Jul 27, 2020 (Thomson StreetEvents) — Edited Transcript of Magma Fincorp Ltd earnings conference call or presentation Thursday, June 18, 2020 at 11:30:00am GMT

Magma HDI General Insurance Co Ltd. – Chief Executive

Elara Securities (India) Private Limited, Research Division – AVP, Lead of Diversified Financials & Analyst

Ladies and gentlemen, good day, and welcome to Magma Fincorp Q4 FY ’20 Post Results Conference Call hosted by Ambit Capital. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Udit Kariwala from Ambit Capital. Thank you, and over to you, sir.

Udit Kariwala, AMBIT Capital Private Limited, Research Division – Research Analyst [2]

Hello, everybody. I welcome you all to the conference call. Today, we have with us Mr. Sanjay Chamria, Vice Chairman and Managing Director; Mr. Manish Jaiswal, Managing Director, Magma Housing Finance and CEO SME business; Mr. Deepak Patkar, Chief Executive Officer, ABF Business; Mr. Rajive Kumaraswami, Managing Director, Chief Executive Officer of Magma HDI General Insurance; and Mr. Kailash Baheti, Group Chief Financial Officer. Without further ado, I hand the call over to the management. Thank you so much, sir.

Thank you, Udit. It’s a pleasure to welcome all of you on this investor call today to discuss our fourth quarter results. But before that, I’m sorry and apologize for the delay, which has happened due to the technical reasons in uploading our investors presentation, and I hope you all have been able to download as we speak on the call.

So gentlemen and ladies, we have been going through once-in-a-century event in the form of COVID-19 and its ripple effect is beyond anyone’s comprehension with raging debates of lives versus livelihood. Jury is still out whether and how as a country we have handled it and by when we will return to normalcy in our lives and livelihood. India has [indiscernible] experienced COVID as well differently in cities and rural towns. And the top 13 cities accounted for more than 65% of the total positive cases. And therefore, response to Unlock 1.0 has also been quite different in rural markets versus urban cities (inaudible) metros and has been the mindset of the populous living in these markets.

Coming to financial sector and more particularly NBFCs, we have suffered the longest and the harshest times since September 2018 ever since the collapse of IL&FS, followed by DHFL and Yes Bank and many middle, small NBFCs during the 2019, resulting in confidence crisis amongst the lenders and rating agencies. And before the sector could recover from the same, COVID struck a fatal blow to the entire humanity and causing irreparable damage to the entire economy. With limited fiscal measures in its hands, the government has been juggling various challenges of providing food and other welfare measures for migrant labor and poor, as also economic stimulus to the ever-reliable MSME segment and also doing some balancing act of fiscal deficit containment and inflation control.

While we have witnessed multi-year low GDP of 4.2 during FY ’20 and 41-quarter low of 3.1% during Q4 and projected minus 3.2% to 5% for FY ’21 and the negative outlook on the lowest investment-grade rating, there are distinct positives in the form of forex reserves at more than $500 billion, record harvest of rabi crop and the normal monsoon predicted for the calendar year 2020, and most importantly, negligible impact of COVID in the hinterland of our country. In times like this, we all have to fend for ourselves and our survival instincts have to assume center stage and the entire corporate sector across industry groups has tightened its belt to ride over this most difficult periods in our lives through survive, revive and thrive mode. At Magma too, we have adopted key principles of this motto of survive, revive and thrive along the following objectives: first and foremost is the employee safety and the welfare programs, followed by customer engagement and support in these times of crisis; third, capital preservation, followed by prudent liquidity management; strict OpEx control, followed by portfolio quality; and finally, digitalized platform for contactless lending and collections.

Coming to the first one, employee safety and welfare. We’ve been providing 24/7 support through emergency response team of 85 persons to 9,000-plus people for any health-related issues as well as for their families and moved in to work from homes during the lockdown period. Now with Unlock 1.0 underway and more than 70% of our branches being located in the rural and the semi-rural markets, more than 95% of our over 7,500 field staff are in the field interacting with the customers and supervisory staff and managers have been operating from their homes and going to office as required and using the secure networks to access the data and reports, which are available throughout 24/7.

Coming to customer engagement and support, we have established personal contact with more than 3-lakh live customers during April and May to inquire about their own and family health, impact of lockdown on deployment of assets, cash flow situation and how we can support them. Our field executives and call center executives reached out to these customers across phone calls, SMS, WhatsApp, email, et cetera, and tabulated the feedback through the questionnaire and assisted the customers to avail benefit from the various supportive schemes of moratorium, interest subvention and providing further financial support, its cost implications and the collecting installments where the customers have started operations during the last 4 weeks.

Coming to the digital initiatives. As you are aware, Magma had launched this ambitious project on digitalization called Navodaya in early 2019 and timing could not have been better to launch the cloud-native LOS with this scorecard-enabled credit rule engine. And while it has been already implemented in SME business, similar new LOS has been launched for the mortgage in March, and it will get stabilized with business resumption in June 2020. And the ABF LOS rollout is underway, and all the third-party API integrations with FinTech are complete with automated data collection.

We have enhanced digital collection efforts through mobile payment gateways and can accept payments via UPI, debit cards or net banking and apps including Paytm, Google Pay, et cetera. Customer education on uses of digital medium to pay has helped collections during the lockdown. As of now, over 75% of our collections is through digital modes, which has already led to gains in the field team productivity. These allowances have allowed digital processing of loans, and we have introduced robotic process automation technology for intelligent automation of back-office processes to boost efficiency and accuracy at lower customer [operations]. Earlier option of digitalization helped proactively manage COVID-19 situation and ensured seamless transition of business continuity planning without any productivity and security issues.

Now coming to the topical — topic of decision, moratorium and collection trends, we have offered moratorium to all our ABF customers with opt-out scheme, while offered moratorium with opt-in scheme for the mortgage and the SME customers. We have decided to offer moratorium 2.0 from June to August only to those customers whose cash flows are still impacted due to disruption in business activity. As a result, 26% of our customers have opted moratorium for all the 3 months, while 64% for 2 months and 73% for only 1 month. As a result, collection efficiency has been adjusted for the moratorium cases, and it has shown improvement month-on-month. It was 112% in March, followed by 94% in April and 112% in May. We have resumed the month of June as a normal month without any moratorium extension. And so far, our collection efficiency till 16th June on MTD basis is 54%, and it compares favorably with the March MTD of 72%. It reaffirms our belief and conviction that the rural and the semirural India will recover much quicker compared to the urban India and metro cities.

