UGRO Capital Limited (511742) Earnings Call Transcript & Summary

So good morning, everybody. And welcome to UGRO Capital's 2Q FY '21 Earnings Call. We have along with us Mr. Shachindra Nath, who is Executive Chairman and Managing Director of the company. Along with him, we also have the management team of UGRO Capital. We will begin with Mr. Nath giving us an overview of how UGRO -- of UGRO's journey since inception, update on distribution channel and technology and 2Q FY '22 performance. Post which, we will open the floor for question and answer. Over to you, sir.

Thank you, Shreepal. Thanks for all the attendees who joined our conference call just 1 day prior to Diwali. Wish you all very happy Deepawali. Along with me is also Mr. Amit Gupta, our CFO; Mr. Amit Mande, our Chief Revenue Officer; Mr. Anuj Pandey, our Chief Risk Officer; and Nirav, our Head of Strategy and Investor Relations. As we have always been doing, I think so given our youngness of our company, rather than just straight talking about the quarterly number, we have taken this step, we have to explain how this company is being built over a period of last 2 years and how the future look like. So we would request your patience in hearing out the full presentation and a little bit understanding of how we see that we were differentiating ourselves in the MSME financing business. So I will begin with that. So the executive summary since we started because I -- what we have seen in public market that we are normally compared with much older companies versus our company is relatively younger but has been built on a base of both capital infrastructure and people infrastructure to build scale. We started our journey. We raised the entire capital of around INR 950-plus crores for this company in July of '18. We began our operation in Jan '19. So Jan '19 to March, which was the first 3 months of period, we did around INR 53-odd crores, which was our pilot. And then the first full year was from April '19 to March '20. You would all recall, this is a period of time, which was the most troubling times pre-COVID for NBFCs because this September 19, we had an IFS crisis. So that -- we make sure that during that period of time, we do slower asset build, but we continue to build our infrastructure. So that our first full year, we did around INR 574-odd crores. And unfortunately, for us, immediately after that, we had the first round of pandemic, which halted all of the lending operations. But we used that time to continuously build our both digital infrastructure and people infrastructure. And in that last 5 months of the COVID round 2, we raised -- we increased our business to INR 1,375-odd crores. And then we had another 3-month shutdown, which was in COVID period 2. And now we have fully resumed our growth state. And we are now benefiting from this both our data analytics, digital infrastructure, brand distribution franchise and the liability franchise which we have built. So I think so, this is the journey. So I think so we request everyone to contextualize us that this company has been in operational existence for almost now 3 years. Of which around, 1.5 years have been completely broken period. In context of that, but if you look at how we have done and how we have been evolving, I feel very happy that all of that investment which we have done is showing its results now, and it will continue to progress in the same way. So this is our disbursement trend. So September '20, which was immediately post-COVID round 1 from INR 115 crore of gross disbursement and net AUM disbursement of INR 68 crores. In September of this year, we have moved to INR 288 crores and INR 229 crores. Some people believe this is a hyper growth, but actually, the size for which this organization and infrastructure has been built is for much larger business, but that is now coming in fruition because of we are now fully open for business. And that is resulting into an AUM growth. So we are now -- and as of September, we were INR 1,933 crores. We are adding around INR 200 crores of AUM to ourselves every month. And I think so in the last quarter of this year, when all of our distribution franchise would mature, we should be at least double this rate from where we are. And this is where we stand overall. It's a company which is at INR 958 crores of net worth. INR 1,933 crores of AUM, cumulative disbursement of more than INR 3,600 crores. We have serviced now more than 10,000-plus customers, and that is growing. And one of the good thing is that our liability side franchise has done relatively well for, in a period of market which was difficult for NBFCs. We have a large number of active lenders. Our gross debt has now reached to INR 1,000-odd crores. And our head count, our people franchise have been increasing. Since we have launched our GRO Micro vertical, wherein we have added roughly around 38 odd -- 40-odd branches, our head count is increasing, so we have 700-plus employees now. And of 2 round of pandemic, we have -- our portfolio quality is relatively have stood the test of time, and that is reflective in our gross NPA and net NPA number. This is the comparison of last year to this year, though this comparison, it's relatively not very important given that the base effect was not there. So we are not a company which had a size of AUM, and we are growing from there. So I think so there is a disproportionate growth which would come. And I will skip