Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ugro Capital Ltd (BOM:511742, Financial) achieved a significant year-on-year growth in AUM, reaching 9,050 crore in FY24 from 6,000 crore in FY23.
- The company successfully raised 1,332 crore in capital, ensuring sufficient funds for growth over the next two years.
- Pre-tax profit saw a substantial increase, jumping from 84 crore to 179 crore, a 113% year-on-year growth.
- The company's cost-to-income ratio improved from 62% to 54%, indicating better operational efficiency.
- Ugro Capital Ltd (BOM:511742) made a strategic acquisition of MyShubLive, enhancing its capabilities in embedded financing and expanding its customer base.
Negative Points
- The company's on-book NPA is relatively high at 3.5%, compared to the total book NPA of 2%, indicating potential risk in its on-book portfolio.
- There was a notable increase in credit costs in Q4, with a one-off write-off of 10 crore, impacting overall profitability.
- The company's reliance on intermediated channels (DSAs) remains significant, which could lead to higher customer acquisition costs and potential foreclosures.
- Despite the capital raise, there are concerns about the immediate dilution impact on existing shareholders and the potential undervaluation of the company's shares.
- The company's ambitious growth targets and expansion plans may face challenges due to macroeconomic factors and regulatory changes, impacting profitability and operational efficiency.
Q & A Highlights
Q: Congratulations on a very good set of numbers in line with what you have guided. Question is obviously related to the huge fundraise that you have done. Now, with this quantum of fundraise, how do things change, sir, on two, three fronts? One is growth. Are you looking at much faster growth than what you had previously guided for? And are we looking at, the second question was on the ROI front. We used to initially talk about a 2% exit ROI for FY25. Now, we seem to be more on the exit run at FY26. Is there a change there or what are we looking at? These two broad questions first. Thank you.
A: On the capital front, this capital for the growth which we have been presuming or been guiding was required in any case. The difference is that we have taken all of that capital upfront. But we have designed and taken in a manner that for our existing shareholder, it is not diluting immediately. So, the dilution would happen over a period of time, except the increase in the price benefit would not go to existing shareholder. So, we have kept something on the table for the incoming shareholder. With respect to the ROA bridge, you are right. We have said that we would exit near about 25%, 104% of ROA. Now, that is a function of the maturity of the market and how the overall scenario is. We presume, one of our assumption was to grow much, much faster rate. So, at earlier phase, but what we are saying is that we will get to that level of ROA. This is why, if you look at our structure, we have given a CCD at 18 months with some coupon, because we are saying that this is the bare minimum we have to achieve. It is a lot of hard work. If you look at last 4-5 quarters or 6 quarters, the cost of borrowing has remained elevated. The liquidity for the market has remained slow, but we have not shown you, neither our cost of borrowing has grown, nor our liability has got constrained. Vis-a-vis not very large, that has been the challenge. So, in this macroeconomic scenario, what is being told to NBFC to grow at a certain pace, what is being told to have some healthy profitability, we think this is what people should expect from us. We may surprise you, we don't know, but as of today, where we stand, what we see in the regulatory landscape, what we see in the liability landscape, what we see in the capital providers, all of that putting together, this is the number for the year and 2 years we are putting out. But one thing which we have done is that we still have taken capital effort, so that if there are headwinds, then we can take that headwind head-on in coming quarters. But I think for a company with 3.5 years of index, 5 years total of which 1.5 years has gone into COVID, 1 year has gone into credit crisis, for a 3.5 years of real operating size company, this level of scale, product diversity, sheer focus on data and analytics and distribution capacity, in my 30 years of professional experience, I have not seen. But obviously, I understand investors would expect all companies to perform at the same level, and we would also get there very soon.
Q: Sure sir, Ugro has done an outstanding job of reaching where it has. Now if you could just give us a perspective of what are the growth rates we are looking for 25-26, and if you could just put that in context with what happened in Q4, where the disbursements were slightly in a slowdown mode. So that plus the growth that you expect for the next 2 years.
A: So first and foremost, we were at 3,000 in 22, we were at 6,000 in 23, and we are at 9,000 in 24. Which means this company minimum of 3,000 crore of AEM, it grows. And the AEM growth in the last quarter, what we have been seeing, Ugro has established a very good name within the lending universe, especially in the intermediated market. Some of the lenders which have larger balance sheet capacity actually are taking assets from us at a much faster pace. So the foreclosure for us was a negative surprise, and our foreclosure was higher than what we have expected. Obviously, we will correct that and we will match that at a higher growth rate. So I think quarterly growth is coming at 8% rather than 15% as a function of that. What we will do next year is what we are telling you. 3,000 is the minimum base we will definitely do, there is no doubt about it. We think that we would be additional 10-15% of that, but when it comes to management focus, that additional growth, we want to only do in the segment of the market which gives us the higher yield which pushes our ROA. And that's where we are. So now that, whether that is 10% higher or 5% higher or 15% higher, for us now, what matters is that incremental growth is all in the higher yielding segment with the lower credit cost. So that's the way we are operating as a management team. And I think that's the right thing for us to do.
Q: Okay. So if you could allow me one final question, I'll come back to the queue. In the bridge from 2.3% to 4% that you just very nicely elaborated, I just have one question on the credit cost. In Q4 itself, you are at about 41 crores of credit cost in the quarter, which if I generally analyze, will be about 2% on the overall AUM. So do you really have that leverage there?
A: So you are right. In the last quarter, there is a small blip, but that was all planned in previous quarters itself. For the year, we are at around 1.5%. And we have been telling that as we season, we will stabilize at around 2%. So if you only look at that last quarter, in the last quarter, we took a call on a very, very old, unsecured tune, and took a write-off of about 10 crores, which was over and above what should have been the normal credit cost. But it was a one-off event. As per our plan, and as per the way we have calibrated, for the next year, we should be between 1.8% to 2% overall.
Q: Hi. First of all, congratulations on a great set of numbers. As an investor, we are really happy with the kind of AEM flow the company is doing. So my first question is on the credit cost side. We are saying that at 2%, we should settle down in terms of credit cost, right? So how are we seeing
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
