Fedbank Financial Services Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

7 C.V. Ganesh, Jagadeesh Rao, K. Suresh, Lokesh Pareek, Parvez Mulla, Shardul Kadam, Vikram Rathi

Analysts

11 Chetan Gindodia, Devansh Dhruv, Digant Haria, Dinesh Loni, Ghansham Joshi, Mohit M, Pawan Kumar, Rahul Kumar, Rajiv Mehta, Renish, Yash Dantewadia

Financials & KPIs

Geographic & Segment Commentary

• Gold Loans: AUM grew 77% YoY to ₹11,191 Cr (8.1% QoQ) despite a ~15% decline in domestic gold prices between Jan 31 and Jun 30, 2026, with tonnage up 1% QoQ. Doorstep gold AUM rose 96.5% YoY to ₹1,787 Cr with AUM per branch at ₹17.7 Cr. LTV on AUM increased to 67.9% primarily due to the price decline, while onboarding LTVs remained similar to Q4. Post the April 1 RBI LTV framework change, the company shifted from bullet loans to a periodic interest-due structure; reported overdues are expected to remain elevated near term as customer repayment behaviour adjusts.

• Mortgage (Small & Medium Ticket LAP, Home Loans): Mortgage AUM grew ~14-15% YoY to ₹9,777 Cr with disbursements up 4% YoY to ₹673 Cr. Small ticket LAP (₹7-35 lakhs) operates at ~16% yield; medium ticket LAP (₹35 lakhs-₹3 Cr) at ~12-12.5% and faces significant competitive yield pressure. Management held yields and approval rates conservatively, treating disbursal as an output; no stress observed in either segment this quarter, with the new book performing better than the shrinking old book.

• Co-Lending & Direct Assignment: DA income was negative at ₹13 Cr as the company consciously de-grew direct assignment reliance. Regulatory transition issues at co-lending partners pushed a large part of CLM business onto the balance sheet, lifting leverage to 4.89x from 4.6x and adding ~10 bps to interest expense in the ROA tree; normalisation is expected over the next few months.

Company-Specific & Strategic Commentary

• Consistent Strategic Priorities: For the fifth consecutive quarter, management reaffirmed the same framework — allocate capital to businesses earning strong consistent returns, grow a fully secured book, scale the twin engines of gold loans and LAP, grow core income while reducing DA reliance, transition to an efficient cost structure, and hold credit costs at ~1%.

• Leadership Reorganisation: George Oommen joined as Business Head – Gold Loans (30+ years of retail banking experience, reporting to Jagadeesh Rao). Jagadeesh Rao assumed additional charge as CBO – Small Ticket LAP and Home Loans, unifying gold and ST LAP under one command to unlock resource utilisation across the 400-500 gold branches where ST LAP is not yet sold; Shardul Kadam moved to Chief Transformation Officer to drive end-to-end business transformation and efficiencies.

• Shareholding Change: True North Fund exited its entire holding of ~25.7 million shares (6.86% of paid-up capital) via a block deal; shares were acquired by Nomura India Equity Fund (FPI). Management welcomed Nomura and expressed gratitude to True North for its long-standing partnership.

• Branch Expansion: FY27 guidance of ~200 new branches (vs 150 added in FY26) remains unchanged; Q1 openings were deferred to Q2 with premises identified and work completed. Management views distribution and branch expansion as central to the growth strategy, targeting deeper penetration in existing 18 states plus new territories such as Odisha.

• Operating Leverage: Opex to average total assets improved 70 bps QoQ to 4.8% and cost-to-income improved 400+ bps QoQ to 52.8%, creating headroom for branch investments; management cautioned Q1 seasonality (softer disbursements) contributed to lower sourcing costs, with opex expected to rise as originations pick up.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Gold Loan Regulatory Transition & Competitive Positioning

• Question: How has FedFina positioned itself under the revised RBI LTV framework, and how does the NBFC-vs-bank equation change? (Digant Haria, Greenedge Wealth)
• Answer:
  • Parvez Mulla: Under the new rules, 85% LTV on bullet loans requires subtracting interest upfront, pushing the industry toward periodic interest-due products (quarterly/half-yearly).
  • FedFina also offers income-generating loans (IGL), similar to banks, so NBFCs remain competitively positioned.
  • The new construct optically inflates 1+/30+ delinquency reporting but does not increase asset risk given auction-backed collateral; product innovation is the new competitive lever.

Gold Growth Outlook Amid Price Correction & Volume Dynamics

• Question: With the sharp gold price correction, what is the growth outlook? Also, disbursements rose only 15-20% despite ~35-40% higher gold prices and 20% capacity growth — was there a volume hit? (Digant Haria, Greenedge Wealth; Rajiv Mehta, YES Securities)
• Answer:
  • Parvez Mulla: Guidance unchanged — 25-30% gold AUM growth even in a flat-price scenario, driven by 10-12% annual tonnage growth (Q3/Q4-weighted) plus LTV expansion on quarterly/half-yearly products. FedFina lends on the lower of the 30-day average or spot price.
  • Jagadeesh Rao: Last year's Q1 tonnage was actually degrowing with growth purely price-driven; this year's growth includes tonnage. Post-regulation, there is a skew toward ticket sizes >₹2.5 lakhs; no impact on high-ticket acquisition.

Leadership Reorganisation & ST LAP Synergies

• Question: Will the small loans and home loans under Jagadeesh be new products? (Digant Haria, Greenedge Wealth)
• Answer:
  • Parvez Mulla: Jagadeesh Rao continues to lead gold (with George Oommen under him) and takes additional charge of the existing ST LAP business; no new products.
  • Rationale: the 400-500 gold branches where ST LAP is not yet distributed offer strong resource-utilisation upside; same target market, similar distribution, and under-penetration in both products.
  • Fits the long-term vision of making the branch the epicentre of all products over the next 3-4 years. Gold auctions in the quarter were negligible (<₹1 Cr).