Coming to the portfolio quality. Our GNPA and the NNPA ratio marginally improved to 6.4% and 4.2% as on March 20 compared to 6.7% and 4.5% as on December 19, but deteriorated from 4.8% and 3.1% as on March 19. We have suffered on account of credit losses during the year 2019/’20 owing to the poor economic activity and vehicle industry not doing well. And our improvement in quarter 4 suffered a jolt due to the lockdown in the last 10 days of the fiscal year. We have strengthened provisioning as on March 20 and increased the Stage 1 and 2 ECL from 2% to 2.2% and also created onetime COVID provisioning amounting to INR 117 crores in quarter 4. We are reasonably confident that the additional provisioning created for COVID scenario should be sufficient to take care of the slippages, if any, during FY ’21, and with rural India bouncing back to normalcy by October, we will be able to preserve the portfolio quality.

Coming to OpEx control, we have kept tight leash on the operating expenses all through the year, and despite marginal de-growth in AUM by 5%, we have managed to keep the OpEx ratio at the same level of 4.1% and with various measures taken during COVID times, targeting to bring it below 4% during FY ’21. We are targeting to bring down our overall OpEx by 15% over FY ’20 levels in absolute amount.

Liquidity management. FY ’20 by far was the most challenging year from a liquidity perspective for mid-size NBFCs like Magma, and we have undertaken several measures to change the ALM profile, retire all short-term loans and seek new long-term loans. These measures resulted in gradual improvement in ALM position quarter-on-quarter. Over the last 6 months, we have maintained surplus liquidity in the form of unutilized limits and available balances, in the excess of INR 1,000 crores and on quarter ends in excess of INR 1,500 crores. The steps taken have resulted in our entire liabilities being converted into long-term. With adequate liquidity new facilities received during lockdown and a good pipeline, we decided not to seek moratorium on payment of interest and repayment of principle during the entire period of March till August 2020. And liquidity-wise, we are comfortably placed till September 2020.

We have drawn additional borrowings of INR 545 crores during the lockdown period of March, April and May, apart from liquidity in hand of over INR 1,600 crores as on May 31, 2020. We have unveiled sanction limits of INR 885 crores, and a pipeline of INR 600 crores worth of proposals at the various liquidity schemes announced by the RBI and the Government of India. The measures undertaken to move to long-term funding sources and tight liquidity situation prevailing during the year pushed up our cost of funds from 9.02% in FY ’19 to 9.94% in FY ’20. With reduction in the repo rate announced by the RBI and the measures undertaken by the government of India to ensure transmission of the rate cut, we are confident that our cost of funds for FY ’21 should come down by at least 40 basis points.

Now I will invite my colleagues, Deepak, Manish and Rajive, who are the CEOs of the respective businesses to take you through the highlights of their respective businesses. Over to you, Deepak.

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Deepak Patkar, Magma Fincorp Limited – CEO of Asset Based Finance Business [4]

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Thank you, Sanjay. Am I audible?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [5]

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Yes, you are.

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Deepak Patkar, Magma Fincorp Limited – CEO of Asset Based Finance Business [6]

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Good evening, everyone. I’ll be taking you through the ABF highlights for the quarter. The business and momentum gathered by the business in Q3 had continued in January and February as well before the lockdown stopped everything in its tracks in March. Despite the largely uncertain situation, there are many positives for the ABF business. We continued to pivot sharply towards our profitable focused products and deepen relationship with existing customers with proven track record. This was the strategy put into execution since 2019. The used asset proportion has grown to 70% of the disbursements during Q3 and Q4. This amounts to a 27% CAGR over a 3-year period since 2018. We have also seen our disbursal yields grow by approximately 120 basis points Y-o-Y. This is on the back of a changing product mix. Our direct business has contributed to more than 40% of the overall disbursals for the quarter. This is on the back of our successful cross-sell program to our existing borrowers, where we have witnessed a Y-o-Y growth of about 50% in disbursal value. We continue to mine our large existing customer base with a sharp focus on historical credit behavior and performance in credit bureau. The quarter 4 collection efficiency, excluding the month of March because it had moratorium impacts, stood at 101% approximately, as compared to 96.68% for Q3. The business has made substantial investments in the collection structure during the quarter. We have now limited the sales involvement in collections only to Stage 2 accounts — sorry, Stage 1 accounts, my apology. Our proprietary credit rule engine implemented in September 2018, provides us the ability to consistently apply policy in a distributed setup. It also enforces us to quickly make policy corrections wherever necessary. We have seen our early warning indicators improve from 5.9% in March 2018 to below 3% in February 2020. While the continuous portfolio monitoring indicator improved from 7.3% to 5.6% over the same period.

On the economic front, we expect to see activity return to our rural geographies first, and we will largely focus on supporting our existing base over the next 2 quarters. In view of the current situation, we have modified our product offerings to account for stressed cash flows in the hands of our customers. We do hope to see overall normalcy return in quarter 4.

That’s my update on the ABF business. I will now hand over to Manish for the update on Housing and SME business.

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Manish Jaiswal, Magma Housing Finance Limited – MD, CEO & Executive Director [7]

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Hello. Good evening, everyone. This is Manish Jaiswal here. I’ll first talk about Magma Housing Finance. Magma Housing Finance has undergone deep transformation over the last 3 years, and it has now emerged in the league of 4 (inaudible) in the affordable housing finance. Magma Housing Finance now has a national scale presence across 19 states, and it has dispersed INR 1,315 crores in FY ’20, recording year-on-year growth of 21%. FY ’20 saw a comprehensive performance in all the 3 counts; top line, bottom line and asset quality. As of 31st March, the company has been able to build an AUM of INR 3,283 crores with 35% year-on-year growth, and the PBT stood at INR 54.3 crore, with growth of 15.5% year-on-year. Even borrowers constitute 96% of the total loan originations, and 72% of loans have been disbursed in Tier 2 and Tier 3 towns. Given the granularity of portfolio, the company has been cautious on the collaterals with minimal construction risk. The under construction builder property constitutes less than 2% of overall disbursals.

Despite the pandemic, the asset quality momentum continues to significantly improve, and the company has been able to record an even lower GNPA of 1.61% and 0.97% as compared to last year. These levels are after making additional provision of COVID-19 of INR 7.4 crores towards potential impact of the pandemic considered in FY ’20 financials. The overall PCR of the firm stands at 40%, which should stand normalized when the pandemic settles. The company also reported a substantial improvement in operational efficiencies as OpEx ratio has reduced from 3.9% in FY ’19 to 3.6% in FY ’20 in pursuit of its lean and productive business model.

Magma Housing differentiates itself with its direct relationship-based model and has already enabled 845 customers to avail the NOI benefits, and further, the company is processing over 4,000 PMAY assessment applications. PMAY beneficiaries stand out on asset quality to conserve the deep government subsidy. The company will secure — the company has secured NHB refinancing facilities during the year with the — and we have aggregate sanctions of INR 227 crores. This is going to reduce our cost of funds and provide much better ALM.

