Release Date: February 11, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sammaan Capital Ltd (BOM:535789, Financial) successfully raised $150 million through a qualified institutional placement, stabilizing its cap table with top institutional investors owning 25% of the company.
- The company has demonstrated strong access to equity markets, maintaining high capital ratios and moderate to low NPA levels.
- There is significant traction in the growth of Assets Under Management (AUM), with a growth AUM of approximately 35,000 crores, forming 56% of the total AUM.
- Sammaan Capital Ltd has managed to maintain steady profitability and improving asset quality during its business model transition.
- The company has a strong credit profile, with gross and net non-performing assets at their lowest levels in six years, standing at 1.19% and 0.69% respectively.
Negative Points
- The reduction in the legacy book is still outpacing the growth in the growth AUM, which may continue for another quarter.
- Sammaan Capital Ltd does not have a deposit-taking license, which is a shortcoming in its business model.
- The company is facing a legal challenge regarding the usage of the brand 'Sammaan', which could potentially be a distraction.
- There are concerns about the valuation of the company, as expressed by a retail investor, who noted that the company's stock has not gained much in the last 5 to 6 years.
- The company's operating expenses have shown volatility, with fluctuations in employee and other expenses noted in the recent quarter.
Q & A Highlights
Q: Could you elaborate on the significant reduction in NPA levels? Is this a one-off, and how do you see levels going forward? Also, could you explain the 9% retail portion in the co-lending model?
A: The reduction in NPAs is not a one-off. We have used tactical provisions to reduce NPAs, and on a normalized basis, NPAs would be around 120 basis points. Regarding the co-lending model, the 9% retail portion is the part we retain, which is pari passu with the co-lending partner, meaning both parties share the risk equally.
Q: What are the blended yield and spreads for the growth AUM you plan to add in the coming years?
A: Sammaan Capital is expected to generate a yield of about 10.5%, while Sammaan Finserv will generate around 12 to 12.5%. Both companies are targeting a return on assets (ROA) of over 4%. The spread is not the primary focus since we sell down a significant portion of the loans, making ROA more relevant.
Q: How does Sammaan Capital make a profit when the cost of raising funds is similar to the yield?
A: Our cost of capital is between 9.5% and 10%. We retain a small portion of the loan on our balance sheet and earn a continuing trail income from banks, along with an annual management fee and fees from insurance products. This structure allows us to achieve a 4% ROA.
Q: Can you explain the decrease in operating expenses and employee expenses this quarter?
A: The decrease in employee expenses is due to the timing of increments, which were paid with a lag effect in the second quarter. Operating expenses fluctuate due to the valuation of employee stock options, which can make this line item volatile.
Q: As a long-term retail investor, when can we expect the company's valuation to improve significantly?
A: While we cannot control stock price movements, we are focused on achieving our target ROE of 15-18% and ROA of over 3%. Achieving these goals should make the company more attractive to investors. We are committed to creating long-term sustainable value for shareholders.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