LAP Disbursement Softness, Stress Flows & Yield Strategy

• Question: LAP disbursements look weak — what is the outlook? And are there stress flows in small-ticket LAP? (Chetan Gindodia, Mahindra Manulife; Rahul Kumar, Vaikarya Fund)
• Answer:
  • Parvez Mulla: Entity growth guidance is 20-25%; LAP to grow ~20%. Medium ticket LAP faces significant competitive yield pressure; small ticket LAP saw lower approval rates. Management is holding yields and treating disbursal as an output, not a target.
  • On stress: slippages as a percentage of the old book are similar to the prior quarter and tracking expected trends; the old book is shrinking while the new book is behaving significantly better. No adverse movement in ST LAP flows.

Credit Cost Trajectory & Regulatory 'New Normal' in Delinquencies

• Question: Should credit cost trend down given PCR is at 38%? And how should reported delinquencies be read under the new gold loan structure? (Renish, ICICI Securities; Devansh Dhruv, Equentis)
• Answer:
  • CV Ganesh: Mortgage credit cost is not expected to rise; the unknown is gold delinquencies under the new interest-due structure, though collateral is highly liquid. The new construct makes 1+/30+ numbers non-comparable — investors should not over-read them.
  • Parvez Mulla: 1+ delinquencies are ~200-300 bps higher at entity level due to the gold construct; mortgage delinquencies unchanged. Sub-1% credit cost guidance reaffirmed; mortgage GNPAs tracking well; West Asia crisis not impacting as of yet.
  • On yields: no material impact from the shift to shorter-tenor/monthly structures; pressure is product-specific (LAP competition) rather than mix-driven.

ROA Expansion & Opex Guidance

• Question: What is the opex/cost guidance for FY27? (Rahul Kumar, Vaikarya Fund)
• Answer:
  • Parvez Mulla: Guided ROA expansion of 20-30 bps over FY26 average ROA of 2.4%, delivered through a combination of credit cost and cost-to-average-assets levers; quarterly aberrations possible, but annual delivery is the commitment.

AUM Mix & Segment-Level Yields

• Question: How will the gold vs rest-of-book AUM mix evolve, and what are the LAP segment yields? (Yash Dantewadia, Dante)
• Answer:
  • Parvez Mulla: With gold growing 25-30% and mortgage 15-20%, gold mix (~51.4% of AUM) will rise by ~2-3 percentage points in a flat-price scenario. ST LAP yields ~16%; medium ticket LAP yields ~12-12.5%. No plans to enter the >₹5 Cr luxury/ultra-luxury LAP segment.

Branch Expansion Target & Delinquency Metrics

• Question: Why were no branches opened in Q1 versus the 200-branch guidance, and what are the 1+/30+/60+ delinquency numbers? (Devansh Dhruv, Equentis)
• Answer:
  • Parvez Mulla: FY27 guidance unchanged at 200 branches; Q1 premises were identified and work completed, but openings slipped to Q2 with the spillover visible in Q2.
  • On delinquencies: 1+ is 200-300 bps higher at entity level due to gold; mortgages same as last quarter. CV Ganesh reiterated the new structure makes reported delinquencies non-comparable.

Accounting Deep-Dive: Write-offs, FVOCI & DA Losses

• Question: Can you explain the ~₹75 Cr write-off, ₹585 Cr FVOCI movement, and the loss on the ₹589 Cr LAP DA? (Pawan Kumar, Edelweiss)
• Answer:
  • Parvez Mulla / CV Ganesh: Actual write-offs were ~₹51 Cr; GNPA would have been 1.87% without them. The FVOCI movement reflects reclassification of assets from FVOCI to amortised cost, with ECL derecognition/re-recognition — a normal accounting adjustment. Of the ~₹500 Cr DA done in the quarter, over ₹300 Cr was gold; negative DA income reflects unwinding of past DAs exceeding income booked on new DAs.

Mortgage Net Stage 3 Resolution & Macro Stress Outlook

• Question: Mortgage net Stage 3 is increasing QoQ/YoY — how will this be tackled? Are there any macro-driven stress pockets? (Ghansham Joshi, GJ's Techno Funda; Mohit M, Manglani Investments)
• Answer:
  • CV Ganesh: Collections teams significantly strengthened with high on-ground intensity; SARFAESI enforcement is a lengthened process, so resolution takes time. Management is going for the long haul in line with RBI collection/recovery regulations.
  • Parvez Mulla: No macro stress observed as of now; Q2/Q3 monsoon impact and the Gulf geopolitical situation remain watch items.

Key Takeaway

Fedbank Financial Services delivered a strong Q1 FY27 with AUM up 35% YoY to ₹21,136 Cr (crossing the ₹21,000 Cr milestone), led by gold loans which grew 77% YoY to ₹11,191 Cr despite a ~15% gold price correction and the April 1 RBI LTV framework change; mortgage AUM grew ~15% to ₹9,777 Cr. PAT rose 52.5% YoY to ₹114.4 Cr with ROE expanding 380 bps YoY to 15.4%, ROA at 2.6%, and credit costs contained at 0.8%. GNPA improved 30 bps QoQ to 1.6% (1.87% ex-₹51 Cr write-offs), while Stage II rose 50 bps to 2.7% entirely due to the gold regulatory transition. Management reaffirmed all FY27 guidance — 20-25% entity AUM growth, sub-1% credit costs, 20-30 bps ROA expansion, and 200 branch additions (openings slipped to Q2). Key watch points are the gold delinquency "new normal" under periodic interest-due structures, co-lending normalisation to de-leverage from 4.89x, and medium-ticket LAP yield competition.