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TATA CONSULTANCY SERVICES LTD.
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Computers - Software & Consulting
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TCS/SE/202/2022-23 January 11, 2023 National Stock Exchange of India Limited BSE Limited Exchange Plaza, C-1, Block G, Bandra Kurla P. J. Towers, Complex, Bandra (East) Dalal Street, Mumbai - 400051 Mumbai - 400001 Symbol - TCS Scrip Code No. 532540 Dear Sirs, Sub: Transcript of the earnings conference call for the quarter ended December 31, 2022 Pursuant to Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, please find enclosed the transcript of the earnings conference call for the quarter ended December 31, 2022 conducted after the meeting of Board of Directors held on January 09, 2023, for your information and records. The above information is also available on the website of the Company: www.tcs.com. Thanking you, Yours faithfully, For Tata Consultancy Services Limited PRADEEP Digitally signed by PRADEEP MANOHAR MANOHAR GAITONDE Date: 2023.01.11 GAITONDE 21:21:36 +05'30' Pradeep Manohar Gaitonde Company Secretary Encl: As above TATA Consultancy Services Limited 9th Floor Nirmal Building Nariman Point Mumbai 400 021 Tel. 91 22 6778 9595 Fax 91 22 6778 9660 e-mail [email protected] website www.tcs.com Registered Office 9th Floor Nirmal Building Nariman Point Mumbai 400 021. Corporate identification No. (CIN): L22210MH1995PLC084781
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TATA CONSULTANCY SERVICES LTD.
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Limited Q3 FY23 Earnings Conference Call. January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Moderator: Ladies and gentlemen, good day and welcome to the TCS Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. Should you need assistance during the conference call, please signal an operator by pressing ‘*’ and then ‘0’ on your touchtone phone. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press ‘*’ then ‘1’ on your telephone keypad. To withdraw your question, please press ‘*’ then ‘2’. Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali – Global Head, Investor Relations at TCS. Thank you and over to you, sir. Kedar Shirali: Thank you, operator. Good evening and welcome everyone. Thank you for joining us today to discuss TCS’ Financial Results for the Third Quarter of Fiscal Year 2023 that ended December 31, 2022. This call is being webcast through our website and an archive including the transcript will be available on the site for the duration of this quarter. The Financial Statements, Quarterly Fact Sheet and Press Release are also available on our website. Our leadership team is present on this call to discuss our results. We have with us today, Mr. Rajesh Gopinathan -- Chief Executive Officer and Managing Director; Mr. N G Subramaniam -- Chief Operating Officer & Executive Director; Mr. Samir Seksaria -- Chief Financial Officer; Mr. Milind Lakkad -- Chief HR Officer. The management team will give a brief overview of the company's performance followed by Q&A. As you're aware, we don't provide specific revenue or earnings guidance. And anything said on this call which reflects our outlook on the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. We have outlined these risks in the : Page 1 of 23
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) second slide of the quarterly fact sheet available on our website and which has been e-mailed out to those who have subscribed to our mailing list. With that, I would like to turn the call over to Rajesh. Rajesh Gopinathan: Thank you, Kedar. Good morning, good afternoon and good evening to all of you. We had very good growth for a seasonally weak quarter. Our US dollar revenue crossed the 7 billion mark in Q3 and revenues grew 19.1% in rupee terms, 13.5% in constant currency terms, and 8.4% in dollar terms. Our operating margin for the quarter was 24.5%, an expansion of 0.5% sequentially. Our net margin came in at 18.6%. I'm very happy to share that the board has announced a dividend of `75 per share, including a special dividend of `67 per share. Including the interim dividends paid out in the first half of the year, this translates into a shareholder payout of `33,297 crore for year-till-date. I will now invite Samir, Milind and NGS to go over different aspects of our performance during the quarter. I'll step in again later to provide some more color on the demand trends that we're seeing. Over to you, Samir. Samir Seksaria: Thank you Rajesh. Let me first walk you through the headline numbers. In the third quarter of FY'23 our revenues grew 13.5% year-on-year on a constant currency basis. Reported revenue in INR was `582.29 billion, an year-on-year growth of 19.1%. In dollar terms, our revenue was $7.075 billion, an year-on-year growth of 8.4%. Moving to the operating margin, we had 70 basis points benefit from the currency movement. Operational rigor including utilization, reduced use of subcontractors, resulted in a net benefit of 0.3% or 30 basis points, offset by 50 basis points headwind from higher third-party expenses and increasing cost of return to normalcy. Overall, our operating margin expanded 50 basis points sequentially to 24.5%. Net income margin was 18.6% impacted by foreign exchange fluctuations. The effective tax rate for the quarter was 25.7%. Our accounts receivable was at 66 days’ sales outstanding orDSO in dollar terms, up four days sequentially. : Page 2 of 23
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TATA CONSULTANCY SERVICES LTD.
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Net cash from operations was `111.54 billion, which is a cash conversion of 102.8%. Free cash flows were at `102.15 billion. Invested funds at the end of December stood at `669.24 billion. Lastly, as Rajesh mentioned, the board has announced an interim dividend of `75 per share, which includes a special dividend of `67 per share. Total shareholder payout, year till date, amounts to 110% of free cash flow. Over to you, Milind. Milind Lakkad: Thank you, Samir. You might recall that our approach to overcoming the supply side challenges faced by the industry was to bring in fresh talent at scale, and then train them on new technologies. In the prior six quarters, we onboarded 135,000 fresh engineers. In Q3 alone, we brought on about another 7,000 fresh engineers amounting to a total of 42,000 freshers year-to-date. These are unprecedented numbers. Our biggest strength has been nearly 125,000 TCS at middle and senior levels, who have been with the company for over 10 years on average. They have been central to our ability to culturally and operationally integrate all the fresh talent we brought onboard and ensuring that the project outcomes and customer experiences continue to be the best-in-class. Last year, our net hiring was significantly ahead of our revenue growth. Our focus this year has been on utilizing all that excess capacity and making our newest employees productive. Between that and elevated attrition, we had a net reduction of headcount and our workforce strength as of December 31 st stood at 613,974. We continue to have a very diverse workforce with 153 nationalities represented and with women making up 35.7% of the base. On the learning front, TCSers clocked 11.4 million learning hours in Q3, resulting in an acquisition of 1.3 million competencies. LTM attrition in IT services was at 21.3%, slightly down quarter-on-quarter but still very elevated as it reflects the high levels of churn in the prior quarters. Our quarterly annualized attrition on the other hand fell by nearly 6% in Q3, and we expect it to steadily trend down over the coming quarters. Over to you NGS for some color on segments and product trends. : Page 3 of 23
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TATA CONSULTANCY SERVICES LTD.
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) N G Subramaniam: Thank you, Milind. Let me walk you through our segmental performance details for the quarter. All growth numbers are on a year-on-year constant currency basis. Growth was led by Retail and CPG which grew 18.7%, led by strong demand in the Travel and Hospitality segment while retailers had production freezes during the holiday season. Life Sciences and Healthcare grew 14.4%. Technology and Services grew 13.6%. Communications and Media grew by 13.5%. Manufacturing grew by 12.5% while BFS, our largest vertical grew by 11.1%. Let me now walk you through the growth figures by geography. Among major markets, North America as well as UK grew 15.4%, while Continental Europe grew by 9.7%. Moving on to emerging markets, Latin America grew by 14.6%, India by 9.1%, Asia Pacific by 9.5%, and Middle East and Africa by 8.6%. Moving on, our industry-leading portfolio of products and platforms continue to perform well. ignio™, our cognitive automation software suite signed up 10 new customers and 7 clients went live during the quarter. The business health monitoring solution for ignio is gaining traction with customers and went live in over 2,000 stores for a major American auto retailer in Q3. Enterprises are increasing their investment in AI ops, and automation technologies to improve employee productivity and resilience. ignio is uniquely positioned to ride on this particular opportunity with an end-to-end platform that offers self-healing and machine learning ability across the customer lifecycle to help them in their journey of being an autonomous enterprise. TCS BaNCS™, our flagship product suite for the financial services domain had six new wins and seven go lives during the quarter. We continue to gain share in the market infrastructure institution segment with a new win in Q3. The subsidiary of a leading European CFD selected TCS BaNCS market infrastructure, implementing a unique system offering settlement and correspondent banking services to their customers. : Page 4 of 23
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TATA CONSULTANCY SERVICES LTD.
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) One of the largest asset managers in the USA with over US$7 trillion in global assets, migrated its personnel advisory services and digital advice offerings to the cloud-based TCS BaNCS to its management platform, enhancing their advisor experiences, improving accuracy and low latency responses for performance configuration analytics for millions of customer portfolio of record numbers. Our Quartz blockchain platform have two new wins and one go live in Q3. A Swiss multinational pharma major has increased their adoption of Quartz further, building on the successful initial pilots we executed using blockchain, smart contracts and digital payments. Quartz smart solution for contract performance monitoring and Quartz Gateway are going to be used to eliminate inefficiency in cross-functional manual processes entailing procurement, finance and treasury. In Life Sciences, TCS ADD™, our Advanced Drug Development platform, enabled by artificial intelligence was implemented for two leading pharma companies for automation of adverse events intake and processing. With this, TCS ADD has successfully completed automated processing of half a million adverse event cases. Our offerings in this platform address patient centricity, smart clinical analytics, interoperability, and AI-enabled automation, that are emerging trends in the life sciences industry. TCS Optumera™, our artificial intelligence powered retail merchandising suite went live for four clients. TCS OmniStore™, our AI-powered universal commerce suite had two go lives. TCS HOBS™, our suite of products for communication services has one new win and four go lives in Q3. TCS iON had seven wins in the quarter ending December. During this period, we served over 35 assessment customers and administered exams for 8.8 million candidates. We reached a new industry partnership milestone in Q3, engaging with 1,580 corporates that leverage the TCS National Qualifier Test as their entry level recruitment platform. Over 3,700 candidates have gotten placed till-date. Lastly, MasterCraft™ and Jile™ had won 10 new clients in Q3 and 21 renewals. : Page 5 of 23
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TATA CONSULTANCY SERVICES LTD.
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Let me now go over our client metrics. These metrics are an important validation of our customer-centric business model. In Q3, we added one more client year-on-year in the $100 million plus band, bringing the total to 59; 12 more clients in the $50 million plus band, bringing the total to 130; 35 more clients in the $20 million plus band, bringing the total to 290; 30 more clients in the $10 million plus band bringing the total to 456; 39 more clients in the $5 million plus band, bringing the total to 658 and 42 more clients in the $1 million plus band bringing the total to 1,217. Let me now request Rajesh to speak on the demand drivers. Rajesh Gopinathan: Thank you, NGS. As mentioned by NGS, the seasonality led to some moderation in growth in verticals like BFSI, Retail and Technology and Services and across all our key markets. While the seasonal aspect should reverse in the next quarter, the macroeconomic uncertainties are likely to result in a more balanced year in 2023 after two years of strong growth. For now we see a client caution translating into greater focus on cost optimization. We're seeing an increase in the number of large operating model transformation engagement. In the first three quarters of FY'23, we won 20 such deals versus 16 in the prior year same period. Our innovative approach to redesigning the operations and embedding AI and intelligent automation into individual processes using TCS Cognix™ has been delivering superior outcomes for our clients and differentiated positioning for TCS. We are also seeing an uptick in vendor consolidation. Our scale, full services capability and track record of delivering outsized savings through operating model transformation is helping us win such deals. We have won quite a few such deals across BFSI healthcare, manufacturing and telecom and we see many more in the pipeline. Here is a good illustration: The BT Group, UK's leading provider of fixed and mobile telecommunication, announced a new partnership with TCS for its digital unit to boost its modernization plans. TCS will manage and ramp down over 70% of digital legacy technology estate, and boost capacity to accelerate the build of its new strategic technology architecture, supporting the group's growth. : Page 6 of 23
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TATA CONSULTANCY SERVICES LTD.
