U Gro Capital | An Overview December 2018
The SME Lending Market A large yet untapped market opportunity 2
India represents a large, significantly underpenetrated market However, the credit to GDP ratio is still Significant government impetus and for One of the largest and fastest growing much lower than other markets the growth of credit economies in the world Total credit to non-financial GDP PPP – US$ Tn, Real GDP Growth ▪ Grant of universal banking, payment banking and corporations as a % of GDP 25.1 small finance banking licenses 160.0% 20.2 ▪ Focus on financial inclusion – Jan Dhan Yojna, 99.9% 10.3 Pradhan Mantri Awas Yojana 73.6% 54.3% 49.1% 5.5 44.8% 4.2 4.0 ▪ India Stack – Cashless, Paperless, Presence-less China US India Japan Germany Russia China US India Japan Germany Russia 6.9% 2.3% 6.7% 1.3% 2.2% 0.19% Leading to high credit growth in the country led by the NBFC sector Total credit to the private non-financial sector, US$ Bn Credit Growth rate (%) 21.2 1,426 18.8 17.9 The overall lending market in India 1,236 16.6 1,219 1,155 15.6 1,080 14.6 is expected to grow at 10-11% with 14.1 13.9 NBFCs growing at 15-17% over the 10.9 10.0 9.0 8.2 next 5 years 2013 2014 2015 2016 2017 FY13 FY14 FY15 FY16 FY17 FY18 Bank NBFC 3
The lending market can be broadly divided into three segments… - • Constrained credit growth - • Structural issues Corporate, - • Higher NPA Infra, - • Low Rating and Leverage Real Estate - • Long term sustainable ROE is challenged - • No Equity Value Creation. + • Healthy credit growth - • Current players are limited by credit availability, lower SME assessment ability & distribution reach. • Pricing Advantage & Structural support available. + • Favorable demographics + • Increasing income + + • Increasing debt appetite Consumer - • Faced with heavy price competition - • Need strong capital base and long gestation period. PSU Banks PVT. Banks NBFC ▪ ¾ of total credit ▪ Increasing NPA ▪ Diversified geographical ▪ Limited by high NPA ▪ Limited Geo. reach presence ▪ Low CAAR (Basel-III) ▪ Limited assessment ▪ Higher assessment Current Scenario Future Projection ▪ Systematic issues ability ability ▪ Limited by cost of funds and capital investment 4
.. of which the SME segment is the most under-served With most SMEs depending on either self India lags behind other emerging markets when financing or informal channels it comes to credit access for MSMEs 120% Source of SME financing % of MSMEs that have access to credit 31% 100% 30% 18% 16% 16% Family 14% 14% 80% Savings 70% of the market still funded Family 60% India Mexico Malaysia Russia Argentina Brazil Poland Business through the equity of the 40% Own Savings Although MSMEs account for 45% of the Indian The SME financing opportunity is large owner/family Self - Equity Industrial output – the segment has been starved for 20% Debt - Formal capital from formal sources Expected to become a USD 600+ Bn market Sources 0% Category 1 616 CAGR 17% NBFCs have been stepping in to fill the need 237 Fragmented market with very few specialised gap in the market players FY16 FY18 SME lending market share FY17 FY23P US$ Bn IndiaBulls LIC HF DHFL Shriram City Union Private HDFC Cholamandalam Bajaj Finance Capital First PSU banks PNB HF Others banks NBFC NBFC Category 1 PSU Private banks banks Market dominated by large LAP providers and diversified Diversified geographical presence and more NBFCs – Absence of players with specialized focus on the specialized assessment ability provide NBFCs the SME segment competitive advantage 5