We believe our cost of funds have peaked and now the cost of funds are on a declining trajectory. Over next year, the company will continue with its momentum of control over operating expenses through a good digital approach and have gone live with the digital platform across the country. The company has assured OpEx initiatives of branch-light models, delayering through better span of controls and has imposed control on discretionary spend. In a sense, this crisis is being used for a bariatric on cost, and we endeavor to further reduce our OpEx by 30, 40 basis points next year.

Information, the company distinguishes itself with one of the highest capital adequacy ratios at 36% and good liquidity position and a granular retail portfolio with excellent geographic and national distribution with robust improvement in portfolio quality year after year.

I’ll now talk about the SME business. Magma’s SME business contributes to 12% of group’s AUM. We invest in smallest dreams of MSMEs and provide capital impetus to give [fill-up] to entrepreneurial initiatives and aspirations. In April ’19, the company launched its proprietary digital underwriting algorithmic model nomenclatured MScore, which has been designed by deploying over 1 million data points spanning over 40,000 customers across 71 cities and towns. Post 1 year of the MScore launch, the new originations are reflecting upper quartile industry static pool performances. The MScore algorithm is the backbone of a credit rule engine, and it has transformed the decision support process for our field underwriters. This besides the MScore is powered through API-enabled workflows through multiple liquidation of various platforms, which are LOS or digital verifications. LOS means loan origination systems.

As we speak, the pilots of paperless disbursals are underemployed liquidity to over 5,000 SMEs under government’s ambitious program of Emergency Credit Line Guarantee Scheme under the Atmanirbhar program. Under our Go Direct program, our relationship officers have empowered our customers through benefits of various government schemes like interest subvention and credit guarantee during the lockdown. This has helped the organization build tremendous goodwill. These connections are further deepened as our Go Direct teams have provided One Health medical cover to over 500 customers over last month. The business teams have moved with risk management prudence and alacrity over the last year, and they’ve been able to derisk 76% of our unsecured loan portfolio through a — to a credit guarantee cover. This has fortified the portfolio considerably from any stemming crisis.

The third pillar of SME strategy Go Secured will see an initiation in the latter half of the year, which will further deepen our quest of nurturing growth-stage MSMEs. The next quarter, we’ll see our business ride on digital strides to seize opportunities presented by the Emergency Credit Line Guarantee Sanction under Atmanirbhar Bharat.

I now request my colleague, Rajive, to update you on the insurance business.

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Rajive Kumaraswami, Magma HDI General Insurance Co Ltd. – Chief Executive [8]

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Good evening, everyone. This is Rajive Kumaraswami here. The insurance business has registered a growth of 26% in FY ’20 vis-à-vis the previous year. As a company, we continue to focus on growing a strong distribution franchise with retail business being the backbone of our entire distribution. Retail comprises about 83% of the total premium that we underwrite as a company. Motor has been the backbone of our business, and this constitutes about 80% of our portfolio. And for the third year in succession, I can state that we continue to enjoy the lowest own damage/loss ratios in the industry.

During this quarter, we’ve been empaneled now by Royal Enfield and Hyundai on their OEM program. Now with these 2 empanelments, we now serve a very impressive panel of OEM customers, which straddle across passenger vehicle manufacturers, CV manufacturers, tractor manufacturers and a few 2-wheeler manufacturers also. We continue to invest in growing our health portfolio. Health now constitutes about 4% of the portfolio, which is largely directed towards retail and group health on the SME side. This will be an area which we will continue to invest in. Our investment book now stands at a healthy INR 2,000 — close to INR 2,300 crores, which is reflecting a leverage over our capital of almost 5.4x.

As regards of solvency, we stand at a solvency of 1.7x as against the regulatory minimum of 1.5x. And during the quarter, we’ve been — also been given some accolades as the rising star company by the Indian Insurance Awards 2020.

I’ll hand you back over to Sanjay now.

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [9]

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Thanks, Rajive and Manish and Deepak. So I hope we’ve been able to give you an overview of — across businesses, and we are all sitting in our homes at different locations and trying to do this. So there may be some glitches in hearing. So we are sorry for that.

And now I, along with my colleagues and Kailash, our group CFO, we are ready to take questions from you all. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Abhijit Tare from Motilal Oswal.

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Abhijit Tare, [2]

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My question is to Manish. Manish, what is your experience on your HFC book, in terms of the percentage of the customers taking moratorium in the first phase and now people coming back for moratorium into the second phase?

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Manish Jaiswal, Magma Housing Finance Limited – MD, CEO & Executive Director [3]

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So I think we have been a little moratorium conscious. While Dinesh can help you with the exact numbers, I think at the Magma Housing Finance Limited, our customers who availed moratorium is around 46% or 47%, in that range. And actually, apart from that, we saw our field teams have been able to convince about 1,700-odd customers last month. So I presume this number actually would have fallen back to near to 42%, 43% kind of a range, fallen by 6%. And moratorium to our stance is very clear that only customers who really need moratorium we should extend. And we are seeing encouraging signs of collection in June. My belief is that our June number should see substantial lowering of the moratorium percentage of customers.

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Abhijit Tare, [4]

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And any number assigned to that? Because people would have come back to you saying that we would need a moratorium.

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Manish Jaiswal, Magma Housing Finance Limited – MD, CEO & Executive Director [5]

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Well, we can talk — all numbers only fructify once the credit is cited in your account, but the brief to the team is to kind of get it down to half as soon as possible. Whether we reach by end of June or end of July or mid of July, that is something which is — which we will wait and watch. But I believe that the trajectory is very clear that we expect the first round of steep climb down on moratorium sooner than later.

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Abhijit Tare, [6]

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My second question on the same platform is, is there any separate process that you have followed in the Moratorium 2 to reach out to customers, ask them what is it that, that has been done differently?

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Manish Jaiswal, Magma Housing Finance Limited – MD, CEO & Executive Director [7]

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No, we are very clear. It’s an opt-in scheme, and for every customer who needs to avail a moratorium, it is a lender’s right. So we will exercise our right judiciously looking at customer’s cash flow and situation and then take a call. So our profits is of deep intelligence. We have contacted about 75% to 80% of our customers through a survey. It has been a pretty big survey, and it is actually providing a fairly strong actionable intelligence with a stratified customer level data on what kind of actions a particular customer would merit. So there are sciences which we have evolved in these times of pandemic, and we are working to some kind of a plan.

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Operator [8]

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(Operator Instructions) The next question is from the line of Prashant Dwivedi from Crédit Suisse.