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Coming to cloud transformation, it continues to be a strong area of growth. As I had mentioned in the last quarter, clients are much more focused on execution of their cloud journeys and the increased intensity is translating into an expanded opportunity for us. Our strategic industry-specific solution fabrics built on market leading hyper scalar platforms accelerate enterprise digital transformation and drive exponential business value through industry innovation. We won several new cloud transformation deals in Q3. Here are a few examples. We were selected by Boston Scientific Corporation, a global medical devices company as a strategic partner for their purpose-led, enterprise-wide multi- cloud acceleration program. TCS' decade-long transformative partnership will help deliver cloud-native resilient and futuristic operations that will fuel Boston Scientific's global business growth and its mission of transforming lives through innovative medical solutions. TCS expanded its partnership with the UK headquartered international savings and investment firm to help them transform into a cloud-only organization by 2025, through a series of technology and business transformation initiatives. Leveraging its deep contextual knowledge of the client's IT and business landscape, TCS will help modernize and transform their application estate using cloud-native architecture, and seamlessly migrate them to a public cloud using TCS Cloud Counsel and TCS Migration Factory. This will also simplify the legacy infrastructure estate and facilitate their exit from on-premise data centers. We have been engaged by the largest online travel company to build a unified, modernized enterprise data platform, which entails creating a data lake abstracting data from transitional systems and other data sources and building intelligent self-learning engines leveraging AI/ML models and rendering seamless experiences to customers and associates. The marketing meta- analytics we deploy will enable greater personalization and tailored recommendations on their portal. Moving on to growth and transformation, we usually talk about G&T engagements focused on the front end, helping clients launch innovative new : Page 7 of 23
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) products and services or new technology-enabled business models or channel improvements and personalization that enhance customer experience. I'll come to those in a bit, but before that, I also wanted to share some examples of how technology-led innovation at the back-end can also result in revenue growth and improved customer satisfaction. Predictive analytics, machine learning and AI are fueling such innovation. Let me illustrate with three examples. PostNord, a European communications and logistics solution provider has partnered with TCS to achieve their `Win in Parcels’ key strategic priority and to be the market leader. Their key objective is to transport more parcels per truck in each trip made between the terminals and their regional hubs. TCS developed a touchless AI-based solution using machine vision and importantly, existing security CCTV cameras, to accurately measure the truck fill rate in real-time. It leverages a TCS proprietary algorithm to optimize the line haul planning and truck departures. This has helped improve the revenue yield per truck, reducing the number of trips and associated costs, and even the carbon footprint. TCS partnered a US headquartered multinational biopharmaceutical company in co-creating and implementing an industry-first AI-based solution to transform the handling of patient complaints about drug-device combination products, such as pre-filled injections and auto injectors. The solution triages complaints and automatically separates out product- related complaints from drug-related adverse events, resulting in faster processing of complaints, timely feedback to patients and to internal design and production teams for remediation. This has helped improve product quality, enhance patient experience and contributed to improved sales of such combination products. Toyota Material Handling in North America engaged TCS to transform its field service teams’ ability to diagnose and repair. TCS’ solution enables guided troubleshooting, self-service and cognitive search of technical product support content using AI/ML and NLP, which helps reduce downtime associated with unplanned maintenance by 10% to 15%. The transformation has improved first time right fix, reduced dealer overheads and resulted in service stickiness, : Page 8 of 23
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TATA CONSULTANCY SERVICES LTD.
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) leading to increased service part sales for dealers and to Toyota Material Handling. M&A continues to be a recurring theme in our customers T&T agenda. They have been entrusting us with these integration or divestiture mandates on account of our contextual knowledge of the business and IT landscapes, our highly collaborative inside-out approach to transformation, and proprietary accelerators such as TCS Crystallus™, a set of pre-configured industry and business solutions available on leading enterprise application platforms. Here are three examples: Philips Domestic Appliances, a carve-out from Royal Philips and a global leader in kitchen coffee, garment care and home care appliances, engaged TCS as a sole-sourced primary partner to support PDS’ transition to an independent entity, and its business transformation to become a digital-first and consumer-centric organization. TCS established a digital core for the new business, designed lean business processes and successfully rolled out the pilot in seven countries. We are now working towards a big bang go-live for the rest of the world. This is expected to be the foundation for a 10x growth in sales from expansion into new markets and channels, with 20 million highly engaged customers. Similarly, we are helping a leading North American bank with the seamless merger of a US bank. TCS' deep contextual knowledge and platform expertise was critical for success in this large and complex M&A program, involving online banking channels, treasury and payment services, auto and equipment financing, among others. TCS did an end-to-end mapping of the products and processes of the acquired bank and carried out a parity uplift to ensure consistent experience for incoming acquired bank customers. At the back end, we integrated new lending and leasing products into the acquirer bank's portfolio and migrated the acquired bank’s products, customers and users to the acquirer’s platforms. With the successful integration, the acquirer bank expanded into a large complementary contiguous market in the US, doubling its branch footprint and onboarded over 1.5 million new customers and inherited a strong commercial business with a high-quality loan portfolio. : Page 9 of 23
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Finally, in Q3, we were chosen by European life and material sciences company to lead the global integration of one of the largest acquisitions. TCS is responsible for end-to-end integration of warehouses and factories. It will set up a transformation management office to enable faster realization of synergies, and serve as the foundation for future M&A. Let me now provide a few examples of TCS partnering with clients to use digital technologies to help launch innovative new products or services that drive new revenue streams. A leading US-headquartered media and technology multinational partnered with TCS for building a single digital ecosystem platform, spanning home entertainment and mobility. As the sole strategic partner, TCS was responsible for the full lifecycle of the new technology platform for this new line. TCS designed and implemented the solution through an API grid for the entire ecosystem leveraging AI/ML for agile operations, proactive care, proactive service management, and preventive fault management. The new business model helped deliver truly personalized and unique customer experiences to end-customers. It recently crossed 5 million customer connection and witnessed high NPS score and customer satisfaction ratings. TCS helped a leading US money transfer service provider transform its technology estate into modern cloud-powered platform, enabling it to launch new products faster, expand into new markets and strengthen its customer relationships. Leveraging the new integrated next-generation multi-currency digital wallet and digital banking platform, our clients have forayed into digital banking in Europe, offering customers access to a variety of differentiated multicurrency payment services in a single app. The new platform has also helped the client successfully integrate with cross-industry ecosystem partners to offer millions of customers greater ease, reliability and access to money movement, and payment service capabilities. Overall, the transformation has resulted in increased customer loyalty, reduced customer journey barriers and created new revenue streams. Similarly, in Q3, an APAC-based automotive electronics manufacturer chose TCS as their co-innovation partner in developing a next-gen instrument panel : Page 10 of 23
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) cluster. TCS services will span product development, HMI or Human Machine Interface, functional safety, cyber security and other cockpit related products. In prior calls, I have given examples of how TCS is participating in large industry transformation initiatives. In the Utilities sector, we have had several examples of TCS helping utilities or power producers navigate energy transition. Our domain expertise and track record in executing successful transformations is firmly establishing us as the preferred G&T partner in the sector. Here’s one more example of the same. Western Power, a leading Australian power generator and distributor, selected TCS for our credentials in this space to design, deliver and support a distribution system operator platform solution. Our solution enables the client to orchestrate Distributed Energy Resources or DERs, such as rooftop solar batteries and large appliances across homes and businesses into a virtual power plant, aggregating the excess electricity generated by their assets and then dispatching it into what will become new energy markets and services. TCS’ solution also addresses critical issues like low voltage network visibility and optimization. With over 650 participating customer energy assets till date, the platform has demonstrated the safety and reliability of aggregated DERs and helped the client model the complexity of bi-directional energy flows. This will open doors for Western Power to participate in the futuristic energy market and build new revenue streams while safely operating within the technical limits of the distribution grid. Likewise, we're participating in the longer-term transformation trends in the transportation sector. Last year, I had spoken about the work we're doing for Transport of London to transform the administration of taxis and private hire vehicles in London to prepare it for an electric and autonomous future. In Q3, we won a deal that will transform the railways sector in the UK. TCS was chosen by the Rail Delivery Group, UK's leading rail industry membership body for the creation of a rail data marketplace. TCS will leverage data syndication, monetization and marketplace features of its DeXAM platform and a leading hyper scalar cloud to combine fragmented sources of rail data into one digital service. : Page 11 of 23
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TATA CONSULTANCY SERVICES LTD. - 532540 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/76ba7959-5943-41bd-9410-a53f3de41e26.pdf
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) This will optimize the sharing of data and real-time information to passengers and operational bodies, improving transparency and enable a UK-wide railway innovation ecosystem. Let me now come to the Q3 order book. Our deal closures in Q3 amounted to a TCV of $7.8 billion. By vertical, BFSI had a TCV of $2.5 billion while retail order book stood at $1.2 billion. The TCV of deal signed in North America stood at $4.2 billion. With that, we will open the line for questions. Moderator: Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from the line of Kumar Rakesh from BNP Paribas. Please go ahead. Kumar Rakesh: My first question was to better understand the headcount moderation during the quarter. During the press conference, Rajesh, you talked about the focus on headcount efficiency to continue in the fourth quarter as well. Assuming the headcount stay steady in 4Q, you will be exiting the year with a headcount growth of about 4% YoY. My question was, is that an indication of growth visibility that you have today and hence the rationalization or you are confident of driving similar or higher productivity gains, and hence revenue growth could be significantly higher than that? Rajesh Gopinathan: I think the best way to think about it is that on a year-on-year basis, our net headcount is higher. So, we have significantly invested in building up capacity from 2021, tried as much as possible to bypass the industry's hire-from-each- other attrition cycle, and focus on hiring at entry level, and invested in training and cross training our resources. That investment has hit our productive capacity and stood us in good stead. The incremental hiring for this year should be seen in context of what we've done in the last year also. Overall, we are very comfortable with where we are with our net headcount. We hired significantly ahead of revenue growth in '21 and balanced it with a more prudent hiring in calendar '22. Going forward, we should be back to a more normal kind of hiring trend. While specific numbers will keep evolving, we should expect hiring in the range of 125,000 to 150,000 for the year, offset by more normalized attrition levels closer to our long-term averages, which will give us sufficient capacity to take : Page 12 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) care of growth. And then we can keep bringing in shorter term hiring to take care of demand as it unfolds. So, that would be the best way to think about and model it. Kumar Rakesh: My second question was on the deal side. So, you talked about that cost optimization deals have already started picking up meaningfully. In the past, during recessions, we have noticed that