SBFC Finance

SBFC Finance reported a robust Q4 FY26, with AUM reaching INR 11,270 crores, reflecting a 29% YoY and 8% QoQ growth. The full-year PAT increased by 31% YoY to INR 451 crores. The company is transitioning its strategy from initial market penetration to deepening its presence in existing states, aiming for significant market share gains. Management emphasized a direct sourcing model, leveraging digital platforms for efficiency while maintaining crucial personal customer interaction.

The quarter saw improved profitability driven by significant cost efficiencies. The cost of borrowing reduced by 83 basis points YoY to 8.52% in Q4 FY26. Operating expenses also decreased by 69 basis points YoY to 3.93%. These improvements contributed to an expansion in spreads to 9.09%, up 56 basis points YoY and 5 basis points QoQ. The Return on Average AUM stood at 4.57%, and Return on Average Tangible Equity was 14.48%.

Asset quality showed positive trends, with GNPA improving to 2.61%, a reduction of 13 basis points YoY and 10 basis points QoQ. The Provision Coverage Ratio (PCR) was 41.64%, and the credit cost for the quarter was 1.38%. Management highlighted adjustments to their PD/LGD model based on matured data for better provisioning. Proactive risk management measures include digitizing personal discussions, strengthening fraud risk filters, and performance-based branch rating.

SBFC expanded its physical footprint by adding 46 branches in FY26, bringing the total network to 251 branches. The company plans to stabilize the network at 275 branches during FY27. This phase of consolidation aims to evaluate the performance of recent investments before further scaling. The branch strategy is focused on deepening presence in states and pin codes where existing operations have demonstrated profitability and strong credit outcomes, utilizing a cluster approach.

The company maintains a robust Capital Adequacy Ratio (CRAR) of 32.8% and a low leverage of 1.9 debt/equity, providing substantial capacity for future growth. Management estimates that the current capital is sufficient to support AUM growth to INR 18,000-19,000 crores over the next two full years without requiring immediate capital raising. Overall growth guidance remains at 5-7% on a quarterly basis, with the gold loan book expected to gradually increase to 25% of AUM.

Management acknowledged significant macroeconomic challenges, including rising fiscal and trade deficits, oil price shocks, weakening currency, and potential impacts from El Nino. Despite these 'clouds gathering on the horizon,' the company expressed cautious optimism, emphasizing its 'anti-fragile business model' and preparedness to meet risks. They noted that rising inflation and interest rates are certainties, necessitating a focus on cost management and maintaining credit quality.