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Prashant Dwivedi, [9]

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My question is around the credit — the CV and CE portfolio that you have and again around the moratorium. So the question that I had was like if I look at the Flyer #19, you mentioned the collection efficiency for April to be 94.6% and 136%, so — and what we see actually in the data from the collection, the actual collection that we saw on the portfolios, it’s much, much lower. So I was wondering what these percentages are, again, what is the numerator and denominator? And on top — the second part of that question was like, I think what earlier was asked on this forum was what have you changed in the second part of the moratorium, i.e., the next Moratorium 2.0 in terms of strategy for that portfolio? And how you are ensuring that you have better collection than what you have in first?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [10]

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So Deepak, do you want to take up the question on CV/CE?

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Deepak Patkar, Magma Fincorp Limited – CEO of Asset Based Finance Business [11]

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Yes. I was just kind of unmuting for this. So for us, the Moratorium 1 was more of effect of the lockdown where we were unable to reach our customers physically. So we had an automatic opt-in option, which we gave to the customers. And it was if the customer didn’t want the moratorium, they had to explicitly opt out of it. So if you notice in the slides that we have presented, the ABF customer base, the coverage of moratorium is about 84%. However, what is important to note here is that not all 84% of them have taken moratorium for all the 3 months. So there’s a gradation that has happened over each of the months; about 20% took moratorium in March, 40% in April and 40% in May. For the Moratorium 2, however, since now our branches are functional, 95% of our branches are functional, we are in the better ability — we have better ability to contact our customers now. We have not offered an automatic opt-in moratorium for the 2.0. We are now contacting customers individually to be able to assess their cash flow situation, their business situation and take calls on the moratorium on a case-to-case basis. Hopefully, we’ll see some significant reduction in the coverage of moratorium in the second phase. Did I answer all your questions? Or is there something else?

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Prashant Dwivedi, [12]

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Yes. I mean, you did. And 1 last question, if I could, what is M — year to — or the month-to-date collection in this month in June for that ABF portfolio?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [13]

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So I will take up this question, Deepak. This is on overall business. So if you look at that Slide 19 that you are referring to and the Note #2. And I think I will try and combine for all the businesses and the earlier question also that in the month of March, April and May, which is Morat 1, we gave an automatic option in the vehicle finance business, which Deepak is looking after, whereas in the Housing and the SME, it was specifically customers who wanted moratorium that we give to them. But in respect of Morat 2.0 starting from June till August, there — across the 3 businesses, they decided that we are not going to offer on an automatic basis, because most of our branches and most of our customers are in the rural India, which is not impacted so much now by the lockdown. They already started operating in the month of May, and that is why we saw the collection efficiency improved in the month of May from 94% to 112% and that’s where now we are showing. So today is 18th of June. So till day before yesterday, 16th of June, we have compared the collections that we have done with the month of March, till 16th of March. Because there was no COVID impact in India until the lockdown was declared on 24th of March. So we are at 81% of the M-to-D collection efficiency in June, if you compare with the month of March, and that means, if I assumed not a single customer across any of our businesses, gets the moratorium, then my entire billing will become due. And our billing is roughly about INR 600 crores-plus per month. So on the basis of whatever has fallen due till date, till 16th of June, we have collected, which compares to month of March at 81%. And in that business-wise, also, we have shown that in ABF business, we have — we are at 86% of March efficiency. In mortgage, we are at 74% of March efficiency. And in SME, we are at 73%, and the average is 81%.

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Operator [14]

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(Operator Instructions) The next question is from the line of Abhijit Tibrewal from ICICI Securities.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [15]

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Following up on the previous question where you were explaining Slide #19. So I mean would it be fair when — first thing first, can you explain us what was the collection efficiency in the month of March ’20?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [16]

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I think it was around 80% or something in the month of March without giving the effect of moratorium. And after giving the effect of moratorium, it was higher. I will just tell you. Yes, it was 100 — (foreign language)– 112% after giving the effect of moratorium, and before giving the effect of moratorium, it was 80%. Because till 23rd March, we continued regular operations. It was only from 24th that the business operations stopped, and as you can see in Slide 19, I think 26% or 30% of the customers asked for the moratorium — 26%, that we have mentioned in note #1.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [17]

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Right. Sir, then would it be fair to say that your June collections given that the last 7 — 6 or 7 days in March were impacted, your June collections can very easily surpass your March collections?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [18]

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See, I think we would also love to think so, but it could also be that there is a tendency that customers haven’t paid for 2 months, so therefore, they are all making the payment. But I think as the days go by, we will have to wait and see as to how does it really pan out. But what we have decided as a group philosophy that we are not going to offer Carta Blanca moratorium. Now we will do every single customer a thorough assessment as to — does he not have the cash flow such that he needs the moratorium. We would also look at reducing the installment rather than giving a complete moratorium. We have also evolved our policies accordingly. So I also am quite optimistic. And rather pleasantly surprised that while we are all in Bombay, and we find that everything is locked down and nothing is working. But in the rural India, things are working pretty well. The other thing is that June billing is higher than March. That also I’d like to share with you.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [19]

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Okay. Okay. And again, on that Slide #19, wherein you are talking about collection efficiencies of 94% and 112% in April and May, respectively. You are not — your denominator is not that billing of INR 600 crores per month that you talked about sometime back, right?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [20]

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No, it is actually the billing after giving the effect of the moratorium. Obviously, otherwise, it will be much higher because as we have mentioned 64% customer in May and 73% customer in June — sorry, April and May, the 64% and 73%, they opted for the moratorium, then the collection efficiency cannot be on the overall billing because the customers who opted for the moratorium, they won’t pay.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [21]

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Right. Right, Sanjay sir. So now if you were to consider that — I mean I’m just alluding to that point #2 on the same slide where you are assuming 100% billing. So if you had assumed 100% billing for the month of April and May, where would this collection efficiencies would have stood?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [22]

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So, come again with your question? And [Roshan], can you bring up that slide, please? Slide 19.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [23]

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Sir, just like on note #2, you had — you have given a comparison of month-to-date assuming 100% billing. Assuming there are no moratorium. If you were to consider the same for the month of April and May, where would that collection efficiency be assuming that you have 100% billing of about INR 600 crores?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [24]

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81% is not a collection efficiency. As you see what we have mentioned is this collection in the month of June is at 81% of the March M-to-D collections. So whatever amount that we collected in the month of March until 16th of March, in the month of June we have collected 81%. So that means we are 19% behind. This is one. Second, as I said, our billing of June is higher than the billing of March. So we need to collect more than March to achieve the same collection efficiency because the denominator is bigger.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [25]

