U Gro Capital Q4 FY19 / FY19 Earnings Update
U GRO Capital | Executive Summary U GRO Capital Sector Specialization • Healthcare • Educational Services Shortlisted from 180 A technology enabled, highly specialized, small • Food processing sectors through an business lending platform • Hotels & resorts extensive study of • Chemicals macro-economic Management team with a collective experience of • Auto components • Light engineering and sector specific 150+ years • Electrical equipment data & components INR 950+ Cr of equity raised from marquee investors – A systemically important NBFC 8 38 Sectors Sub sectors Traditional Channel New Age Channels Secured Loan Interest Rate - 11%-13% Direct Sales Agents Digital Channels (Ticket size - INR 25 lakhs to 5 Crs) (leverage 3 rd party and (operating in target segments / own platforms for lead Unsecured Loan geographies) sourcing) Interest Rate - 17-19% (Ticket size - INR 10 lakhs to 30 lakhs) Branch Sales Team Industry Partnerships Supply Chain Financing (Customer acquisition (prioritized segments) Interest Rate - 12-15% through outreach / (Ticket size - INR 0.3 lakhs to 30 lakhs) walk-ins) Co-lending with NBFCs Product Offerings Distribution Strategy 2
FY19 | Key Highlights 2 1 Distribution People ▪ Business Launch in January, 2019 ▪ 96 people onboarded ₋ 7 branches operational ▪ All CXO and CXO-1 positions on-board ₋ 76 GRO Partners onboarded ₋ Management team with an average ▪ INR 82 crores of disbursals - AUM of experience of 25+ years INR 80 crores outstanding Text • 3 4 ! Technology Risk ▪ LOS and LMS operational in “test phase” in ▪ Sectoral approach to credit January 2019 ₋ 8 sector specific statistical scorecards ₋ An industry first GRO partner mobile app ₋ 25 sub-sectoral expert scorecards ▪ Industry leading TATs ▪ Product policies and organization level ₋ 20+ API Integrations policies rolled ₋ 60 min in-principal approval 3
Disbursal and AUM Summary Largely Secure Portfolio Steady Month on Month Increase in Disbursals SBL UBL SCF SBL 15% 7% UBL 12 3 SCF 78% 33 1 2 6 5 Jan-19 Feb-19 Mar-19 Geographically Diversified Book SBL UBL SCF 8% Avg Ticket Size (INR) 3.6 Crs 0.18 Crs 1.2 Crs 13% Andhra Pradesh Delhi Avg Yield 12.6% 19.3% 13.7% 24% Gujarat 19% Karnataka Approval Rate 13% 30% 39% Maharashtra 5% Rajasthan Focus on high risk thresholds and building a secure, granular and high 7% 24% Tamil Nadu quality book SBL: Secured Business Loans, UBL: Unsecured Business Loans, SCF: Supply Chain Financing 4
Income Statement INCOME STATEMENT (INR Mn) Q4 FY19 FY19 Proforma FY19 Operating Income 134.6 368.1 448.8 Less: Interest Expense 0.1 0.1 0.1 Net Income 134.5 368.0 448.7 Fee & Other Income 30.0 50.0 50.0 Total Income 164.5 418.0 498.7 Opex 186.7 367.2 447.9 Provision 2.4 3.2 3.2 Profit Before Tax Before Exceptional Items (24.6) 47.6 128.3 Exceptional Items relating to the change in control - 36.7 36.7 Profit Before Tax (PBT) (24.6) 10.9 91.6 Less: Tax (3.6) (3.6) - Profit After Tax (PAT) (21.0) 14.5 - Pro-forma numbers includes the lending business of Asia Pragati – the scheme of arrangement of the demerger of the lending business of Asia Pragati is pending with the NCLT and is expected to close over the next 3-4 months 5
Balance Sheet BALANCE SHEET (INR Mn) As on March 31, 2019 SOURCES OF FUNDS Net Worth 6,377.5 Compulsorily convertible debentures 138.3 Loan Funds 69.4 ▪ INR 98 crores from conversion of warrants outstanding expected by Other Non-Current Liabilities 6.2 December, 2019 Current Liabilities 112.9 ▪ Net worth to increase by INR 175 crores Total 6,704.3 post the completion of the demerger of APPLICATION OF FUNDS the lending business of Asia Pragati Fixed Assets 39.1 Investments 1,067.0 Loan Book 880.3 Other Non-Current Asset 116.1 Other Current Asset 4,601.8 Total 6,704.3 6
Shareholding Pattern Calculation of Shares Outstanding Shareholding Pattern (Fully Diluted Basis, Post the demerger) # Shares Issued & Outstanding (as on March 30, 2019) 2,33,31,482 Others IndGrowth 15% 5% Add: Dilutive Instruments Promoters 4% Samena Compulsorily Convertible Instruments 2,76,74,420 16% Initial fund raise from large PE funds, public market, Warrants 87,83,785 NewQuest 21% insurance firms, family offices Total Shares Issued & Outstanding (Fully Diluted Basis) 5,97,89,687 and HNIs PAG 18% Add: Total number of shares to be issued post demerger 1,35,65,892 ADV Partners Total Shares (Fully Diluted Basis) 7,33,55,579 21% Illustrative List of Investors Insurance Firms Family Offices Private Equity Funds Public Market Funds family Group Chhattisgarh Jaspal Bindra MK Ventures Investments Taparia family 7