first, there's a sharp cut to IT budget, before cost optimization deals starts picking up. I understand that visibility on client budgets is still a couple of months away. But do you think this time the transition from discretionary IT spending to cost optimization deals could be far smoother than what we have seen in earlier recession period? Rajesh Gopinathan: It's also a factor of how it is playing out in different markets. So, as I said, if we take a market like UK, that is well and truly into much more strategic long term, cost-based restructuring kind of deals. We're seeing multiple such ones play out and we're participating very strongly in that. Markets like US, we need to wait and watch how that will play in the next couple of quarters, but we are fairly constructive. Our conversations with customers are much more balanced ones where they are equally positive, as well as cautious and we should see a mix of both cost and transformation deals. In Europe, decision making is slow. So, it's very difficult to call it one way or the other. So, this is not some major single event that has happened globally. All three markets are moving to three different beats and each of them is indexed to their own specific outlooks. Moderator: Our next question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead. Vibhor Singhal: Rajesh, I just wanted to basically pick your brain on the performance of the retail segment in this quarter. This segment has outperformed the company average growth rate and also doing really very well. Globally, we are hearing about a lot of these retail chains, calling out weakness, especially in Europe in parts as well. So, any color on that would be helpful as to what drove this strong performance in this quarter, do you expect this to sustain in the coming quarters also? And also, is there some color to it in terms of let's say, US retail maybe doing slightly better than Europe retail, as you just called out that in Europe, the decision making is slow on an overall basis? : Page 13 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Rajesh Gopinathan: First of all, the numbers that we show in Retail is a combination of Retail, CPG, Travel and Hospitality. So, that's the industry group that we report on. Within that, if you look at it, travel and hospitality is enjoying a very strong rebound after a couple of very, very challenging years. And we are one of the largest, if not the largest, service provider in that industry and we were significantly impacted in the last couple of years and also we are now participating and also winning quite reasonably. CPG sector going through multiple forms of transformation, mostly led in various forms of direct-to-customer channel strategy transformation, and significant investments going into that. Also, analytics, sustainability, direct-to- customer, each of these themes are continuing to find a lot of traction and continued investment, and we are participating in all three quite well. Retail itself is more regional, and different markets have different focus. Plus, within retail, grocery as a segment continues to do well. More discretionary retail is, as I said, market specific. Going to the last part of your question, US retail sales adjusted for inflation itself, have still come in stronger than last year and last year was a very strong year. So, overall, from a volume perspective, retail in the US has done well. However, profitability has been challenged, both by customers walking down the product line in terms of preferring a slightly cheaper products on a relative basis, as well as the fact that cost structures have been up. We need to wait and see how this will be translated. But some of those costs are transient, some of them will require more structural cost transformation deals. So, it's a fairly complex set of drivers in there. It goes back to what we always said, we stay close to the customer, and we play each customer and each scenario on a one-on-one basis. Overall, we believe that the industry continues to be very attractive. And we have the full suite of capabilities to be participating across this broad spectrum, and to make sure that we stay relevant to customers on a very individualized basis. Vibhor Singhal: Since you touched upon the travel and hospitality segment, as you mentioned that we bore the brunt of it while COVID struck and the segment was down and now we're seeing a strong rebound in this segment. I think globally also we are seeing very strong bookings in Greece and Spain and baggage can also come : Page 14 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) up. So, do you expect this momentum to maybe continue in the travel segment in the coming quarters as well? Of course, this is assuming no more waves and no more lockdowns and everything. But do you think you expect this momentum to continue in this segment in the next couple of quarters given that these clients would now probably start spending more on to it? Rajesh Gopinathan: I think so. The caveat, of course, is that there is no major event that happens. But if things continue as they are, we expect that the sector will continue to do well. One, there is the demand side. In fact, the sector is supply constrained. As more capacity comes on board, they should continue to do very well. More importantly, while they did a great job dealing with the pandemic, many structural changes that need to be done have been identified, and those are longer term programs that will need to be put in place. So, we expect a lot more of preparatory investments amongst the more forward-looking customers, and very high profitability during the course of this year will give them that war chest they require to make the investment for increasing the resilience of their network and resilience of their operation in any future potential scenarios. Moderator: Our next question is from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management. Please go ahead. Sudheer Guntupalli: Rajesh, it has been almost 10 to 13 months since the inflation, macro, and geopolitical concerns surfaced, and some of the upstream segments of the tech ecosystem, like internet or software started flagging off on demand concerns. But so far if we look at your reported revenue growth, some of the forward-looking metrics or even your commentary, the situation for us seem to be reasonably strong, fairly resilient. If we take cues from the lag times between impact on upstream and downstream tech players historically, if something could have gone wrong massively, it should have gone wrong by now. What do you think is happening differently now. Is it the case that IT services business has become less correlated with macro in the cycle, or you think time lag for the impact will be little longer this time around? Rajesh Gopinathan: I think as I've always said, the best way to think about IT is to think of it as an industrial perennial. The tech needs of an enterprise will evolve over a cycle, but it is not totally discretionary. So, that's one aspect of it. : Page 15 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) The second aspect of it is that compared to let's say even five years ago, the technology landscape has stabilized significantly. There was a lot more heterogeneity in the landscape, and a lot more competing solutions in the landscape earlier. And now there is a fair amount of convergence on the main platforms, and the main basic architectural elements. So, in the wider technology products marketplace, that shakeout will be visible, which is normal at this stage of a technology adoption cycle. But the focus in terms of actual enterprise investments to execute on those transformations is continuing.So, lesser number of platforms, greater focus on larger programs, much calmer technology environment – all this is typical at this stage of technology adoption cycle. So, probably that also kind of reflects in the difference between the product space and the services space. But beyond that, I don't think we have any greater visibility. Sudheer Guntupalli: My second question. There is the broad agreement by now is that growth for the industry in FY'24 will revert to pre-COVID levels impacted by macro issues and the unwind of COVID pull forward impact, etc., Keeping aside the negativity around the near term, how do you think of the medium term growth prospects for TCS… not asking for a hard guidance, but do you continue to believe that once this near term noise around macro, etc., is in the base and behind us, growth rates can again accelerate back to double digits, which has been our medium term aspiration? Rajesh Gopinathan: We believe so. Our stance is quite positive, and as I said, if you take market- by-market, in the US, we definitely think that's the scenario. In UK, we are participating very well. The market itself is challenged. In Europe, once the geopolitical situation calms down, we believe that we have the full suite of capabilities to be able to participate. When decision-making restarts, we should be participating well. So, overall, we are quite confident about having the full suite of services to be able to be relevant to customers across a wide spectrum of actual scenarios, and therefore we are quite confident about the medium to long term outlook. Moderator: Our next question is from the line of Pankaj Kapoor from CLSA. Please go ahead. Pankaj Kapoor: I have two questions. First, Rajesh, you mentioned that there is a higher share of cost take out deals which are now coming in the pipeline. So, just wanted to : Page 16 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) understand, if such deals are also moving faster in terms of decision-making? And any color if you can give on the competitive intensity for such deals, I mean, is it normal or are you seeing such deals getting more competitively bid now by other vendors? Rajesh Gopinathan: Speed is varying by markets. I would say that in the UK, decision making is quite fast, customers are very clear, and there is a lot of action happening there. The US is normal. It continues to be doing well, but that does not account for the short-term aspect of that market. Everybody is a bit cautious for the time being, but we don't think that will last into next year. In three months’ time, we should be able to know better. In Europe, decision making has significantly slowed down. So, that's the full spectrum there. In terms of competitive intensity, many of the deal structures are quite complex. That narrows down the field to a more limited set of competitors. Within that, obviously, people are aggressive and everybody is hungry. But at least the competition set is a much narrower set than just a few years ago, when deals were smaller, and there was a lot more focus on immediacy of response and the supply side was challenged. Pankaj Kapoor: My second question is on the special dividend. With this, you would have almost paid out the entire amount that we paid last year, which included a buyback. So, does this mean there is a rethink in terms of the mode of capital return in favor of dividend versus buyback? Rajesh Gopinathan: No, rather than looking at it in absolute terms, on INR terms, we are growing at 15%-plus kind of basis. So, if you consider that growth, we are still benchmarked to 80% to 100% of net profit or free cash flow kind of a trajectory, not much of difference to that. Pankaj Kapoor: So, buyback remains something which our board can consider whenever the window opens up? Rajesh Gopinathan: As you know, the current regulations require a 12-month gap between the two buyback announcements. Buyback will be considered when it becomes possible from the regulatory perspective. Right now, we are in a period where we couldn't anyway consider a buyback. Moderator: Our next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead. : Page 17 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Sandeep Shah: Rajesh, one broader question. At an industry level where are we in terms of the cloud transformational journey or adoption by the enterprise client? And do you believe the pace of the adoption can change starting from CY'23 onwards irrespective of the macro issues? Rajesh Gopinathan: Cloud adoption journey is, I would say, a third of the way in. Different customers have different challenges there. Some of them who have gone very rapidly to the cloud, mostly lift and shift, are realizing that unless it is architected right, cloud costs are actually quite difficult to manage and it's a fairly large bill that can come if you do not architect and if you do not actively manage the cloud environment. So, some of the transformation activities and projects that we're doing is to actually help them execute that transformation agenda so that their application stack is architected in a manner in which it can fully leverage the variability that the cloud model offers. Unless you're able to actually switch off and release the resource, you will not participate in the variability. And to be able to do that you need to be able to architect your application properly so that resource dependency can be switched off on a variabalized manner depending on what your requirements are. So, that's one kind of work that is going on. The other kind of work that's going on is actually the migration itself of complex workloads that require a lot more of heavy lifting. That is the other kind of an area that there's a lot of work going on. Neither of them is easy to execute. So, you should not expect much acceleration. The next couple of years are going to be about execution, rigor, operational capabilities. But it will be a steady move, neither is it likely to accelerate significantly, neither is it likely to decelerate or fall off. The movement is committed, the direction is very clear, the investments are in place and the deals are in place. Now, the execution and the operations have to happen. That's likely going to be the story for the next year or two. Sandeep Shah: Just a question in terms of CY'23 IT budgets. Do you believe the spend of the IT budgets could be conservative in the first half of the calendar year versus the second half or you expect the spend to be remain normal like any other year, though the budgets may be slightly lower versus the earlier last two years because of the macro slowdown? Rajesh Gopinathan: Again, going by market-by-market, in the UK, unlikely that it is any different than last year, because there is no incremental shift in the overall environment : Page 18 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) in UK. In the