Ugro Capital Limited · NSE:UGROCAP
Ugro Capital — Investor Presentation (April 2019)
44 slides from Ugro Capital's investor presentation, April 2019
Slide 1: U Gro Capital | An Overview
GRO U Gro Capital | An Overview
Slide 2: The SME Lending Market
The SME Lending Market A large yet untapped market opportunity 2
Slide 3: India represents a large, significantly underpenetrated market
India represents a large, significantly underpenetrated market One of the largest and fastest growing However, the credit to GDP ratio is still Significant government impetus for the economies in the world much lower than other markets growth of credit GDP PPP – US$ Tn, Real GDP Growth Total credit
Slide 4: NBFCs have certain structural advantages and disadvantages vis-à-vis banks
NBFCs have certain structural advantages and disadvantages vis-à-vis banks… ▪ 100 % FDI ownership permitted ▪ Ability to be nimble – lesser restrictions on branches, allowed businesses ▪ No social obligations ▪ No requirements to maintain a Capital Reserve Ratio ▪ Still very regulated – NBFC-SI as r
Slide 5: ...resulting in significantly higher value creation by NBFCs
...resulting in significantly higher value creation by NBFCs 5 year AUM Growth (FY13-18) ROE (FY18) 5 year Share Price Growth 18% 21% 36% 16% 17% 17% 30% 22% 47% 14% 13% 12% 18% Mean: 21% 11% Mean: 18% 11% Mean: 28% 17% 6% 15% 24% 30% 26% 37% 20% 74% 17% 24% 17% 10% -30% -10% 2% -38% -8% 6% -4% -4%
Slide 6: The lending market can be broadly divided into three segments
The lending market can be broadly divided into three segments -• Constrained credit growth Corporate, -• Structural issues Infra, -• Higher NPA Real Estate -• Low rating and leverage -• Long term sustainable ROE is challenged -• No equity value creation. +• Healthy credit growth -• Current players a
Slide 7: Small Business Lending Isn't A Small Business
Small Business Lending Isn’t A Small Business 50Mn MSMEs in India US$300 Bn | SME Credit Gap 50 Potential Addressable Credit Gap: 560Bn Gross Value Add (US$) 45 40 INR 20.46 Trillion growing at 7%+ 35 per annum 30 INR Tn 0.7 25 2.9 29% Contribution to India’s GDP 20 15 45.0 10 23.7 20.1 5 10% MSMEs
Slide 8: Diversity of Small Businesses Creates Challenges for Traditional Lenders
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 Bor
Slide 9: New-age, specialized SME lenders better positioned to bridge the SME credit gap
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/ freque
Slide 10: … leading to the emergence of niche, focused lenders in India
… leading to the emergence of niche, focused lenders in India Sector Focused Geography/Segment Focused Focus: K12 Segment Focus: K12 Segment Focus: Tamil Nadu/sub-prime Focus: Rajasthan/sub-prime AUM: INR 10,000+ mn AUM: INR 30,000 mn AUM: INR 10,000+ mn AUM: INR 3,000+ mn … Capital Raised: INR 3,00
Slide 11: The U GRO Incarnation
The U GRO Incarnation The Assimilation of Aspirations 11
Slide 12: U GRO Capital | Who we are
U GRO Capital | Who we are Large Institutional Capital INR 9,530 Mn (~US$135mn) Of Equity A highly specialized, technology enabled small business lending Strong Corporate Governance Board Controlled, Management Run platform Knowledge Technology Experience Management Team Deep domain expertise of A s
Slide 13: One of the only firms in the lending space to start with US$ 135Mn of capital
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 Aug, 2018 Dec, 2017 1994: Formation of Chokhani INR 4,350mn raised from global INR 1,120mn raised from public 1995: List
Slide 14: Strong corporate governance framework enshrined in the Articles
Strong corporate governance framework enshrined in the Articles Special Resolution of the shareholders required for effecting any changes to the AoA ▪ High degree of regulatory oversight and transparency ▪ Mandatory requirement for a Big 4 firm to be appointed ▪ Ability to create an institution with
Slide 15: Our Board
Our Board Independent Members of the Board Satyananda Mishra - Head, CSR Committee Rajeev K. Agarwal - Head, Stakeholder Committee ▪ Ex-Chairman, MCX, Ex-CIC, GoI, Ex-Director - SIDBI ▪ Ex-Whole Time Member, SEBI ▪ Over 40 years with the Indian Administrative Services ▪ Over 30 years with experience
