Asset Reconstruction Company In Focus: Asset Reconstruction Company (India), which made a flat stock market debut today (Thursday), expects its retail and small and medium enterprise (SME) business to grow faster than its corporate book over the next few years, Chief Executive Officer and Managing Director Phanindranath Kakarla said in an interview with NDTV Profit.
The company's shares listed at Rs 139 on both the NSE and BSE, in line with its IPO issue price of Rs 139. The Rs 732.97 crore IPO was subscribed 20.10 times overall, with strong demand from qualified institutional buyers (QIBs).
Asset Reconstruction Company Retail, SME Book
Kakarla said retail and SME assets account for around 31% of the company's assets under management (AUM), while corporate assets account for around 69%.
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“We do expect that in the near term over the next couple of years our retail and SME book will grow faster,” Kakarla said, while adding that the corporate book would also continue to grow.
The company's retail and SME business has grown around 56% over the last three years. Asset Reconstruction Company currently manages around 35 lakh NPA accounts in the retail segment through its technology platform.
Asset Reconstruction Company Revenue Model
Chief Financial Officer Pramod Kumar Gupta said management fees on AUM account for around 50-55% of the company's revenue.
The company also earns investment income, which Gupta said has grown at a 22-23% CAGR over the last four to five years.
Gupta said investors should track recoveries, the fee component of revenue, profitability, gearing and retail volumes after the company's listing.
Recovery Outlook
Kakarla said the company looks at recovering around 22-25% of its AUM each year. However, corporate recoveries can be lumpy and event-driven, depending on the resolution of individual assets.
He said recovery processes have become more predictable with the strengthening of mechanisms such as the Insolvency and Bankruptcy Code (IBC) and SARFAESI.
Asset Reconstruction Company currently manages around Rs 20,000 crore of distressed assets. The company has a capital adequacy ratio of around 65%, compared with the regulatory minimum of 15%, while gearing stood at around 0.4 times.
Large Opportunity In Distressed Assets
Kakarla said India's systemic credit market is around Rs 214 lakh crore, creating a sizeable pool of distressed assets for the ARC industry.
He also said NPAs and write-offs in the system together amount to around Rs 15 lakh crore, including around Rs 9 lakh crore of right-off accounts.
According to Kakarla, the ARC industry currently accounts for only a small portion of recoveries from this market, leaving significant scope for growth.
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