Release Date: October 23, 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 milestone by reaching an AUM of INR10,000 crores, reflecting strong growth for a relatively young company.
- The company reported its highest-ever loan origination of INR1,917 crores in the last quarter, indicating robust business momentum.
- Ugro Capital Ltd has been recognized as India's best fintech lender of the year, highlighting its innovative use of data and technology in MSME financing.
- The company has successfully expanded its branch network, with plans to reach 250 locations by the end of the year and 400 by the next year, supporting its growth strategy.
- Ugro Capital Ltd has established strong partnerships with over 60 lenders, including domestic banks and global financial institutions, enhancing its co-lending capabilities.
Negative Points
- The company's gross NPA stood at 2.1%, with a slight uptick in unsecured loans and micro enterprises, indicating some asset quality challenges.
- Ugro Capital Ltd's interest income faced compression due to regulatory changes affecting the timing of interest charges.
- The supply chain finance segment has been winding down due to unprofitable yields, with a peak NPA of INR52 crores, impacting overall credit costs.
- Despite achieving a rating upgrade, the company has not yet realized significant benefits in terms of reduced borrowing costs.
- The company's ROA target of 4% by FY26 is ambitious, requiring significant improvements in yield, cost of borrowing, and operating leverage.
Q & A Highlights
Q: Can you provide some color on the GNPA for both on-book and off-book assets, and how do you see the trajectory of GNPA and credit costs going forward?
A: The overall GNPA at the AUM level is 2.1%, with the off-book portion at around 1%. The on-book GNPA appears higher due to co-origination, where bad loans return to our books. We expect the GNPA and credit costs to stabilize, with unsecured business loans peaking at around 4.5% GNPA and micro business loans at about 1% GNPA.
Q: How is the competitive intensity in the secured lending space, particularly for large-ticket LAP and micro LAP?
A: Competitive pressures exist, especially in intermediated channels. However, in micro LAP, which is self-originated, foreclosure pressures are significantly lower. As we grow our micro business, these pressures should decrease.
Q: Why has the interest income been lower this quarter despite AUM growth, and what is the sustainability of DA income?
A: Interest income is lower due to higher DA and co-lending activities, which naturally reduce on-balance sheet interest income. Additionally, an RBI circular affected interest income due to delays in check clearance. DA and co-lending income should grow in line with AUM, maintaining a 40-45% contribution.
Q: How do you ensure consistent underwriting standards across branches, given the operational complexity and high staff turnover?
A: Underwriting and policy execution are centralized and templated. Branch structures are standardized, and extensive training is provided. We use a cluster approach for credit delegation, and all loans are secured with physical collateral.
Q: What gives you confidence in scaling the micro branches while maintaining credit quality, given the current GNPA levels?
A: We have modeled peak delinquencies to occur between 18-24 months, with repossession processes in place. Early delinquency indicators are within range, and we expect GNPA in micro enterprises to stabilize between 3-3.5%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