Slide 16: Founder with the experience of creating institutions across financial services
Founder with the experience of creating institutions across financial services… Mr. Shachindra Nath Executive Chairman and Managing Director ▪ 26 years of experience in creating institutions across the financial services domain Lending Capital Markets Asset Management Insurance SME Lending Retail Br
Slide 17: … supported by a team with a strong track record of execution
… supported by a team with a strong track record of execution Abhijit Ghosh Chief Executive Officer AUM Managed: INR 180Bn Anuj Pandey Kalpesh Ojha J Sathiayan Chief Operating Officer Chief Financial Officer Chief Business Officer AUM Managed: INR 120Bn Liability Raised: INR 700Bn AUM Managed: INR 8
Slide 18: Our Mission
GRO Our Mission 18
Slide 19: 'To Solve the Unsolved'
Our Mission ‘To Solve the Unsolved’ India’s US$ 600Bn+ SME Credit Availability Problem 19
Slide 20: How we want to do this…
How we want to do this… Deep sector specialization to understand, reach, and Know More, service the customer Grow More better Leverage the best practices of Create an organization that traditional NBFCs and the pro-actively address the Fin-touch + Liability modern fin-tech providers to ‘needs’ of ra
Slide 21: Know More, Grow More: Sector based approach to specialization
Know More, Grow More Sector based approach to specialization 21
Slide 22: Deep analysis of macro and micro economic factors
Deep analysis of macro and micro economic factors 180+ Sectors Demand Working Impact of Sector specific supply gap & Input Environmental Capital change in government cyclicality in risk issues Cycle technology policy demand Criteria Asset Upgrade & Revenue EBITDA Median Interest Turnover downgrade G
Slide 23: … to arrive at a set of eight sectors…
… to arrive at a set of eight sectors… Healthcare Light Education 38 identified sub-sectors within the 8 sectors engineering Focus on the SME clusters in India Auto Top 8 Chemicals components Sectors ~50% - Contribution of the 8 sectors to the overall SME lending market in India Electrical Validated
Slide 24: …to better solve the MSME credit availability problem
…to better solve the MSME credit availability problem Restaurants Challenges Faced: Cash based collections reducing eligibility, a new restaurant takes time to reach positive cashflows U GRO Approach Assessment: A combination of Zomato ratings, seats, cuisine served, price points to arrive at eligib
Slide 25: Credit Appraisal and Portfolio Approach – Understand the Customer!!
Credit Appraisal and Portfolio Approach – Understand the Customer!! 25
Slide 26: Our Credit Appraisal Philosophy
Our Credit Appraisal Philosophy Touch and Analytics Experience Feel 8 sector specific statistical 25+ sub-sector specific expert All traditional checks to be scorecards created after scorecards created in conducted before disbursing a analysis of 8 mn loans collaboration with CRISIL after loan to a
Slide 27: Data Analysis led to proprietary 'Statistical Score Cards'
Data Analysis led to proprietary ‘Statistical Score Cards’ Default rate across score ranges 8 mn+ loan records 1,500 0.00% ‘Bad rates’ across intervals 1,341 0.08% U GRO 850 parameters per loan Behavioral Score 980 0.12% Ability to estimate risk 907 0.26% enables the company to 871 0.45% move to a r
Slide 28: Data integrations & technology to facilitate a 60 minute in principal approval
Data integrations & technology to facilitate a 60 minute in principal approval 360 degree view through 30+ API Integrations Ability to front-load the entire credit assessment cycle Credit evaluation Verification of authenticity Business prominence Collateral valuation
Slide 29: Supplemented by an Industry First – 'Expert Scorecards'
Supplemented by an Industry First – ‘Expert Scorecards’ – for all sub - sectors Case A: Less than 20 bedded nursing home Case B: 20-50 bedded nursing home Case C: 50-100 bedded nursing home Financial Facility 20% Facility 20% Facility Financial 30% 40% 40% Financial Operational 60% 20% Operational 4
Slide 30: Credit Appraisal Process | A Three Pronged Approach