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Got it. Got it. And then to the question about, let’s say, if you were to consider that there is no moratorium, what would the collection efficiency numbers be for April and May?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [26]

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I think that’s not really relevant because 64% of our customers in the month of April and 73% of our customers in the month of May, they have opted for moratorium. So then to calculate the collection efficiency in the month of April and May, assuming there are no moratorium, is not relevant.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [27]

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Sure, sir. No problem. Just 1 last question. The INR 1,600 crores of liquidity that you talked about as on May 2020. Does this include undrawn lines of INR 855 crores?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [28]

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So I’ll ask Kailash, CFO. He will respond on this question particularly.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [29]

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Yes. So we have INR 1,600 crores of liquidity. This comprises of INR 800 crores of undrawn, but available growing power, as we have said, which means that we have submitted the security and the money is — can be drawn at any point in time. Beyond that, we have INR 800 crores of lines available where we have to provide security and then we can avail, which you may say that is a kind of extra money available to us to draw as and when we increase our business.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [30]

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So Baheti sir, if I understood correctly, this INR 1,600 crores is in the form of working capital lines of cash credit.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [31]

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Yes.

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Operator [32]

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(Operator Instructions) The next question is from the line of Umang Shah from HSBC Securities.

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Umang Shah, HSBC, Research Division – Analyst of Financials [33]

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I just have a couple of questions. One is as we move from Moratorium 1 to 2, any collections, whether in full or part done by the customer, does it get adjusted against his dues for that month or we adjust it at — or we would adjust it against the advance payment for the EMI starting September onwards?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [34]

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So money paid gets adjusted for the month for which it is paid. We do not keep it as advance.

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Umang Shah, HSBC, Research Division – Analyst of Financials [35]

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Okay. Okay. All right. And my second question was to Sanjay, sir. During his opening remarks, he mentioned that clearly the company is taking certain steps to reduce absolute operating cost of about 15%, if you could just throw some color as to — I mean which lines will contribute to the major cut down in expenses?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [36]

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So I think even on the previous question, I would like to just supplement what Kailash replied. In terms of the adjustment of the amount collected, in case of tractors, we also have the bullet EMIs, which are on a half-yearly business. And this really coincides with the harvesting season. So we have the month of June. And that is why, you remember, I said that June our billing is higher than March. So it is not that we have done any new business. The billing is higher because in the month of June, post-harvesting, we have half-yearly installments falling due. But then customers cannot — they don’t retain INR 65,000 or INR 70,000 to pay in 1 month. So we also keep collecting the advance EMI. So in the month of May, for example, again, I was pleasantly surprised, I think this year, the rabi crop been very good, and government also releasing money under COVID we collected almost INR 65 crores, INR 70 crores towards the June and the July installment in the tractor cases. So that money is separate. And then, of course, majority of the money that we collect is to be adjusted for the installment falling due in that month.

Now coming to your second question with regards to the OpEx. You see in services sector and in NBFCs across the board, almost about 65% to 70%, and it varies from organization to organization, is the salary cost. And about 30% to 35% is the non-salary cost. So we have taken a budget and across the board, we have decided to look at where we can save money, and achieve a 15% reduction. So that — and of course, in the non-salary certain areas you can negotiate and bring it down more whereas in case of salary, the reduction is lesser. And there are a series of measures that we took due to which we have arrived at that we will achieve a 15% reduction month-on-month in the OpEx in absolute amount.

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Umang Shah, HSBC, Research Division – Analyst of Financials [37]

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All right. Sure. And sir, last question was on our capital position. So clearly, our Tier 1 ratio remains fairly solid at about 23% and our leverage also doesn’t appear to be too high. But let’s say, 3 or 4 quarters out from now, once the demand kind of picks up, we would need capital to fund growth. Given that the profitability over next 3, 4 quarters might remain fairly subdued, so do we have any capital-raising plans over the next 12 months, which you would like to share?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [38]

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So right now, you see our focus is, as I mentioned, there are 7 key objectives that we undertook at a group level, and we had a more strategic group comprising Board members working with the leadership team over the last 2 months, and today, we approved our business plan as well. And out of those 7 objectives, the third most important objective was capital preservation. Because there is a lot of fear psychosis in the market that how this pandemic will result? What will be the impact of moratorium? Is there a moral hazard? If customers don’t pay for 6 months, then will they be able to pay? And will they have the mindset to pay? So there are a million questions that we also have in our mind. So, therefore, we have taken a very clear call that in the first quarter, which is April, May and June, everybody in the company, 9,000 people will go after customers, support them, collect money or support them by giving additional money under the ECLGS scheme or under the various other government-sponsored schemes whether guaranteeing the repayment or giving the interest subsidy, et cetera, so that customers also feel that there is a company which believes in taking care of us. In fact, we have given a subsidy worth almost several tens of crores during the lockdown period obtaining digital signatures from the customers, and they really appreciated this gesture by the company. So the disbursals, in my view, will start from second quarter, but then it will again be at a very low key. And our house estimate is that the normalcy at 75% to 80% of the primary sales will start from the festival season, which is in October. And it is only going to be in quarter 4, that the normalcy will return. So our focus this year rather than growth is going to be completely on portfolio quality and thereby the capital preservation. What we got to make sure that the INR 2,700 crores net worth that we have, it should be fully intact. And then if we add another maybe INR 100 crores from that as a profit or whatever, then that will be a bonus on that. So I don’t think right now we need capital. But in terms of leverage, while we have a lower leverage, I think that under the current risk-averse scenario, this is what the lenders and the rating agencies will refer, and therefore, we are happy we don’t want to leverage ourselves more.

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Umang Shah, HSBC, Research Division – Analyst of Financials [39]

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Understood. And sorry, if I could just squeeze in 1 last question for Mr. Baheti. I can see our NCD proportion in the overall borrowing mix continues to remain very, very low. How soon you think of this bond market or borrowing via bond market might become feasible for you guys or probably at least in the foreseeable future the dependence will continue to remain on banks?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [40]

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I think in the foreseeable future our dependence can be on the banks only. Of course, some money will come by way of treasuries, and we will be getting some money by way of TLTRO there could be a raising of money through entities in other firm like multilateral agency, et cetera. But if we come to the mutual funds in India, there, I do not have any visibility on when the money will come back. We have seen that during the last 1 year or so or even more, it is the investors who have been dictating the mutual funds as to where to invest, where not to invest, and they are hardly investing in anywhere other than AA plus and AAA.

