Summary of earnings call for Fedbank Financial Services Ltd published on 01 Aug, 2025

Fedbank Financial Services Limited
Q1 FY26
Call date · July 28, 2025

1 · Management Commentary

Key Positives

• Strong gold loan performance: Gold AUM grew 39% Y-o-Y to INR6,332 crores; tonnage up 10% Y-o-Y.
• Mortgage AUM grew 29.7% Y-o-Y to INR8,539 crores.
• Disbursals in Q1 FY26 at INR5,933 crores, up 18.5% Y-o-Y.
• Net profit at INR75 crores, up 6.8% Y-o-Y.
• Net interest income grew 7.4% Y-o-Y to INR268.2 crores.
• Successful assignment of INR770 crores business loan portfolio, releasing capital for secured lending.
• Maiden $100 million ECB issue completed, reducing average borrowing costs.

Key Negatives

• Operating profit declined 0.5% Y-o-Y to INR128.2 crores.
• Negative DA income (INR -5 crores vs INR22 crores in Q1 FY25) impacted operating profit.
• Credit cost for Q1 at 0.8%; ongoing stress in ST LAP and residual business loan book.
• Flat to marginally negative sequential AUM growth due to derecognition of assigned business loans.
• Opex grew 9% Y-o-Y; cost rationalization ongoing but branch expansion to drive higher opex ahead.

Forward Guidance

• Capex/Branch Expansion: Plan to open 100–150 new gold loan branches in FY26.
• Product Focus: Continued focus on secured lending—gold loans, ST LAP, and MT LAP; no new product segments planned.
• Portfolio Mix: Gold loans expected to remain 45–48% of AUM; mortgages to cover the balance.
• Credit Cost: To remain within 1% ±10 bps for FY26, including residual business loan book impact.
• Margin Outlook: NIMs and spreads to normalize from Q2; cost to income ratio to remain stable despite branch investments.
• Strategic Initiatives: Further co-location of ST LAP and gold branches; continued reduction in DA income reliance; deployment of BRE and risk models in LAP segments by Q3 FY26.

2 · Q&A Highlights

Q 1 (ST LAP Restructuring & Growth): What is the status of ST LAP business restructuring, and is the sequential fall in disbursement due to seasonality or increased caution?
A (Management):
• Leadership and field team changes completed; 80% recruitment done.
• No additional tightening this quarter; drop in disbursement is seasonal.
• Growth expected to pick up as new team matures.

Q 2 (Gold Loan Growth & LTV): What is driving the surge in gold loan disbursements and the marginal drop in LTV?
A (Management):
• Growth driven by productivity and tonnage, not branch expansion (yet).
• Plan to open 100+ new gold branches in FY26.
• LTV remains conservative; new RBI guidelines not fully adopted yet.

Q 3 (Profitability & ROA/ROE Outlook): How will ROA, NIM, and credit cost trend post-restructuring?
A (Management):
• FY26 credit cost to remain within 1% ±10 bps.
• NIMs and spreads to be range bound; net total income to remain stable.
• ROA/ROE to improve as leverage increases and cost of funds decline.

Q 4 (Portfolio Mix & Gold Loan Share): Will gold loan share in AUM rise further, and is there a cap?
A (Management):
• Gold loan mix to remain in 45–48% range; mortgages to balance.
• Growth in gold loans will be managed to maintain portfolio mix.

Q 5 (Business Loan Assignment & Residual Risk): What is the credit cost impact of business loan assignment and residual risk?
A (Management):
• Credit cost guidance includes residual business loan book.
• No credit risk on assigned portfolio; only INR270 crores remain on books, expected to reduce to INR120 crores by March '26.

Q 6 (Branch & Geographical Mix): What is the rationale behind changes in branch and AUM geographical mix?
A (Management):
• Strategic focus on expanding gold loans in West and North; mortgage growth targeted in underpenetrated markets.
• Co-location of 23 ST LAP branches with gold branches completed.

Q 7 (Employee Cost & Team Restructuring): Why did employee costs fall despite higher headcount?
A (Management):
• Lower originations and exit of unsecured business loan team reduced costs.
• Employee costs to normalize as branch expansion and originations pick up.

Q 8 (MT LAP & Assignment Strategy): Has off-book assignment in MT LAP reduced, and is asset quality a concern?
A (Management):
• Assignment in MT LAP used as a capital conservation lever; less needed this quarter due to capital release from business loan assignment.
• No asset quality concerns; assignment strategy is opportunistic.

3 · Other Key Numbers

• AUM as of June 30, 2025: INR15,697 crores (up 19% Y-o-Y; ex-business loans, up 33% Y-o-Y)
• Gold AUM: INR6,332 crores (up 39% Y-o-Y)
• Gold tonnage: 11.2 tons (up 10% Y-o-Y)
• Mortgage AUM: INR8,539 crores (up 29.7% Y-o-Y)
• Disbursals Q1 FY26: INR5,933 crores (up 18.5% Y-o-Y)
• Net interest income: INR268.2 crores (up 7.4% Y-o-Y)
• Operating profit: INR128.2 crores (down 0.5% Y-o-Y)
• DA income: INR -5 crores (Q1 FY25: INR22 crores)
• Net profit: INR75 crores (up 6.8% Y-o-Y)
• Gross Stage 3 (overall): 2% (flat Q-o-Q)
• Mortgage gross Stage 3: 3.4% (Q4 FY25: 3.5%)
• Mortgage net Stage 3: 1.9% (Q4 FY25: 1.9%)
• Credit cost Q1 FY26: 0.8%
• Capital adequacy: 22.4% (up 49 bps Q-o-Q)
• Weighted average borrowing cost: 8.56% (down 16 bps Q-o-Q)
• Incremental borrowing cost Q1: sub-8% (Q4 FY25: 8.5%)
• Debt-equity ratio: 3.89 (March '25: 4.03)
• Borrowing mix: 83% floating rate (45% external benchmarks, 39% MCR)
• ECB in borrowing mix: 8.5%
• Residual unsecured business loan book: INR270 crores
• Non-performing assets transferred to ARC: INR25 crores (via 85-15 SR structure)
• Co-location: 23 ST LAP branches merged with gold branches
• Employee count in business loan team: 90 (now reduced to 5)
• Planned new gold branches in FY26: 100–150

Note: This is an AI generated summary of the earnings call. There may be inaccuracies in the summary. Please refer to the original transcript before making investment decisions.