Credit Appraisal Process | A Three Pronged Approach In principal approval in 60 File Flow For A Secured Loan mins ~8 segment specific statistical scorecards Pre-defined Statistical Sub-sector ~Sub-sector specific Sourcing Channel Data Enrichment PD templates Criteria Met? Score-cards Policies ▪ Sour
Slide 31: Sectoral Credit Understanding: Leading to tailor made Product Solutions
Sectoral Credit Understanding: Leading to – tailor made Product Solutions 31
Slide 32: Our Product Philosophy
Our Product Philosophy Moving beyond conventional products offered by most NBFCs in the market… Secured Loans Supply Chain Unsecured Loans Financing Mostly long tenor, loan Short term working 30-90 day loans against against property capital loans invoices To create sub-sector specific products by mo
Slide 33: Tailored Products for Small Businesses
Tailored Products for Small Businesses Based on our sectoral capabilities, we would deliver customized solutions, faster TAT, better yields through a combination of higher loan to value and exposure limits, vis-à-vis being a pure play LAP focused lender Sector Sub-sector Products (basis cash flow) A
Slide 34: Sectoral Understanding – leading to sharper distribution model
Sectoral Understanding – leading to sharper distribution model 34
Slide 35: Traditional Channels | A new approach to the old
Traditional Channels | A new approach to the old A technology led, partnership based approach to DSAs Rigorous DSA Selection Criteria A DSA App: An Industry First Branch Office Head Office ▪ An initial list of 100+ channel Planned Branches partners arrived at post rigorous Ludhiana vetting of 1,200+
Slide 36: Partnership Channels | Ability to reduce sourcing costs
Partnership Channels | Ability to reduce sourcing costs Symbiotic approach to lending to cater to the value chain Analytics led sourcing arrangements Ticket Size < INR 5mn Ticket Size > INR 50mn Leverage third party origination platforms (traditional/digital) for lead sourcing ▪ Analytics led pre qu
Slide 37: Growth Channels | Ecosystem based lending
Growth Channels | Ecosystem based lending Dedicated “Growth Team” to build industry partnerships Partnership with a large food aggregator Independent vertical headed by the Chief Growth Officer ▪ Pre-approved program based on data analytics for ▪ Each sector to be led by a ‘sector head’ Unsecured &
Slide 38: Distribution Network
Distribution Network 1st Year In 5 Years Branches 7 27 States 7 10-12 Channel 100 350-400 Partners Corporate 3 25-30 Partners Co-lending 3 10-15 Partners 38
Slide 39: Fin-touch + Fin-tech: Building a Technology enabled organization
Fin-touch + Fin-tech Building a Technology enabled organization 39
Slide 40: Hybrid Lending Model
Hybrid Lending Model Traditional – Fin-Touch Alternative – Fin-Tech Traditional credit assessment models like Alternate credit assessment models CIBIL scores leveraging analytics + publicly available data Leverage technology to automate processes Physical processes such as visits to customers thus r
Slide 41: ..to complement traditional 'touch and feel' across the value chain
..to complement traditional “touch and feel” across the value chain Sourcing Verification and Disbursal Collection and Recovery ▪ Online process to augment traditional fraud ▪ Collection and litigation team already in place ▪ Partnerships with traditional/digital control process ▪ Analytics led pred
Slide 42: Liability First: The Missing Link
Liability First The Missing Link 42
Slide 43: Liability is an 'Art' – U GRO is designed to perfect this Art..
Liability is an ‘Art’ – U GRO is designed to perfect this Art.. U Gro’s asset strategy would lead to low cost of capital Key tenets of our liability strategy Liability led asset strategy Active engagement with stakeholders Diversified Liability Base ▪ Build a diversified, granular book catering ▪ En
Slide 44: Ability to cater to the needs of all liability providers
Ability to cater to the needs of all liability providers ▪ 90%+ of the book constitutes priority sector lending Public Sector Banks Public Sector Banks ▪ 10+ year track-record of profitable operations ▪ Largely secure book ▪ Granular, largely secured book Private Sector Banks Private Sector Banks ▪