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Operator [41]

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The next question is from the line of Udit Kariwala from Ambit Capital.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division – Research Analyst [42]

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Sir, my question is on Slide 19, the moratorium impact slide. There are collection efficiency numbers given. So I just wanted to understand, does this slide mean that, for example, in the ABF portfolio, if 84% of your portfolio was under moratorium, which effectively means 16% was available. Out of that 16% or with a base of 16%, your collection efficiency was 94% in April. Is that the — is my understanding correct? What’s the denominator for the collection efficiency number? That’s what I’m trying to understand.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [43]

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Yes. So your understanding is correct. Here, the denominator is what we have built. And numerator is what we have collected. So if x% of customers had both moratorium in the month of April, they go out and do whatever, then we have built that is the numerator for respective month.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division – Research Analyst [44]

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So then when you say that the collection efficiency in the month of May is 136%, which effectively means that some money from the last month is flowing through and your — because this number effectively should increase, right? And that’s what I’m trying to understand. Because the denominator is basically — if your proportion of moratorium is increasing, this number could artificially increase, right?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [45]

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I would say that in the month of May, we have been able to say collection was 90-plus from our [fixed-year in ’19] of more than 1 installment, wherever billing has happened. Those contacts where we have not given any moratorium, if we are collecting from that, that is already in the denominator, but beyond that we have collected, and we have actually seen some rollbacks in the month of May.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division – Research Analyst [46]

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So, so — and just I’m — just confirming my understanding. So let’s take if there are 100 customers which you have overall, and out of that 84 have availed moratorium, 14 — 16 have not, so denominator is for 16. But let’s take from that 84, even if you would have — they would have obtained, but still you would have collected that also you’ve included in this, right, the numerator?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [47]

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Yes. It is the total collection, so…

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Udit Kariwala, AMBIT Capital Private Limited, Research Division – Research Analyst [48]

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But then the number may not match. Because in the numerator, you’re taking everything, but in the denominator you’re only taking people who are 0, not under moratorium. Hence, the number may not be…

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [49]

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I mean collection activity is how we have been calculating our collection efficiency for years. We have not made any change. And for any reason, there are 3 months where we have given moratorium, but if the customers come ahead — come back and pay, or there are other customers who have paid more than 1 installment, et cetera, that gets included in the collection efficiency. And that’s how we get satisfaction that we’ve been able to collect more than what we have billed, and this actually works. Whenever you see higher collection efficiency, you would see that the buckets have improved.

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [50]

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Just to add on further to what Kailash said, in the month of June, like we have mentioned in the second note that in ABF as on 16th June, we are at 86% of the amount that we collected in the month of March, which is assuming there is not a single customer who is on moratorium. So then this is a complete apple-to-apple comparison with a pre-COVID scenario.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [51]

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I must also clarify that there are a lot of customers who before moratorium already would have been in an overdue position with 1 or 2 EMIs. So that EMI collection has actually substantially also (technical difficulty), which actually improves the overall bucket post Morat ends. So that is another important thing, which is a very conscious effort where the bucketing actually would have improved largely because if 3 Morat overdue customers also have paid EMIs.

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Udit Kariwala, AMBIT Capital Private Limited, Research Division – Research Analyst [52]

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Sir, but the bucketing would have improved because there is no billing, right? No new billing. Because if there was a new billing, probably, say if the customer had [4] EMIs due to and pays — is — and expects EMI due at every month pays 1 EMI of [3] moratorium. It seems that every time he will still be 60-day overdue because the new billing comes in, he pays that, the new billing comes in, he pays that. Today, there is no new billing. And effectively, he’ll shift to a lower bucket, right? But when you open the gates of moratorium, which will happen post August, then probably you will not see this treatment, right? It’s more mathematical is what I’m trying to understand.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [53]

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True. That’s right.

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Operator [54]

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The next question is from the line of Ritika Dua from Elara Capital.

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Ritika Dua, Elara Securities (India) Private Limited, Research Division – AVP, Lead of Diversified Financials & Analyst [55]

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Am I audible now?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [56]

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Yes, you are audible now.

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Ritika Dua, Elara Securities (India) Private Limited, Research Division – AVP, Lead of Diversified Financials & Analyst [57]

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All right. Sorry. So this first one comes as a quick comment from you on what are you seeing in rural on ground given that’s your presence? That’s the first question. The second question is, would you like to now maybe start again looking back at tractor? And thirdly, your comments on used asset would be helpful. So these are my 3 questions.

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [58]

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So what is your third question?

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Ritika Dua, Elara Securities (India) Private Limited, Research Division – AVP, Lead of Diversified Financials & Analyst [59]

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Sir, the commentary on growth in the used segment.

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [60]

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Okay. So I think these largely pertain to Deepak, so Deepak, you will take up these questions?

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Deepak Patkar, Magma Fincorp Limited – CEO of Asset Based Finance Business [61]

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Yes, sure, Sanjay. I think even when I was — even while we were addressing in the beginning, Sanjay mentioned that we are seeing a lot of activity on the results side. Our large [preferences] in the rural zones, we’ve been able to open up (inaudible) activity happening in the rural side. The rabi crop has been significantly good. That gives us a lot of confidence in terms of how the rural economies will be back on track. In terms of whether we would want to look at tractor, honestly speaking, we didn’t stop doing tractor per se. What we have owned up as a strategy, which we will continue to have is to keep the proportion of tractor portfolio within our entire AUM within the limit. And that is how we will do — progress on that front. So — sorry what was the third question? I think I got 2 of what you asked for?

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Ritika Dua, Elara Securities (India) Private Limited, Research Division – AVP, Lead of Diversified Financials & Analyst [62]

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The last one was the used segment. Yes. But sir, before that when I was looking at some color in rural, could you maybe help us understand some more maybe in terms of the activity, which your customer segment is in? And how is the activity there right now versus maybe as and when the situation is improving?

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Deepak Patkar, Magma Fincorp Limited – CEO of Asset Based Finance Business [63]

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So sure. So in terms of activity on the rural side, the good rabi crop expectation obviously has struck the economy back on track. What you did see is there were a lot of activity around food grain transportation and so on and so forth that we saw. Anything related to agri and farming activity is seeing a lot of activity. There is activity on the dairy side, the essentials side where fertilizer transportation, grain transportation is happening. So some of these things are very, very highly visible on the rural side.

On the used side, we believe that used commercial vehicles, once the economy comes back on track, will not be as impacted. I think it is one segment, which we will see a quick turnaround, though at this point, I think, given the limited movement that is happening we will watch the situation in June, though the expectation is that by July, August, we should see some activity on the used vehicles also.

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Operator [64]

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The next question is from the line of Gajendra Rathi from IDFC First Bank.