Our view on current market conditions View on market conditions Our Response ▪ ▪ Liability costs will continue to remain high Reduced ALM mismatch by increasing the mix of shorter tenor products viz. supply chain financing, loans against ▪ Spreads between AAA rated entities and AA/A machinery rated agencies have widened – however, end ▪ Cater to the entire value chain of customers through a customer rates have not increased proportionately co-lending led strategy ▪ Rating agencies have become far more conservative ▪ Co-lend with smaller NBFCs to cater to the micro- when assigning ratings to NBFCs SME segment ▪ Asset liability alignment has become extremely critical ▪ Co-lend with larger banks to create an alternate ▪ The SME customers are under stress as the availability of liability channel credit has reduced ▪ Increased guard on branch led acquisition ▪ Eco-system based lending strategy to augment direct channel Opportunity for a well capitalized firm, with high corporate governance to gain market share 8
U GRO | An Introduction 9
Small Business Lending Isn’t A Small Business 50 Mn MSMEs in India US$300 Bn | SME Credit Gap 50 Potential Addressable Credit Gap: 560 Bn 45 Gross Value Add (US$) INR 20.46 Trillion growing at 7%+ 40 35 per annum 30 INR Tn 0.7 2.9 25 29% 45.0 20 Contribution to India’s GDP 15 23.7 10 20.1 5 10% 0 MSMEs with access to credit Banks NBFCs Other Total Formal Total institutions Supply Addressable Demand Bridging the USD 300 Bn gap will need USD 60-70 Bn in incremental equity capital 10
Diversity of Small Businesses Creates Challenges for Traditional Lenders 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 …leading to a Frustrating Borrowing Experience for Small Businesses Time consuming Non-tailored credit Rigid collateral Product mismatch offline process assessment requirements 11
New-age, specialized SME lenders better positioned to bridge the SME credit gap Specialized SME Lenders Traditional NBFCs Banks Customized products basis nature of business, non financial parameters, Loan against property, supply Loan against property, supply Product end use, paying capacity/ frequency chain financing, unsecured loans chain financing of underlying customer Omnichannel Distribution Branch / DSA led Branch / DSA led Ecosystem based lending Sector specific approach, One size fits all One size fits all Credit Appraisal Cash Flow Based Collateral / Bureau score Collateral / Bureau score Automated Review Turn-Around Time 4-5 days 15-20 days 30-45 days Non-traditional sources. Use of Financial statements, P&L information available from public Project reports . Projected Documentation Account, Balance Sheets, Bank forums. Digital document financials , Bank statements. statements submission 12
U GRO Capital | Who we are Large Institutional Capital INR 9,530 Mn (~US$135mn) Of Equity A highly specialized, technology enabled small business lending Strong Corporate Governance platform Board Controlled, Management Run Technology Knowledge A scalable, data driven Deep domain expertise of Experience Management Team approach to ensure target segments to better 250+ Years of Combined Experience dissemination of knowledge understand the customer 13
One of the only firms in the lending space to start with US$ 135Mn of capital 1994 - 2017 Formation of Chokhani Securities Preferential Allotment Qualified Institutional Placement Dec, 2017 Aug, 2018 1994 : Formation of Chokhani INR 4,350mn raised from global INR 1,120 Mn raised from public 1995 : Listing on the BSE private equity firms - ADV Partners, market funds, insurance companies 2004-Present: 14 year track-record NewQuest and IndGrowth of profitability May, 2018 Dec, 2017 Disbursements Acquisition of Chokhani Securities started in Revamp of the management team INR 1,920mn raised from large Demerger of the lending business of January’19 family offices / HNIs through a Asia Pragati approved – INR 1,750 Mn preferential allotment of shares Birth of U GRO Capital Preferential Allotment Family Offices Insurance Firms Private Equity Funds Public Market Funds family Group Chhattisgarh Jaspal Bindra MK Ventures Investments Taparia family 14
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