US, we'll have to wait and see how the next couple of months plays out. We are positive or rather we are hopeful, but we'll have to actually wait for actual confirmation to come. We think the immediate caution that is there, probably will dissipate a few months into the year. In Europe, we will have to wait for some major event to happen for it to change. Europe will be incrementally cautionary this year compared to last year. Sandeep Shah: Just a last bookkeeping question. I think this third-party pass-through cost increase this time does not relate to the domestic revenue, if I'm not wrong, it relates to the international revenue and will it be a growth headwind in the fourth quarter if it doesn't repeat? Samir Seksaria: So, third-party costs actually you could link it to the domestic revenue. There has been a sequential increase, and typically Q3 has some bit of it coming in. On a year-on-year basis, we don't see that big jump. Moderator: Next question is from the line of Ravi Menon from Macquarie. Please go ahead. Ravi Menon: So, Regional Markets and Others segment had an acceleration year-on-year growth versus the last quarter despite muted growth in India. Should we think that this comes from improved traction in the insurance BPaaS area? I think NGS mentioned six new go lives in the quarter for BaNCS. Any large deals here that you'd like to call out or maybe you also share some comments on the deal pipeline in this segment? N G Subramaniam: I'm sorry, I didn't hear you properly. Could you repeat the question? Ravi Menon: NGS, you talked about the six new go lives this quarter for BaNCS. Just wondering if there are any large deals in the BPaaS segment in insurance, and how the pipeline is shaping up there? N G Subramaniam: One of the areas where we are seeing opportunities and significant pipeline is the various digital core, whether it is banking or capital markets or insurance, all of them are looking at putting together a new digital core. And it's going through a lull period in the last about two years or so. But now, people are thinking about a new core banking system, or a new security settlement system, which are really architected for the future, which are cloud-native, which are inherently micro services or inherently comes with that capability of marketplace with significant amount of APIs and micro services that will enable them to integrate into the ecosystem. : Page 19 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) So, as you may see, during this quarter, we announced a large deal win with the Chinatrust Banking Corporation, which is really the future core in terms of architecture, in a fashion that is cloud-native, and it is truly providing open banking APIs and so on so on. Such opportunities are opening up. At this moment we're working on three or four such opportunities where some of the large banks are looking at modernizing their core in favor of something which is completely open banking, open APIs. So are some of the market infrastructure institutions trying to create open payment system, and some of them typically say that whatever you guys have implemented in India, can you offer this whole instant digital payment infrastructure in our geography? So, these are the opportunities that are coming out of it, and there are a decent number of opportunities in the pipeline that we see in banking as well as capital markets. Ravi Menon: SG&A, travel costs have increased sharply. How close to normal, Samir do you think we are in business travel? I think we are still about 30 bps below what we used to clock pre-COVID. So, should we think of travel as a continued headwind or you think we'll stabilize at this level? Samir Seksaria: Yes, as normalcy continues to get through, we would expect travel costs to continue to increase. If you look at it more on the direct revenue side or the direct cost side, a lot of it is coming in. On SG&A, as things open up more on sales-related costs, as well as team building exercises and team meetings happening, that cost is increasing. We’re seeing it going back to what it was pre-pandemic. Moderator: Our next question is from the line of Abhishek Kumar from JM Financial. Please go ahead. Abhishek Kumar: I have a question on budgets. Rajesh, you mentioned in the US there is a wait and watch mode and therefore budget could take some time. Is there any possibility because of that there was probably a little bit of budget flush in 4Q which could have supported the growth? Rajesh Gopinathan: Sorry, budget flush due to what? Abhishek Kumar: See, there's possibly an indecision or wait and watch mode for CY'23 budget. So, to exhaust CY'22 budgets, any possibility that there is a budget flush to exhaust the previous year's budget? : Page 20 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Rajesh Gopinathan: No, I don't think so. CY'23 will be slightly delayed in a couple of months… but again, it's entirely in the realm of speculation. So, we'll have to just wait and see how it plays out in the next few months. Abhishek Kumar: Another related question to this is given this little bit of indecision in US, do you think the cost takeout projects in US probably would be low compared to other geographies, at the same time spending on discretionary would be cautious and that would probably keep the budgets little low? Rajesh Gopinathan: Yes, fair assumption. Even if you look at our US TCV, that is down both sequentially and on a year-on-year basis. So, TCV still reflects that decision- making lag in this quarter. Moderator: Our next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead. Gaurav Rateria: So, firstly, Rajesh, is it fair to believe that the ACV growth could be lower than TCV growth as mix of the deals are changing, and should that be even considered as a lead indicator for growth going forward or you think the deal win trajectory could actually shift upwards over the coming quarters? Rajesh Gopinathan: Gaurav, I don't have a direct answer to that, but there is not much of change in terms of the mix of deal structures between large or small or long dated or small dated. So, nothing that we can call out over the last two, three quarters that we can say that we're seeing. There is an elongation in decision making, which we had spoken about last quarter also and which has also played out this quarter. So, that the pipeline growth and the qualified pipeline growth is ahead of the actual TCV growth that we're seeing…in fact, we have seen a sequential decline in TCV while our qualified pipeline still continues to grow in absolute terms. So, beyond that, the specific mix of deals is not materially changing. Gaurav Rateria: Secondly, on the margins, as headwinds on attrition subside, would our immediate priority be to take margins back to our aspirational band of 26%, 28% or would we prefer to prioritize some investments, keeping margin stable after recovering it to 25%? Samir Seksaria: Gaurav, our margins or our industry-leading margins are on the back of the investments which we make, and most of our investments, whether it is in terms of talent, in terms of research and innovation, or branding, all are : Page 21 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) factored in into the P&L. Our aspirations for the margins are taking into account all these investments Moderator: Our next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead. Ashwin Mehta: Rajesh, we've seen pretty strong growth in regional market and others over the last two quarters; it's of the order of almost 6% sequentially. So, what is the nature of demand here and how sustainable is this going forward? Rajesh Gopinathan: The reason of calling the segment out is because it's volatile and difficult to predict. So, its sustainability is difficult to answer. From a nature perspective it's come both from the market side – India has done very well, in fact, APAC ex-Australia also have done well. So, markets have done well, as also the product side of the business that NGS spoke about on the FS and platform side also has done well. So, it's come from both sides, markets as well as from the products side. Ashwin Mehta: Second question was you mentioned in the press conference as well that manufacturing has been more resilient compared to your expectations. So, any trends that we can take from manufacturing given the fact that if we look at client financials, manufacturing growth over the next two years is expected to be actually better than what it was before? Rajesh Gopinathan: I didn't know that, but that correlates to what we are also seeing. But I'm still wary, because of all the global supply chain disruption and energy price disruption. Industries like process manufacturing are much more globally integrated, and not as isolated as, let's say, Retail. So, we are still cautious. Our operating approach is always the same; stay close to the customer, deal with the customer on an individual opportunity-to-opportunity basis and we will continue to participate on that basis. But on a zoomed-out way, talking to customers, it is an industry that's not completely out of the woods. Moderator: Our next question is from the line of Rahul Jain from Dolat Capital. Please go ahead. Rahul Jain: Basically, my question is related to TCV signing which is $7.8 billion is slightly lower by our recent average win. Despite the fact that we have been favorable situation on the vendor consolidation exercise. What explains this mismatch? : Page 22 of 23
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Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Is it because such deals are to do more for the same or it reflect weak demand in Europe as articulated earlier? Rajesh Gopinathan: I think it’s a combination of everything; delayed decision making, but TCV will not be as linear as revenue, which is why we have given a band of 7 billion to 9 billion where we think the TCV will remain during the course of this year and it has stayed well within that band throughout for the last three quarters. Rahul Jain: Just a clarification on this retail deal that we announced separately. Is it also reflecting the entire retail, CPG or it is only retail-specific? Rajesh Gopinathan: This includes CPG and TTH. Moderator: Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments. Over to you, sir. Rajesh Gopinathan: Thank you, operator. We are pleased with our performance in a seasonally weak December quarter, growing at 19.1% in INR terms and 13.5% in constant currency. Our order book was good, but softer than in the prior quarters, reflecting the cautious stance that many of our clients have taken. Our operating margin expanded sequentially to 24.5% and our net margin was at 18.6%. On the people front, LTM attrition in IT services fell slightly to 21.3% and should continue to taper down in the quarters ahead. With that, we wrap up our call. Thank you all for joining us on this call today. And I must say that you're a very mature and knowledgeable group for having resisted asking about the impact of Chat GPT on our industry. Enjoy the rest of your evening or day and stay safe. Moderator: Thank you members of the management. On behalf of TCS, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Note: This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings : Page 23 of 23
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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Secretarial Department SD/ F 24/275 /2022-23 January 21, 2023 The Manager The Manager The National Stock Exchange of India Limited Department of Corporate Services Exchange Plaza, Bandra-Kurla Complex, BSE Limited, Phiroze Jeejeebhoy Towers, Bandra (E), Mumbai – 400 051. Floor 25, Dalal Street, Mumbai – 400 001 Re: Scrip Symbol: FEDERALBNK/Scrip Code: 500469 Dear Sir, Sub: Transcript of Earnings Call for the quarter ended on December 31, 2022 We wish to inform you that the transcript of the earnings call hosted by The Federal Bank Limited (“the Bank”) for the financial results of the quarter ended December 31, 2022, has been made available on the Bank’s website at the following link, as prescribed under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: https://www.federalbank.co.in/documents/10180/326836680/FederalB-Earnings-16Jan- 2023.pdf/9fb736b4-1229-482c-be8c-4ad30858c850?t=1674308683751 We are also attaching the Transcript of the earnings call with this intimation. This is for your information and appropriate dissemination. Thanking you, Yours faithfully, For The Federal Bank Limited Digitally signed by SAMIR SAMIR PRAVINCHAN PRAVINCHANDRA RAJDEV DRA RAJDEV Date: 2023.01.21 19:52:22 +05'30' Samir P Rajdev Company Secretary The Federal Bank Ltd. Registered Office: Federal Towers, P O Box No.103, Aluva, Ernakulam, Kerala, India 683 101E-mail: [email protected]| Phone : 0484-2622263 fax:04842623119CIN: L65191KL1931PLC000368,www.federalbank.co.in