Specialization is key to success in the SME lending space… Challenges in lending to the SME segment ? Difficult to understand Fragmented set of High cost of customer High dependence on Lack of businesses/cash flows customers acquisition the ecosystem data How specialization helps Products Distribution Credit & Portfolio ▪ ▪ ▪ Create broader, more customer centric Greater homogeneity leading to better Build proprietary, differentiated and product offerings customized distribution channel understanding of risk ▪ ▪ ▪ Ability to design products that have EMIs, Deep understanding of the ecosystem and Better selection/appraisal of the tenors, collateral customized to the distribution channel due to the dedicated hence cash flows, funding needs and risks customer business and cash flows focus ▪ Ability to leverage data from public sources ▪ ▪ Ability to build and sell customized third Understanding of customer needs which ▪ Ability to assess macro-environment to party products like insurance helps in ecosystem based lending strategies build early warning systems 6
… leading to the emergence of niche, focused SME lenders in India Sector Focused Geography/Segment Focused Focus: Rajasthan/sub-prime Focus: Tamil Nadu/sub-prime Focus: K12 Segment Focus: Travel, Hospitality AUM: NA AUM: INR 1,000+ crores … AUM: INR 1,000+ crores AUM: NA Capital Raised: INR 100+ crores Capital Raised: INR 1,000+ crores Capital Raised: INR 300+ crores Capital Raised: INR 100 crores Specialized NBFCs Product Focussed Online Community Focus: Loans against machinery Focus: POS Lending AUM: INR 400+ crores AUM: ~INR 1,000 crores Capital Raised: INR 100+ crores Capital Raised: INR 400+ crores 7
The U GRO Incarnation The Assimilation of Aspirations 8
Reputed founder backed by marquee private equity funds Mr. Shachindra Nath Executive Chairman and Managing Director ▪ After 26 years of working with large corporates, Mr. Nath decided to embark on his entrepreneurship journey by acquiring control of a listed NBFC - Chokhani Securities Limited ▪ As the Group CEO of Religare from 2010, he had led the entire integrated financial services business of the group - SME focused lending, Retail Broking, Life Insurance, Health Insurance, Mutual Funds, Capital Markets, Investment Banking and Asset Management ▪ Some of his marquee achievements include successfully leading the IPO process for Religare in 2007, establishing new businesses as well as stitching together successful joint ventures and partnerships together with global financial services firms ▪ Mr. Nath is a qualified lawyer and a University Rank holder from the Banaras Hindu University (India) Key Investors 9
Management team with a strong track record of execution… Abhijit Ghosh - Chief Executive Officer Kalpesh Ojha - Chief Financial Officer ▪ Over 25 years of experience across BFSI, Consumer, Telecom, ▪ Over 20 years of experience in treasury, corporate finance, fund healthcare raising ▪ Was the President & CBO of Religare Finvest where he managed ▪ Was the ED and CFO of Aspire Home Finance ▪ Chartered Accountant from ICAI and Masters in Financial an AUM of INR 18,000 crores and 1,500+ employees ▪ Alumnus of Kellogg, XLRI, HAYS Group Management from JBIMS ▪ Previously worked with ▪ Previously worked with Manish Agarwal - Chief Risk Officer J Sathiayan - Chief Business Officer ▪ Over 20 years of experience in underwriting, credit policy review, ▪ Over 25 years of experience in managing large sales & business risk management and portfolio management distribution setups, portfolio review and collection management ▪ Over INR 1,20,000 crores of portfolio managed ▪ Over INR 8,000 crores of AUM handled ▪ Chartered Accountant from ICAI, ICWA ▪ BE from Sastra University ▪ Previously worked with ▪ Previously worked with Anuj Pandey - Chief Operating Officer Rajni Khurana - Chief Human Res. Officer ▪ Over 19 years of experience in product & strategy, P&L management, ▪ Over 18 years of experience in human resources management, business planning, and portfolio management performance and talent development, employee engagement ▪ Over INR 12,000 crores of AUM handled ▪ Masters Degree in Human Resource Management ▪ BE from Thapar Institute and PGDM from IIM Lucknow ▪ Previously worked with ▪ Previously worked with 10
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