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Gajendra Rathi, [65]

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Thank you for the presentation. My question was specific to the provisioning, the onetime provisioning that we have done, INR 117 crores, that is related to COVID. So was that done specifically as per RBI guidelines? Or have we had some additional assumptions, and after that, we arrived at this number of INR 117 crores?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [66]

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Yes. So the way provisioning is done under IndAS is very different from the way provisioning is done under IRAC norms of RBI. Under IndAS, we have to calculate the probability of default and document default and then we will close the macroeconomic variation overlay to arrive at the credit loss. So we looked at our probability of people for the past 2 years. And then there are credits which are applied for a base case, for a worse case and for a best case, and this base can be very dependent on how the circumstances are. And today, I don’t think it is best case, so we actually removed the best case. So we increased the weight of the worst case and that’s how whatever PD came that became our probability of default. Even in the worst case, default may be higher right now. So we again picked up — usually, we’ll take an average of, say, 5 years or 7 years in the past. Here, we would remove some of the years that we had the highest collection or highest recovery and only give weight to the worst year. And then apply these PDs and LGDs, and then there is a third factor, which is the better economic variable. So whatever variable we would apply right now that will have a significant impact, and it has had a significant [within the city, on city] or inflation or interest rates, every sector has undergone significant amount of stress, and therefore, that has also impacted. So all these 3 factors taken together, whatever the result comes, that’s what is our loss that leads us to the [INR 144 crore] number. I would also like to say that if we compare our provisioning today against what the RBI referred number is, we are more than 100% provided. So if it is, say, 100, we are actually at [225], 230. That’s the ratio of provisioning at which we are going right now under IndAS. And that how it is — we will also get reported in our annual results. The difference between what is required provisioning under IRAC norms and what is the required provisioning under the IndAS. It is significantly highest.

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Gajendra Rathi, [67]

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Okay. I have 1 more question. That is related to our repayments. So if you can just give a number on the monthly repayment rate that we have currently?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [68]

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So I still — I have not understood the question, what exactly are you looking for?

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Gajendra Rathi, [69]

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Yes, sorry. So I had — my question was related to the repayments that you are making to our lenders. What is the monthly repayment principle as well as interest included that on an average we are making to the lenders?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [70]

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So we are making roughly about INR 50 crores to INR 100 crores per month in a normal month and will be around INR 150 crores to INR 200 crores in the quarter-end month. So that’s how the installment should be. Interest is, of course, uniform. And we have neither — we have not taken the Morat 1. And nor do we intend to take any Morat under Morat 2, so we intend to make payment of all our liabilities on time, although we have given the first Morat you have already seen. And second Morat also, we are dealing on case-to-case basis. Where we see very genuine difficulty of the customers, we will provide them the support. We do not need any moratorium from our lenders.

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Gajendra Rathi, [71]

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Okay. And my last question is related to…

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Operator [72]

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Mr. Rathi, can we request you to come back in the queue for a follow-up, please?

(Operator Instructions) Next question is from the line of Pratik Chheda from IIFL Securities.

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Pratik Chheda, IIFL Research – Associate [73]

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I just wanted to understand now what will be the stance going forward on the fresh disbursement. I understand the primary focus will be on connections, but in terms of disbursements, how is the management looking at it, will there be disbursements to — will there be any onboarding of new clients or disbursements will be done only to the existing borrowers?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [74]

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So maybe I can start. I did mention that our top focus on SME business right now is the — we’ve actually gone digital end-to-end completely. While customers are logged in, in their home and employees are also at home, still a customer can avail of an ECLGS scheme. So that is something which is almost a risk-free [scheme]. And as I mentioned, we have shortlisted 6,000 customers we have actually done digitally as we speak. We expect around 600 and 800 customers to immediately avail of disbursal and almost 2,000 customers ready in the pipeline in queue. So that is something which is our immediate focus item. That is ECLGS. We would also look at sectors on the SME, where our digital platform can help us access all the businesses, which are doing well right now, for example, chemists, pharma, provision stores. So this is something where we believe there is a need for capital because there is a consumption going on here. So that is, in a sense, a sector which is invoked. So that is the other bit. On housing, we are very cautious. We are looking at largely [low LTV], PMAY cases, or businesses and cash flows are stacking up well, low ticket in sub INR 10 lakhs kind of business. So we are playing in that band of INR 10 lakhs to INR 11 lakhs, and our under-construction property grossly is less than 2%. So that continues to be focused. So we believe that at least on the housing and SME, we will be cautious, but we see also opportunity, especially in SME there are a lot of opportunities, which has been presented because of the (inaudible). And I think that’s a fantastic scheme. We expect to do well given our digital platform there.

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Pratik Chheda, IIFL Research – Associate [75]

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Okay. Okay. And just 1 more question. On this harmonizing of guidelines on the HFCs and NBFCs do any of the risk weights change for any of the mortgage loans or construction finance loans?

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Manish Jaiswal, Magma Housing Finance Limited – MD, CEO & Executive Director [76]

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I think early days to answer this question, this is draft guidelines and everybody will debate, ponder, think through. Industry opinion would evolve. And then obviously, we believe that there has to be also a convergence of views amongst all kind of HFCs and regulator. Early days to call — to take a view here, but I think I will limit to saying that it is evolving.

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [77]

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So on the ABF side, the view on reversals will be very, very cautious. As mentioned, we have about 84% customers on moratorium, and so our intent is to substantially reduce that number before which disbursals will obviously be on the slow path. We have been in touch with all our existing customers over the phone and now with the branches opened up. We are assessing our customer situation today on the cash flow, and whenever we start our disbursals, they are more likely to be with the existing customer first. And as the markets open up, we will have a look at the house loan for the new customers. But the focus for us is definitely on collections. Second, on reducing the moratorium percentage and then on the existing customers.

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Operator [78]

——————————————————————————–

The next question is from the line of Venkat Subramanian from Organic Capital.

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Venkat Subramanian, [79]

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Congratulations on great work that you guys have done during COVID times. I think you have punched way beyond your weight. You need to be congratulated on that. Sanjay, specifically to you, we’ve really gone through what can be a textbook side perfect storm, beginning from GST to the IL&FS crisis and what have you. So given all that you have passed through just now, when do you think you will feel very comfortable on the delinquency? And when do you think you would want to grow? What kind of signs do you want to see before you will feel good for growth and you will feel good?

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [80]

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Sanjay, you are showing to be on mute.