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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“The Federal Bank Limited Q3 FY '23 Earnings Conference Call” January 16, 2023 MANAGEMENT: MR. SHYAM SRINIVASAN – MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER – THE FEDERAL BANK LIMITED MR. ASHUTOSH KHAJURIA – EXECUTIVE DIRECTOR – THE FEDERAL BANK LIMITED MS. SHALINI WARRIER – EXECUTIVE DIRECTOR – THE FEDERAL BANK LIMITED MR. HARSH DUGAR – GROUP PRESIDENT – THE FEDERAL BANK LIMITED MR. VENKATRAMAN VENKATESWARAN – GROUP PRESIDENT AND CHIEF FINANCIAL OFFICER – THE FEDERAL BANK LIMITED MR. SOUVIK ROY – HEAD, INVESTOR RELATIONS – THE FEDERAL BANK LIMITED Page 1 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Moderator: Ladies and gentlemen, good day and welcome to the Q3 FY '23 Earnings Conference Call of The Federal Bank Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Souvik Roy, Head, Investor Relations, The Federal Bank Limited. Thank you and over to you, Sir. Souvik Roy: Thank you so much, and good evening. Welcome to our earnings call for the third quarter. We are thrilled to report one of our best quarterly results ever. The quarter has been nothing short of outstanding with record-breaking revenue and profit. We saw better NIMs, better asset quality and multi-year highs of RoA and RoE. If you remember this is exactly what I said when I opened the call last quarter and would like to keep staying the same for every quarter here onward. Our diversified business model and focus on risk management has allowed us to drive growth while maintaining a pristine balance sheet. Our digital transformation initiatives have also played a key role in our success as they have enabled us to reach new customers, improve our efficiency and increase the adoption of our digital products. And for today, like always, we have our MD, Mr. Shyam Srinivasan, our EDs, Mr. Ashutosh Khajuria and Ms. Shalini Warrier, along with our Group President, Mr. Harsh Dugar, and our CFO and Group President, Mr. Venkatraman Venkateswaran, along with the other senior officials as well. But before I turn the call over to our MD and CEO, let me inform the house that this is our MD's 50th earnings call. So with that, over to you, Sir. Shyam Srinivasan: Thank you Souvik. Thank you everybody and firstly this is the first call of calendar '23. So my good wishes and happy 2023 to everybody. Souvik pointed out we had a good quarter. Yes, we were pleased with the outcomes of Q3 on every count. I don't want to call out anyone particular line, but the overall efforts of the bank across quarters, across years has helped shape the bank to this kind of an outcome and we believe this is something that we should seek to sustain or improve in quarters ahead which has been the endeavour at all points in time. I believe this financial year on each passing quarter looks more compelling and improving as the year rolls by. NII at an all-time high, operating profit at an all-time high, net profit at an all-time high, all suggest that we are on course. I want to go back and talk about what we said, some of you may have been part of a presentation we made in just before COVID in February '20, when we gave out a three-year road map and what we thought we'd exit FY '23 with and I'm pleased that we are ahead of those numbers despite two horrendous years in the middle. And that gives us the confidence that we have a business model that is reflective of the Page 2 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 opportunity. More importantly, the language of the bank is consistent with the presentation we put out and even more importantly the team capability to constantly readjust to development and yet deliver or not lose sight of the larger objective is intact and growing. So, I would say that the quarter that went by, reflected many of those objectives and we are actively carving out what our plans for the period ahead would be. Minimally this will be the new baseline on which we would keep operating. Yes, there have been some tailwinds in terms of margin expansion, because of the timing mismatch between asset re-pricing and deposit re-pricing. Some part of it will have challenges but we are constructing our business plans to reflect those changes that may happen yet deliver on the RoA, RoE expansion plans that we have. I had mentioned that we would exit FY '23 at about 1.25% RoA. I'm pleased that we've beaten that and the full year number will probably be 1.25 or better and certainly that sets the tone for what we would like the year and years ahead to be. And the promised 10 basis point plus or minus improvement every year is what we will seek out to do. And that's the design of everything we do, business mix, the mix between retail and wholesale and within retail, secured, unsecured, all the new businesses we spoke of whether it's credit cards, microfinance, personal loans, business banking, gold, commercial vehicles. All the elements of those businesses are in place. Each business leader is looking to scale up. On a smaller basis, they are reflecting 70%, 80% growth. We believe that can scale into even a three-digit number as we go into calendar as we step up into '23 and '24. So, momentum is quite strong. We are aware of the headwinds and -- there are narrative around India may not see this kind of credit growth on a sustained basis. I believe our machinery is in place to support growth. And we will, of course, pull back where we see some pain, but most importantly, our share gain will continue and the momentum that we have in some of our businesses are structural, and we think the year ahead should reflect all these efforts. So without going into any specific numbers, but I'm sure in the course of the call, all of you will want to know more about each of those numbers or pass those numbers better. So between me and the entire senior team will response to that. The headline numbers are there for all of you to see a net profit at INR 804 crores is certainly very encouraging and so are the other metrics. So let me pause here. We will have questions and we'll have the entire senior team who are on the line try and answer and in case there's any data that you need, and we can share, we will share offline. Thank you very much. And operator, you may open it up for questions with everybody. Moderator: The first questionis from the line of Mahrukh Adajania from Nuvama. Mahrukh Adajania: Sir, my first question is on margins, so there has been a fair bit of re-pricing of corporate loans as well, right? So, do you think most of the corporate re-pricing is done assuming Page 3 of 22
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 there's no EBLR hike pending? And what is the outlook for margins? I heard you on TV saying that 335 is what you still maintain for the full year, which could mean that for the fourth quarter also margins will be 3.35%, 3.36%, which actually means a 13, 14 basis points Q-o-Q decline? So, what's your outlook on margins that's my first question and then I have two more questions? Shyam Srinivasan: Yes. I think, Mahrukh, the margin expansion that we saw this quarter had an effect of the timing. Our full year blended 3.35%, 3.40% is indicative of the fact that Q4 may not see these higher margins. Certainly, it will be higher than that number. So I think the re-pricing that is happening, the cost cuts have happened, but the deposit re-pricing will start showing this year. This quarter, you saw yields expand on the credit side, almost 49 basis points and deposit costs go up about 21 basis points. Some part of the residual increase will happen in Q4 and maybe in early part of Q1. To that extent, the 3.49% may be a little diminished. Mahrukh Adajania: And outlook for margins in the next year, I mean longer term? Shyam Srinivasan: Maybe in 3.35% to 3.40%. We are upgrading our guidance from 3.25% to more like mid- 3.35% and plus/minus. Mahrukh Adajania: So long term as well. And sir, just in terms of loan growth outlook for '24 for your bank. And if at all, you had any further sector? Shyam Srinivasan: Hard to call. There are a lot of moving parts. We've always maintained we will grow much higher than the industry, which we have been. Our outlook at this point in time certainly is in the high teens. We will have to re-calibrate it if things materially slowdown, which I don't see signs of. I think bank demand, bank credit growth opportunities continue our share gain in most areas. So, I think in the high teens is what we're guiding for at this point in time. Mahrukh Adajania: For yourselves, right? Shyam Srinivasan: Yes, for the bank. Mahrukh Adajania: And sir, just on employee expenses, because you have somewhat higher proportion of unionized employees, do you follow the wage agreement? And if so, what is the hike in employee expenses or provisions that you are likely to make till the wage agreement for the PSU sector is finalized? Shyam Srinivasan: I think we mentioned it. We've increased our wage provisions in Q3 itself. For November and December, we have assumed a particular rate increase, and we've applied that. So that's reflecting that will be the new run rate, too. Mahrukh Adajania: So, is it possible to quantify? Sorry, if you have, I missed it? Shyam Srinivasan: We've taken, Mahrukh, what the average has been for many negotiations in the past and taken the higher end of that. Page 4 of 22
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Mahrukh Adajania: So, it's already reflected in the base for two months, and that is what it will continue? Shyam Srinivasan: In Q3, November and December, we've already taken the higher cost. Mahrukh Adajania: And sir, I just wanted to squeeze in one last question, that your deposit growth was higher than your loan growth this quarter. And last quarter, that is second quarter, you did a fair bit of borrowings as well. So why are liabilities expanding faster? And the deposit growth that came last quarter, was it refinanced or? Shyam Srinivasan: No, we didn't have any refinance in Q3. Mahrukh Adajania: In Q2 borrowings, no? Q2? Shyam Srinivasan: Q2, we had some refinance and borrowings. Q3 no. Q3 is customer deposits. Mahrukh Adajania: And why are deposits growing faster than loans. Is there anything to read into, or it's just an outcome? Shyam Srinivasan: So, like our CD ratio in the 84%, 85% space. Moderator: The next question is from the line of Mona Khetan from Dolat Capital. Mona Khetan: Congratulations on a good set of numbers. Sir, firstly, on the margin expansion, you've had 20 bps this quarter. So just wanted to understand how much of this would be driven by the asset re-pricing? And how much could also be driven by higher share of better-yielding assets? Shyam Srinivasan: See, better-yielding assets, Mona, is a part of the overall portfolio. If you assume commercial vehicle, credit cards, gold, business banking -- sorry, not business banking, commercial vehicles, gold, microfinance, as the better-yielding, that's still a small part of the entire franchise. The credit book of the bank is about INR 170,000 crores. The cumulative of these businesses is INR 5,000 crores, INR 6,000 crores. So even if we are growing at a rapid pace, which they are, they're not able to materially alter the core NIM. But to that extent, it's more dominated by the margin – asset re-pricing, kicking in quite well. Mona Khetan: And what would be the incremental yields on corporate loans? Shyam Srinivasan: What will be incremental? Mona Khetan: The yields on corporate loans on an incremental basis. And just wanted to understand if the pricing has become more rational because this quarter, even a higher share of growth came from corporate booking also. Shyam Srinivasan: I think corporate, we see it as not just pricing. We certainly are getting better pricing than we did in the past period. Our corporate team has done a remarkable job of passing through rate increase. We saw a 225 basis point rate increase and the pass-through is close to 200 Page 5 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 basis points, both in corporate and retail. But when we look to do good credits as in good corporates, top end of the credit spectrum, we are happy to make sure that the pricing is right, but we're getting more business from them. You saw a material increase in fee income on corporate and processing fee income. That's the indicator of a full relationship pricing we're getting. Mona Khetan: And would we be able to get the incremental yields on that wholesale part of the book? Shyam Srinivasan: I think, it’s improved about 50 basis point. Harsh, are you there on the line? Maybe you want to add. Incremental pricing, Harsh? Harsh Dugar: Yes, we have an incremental pricing across the board. And we about 180 and 185 basis points which have seen a full pass-through. And the last repo hike, the full impact of it will be felt in Q4. Mona Khetan: And just finally, so you have a gold portfolio of about INR 20,000 crores. Out of this, what share would be co-lending which sourced from other NBFCs or fintechs? And is this largely part of the non-agri book? Shyam Srinivasan: Fintech-led origination is probably about 10% to 12% of this total. Harsh Dugar: That's right, Shyam, about 11% roughly, 10%, 11%, Mona Khetan: Of the entire gold portfolio of INR 20,000 cores? Shyam Srinivasan: Yes. Mona Khetan: This would be fintech's and NBFCs, right? Shyam Srinivasan: No, fintech is only one. Now we don't have any NBFC colending. Mona Khetan: And would it be fair to assume that this is largely the non-agri part of the book of INR 5,000 crores? Shyam Srinivasan: This is non-agri. Moderator: The next question is from the line of Pritesh Bumb from DAM Capital Advisors. Pritesh Bumb: Just had two questions. One is on the gold loan front. We've seen a dip in Q-on-Q in the retail gold front, even the tonnage has dropped. Any change there? Any change in strategy? Why would it have dropped by about 10% quarter-on-quarter? Shyam Srinivasan: I think in this quarter, there were some readjustments with the fintech partner for originating base on the new digital lending and some changes that need to be put in place, that's happening. So, it will come back in Q4. Pritesh Bumb: Nothing to read into? Page 6 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Shyam Srinivasan: Not that we are alert – alive to achieve. Pritesh Bumb: So why I'm asking is because the gold prices are all-time high. And generally, we tend to see a little bit higher growth in gold loans? Shyam Srinivasan: There's nothing to read into it. We remain as enthusiastic about this business and still think 25% Y-o-Y growth is possible. Pritesh Bumb: And second question was on the credit card business. Now we've been organically sourcing this for some quarters now. But the growth seems of course, the growth number seems very good, but the number of card addition and the business seems to be a little bit than as yet. So despite the opportunity in the partnerships which you have with for the CASA side well, so we don't see any big, large growth which is happening on the card side. What is your view on that? How do you see that business now? Shyam Srinivasan: So we remain excited by this business. Within organic and our partnership-led we've probably crossed INR 1,000 crores of outstanding. And this will continue to grow. Yes, the base is very small. We think we can scale this up, but I wouldn't venture to say that this INR 1,000 crores will become INR 10,000 crores in a hurry. It has to go through its paces. So yes, it's growing nicely. We are putting in a lot of energy behind it, further restructuring, creating new capabilities. And this business within organic and fintech partnerships should scale up to about a meaningful number in the next two financial years versus the base. But like I keep pointing out, on our grand total, it is still the only percentage of the whole gold business. We are not growing this exclusively nor are we making any giant acquisitions in this. So, it's more an organic strengthening of this business, which will grow well, a big opportunity, INR 1,000 crores and growing quite well. Fee income is doing well. You must have seen that these businesses have added to, if you look at our other income, these have added materially on the income