that. In terms of operating metrics, I think we are showing relative improvement with every passing day. You would imagine that a company which is both growing and investing simultaneously. Some of our investment would yield result over a period of time. And that's why our debt-equity ratio because we were equity funded in Q2 F '21 versus we have now, still, we are a highly under-levered company, but our debt equity has reached to 1.14 so as our capital adequacy ratio. In terms of our -- what is most relevant is that our yields are now stabilizing. We have taken this strategic call at the beginning of this business that we would operate in the first 3 years of our business into high credit quality MSME segment at a lower yield. And over a period of time, as we mature, our yield would start -- the higher yield band would start kicking in, and that is gradually happening. We are open for turning the portfolio construct of secured to unsecured. We are overweighted to secured business, and that's why our yields are a little lower, but now that is gradually opening up. And that's why our yields are stabilizing somewhere around mid-15%. Our cost of debt has been coming down over a period of time. I think so given our size of capital our cost of debt should be much lower, but it is a transitionary phase. Most of the lending institution in first 3, 3.5 years have to show the resilience of portfolio performance and consistent growth. And then that gives them a rating upgrade and cost of borrowing keep coming down. So we would remain in the same range, but at the same range, our size of our liability is now growing quite a bit. And last but not least, if you look at our entire peer set, which is mostly unlisted domain. We decided to start this company in a listed domain because we wanted to make sure that the public market also have the benefit of early-stage growth companies, but most of our peer set, in the first 3 years of their operation would burn significant amount of cash, we have taken this call that we will calibrate our size of growth but would remain profitable. And now we have to show relative improvement in terms of the metrics, which is return on equity and return on asset which will happen over a period of time. I would now want to take Q3 what is happening in MSME lending landscape. So we keep saying that MSME lending landscape is reaching in the next 2 to 3 years where consumer financing is. So MSME lending in India because of the maturity of the data would reach from collateral to cash flow-based underwriting. Some glimpse of that I wanted to give. Number one, there is what we call an India Stack 2.0 evolving, which is we call the UPI moment. The historical problem of MSME financing is not being able to understand the revenue, not being able to understand the expense and have difficulty in assessment of cash flow is gradually changing. It is changing because of this entire open credit rate network, which is coming, wherein lending institutions would have access to data on tap through multiple modes, which you, if you are a high data analytics company, you'll be able to use that data and be able to underwrite. So I think the risk assessment process product and engagement all of that would evolve around the OCEN framework. And between legacy and new generation fintech, that is the differentiating factor. Legacy institutions rely on their physical documentation, which is the historical cash flow. When it comes to MSME, it is at the point of decisioning. You have to evaluate of his ability to, or an intent to be able to pay back, and that is what is changing the credit dissemination. My personal belief is in the next 3 years, there is a massive influx of MSME financing which would happen in India. Given the relative size of MSMEs and its contribution to GDP. Second is that one of the things which is changing the landscape for MSME in India is the level of digitization. So the level of digitization, which is happening for this is exactly the same what has happened around 10 years back for consumer. Every piece of component, which helps in underwriting, disbursing and collecting is now getting digitized, and that would help new generation entities being able to give on tap financing. So that is also now coming in full flow. And third, is this whole OCEN network would divide. So earlier it was a bilateral relationship between a lender and borrower. But now you would see emergence of a middle layer, the people who will facilitate the credit. And these, which will be called on the OCEN as loan service provider. It can be anyone. It can be an Amazon, a Flipkart. It can be a manufacturer. Anyone who have a base of a merchant or a customer or a small business which -- and then they have an ability to showcase not only their financial, but also transaction data, you can combine the 3 and underwrite the customer. And that is what would eventually change. So most of the exuberance you are seeing in the VC market for new generation fintech, which are payment platforms, it's relying on the future of this that when it comes to MSME, you don't have to look at what this business has done on the balance sheet basis rather than you are lending on the basis of a particular transaction, which is linked to a transaction flow. And that would get further accelerated when the account aggregation, which is the new mode of licensing which RBI has done comes in full flow. What it does and what it