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [81]

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Yes. Sorry. I’m saying it’s a million-dollar question because when we ended the year FY’19 we ended with the multiyear low in terms of GNPA and the NNPA at I think 4.8% GNPA and 3.1% NNPA. Little did we realize that FY ’20 will be one of the watershed years in terms of the slowdown in the vehicle market, the freight earnings, the deployment. And before we recover from all of this, we will have COVID. See last year’s GDP of 4.2% and last quarter GDP of 3.1% has nothing to do with COVID. COVID happened only on 24th March. So it actually had a — it wreaked havoc on the asset quality. And current year, again, because of the uncertainty looming large, we have no idea as to why early trends of June are good, but I don’t think 1 month makes up for the year. So we will need to wait and see as to how month-on-month from June till September. Because usually, July to September are the weakest period in terms of collection because of the rainfall. So once we cross the month of September, with the kind of performance that we have seen till date in June, then I think we can be comfortable that we have weathered the storm. And because India — from — there is a saying that from Diwali to Holi you have a 60% of the total economic activity. So from October to March. So if till September, if we can recover well, I think then October to March will be a cakewalk. And then we can hope to claw back the erosion in the asset quality that we experienced in FY ’20. But having said that, we have built-in buffers and the provision of INR 117 crores that we have done for COVID-19. While the provision has been done in FY ’20, but actually it is meant for FY ’21. And this is in line with the RBI directives as well as the charter-issued guidelines, which said that we need to take effect of the regulatory guidelines, like the moratorium and the COVID pandemic impact of the lockdown, et cetera, announced by the government. So we have done that. In our honest opinion, we feel that we have made adequate provisioning. The rest, I think the jury is still out as to how it will shape up. The other thing as Deepak was sharing and Manish was sharing that over the last 18 months, we actually implemented our digitalization platform called Navodaya, in which we had a credit score — credit rule engine based on millions of data on our own platform over the last 7 to 10 years that we have funded in each of the businesses and business that we developed, and last 18 months, track record of that portfolio which was created has also been good. But then you sit on your books with the portfolio of the last 5 years. So we feel that even when we restart the lending, say, post July or August, but then it will start picking up the steam only from October onwards. I think then we will probably be comfortable with the portfolio quality. And in my view, FY ’21, if we don’t have any further erosion in the portfolio quality, one, that will be a good achievement in my opinion. And second, if we can sort of go below March ’20 and maybe somewhere in between March ’19 and March ’20, I think we will be very, very pleasantly surprised this year. This is what I would say on the portfolio quality side.

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Venkat Subramanian, [82]

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And what has been our experience with respect to government-sponsored subsidies, either PM Yojana or the current MSMEs kind of support, government guarantee, et cetera. Are we comfortable? Are we getting covered sufficiently? Or is it all paperwork-driven? What’s been our status?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [83]

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So I think as Manish was sharing, when he was talking about housing and the SME business that — one, I think today our leadership team is very, very alert and we are also seeing that this time, at least in the pandemic, the response by the RBI and the government has been very proactive, and I have been part of the policy advocacy on behalf of the industry association and the various chambers like FICCI and CII. And in the last 3 months of lockdown, I would have personally interacted with the Finance Minister twice and the MSME minister 3, 4 times and with the various bureaucrats. The point that we have raised before them, I can tell you that we have been pleasantly surprised, and they have listened. They are willing to make amendments, and they’ve come out with the amendments and the revised FAQs. So in this regard, the short answer, whether it is ECLGS scheme of providing the guarantee on the 20% additional loan to your existing MSME customers, or giving a guarantee on the overall loan that you give to the MSMEs under the CGTMSE scheme are under the Prime Minister Awas Yojana where they give a subsidy on the interest for the home loan customers, which can go up to as high as 2.25%. And there are various other EMI subsidy schemes. Today, I think I can say with a lot of pride that our team and the leaders, they have enlisted Magma, and we are restoring all the programs, including the ECLGS, wherein that NCGTC, which is a National Credit Guarantee Trust Company, we are one of the first companies which has been registered. And also we are among the first companies which have disbursed loans under the ECLGS scheme to the MSME customers. So we want to take advantage of this. At the same time, we want to provide and be the catalyst of providing this benefit to the MSME customers, for which the government has announced so much of measures. So apart from serving our own economic objective of protecting the interest of our customers, it is also helping them. Otherwise, they won’t get this.

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Venkat Subramanian, [84]

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You are a veteran in the industry, Sanjay. I think you deserve better, and I am sure you are in for better times. All the best.

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Operator [85]

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Participants we will take the last question from the line of Abhijit Tibrewal from ICICI Securities.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [86]

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Yes. Sir, I’m just again going back to Slide #19, where our COVID provisions as a percentage of AUM in the SME book is about 0.3%, which if I look at other segments, ABF and our affordable housing products, it’s lower than the other 2 segments. Is there a reason — because — I mean please correct me if I’m wrong, but I mean, most of our lending in the SME book is unsecured. And despite that, we feel that we need to provide lower in the SME book.

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Manish Jaiswal, Magma Housing Finance Limited – MD, CEO & Executive Director [87]

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So — I can take that question, can I?

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [88]

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Yes, yes. Yes, please go ahead.

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Manish Jaiswal, Magma Housing Finance Limited – MD, CEO & Executive Director [89]

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So I just wish to state here that our SME book, as we speak, is 76% covered under the CGTMSE program. So it’s as good as a secured book. And to that extent, the — if you are familiar with the program, the losses are guaranteed to the extent of 75%. And also there is certain multiple of [of the thing] lower of the 2 is what is your cap? So to that extent despite market mayhem last year, our credit losses in SME are lower than the previous year. And we expect our guarantee cover to cover almost 90% of our book. And in some cases, 100% to the extent of what we do in ECLGS. So we believe that we have ring-fenced it pretty tightly, so to speak, in a manner, we have secured and unsecured book, which is a — which perhaps is a very different industry panel. You may not find too many of them, but probably we have been able to pioneer, as Sanjay was mentioning, under some of the government guarantee programs and mindful benefit out of that. So that perhaps is one of the reasons when we modeled despite stress testing, we felt that this is the right provision ratio.

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Abhijit Tibrewal, ICICI Securities Limited, Research Division – Research Analyst [90]

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Manish, sir, if I understood you right…please go ahead.

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Kamal Kishore Kailash Baheti, Magma Fincorp Limited – President & Group CFO [91]

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Sorry. To add to what Manish mentioned, one is that in SME we provide 100% as opposed to DPD. So the book is one. Number two will be NPAs are even smaller because at 450 DPD you are providing 100%. Number three, at 90 DPD we provide 70% under the IndAS. So there is hardly any room for making additional provision, since there is — the provision is already very high.

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Operator [92]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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Sanjay Chamria, Magma Fincorp Limited – Vice Chairman & MD [93]

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Well, thank you very much for attending this conference, and it has been a great experience that while each one of us in the management team are in their respective homes, and we have all logged in through the mobile, but I think the technology has helped us stay connected and without glitches. So wish you all the best, stay safe, stay home. And look forward to, again, meeting you all digitally in the next quarter. Thank you very much.

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Operator [94]

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On behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.