Laxmi India Finance Ltd (LAXMIINDIA) Concall Report Analysis & Insights

Laxmi India Finance Ltd

| Q3 FY26 Earnings Conference Call

⬤23rd Feb 26

Summary : Laxmi India Finance targets significant AUM growth and improved profitability through secured MSME lending, branch expansion, and cost optimization, despite a one-off NPA event.

Management Perspective positive : Management expressed being "very comfortable on our profitable side" and "expecting a good return" from investments in new branches, and confident in achieving targets, stating they "will deliver much better numbers".

Concall Report Analysis & Insights

Business Overview

Laxmi India Finance is a tech-enabled NBFC, headquartered in Jaipur, with 170+ branches.
The company focuses on secured lending, primarily MSME mortgage loans, business loans, and vehicle loans.
For the last 9 months, AUM was 1,451 crore, PAT was 29 crore, and Net NPA was 1.4%.
Return on net worth is 11% and return on asset is 2.53%.
The company serves customers in rural, tier 2, and tier 3 cities across 5 states.

Future Growth Prospects

Targeting 30% AUM growth year-on-year, aiming for 3.5-3.75% ROA.
Planning to expand branch network, including adding Maharashtra this year.
Expects cost of funds to reduce by 100-150 basis points with rating upgrade.
Implementing new software and e-signature for improved efficiency and reduced costs.
Focusing on secured lending to maintain asset quality and capital safety.

Management Insights

MD Deepak Baid emphasizes the company's strong team, infrastructure, and capital base.
Management is confident in recovering the amount from the one-time NPA hit.
They are focused on reducing cost of funds and improving operational efficiency.
The company prioritizes direct customer engagement and in-house sourcing for MSME loans.
They do not currently plan to enter gold loan business due to cost and risk considerations.

Signs of Skepticism

Analysts questioned the high operating costs and sourcing expenses.
Concerns were raised about the increase in gross NPA due to a specific transaction.
Questions about the company's ability to avoid 'evergreening' of loans were posed.
An analyst noted an increase in employee cost without proportional business growth.

Risk Factors

Experienced a one-time NPA hit from a defaulted secured direct assignment transaction.
Current cost of funds is high at 10.94%, impacting profitability.
Operating costs are perceived as slightly high, around 7-9%.
Employee costs increased due to new branch openings, impacting short-term profitability.
Competition in the MSME lending market is growing.

Good To Know

The company was founded in 1991 as a proprietorship and acquired its NBFC license in 2011.
They use a robust system for income evaluation, including physical visits and diary checks for non-income proof customers.
Collateral valuation involves self-evaluation, third-party valuers, and neighbor checks.
The company has 1753 employees across 5 states, directly approaching customers.
They have implemented a mobile application for sourcing and a system for online UPI collections.

Key Drivers

Cost of funds will decrease.
AUM growth targets are strong.
NPA recovery is expected soon.
Branch network is expanding.

Key Analyst Discussions

Competitive Environment

Inquiries about the company's unique selling proposition (USP) in MSME lending.
Discussion on competition in the market and how the company maintains its edge.
Questions about other loan options available to their target customers.

Market Trends & Consumer Behavior

Discussion on the profile of MSME borrowers and their financial needs.
Observations on the growth of Udayam Aadhaar certificate numbers, indicating MSME expansion.
Questions about the demand for loans in rural and tier 2/3 cities.

Financial Highlights

Questions on high operating costs and strategies to reduce them.
Inquiries about the target ROA of 3.5-3.75% and measures to achieve it.
Discussion on the increase in gross NPA and its impact on profitability.
Clarification on the cost of funds and expected reduction from rating upgrades.
Questions regarding employee cost increases and their justification.

Product Composition

Questions about the evolution of product offerings, from vehicle loans to MSME focus.
Inquiries about the proportion of personal and business loans in the portfolio.
Discussion on plans for new products, specifically gold loans.

Strategic Considerations

Questions on the strategy for branch expansion and business per branch targets.
Inquiries about the direct assignment (DA) business model and its outlook.
Discussion on the capital adequacy ratio and future funding needs.
Questions about the company's stance on co-lending opportunities.
Inquiries about loan disbursement targets for Q4 and FY27.