line. And thankfully, no credit issues. Pritesh Bumb: And last question was on credit substitutes though the number is small, but we've seen a strong growth. Is the pricing their better because commentary generally was still that the pricing on the bond market side has not yet improved on overall basis. So, anything you find in there as attractive opportunity? Shyam Srinivasan: Usually these are used as a way to consummate a relationship. Sometimes, see, it could be pricing, sometimes it'll be the client convenience. Between credit lending and credit substitutes, we find the most optimum mix. So, it's not the Number one choice, but it may end up being an opportunity to complete the relationship. So, I won't read much into it other than it tends to be choppy. Harsh Dugar: May I add, Shyam? Shyam Srinivasan: Yes, go ahead, Harsh, please. Harsh Dugar: Yes, credit substitutes include three basis components. One is commercial paper NCD, it Page 7 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 also includes PTC transactions which are in the nature of credit substitute investments, and hence classified over there. We do it wherever we see the pricing is rich, number one. Number two, quite a few of PTC transactions also qualify as priority sector lending as well. So this is one of the primary reasons. The base is small. But there has been a shift towards credit substitutes, partly because the regulator has also been asking the larger corporates to borrow from the debt capital market. So we have planned with intent being in both sides of the market. On the borrowing side to the loans as well as the credit substitutes. Moderator: The next question is from the line of Renish from ICICI. Renish: Congrats on a great set of numbers. So, just two questions, one on the new businesses, specifically on the PL side. So, if you can throw some light in terms of the monthly disbursement run rate, what kind of yields we are getting would be helpful, sir? Shyam Srinivasan: Shalini, you want to go? Shalini Warrier: Hi, Renish. On the personal loan side, so very long term, as you know, we've been only focusing on existing to bank customers and doing a fairly digitally oriented proposition for them. Over the last couple of months, we've now expanded that. We've started a digital process for new-to-bank customers. We're still in a closed user group and we'll shortly expand that to a larger market in terms of new-to-bank customers. And we have also started a couple of propositions with fintech partners. You see that in the deck, there is a proposition with Paisabazaar, and there's another proposition with epiFi that's going live from a personal loan standpoint. So, the plan is between CC and PL the whole unsecured higher-margin products that we have, we will be scaling it up in the coming days. As Shyam mentioned earlier when he was responding to the question on credit card and to a large extent that also mirrors the answer for personal loans. It's not like even on a low base, yes, we will improve and we will increase our share, but it's not something that's going to make a material shift over the next couple of years. Having said that cross-sell to existing customers, cross-sell through fintech partners, expanding to new-to-bank customers through a digital platform will remain the cornerstones of the plan and strategy, Renish. Renish: Yes. So Shalini, I mean if I was -- ask on this specific partnership on the Paisabazaar and epiFi. So have you already started disbursing, I mean, of course in -- like you mentioned that you already disbursed 3,000 loans. Shalini Warrier: Yes. Renish: So, these loans are specifically to epiFi and Paisabazaar both together, right? Shalini Warrier: Yes, so they're both combined together for various reasons. Obviously, we don't show the split, but they are propositions to the -- so in the case of Paisabazaar, as you know, they have a credit scoring methodology through which they get customers to come in and look at Page 8 of 22
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 credit scores. So, they're cross-selling to those customers on it. To epiFi, the cross-sell it to the customers who have been on-boarded as epiFi savings bank customers over the last 12 to 18 months. And therefore, we're cross-selling to them, part of the deepening strategy for them. So different propositions. The Paisabazaar relationship gets us more new-to-bank customers, Renish. The epiFi relationship gets us more deepening of the cross-sell and deepening of the relationships with cross-sell with epiFi customers. Renish: And would you mind to share the average ticket size? Shalini Warrier: Sorry, I didn't get that. Renish: The average ticket size per loan disbursement? Shalini Warrier: The average ticket size, you can work it backwards then if I give you that, but the average ticket size is about INR 1,50,000. Renish: Shyam, so my next question is to you, in terms of clarification, when we say this 10 basis point improvement in RoA. So, what's the base of your assuming? So Q3 RoA of 1.3% is the base or 1.25%… Shyam Srinivasan: Blended ROA of this year will be about 1.25%, full year blended. Renish: And from there onwards, 10 basis point every year is what we have taken? Shyam Srinivasan: Interest rate this year will be 10 basis -- I mean I won't say every year. Right now, outlook is for FY '24. I'm not committing beyond that. Moderator: The next question is from the line of Madhuchanda Dey from MC Pro. Madhuchanda Dey: So, yes, congratulations on a great quarter. I have two questions. One is, you mentioned quite a few times about winning market share. So, if you could just throw some more color on who all are losing market share to you? Or which are the focus where you're winning market share? Shyam Srinivasan: I don't know who is losing. I know we are gaining. One of the recent reports that have come out, has taken a five-year CAGR of private sector bank credit growth and places us in the top three in that, consistently growing share. And it's evident in our numbers, right? We probably are the only bank that has doubled our credit book in the last five years. So evidently, credit is growing. Who we are losing to, I can't quite comment. But I can suggest that in our expansion and distribution, all our product clients growing at 18%, 19%. Credit indicates that if the system growth is 17% and some are reporting 12%, 13%, evidently those banks that are at 12%, 13% are losing and we are gaining at 19-odd percent. And it's broad-based, and we believe that will sustain. So, I can't say who is losing, but I can say that we are gaining, and we should keep that increase that distance. Page 9 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Madhuchanda Dey: Yes. My second question is on the 10 bps expansion in ROA, which is a near-term outlook for FY '24. If you could give us some color on the ROA expansion tree in terms of what you expect to come from PPOP, from low credit cost, I mean, all these other components, I mean, rough color on the same? Shyam Srinivasan: See, it's a mix. I've always maintained that it's never one silver bullet. It's steady, regular all rounds. The mix of the business, continued improvement in credit standards and our efficiencies going in, our digital capabilities are getting better. And there will all be some opportunities on the treasury and investment side, a combination of it all working in favor of the bank. We don't want to take our eyes off any one line. A little, 2, 3, 4 basis points in each area, Madhu. So, no silver bullets. Moderator: The next question is from the line of Kaushik Poddar from KB Capital Markets. Kaushik Poddar: Shyam, as usual, you have been able to tick all the boxes. So, my next question is a little complicated, if you may, let me put it. In the sense that, see, right now, we are quoting at a price to book of between 1.2%, 1.3% FY '24, '25, right? And the top-most bank, which is HDFC Bank, is probably quoting at 2.1%, 2.2%. What do you have in mind so that the price to book value goes up to that level? Is it possible? And are you thinking anything in that line? Because ultimately, the shareholders are looking at something like that, the price to book value going up. It has already gone up. In the last two, three years, it has already gone up. So, are you thinking in something in these terms? And secondly, you have reached a capital adequacy ratio around 13% or something. So, you need to raise capital, I guess, next year. So, can we expect some marquee name as to whom you may place your shares? Over to you. Shyam Srinivasan: Thanks. I will take the second part of your question first. I think at this point in time, the CAR without flowing back FY '23 profit is in the 13 point something. When we put that in by end of April, we should be back to 14-odd. Our own internal figure point is somewhere in the 13. So, we will consider, but we don't have any firm timeline. Certainly, in calendar '23, there may be an opportunity and a requirement if we continue to see good growth prospects, which we think we are seeing good growth prospects. So, we will wait. Whether we get a marquee name or a bunch of good names or a combination, we'll have to see. We haven't initiated anything on that count. Certainly, we will be looking out. If there are marquee names interested. I'd be happy to have a conversation. But right now, there's nothing on that count. On the earlier part of your question, what are we doing to get the shareholder return? I mean I can only promise, as I have promised every quarter and hopefully delivered on most of them, to make the best for the bank to ensure that our performance levels are continuously improving. We don't take our eyes of that. Unfortunately, stock price is not entirely in our Page 10 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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Private Sector Bank
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The Federal Bank Limited January 16, 2023 control. I know it's a bad statement for an MD to say. But I would be candid, we can only do that much. We can only perform and communicate. Results are many moving parts. That said, it's evident that our performance is getting rewarded in the more recent years. We think it's only a matter of time before we get discovered fully. So, I would say we are not taking our eyes off the performance. And the commitments we gave and the commitment we give are being honored. We'll keep dialing that up. Like I said, the language of the bank at all levels, the mission and the passion is unhindered. And I believe that our best is sort of yet to come. Beyond that, I can't comment, Kaushik. I'd be happy if you guys have investors influence the outcome and make sure that the stock gets the deserved pricing. Moderator: The next question is from the line of Rakesh Kumar from Systematix Shares. Rakesh Kumar: So, the first question is basically pertaining to the NR deposit number, which is looking a little soft and there is a market share volatility as well with respect to previous quarter number. So, any comments you would like to offer on this issue? Shyam Srinivasan: I don't think anything unique. I mentioned in the last quarter also, our deposits, I mean remittance share is constantly moving up. Remittance coming into India, we are getting a larger share. But it's translating into deposits, there has been a market change. People have either used for various other elements of completing their credit payments or investing in something or going into the market. To that extent, there has been a deposit behavior change of conversion from remittances to deposits. That's something we have keep a tight watch. So as a bank, we've been able to gain share in resident savings. So, we'll keep an eye on those things. I don't know if we can read much into it other than the fact that the remittances share has increased. What you are seeing in the deck is a point in time, typically at the end of Q2 its lower, and it comes back in Q3. So, we will see how that number goes. But I wouldn't read much into it. Rakesh Kumar: Sir, can you, sir, this SAR deposit composition industry-wide, do you see that there is a compression because there are various reasons apart from the cannibalization issue of the TD rates, and there are other issues also, household savings numbers have kind of come down, especially towards deposit. And we also have seen some impact there. So, any thought that we have put in terms of guidance, if you can help us that maybe one year down the line where we would be in terms of SAR deposit composition? Shyam Srinivasan: You may have seen it and observed it across the industry, right? When the interest rates are higher, the difference between saving rate and term rates being very material, there's a migration towards term. Second, when there is a chase and award for deposits, people are attracting it to higher price term and trying to get customers in. Page 11 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 But as business velocity increases and momentum of money supply increases, you will start seeing SAR getting generated. Usually, credit generates more deposits. So, I do believe, and hopefully nothing going wrong in India and 3, 4 quarters from now, situation should change. I'm not a camp that believes that CASA for anybody will keep endlessly increasing unless you are materially increasing your savings rate, which therefore is equal to term rate. So, I think it's better to lock in money longer than to keep savings which can be in and out. So, it's a point in time, but we have to watch out. I don't think it's the end of the road for CASA. SAR will be impacted as it has been impacted for the entire industry. And I think that will cure itself as the economy starts lubricating better. Moderator: The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead. Saket Kapoor: Firstly, sir, how is this cost to income going to shape up going ahead now that the rising interest rate scenario, what should we factor in, in terms of how this line item will be going ahead? Shyam Srinivasan: We had mentioned that we will try and improve that by 100 basis points each year. Happily, we have delivered this year. We're at about 48 and change. Our target is to push it closer to 48 or 47.5 in the next financial year. And that's what we'll be focusing on. And it's a bunch of things, both as you know, the cost to income is both cost and income, it's not one or the other, efficiency and better mix of business and income growth, on both counts work is going on. We've demonstrated it at this point