in Q2 FY26

    5

    QoQ AUM Growth

    next quarter
    Current7%
    Target5-7%

    Why it matters

    To verify if the company maintains its stated quarter-on-quarter growth trajectory amidst market conditions.

    We are targeting business as usual growth of our AUM by a 5% to 7% quarter-on-quarter growth.

    Risks & concerns

    4
    RiskSeverity

    Political risk impacting collections

    A political risk event in Karnataka brought collection numbers down sharply in the last quarter of the last fiscal year. — Management acknowledged

    high

    Stagnating income and weak urban consumption

    Headwinds of stagnating income, falling job creation, and weak urban consumption are leading to stress, particularly in smaller ticket sizes. — Management acknowledged

    medium

    Increased provisioning and credit cost

    The company expects provisioning to increase, leading to a 15-20 bps rise in credit cost from current levels. — Management acknowledged

    medium

    Deterioration in asset quality for smaller ticket sizes

    Stress is more towards smaller ticket sizes, with deterioration in bureau scores and 1+ DPDs inching up, especially for loans under INR 10 lakhs. — Management acknowledged

    medium

    Q&A highlights

    8

    “The other point that I'd just like to add is that the volume number that you see is largely related to the ME business, it does not include gold, whereas you are taking the total employees, which are mentioned probably in the second or the third executive summary slide. So if you were to add both, probably you will have a much favorable outcome than what you're currently getting.”

    Analyst questioned the apparent contradiction between high productivity and increased rejection rates, leading to management clarifying the scope of reported volume numbers.

    asked by Raghav from Ambit Capital

    2 min read6 chapters

    Detailed Narrative

    01

    Q1 FY26 Financial Performance Highlights

    SBFC Finance Limited reported a profit after tax of INR 101 crores for Q1 FY26, marking a 28% YoY and 7% QoQ growth. The company's AUM expanded significantly by 30% YoY and 7% QoQ, reaching INR 9,351 crores. This strong performance contributed to an improved Return on Equity (ROE) of 13.53%, up from 12.3% in Q1 FY24, demonstrating consistent profitability growth.

    02

    Operational Efficiency and Margin Expansion

    The company achieved notable operational efficiencies, with yields improving by 11 bps QoQ to 17.99% and the cost of borrowing reducing by 3 bps QoQ to 9.32%. This led to a 14 bps expansion in net interest spreads, reaching 8.67%. Furthermore, operating expenses (Opex) decreased by 3 bps QoQ to 4.59%, reflecting a 25 bps improvement from Q1 of the previous fiscal year, driven by operating leverage.

    03

    Asset Quality and Credit Cost Outlook

    Asset quality remained stable with GNPA at 2.78% and a Provision Coverage Ratio (PCR) of 44.4%. The credit cost for the quarter stood at 1.11%. However, management anticipates an increase in provisioning, expecting credit costs to inch up by 15-20 bps for the full year due to observed stress in smaller ticket sizes and a political risk event in Karnataka that impacted collections.

    04

    Economic Environment and Strategic Response

    SBFC acknowledges tailwinds such as good monsoons, tax reductions, and falling inflation, which increase disposable income. Conversely, headwinds like stagnating income, falling job creation, and weak urban consumption are causing stress, particularly in urban areas and smaller ticket sizes. In response, the company has tightened credit filters and increased rejection rates by 10% to mitigate risks.

    05

    Focus on Small Towns and Gold Business Growth

    The company's strategy to focus on small businesses in small towns, rather than metros, is proving effective. The gold business, which contributes 13-14% of the total portfolio, is growing at 7% QoQ and serves as a key yield enhancer. SBFC plans to continue expanding its branch network, with 10 new branches added this quarter, bringing the total to 215, many of which will include gold loan facilities.

    06

    Capital Adequacy and Liquidity Position

    SBFC maintains a robust capital adequacy ratio of 34.3% and a tangible net worth of INR 3,039 crores. The company also holds liquidity almost double the regulatory minimum, providing a strong financial buffer. This solid capital and liquidity position supports the company's planned growth trajectory and ability to navigate potential market volatilities.

    This is an AI-generated summary of a publicly available earnings call transcript.