in time, and we believe that it will continue. Saket Kapoor: And, sir, we have factored in this higher cost of deposits going ahead. That is the figure. Shyam Srinivasan: When we're moderating our NIM guidance, to some extent it factors in the potential higher cost of deposits in periods ahead. Saket Kapoor: I didn't get you, sir. Come again. Shyam Srinivasan: In the NIM guidance, which we had some moderation from the high of 349, it factors in the increased cost of deposits in the period ahead. Saket Kapoor: Sir, as you mentioned, that there is a strong demand for credit, and majority of the banks are continuously focusing on the retail segment. So, if you could give us some more general details where is this demand arising from? And what are the factors that have led to it and the strength of this going ahead, the demand in credit that we are witnessing for the last few quarters? Shyam Srinivasan: So as a bank, those of you who have been following us for long, we've always said we will be reasonably equally weighted retail wholesale. Within wholesale, the different businesses, within retail the various businesses. We are not suggesting that one business alone will carry us. Page 12 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 That is not our mantra. And it serves the bank well, both through bad periods and good. And no difference for the future ahead. I think there are opportunities for all our businesses. Particularly our share being low, there's opportunity for us in all our businesses. Some more than the other is where we would say. To that extent, Mr. Kapoor, I think the opportunity for us is not in any one business. And I think all our businesses have an opportunity to scale up and we are pushing that hard. Did I miss some part of your question? Is that what you said? Or is there something else you want? Saket Kapoor: Sir, I'm trying to look at the factors which have led to the bankers like you putting up putting or having comfort in the statement that there's a strong credit demand. So just wanted to understand the feel-good factors that the banking system had today that is leading to this huge credit demand and the sustainability of the same going ahead. What are the factors that are contributing to it? Shyam Srinivasan: I got it. I think the big one that shifted the needle in the last, let's say, three, four quarters has been the fact that, A, there was pent up, B, the other cost of money was high and therefore people shifted to the more formal banking system. So, these are drivers of banks' credit. Banks had more appetite. Everybody had capitalized well, credit quality had improved. So, banks were willing to lend and there was an opportunity. Now as that moderates, as we go into FY '24 and beyond, those banks have continued to be well-positioned. We'll have a larger chance of getting the share. Those who have increased their distribution in all the businesses will get a larger share. Those who have increased their product offerings and are hungrier for credit growth will pick up share. And it's we think the formalization of India is giving rise to more credit opportunities. I know these are not headline statements. GST collections are going up, that many more people are filing GST. That many more data is available, that much more digital footprint is available, that much more preapprove capabilities are coming into banks. The use of bureaus, the use of credit score cards, the use of third-party digital data, are all enabling. Saket Kapoor: And if I look at the line item for this, still small point. When you look at you’re -- the line item in the treasury part, on a Q-on-Q basis there is a decline. So, what explains this decline in both the revenue part booking as well as on the bottom line under the segment results? Shyam Srinivasan: Harsh, do you want to give the response? Harsh Dugar: Yes. I think what you are seeing is there is a onetime impact of RBI circular, which came in December. This is more about a clarification on securitization receipts. So, prior to 2018 also, they have included all the securitization receipts to follow the norm, which is applicable post 2018. That means you have to consider, as if you are invested in securitization receipts wherein the underlying is your own asset, you have to treat as if that asset was continuing as a loan and Page 13 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 accordingly, provision should be made. So as a result of that, we have made the provision for the remaining entire balance of SR. So now our net securitization receipt balance is zero, nil. So, whatever is the outstanding, the same amount of provision is also standing. That has created an impact of additional INR 46, crores, INR 47 crores. So that is showing in your treasury line because it comes above the line, not below the line. So it comes -- it gets netted off against the profit on sale of investments, schedule 14. Saket Kapoor: Sir, yes, sir. And also want to point out one factor now the investors are also receiving e-mails post the number. So that's a good exercise. I think it was started by the bank maybe for this quarter. And I congratulate the team for sending us the key highlights over the registered e- mail. So that is a good point of acknowledgment from the IR team, sir. Shyam Srinivasan: We'll make sure that it gets better. See, Mr. Kapoor, you mentioned that in the AGM and we have taken note of that. Saket Kapoor: Sir, thank you, sir, for remembering me and highlighting that fact, sir. And that is again a point also on the artificial intelligence, sir. How is AI going to help us in detecting the NPA or the stress in the system or the early detection, what steps the bank is taking and how are you ahead of the curve in this aspect in depreciation of this case and the NPA? Shyam Srinivasan: As a bank adoption of technology, using contemporary practices has been our very keen focus also, you will observe. So for every part of the bank, whether it's origination, underwriting, collections, credit, deposit structure, we use technology and no different from a point of early detection. Our collections and credit monitoring teams have invested materially in technology that reads ahead of the cycle in terms of various parameters. They have, I think, coined about 112 or 113 indicators, which are early indicators, which enable them to look at an account long before it has any potential stress developing. And then the intervention starts very early. They are building models and using technology to enable that. AI as all of us know, is only a means to an end. It's not an end in itself. So, the teams are working on that. Saket Kapoor: And what portion of our loan book is on floating rate, sir that gets factored in with every change in the repo rate? Shyam Srinivasan: Yes. The external benchmark is about 50% of the book, 50 points. Saket Kapoor: And that is because of the gold portion also, I think a significant part of the loan book? Or is it lower to the industry average? Shyam Srinivasan: I wouldn't know about the industry average, but in our advances, EBM is about 50.4%. Moderator: The next question is from the line of Jay Mundra from B&K Securities. Please go ahead. Page 14 of 22
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Jay Mundra: Congratulations on a great set of numbers, sir. First, sir, you mentioned EBLR is 50%, 50.4%. If you can provide the detail for other MCLR and base rate and maybe the fixed rate book. Shyam Srinivasan: Yes, the fixed rate is about 24.8% or 25% and MCLR is 14.5%. And the rest is all FX, base rate, staff and others. Jay Mundra: So, sir, considering 50% is EBLR. And maybe we are nearing the peaking, clearing the peak of interest rate cycle, barring maybe one hike? Going into '24, how comfortable you would be with kind of a stable NIMs or maybe marginal, improving NIMs outlook? Because as you said that the cost of deposit rise may surpass the yield increase in fourth quarter. Then ideally that should be the case for the entire year '24 or there is some different thinking there? Shyam Srinivasan: I think we have moderated our NIM to in the 3.35%, right? That factors all that in. Jay Mundra: So sorry, so I thought 3.35% to 3.40% is for this year and the same is for the '24? Shyam Srinivasan: Yes, which is what you're also saying, right? FY '24, around these numbers. And everything is factored in, mix of the business, the credit quality, the pricing on both assets and deposits, the incremental credit flow in the quality of the book, offset because of higher slippages or lower slippages, all that influences the NIM. Jai Mundhra: Right. Okay. Secondly, sir, on security receipts. So, you have taken probably a prudential step because you have taken the entire SR as if they were, let us say, doubtful three, and hence you have provided 100%. But if I were to calculate let's say, the normalized cost which would have been there if you would have just followed RBI circular. And so, in that sense, what out of this INR 47 crores or INR 47 crores, INR 48 crores, how much was, let's say, mandated provisioning? And how much was prudential provisioning just to understand that aspect? Shyam Srinivasan: Yes, the entire provisioning was as per RBI's 5th December circular. So, it's not a judgment or prudential element hasn't come in. So whatever RBI has prescribed, said, it has to be provided 100%. So that's what we have done. Jai Mundhra: Okay. So, correct me if my understanding is wrong because RBI had said that you have to -- I think Ashutosh sir also mentioned that you have to treat SR as if they are on your books or loans, right. So as per IRAC, which is followed in loan growth. So, most of your SRs were D3 category, right? Is that what you're saying? Ashutosh Khajuria: Actually, we have not taken any SR. I mean, no loans under with underlying NPAs and all that. None of the SRs have been taken in the past four, five years. So naturally, they would be moving to this 100% requirement. And rather than doing it, valuing these securities and accordingly arriving at the valuation through third party, which is advised by ARCs, which was the practice earlier, you still have for those NPAs some securities. I mean some realisability is there in all. But now because the aging has happened, one shot, everything has been provided, 100%. Page 15 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Jai Mundhra: Right. So the entire portfolio was prior to 2018, right? That is what you have said. Harsh Dugar: Yes, all prior to 2018. Jai Mundhra: Absolutely. Sure. Great. And last thing, sir, Shyam, you mentioned that your wage provisions, you have been making basis the earlier settlements. But if you can provide a number that you are estimating to start with? And what is that number in rupees crores so that just to get an understanding what could be the steady state provisioning and maybe the staff cost number? Shyam Srinivasan: Roughly INR 20 crores a quarter to month we are providing extra. Jai Mundhra: And if I were to strip this INR 40 crores from this quarter, the rest should be BAU and then you add three months of this wage provision. Is that the way to look at it? Shyam Srinivasan: No, it's not November, December. It's effective November 1. Jai Mundhra: Right. So, from next quarter, maybe additional INR 20 crores because for one additional month? Shyam Srinivasan: No, additional INR 20 crores per month. Jai Mundhra: Right, so that is what I said. Shyam Srinivasan: What you're saying is correct, INR 40 crores plus another INR 20 crores, yes, INR 40 crores for two months and INR 20 crores per month. Jai Mundhra: Right. And there is no other, let's say, any other one-off or maybe supernormal kind of wage that is there? Shyam Srinivasan: No, I think in the past bipartite and all, I think the increase has been somewhere between 10% to 15%, 13%. We have got conservatively and taken the highest of that. So 15% we have straight away started from the day bipartite has become due. So from 1st November, 2022, it's due. So, from that date itself, we have started providing 15%. Management: And in part would remain on how the yields move. If yields fall relatively, then you will have to then look at the pension benefits based on the discount rate and all the things. So that is something which is beyond anybody's control. As it comes, then we will be facing it. Moderator: The next question is from the line of Krishnan ASV from HDFC Securities. Krishnan ASV: Just a very quick question on the fee income traction that we have been seeing. And it's been fairly consistent, so that's nice to see. So, Shyam, your thoughts on how much of this is a tailwind of where we are at the macro, the fact that the high-quality large corporates are allowing you a certain environment where the pricing power is relatively free because every other bank is also beginning to see this versus how much of this is purely this capability given the fact that share of wallet has gone up and hence. I mean, is there any way to split hairs on this at all? Page 16 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Shyam Srinivasan: No, I can only confirm that it is not opportunistic or arbitrage, it is structural. If you by any chance see Slide 29, you will see quarter-on-quarter sequentially loan processing, exchange commission, brokerage and other fee income going very steadily, reflecting the underlying business growth. In many quarters back, we said credit growth, 2% more fee income growth, and that's holding out quite well. Krishnan ASV: Just the other thing around asset yield as well, given that you have been building towards the high-quality portfolio for a fairly very long period of time. But it was not reflecting in asset yields because it was a very crowded trade. Even now it seems that way, but at least the pricing power seems to have come back with more and more banks exercising it. Is that just a function of where we are in the repo rate cycle? Do you think that comes off at any point, I mean, at any phase at all? Shyam Srinivasan: It is to some extent, yes, it's where we are in the cycle, but I also think having seen this for as long as I have, at any point in time somebody has discretion problems in the industry. So somebody ends up being crazy. So it's not something that you can always say. But yes, broadly, the power is now not entirely to some maniacal behavior. There is some order that is list out. Moderator: The next question is from the line of Prakhar Agarwal from Elara Capital. Prakhar Agarwal: Just couple of questions. One is on MSME. So how do you see the competition level moving in there? Are you able to pass on the rate hikes efficiently in that? Or probably the competition is pulling that back? And a related question to that is, since you are on a fixed rate book as well, have you been able to pass through the entire rate hike at a system level to these guys or probably you that also is lagging the transmission? Shyam Srinivasan: That was by the nature of fixed rate, it cannot be you cannot pass through right away, right, it has to only maturity you will. Prakhar Agarwal No, on a fresh disbursement… Shyam Srinivasan: On fresh, yes. MSME, I think the general theory we hold, yes, there are little more pricing opportunities. But even there, the better customers are getting both opportunities and are demanding. And if you want the better credits, there's a price trade. And we try to use that trade opportunity by getting in other businesses of the client. And we've seen meaningful progress there, both, Harsh, both businesses have seen a good traction on other income. And so as business banking. Prakhar Agarwal Sir, just second -- that is on the second part of clarification. On the fixed rate book, the part that I meant was for fresh disbursements have the loan yields risen by the similar amount that the system has gone up or it's slower? Shyam Srinivasan: Shalini, Harsh, on the... Page 17 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Harsh Dugar: Yes. See, on the fixed rate loan, it's not that fixed rate loans have gone up by 2.25% across the board. So obviously it has been passed on, but not necessarily the same intent, same spread, so. Shyam Srinivasan: Even auto loans have not gone up by 200 basis points. Harsh Dugar: Yes, exactly. Prakhar Agarwal: And what would be the level of pass-through, if at all you could quantify that number. I know it's a broad number, but? Shyam Srinivasan: 80 to 100 basis points. Prakhar Agarwal: Okay, that's 225 or 200 basis is what they've asked. Shyam Srinivasan: Shalini, would that be right, Shalini, on the auto loan? Shalini Warrier: Yes, Shyam, that would be about right, yes. Prakhar Agarwal: Got it. And just last bit on your expansion. So, you probably highlighted that you will probably plan to add around 65 branches for the financial year. How are we looking at our branch network over period of next two, three years? So, we have been fairly stagnant over last five years. So just from that sense, going forward, how are you looking at that? Shyam Srinivasan: In the April, May call, '22, we had said we'll add between 50 and 75 in FY '23 and similar numbers two years from there or a little more. 250 branches is what we said we'll add over a 3- year period. As I speak to you, I think we have crossed 60 this financial year and well on course to make it maybe 75 branches this financial year. And roughly between 80 to 90 branches each year over the next two years. So roughly 250 branches. Yes, the size of the branch changes, the role of the branch is more sales and service oriented. But I don't see branch alone. We are putting in a lot of mobile capability as in not digital mobile as in physical mobile as in bus branches. We are the only bank that has got two buses plying in Madurai and Lucknow as branches. We've got our DBUs and of course various mobile-related solutions. Moderator: The next question is from the line of M.B. Mahesh from Kotak Securities. M.B. Mahesh: Congratulations on great results. Just a couple of questions. First one on the again, this question was asked but again asking this again. If you were to look at your cost of funds moving between now and the next few quarters, keeping things as where they are, where does it peak out? And correspondingly, on the loan side, a similar trend as well? Shyam Srinivasan: Harsh, yes, you want to go? Harsh Dugar: Sorry, please come again, Mahesh. Page 18 of 22
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41,635
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84ca976e-679e-4898-878f-b631ad392655
| 500,469
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 M.B. Mahesh: Harsh, the question is simple. See, today, if you look at the cost of funds and you look at the rate of change that you're seeing out there between now and the next couple of quarters, how does it move? Like it's gone up from 4.4% to 4.6%. Where does it peak out? And at what pace does it change? Harsh Dugar: See, where will it peak out would depend on where the RBI stops raising the policy rates. It would be a function of that. But I think this 20 to 25 basis points hike per quarter till the rates are moving up in next at least a couple of quarters is possibility. So it may move up. M.B. Mahesh: Interest rate is unchanged and that's what I'm keep that unchanged, you would say that it's how does it move? Harsh Dugar: Yes, about 20 basis points per quarter it should happen. M.B. Mahesh: And on the asset side, how much is pending now? Harsh Dugar: Asset side, I think, should grow with another it should be higher than in the fourth quarter, my expectation is that it would be higher. So, if it is 20 basis points increase on the deposit pricing, on the yield side we should have anything between 25 to 30. M.B. Mahesh: The second question to Shalini ma'am. Ma'am, just the progress on the Federal Bank subsidiary. How has it gone? What has been progressed in terms of efficiency that you've been able to extract so far? Thank you. Shalini Warrier: Mahesh, are you referring to the insurance subsidiary or the… Shyam Srinivasan: No, he is talking about FedServ Shalini. Shalini Warrier: FedServ, sorry. I think Venkat will comment on that one, I'm sure, in addition to what I will say. So Venkat has to say a few words. I think clearly, we're seeing a huge amount of energy or potential that has come out of it. A lot of the activities that we have normally been done in the branch are now being done in a more effective manner. The number of employees has crossed, if I'm not mistaken is in the 700 range right now. We've also migrated a lot of the activities like the call center into it, both inbound and outbound, collections activities. And we are in the process of migrating a few more activities that we do in the branch to it. So clearly, we're seeing the benefits of it. Probably you won't see the direct benefit on the cost-income ratio, that's because there are so many things that are moving in the cost information. But the best way to look at this, Mahesh, is what we would have been the cost if we had to do some of these activities as we've been growing in the bank. So, if we see that in terms of the benefit, clearly you can see that is giving us benefits. Venkat, I think you're closer to it now, and you should probably add to what I said. V. Venkateswaran: Yes, Shalini, yes, thanks. Mahesh, we have a fairly ambitious plan to scale up what activities can be done by the operation subsidiary. Currently, as we speak, close to 900 headcounts split Page 19 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 between two locations. There is clear visibility of adding at least another equal number to support all the bank's activities, which are permissible as per the RBI's approval. And there are some additional activities as well, which we will now start performing from the operational subsidiary. And we are looking at more than cost saves, yes, there will be. But what we are looking at is creating operational centers of excellence where the process will be reengineered and use of -- earlier there was a question about AI and all that, to the extent possible where processes can be automated using some of the new-age technologies, we will do that. So that through that route, we bring in the efficiencies which will be eventually reflected in the bank's numbers. So to sum up, very ambitious plans to scale it up. We have grown from almost 600 to 900 in a year. And probably the pace at which it will grow will be further speeding in the next 12 to 18 months. Shyam Srinivasan: Maybe we can bring it to a close, Souvik. if there are more questions, we can take it offline. Souvik? Souvik Roy: We can close it, sir. No problem. There are few more questions, but we can close it as of now. I think, yes, we can. Shalini Warrier: Yes, how many are pending in the line? I mean if they have signed up and waiting, it's not fair to cut them out. Souvik Roy: So, there are close to seven, sir. Shyam Srinivasan: Is there any burning questions? Souvik Roy: We can take, sir. So we have Manish Shukla next on the line, and few again joined for the second time, I think, in the queue. Shyam Srinivasan: We'll take five minutes more. Souvik Roy: Sure. Moderator: Sir, so should we take the next question? Shyam Srinivasan: Yes. Take the next two question, please. Moderator: The next question is from the line of Manish Shukla from Axis Capital. Manish Shukla: I’m saying that while individually credit card and PL may not be a large part of the portfolio, the high-yielding segment that you've added, collectively, how large do you think they will become, let's say, around the load? Shyam Srinivasan: If you recall, Manish, a few years ago, I said by FY '23 end around this March, these three businesses, commercial vehicles, credit cards and micro finance, these three businesses will be Page 20 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 about INR 6,000 crores to INR 7,000 crores. And we think that will double in the next two years or a little more than double. Manish Shukla: And in terms of the credit underwriting, the only reason I ask this question is that we'll probably see the margin-related benefit or yield-related benefit being front-ended, whereas typically credit cost come and hit us with a lag. You've seen this script play out elsewhere in the system? Shyam Srinivasan: Not in settlement, Manish, that I will say with some degree of confidence and arrogance. We have not allowed that to happen. Manish Shukla: Sure. So you remain confident that they did not jeopardize the ROA trajectory. Shyam Srinivasan: No, by now it would be INR 5,000 crores, INR 10,000 crores. We are extremely adamantly focused on that. Manish Shukla: All right. The last question, Shyam, is that for better part of last 10 years, the risk-weighted asset density for the bank has been hovering around 60%, which is lower than some of your larger private sector bank peers. Going forward, you think you will still be in this ballpark trajectory or are there plans to push it higher? Shyam Srinivasan: Sorry, repeat, come again. Manish Shukla: The risk weighted asset density, the risk weights to total assets for the bank has been hovering around 60%, between 58% to 62%, whereas most of the larger private sector banks, peers would be 65%, 70% plus, and that explains the yield and margin difference, obviously. Any plans of pushing it higher or you will ballpark be in the same vicinity? Shyam Srinivasan: See, the outcome of the business model, Manish, it's not so much as that's the number which is, the businesses that we are pursuing and the mix of the business will reflect in that. There will be some movements, and that reflect in the ROA. That's how we've brought it up from unfortunately, it went down to 0.76%, and we brought it up to 1.25%, and credibly and consistently, we'll keep pushing that up, and that's our commitment. Any other question, operator? Is there anybody? One last question. Souvik Roy: There is one more, sir. Moderator: The next question is from the line of Gaurav Jani from Prabhudas Lilladher. Gaurav Jani: Congratulations. Firstly, just wanted to theoretically understand. Say, for example, RBI raises the repo by 250 basis points. Is it safe to assume that the entire 250 basis points would be passed through in terms of overall use? Shyam Srinivasan: Over a passage of time, yes. May not be penny to penny, but largely, yes. Page 21 of 22
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FEDERAL BANK LTD.
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FEDERAL BANK LTD. - 500469 - Announcement under Regulation 30 (LODR)-Earnings Call Transcript
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https://www.bseindia.com/xml-data/corpfiling/AttachLive/d04c7fb4-af5f-473d-bcc5-30e3a114e6e2.pdf
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The Federal Bank Limited January 16, 2023 Management: I think for repo-linked rate accounts, yes. But for others, it could be some part of it or, I mean, maybe entire depends on which segment we are into. Gaurav Jani: Understood. Just wanted to theoretically understand as to how much is the rate? Harsh Dugar: On the retail loan side, we have been able to do it nearly 200 basis points out of 225. And the last hike has happened only in December, 35 basis points. So out of 190 hike, we could move to somewhere around 200 basis points on the retail side. A similar number was there even for corporate CIB, somewhere closer to 182 -- 181, 182 basis points or so. So, I think -- and there is another segment where it was just 155, 160. So, it depends on what type of competitive intensity is there in the market. Gaurav Jani: Understood. Just last question, sir, sorry to harp on it a bit more. But the cost of funds have sort of beaten estimates. So how should we look at it in terms of the fact that this quarter we saw a fair bit of increase in the wholesale deposits, but it seems that the cost of funds were pretty much managed well. Shyam Srinivasan: So, despite increase in wholesale deposits, the percentage of wholesale deposits to total deposits still is very small. So even if that segment has seen some sharp hike in rates of interest, it's not impacting the whole stock to that extent. Granularity is the retail nature of deposits, which gives us an edge. Moderator: Ladies and gentlemen, we will take that as a last question. I now hand the conference over to Mr. Souvik Roy for closing comments. Souvik Roy: Thanks, Faizan. So, in closing, I want to thank you all for joining us today. We are committed to delivering value, and we will continue to focus on our growth and strategies. As always, the management team and I are available to answer any questions that we may have skipped today. We appreciate your continued support, and look forward to updating you all on our progress in the future. Thank you all, and have a great year ahead. Thank you. Shyam Srinivasan: Thank you, everybody. Shalini Warrier: Thanks, everybody. See you. Bye-bye. Thank you. Shyam Srinivasan: Thank you. Moderator: Ladies and gentlemen, on behalf of the Federal Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Page 22 of 22
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