changes. It changes that on a single basis, everything which we believe is required for underwriting is available on tap. So you would say, and that's why we said that when UPI started, nobody believed that such high level of volumes of payment flow would happen through UPI. And we are sticking our neck out and saying well, the account aggregation and entire OCEN network would come in full flow, the size of MSME credit in India from the current can multiply in manyfold. And some bit of that is happening. We have done actually a transformative platform play along with government e-Marketplace GeM Sahay. But all of this would change the MSME credit from traditional balance sheet lending to embedded credit Buy Now Pay Later and flow based credit where we are mostly present. In terms of what we do and how we do it for those who are attending for the first time, we started this business of saying that we are bringing homogeneity to a non-homogeneous sector. What I mean by that is that when it comes to MSME, 2 types of small businesses are not same. Our dentist and an IVF clinic are not same. And K-12 school or an engineering college is not same especially the chemical manufacturer and auto component manufacturers are not same. Lending institution try underwriting. They're not same methodology, and that's create problems. And that's why you have to find homogeneity on a very large -- sector. In 2019, when we started, we looked at the entire 180 sector in which MSME operate in India. We drilled down to 20, and then we drilled down to each sector. And we continue to operate in those 8 sectors, which is chemical, electrical equipment and component hospitality, light engineering, food processing, health care, auto component education, but we've added micro enterprises. What we realized that sub-INR [ 15 ] lakh of loan to find -- they are in themselves are homogeneous and driven by a particular cluster rather than by sector. So we operate in this domain. But within our sectors, we don't do everything. In order to build deep expertise, we have created an ecosystem around each sector and around 100 subsectors. So for us, a caterer to K-12 school is K-12 ecosystem rather than caterer itself. So that is the way we look at our universe of lending. And we started with what we call this concept of I said finding homogeneity. We created that through a deep research and expert scorecard. Our 100-plus expert scorecard look at different operating parameters and give a tool to our underwriting officer what they have to look in a small business at the point of underwriting and created a template of giving weightage to different operating parameters. This is an IP which we are creating over the next 5 years or so. We will have a templated platform wherein every small business can be underwritten differently. And we added and supplement that through a massive data analytics tool, which we created what we call our sector specific scorecard. We have find patent for this. Where we looked at roughly around 80 lakh loan records, we -- we segregated those loan record in sectors, subsector, geography and ticket size, and we tried filtering 20% of the bottom of the pyramid which contribute 80% of the loss ratio. Actually, 2 rounds of pandemic has proven that our data analytics-driven underwriting actually works, and that is now reflected in our portfolio quality. In 2020, we evolved this because when the pandemic hit, we had a time of around 8, 9 months to rethink and redesign and adopt to the newer changes which has happened, which we will call the force effect of the digitization. And how we did it? So today, we moved from our entire underwriting to this, what we call the data tripod. So as I said, that if you're traditionally 5 years back, if you look at, or 4 years back if you look at a large lender would go to a small business and ask for balance sheet, ask for income tax return, do multiple other things. We believe that that is not required anymore. 100% of our all programs and underwriting, the first point of interface of underwriting is driven on this data tripod, which is GST, Banking and Bureau. GST gives us 400-plus parameter, wherein you can analyze the entire turnover, quality of turnover and that exposure, which an entity is taking. When you take the GST and cross-analyze it with banking, you can look at the quality of business which is being reflected in the formal sector. And banking also gives you real cash eligibility, ability to pay back, not on 1-year old record, but at the point of the underwriting, and Bureau gives the behavioral analysis. It's just not a cutoff of a score, but it gives you a behavioral analysis of how this customer would behave. So we have evolved this tripod of data and matured it. And actually, our results are extremely coming out well both in terms of portfolio quality and also our underwriting. And our statistical scorecard, we have evolved into what we call GRO Score 2, which has now the ability of also forecasting the future cash flow by combining the Bureau and the Banking data, and we are adding GST and also being able to segregate customers into different categories, A, B, C, D and E. We have now, in the last 7, 8 months of our data analytics shows that whatever is our statistical scorecard defines a, in terms of the portfolio performance, actually, the portfolio performance, the bounce rate, the collection efficiency for those customers actually are very different or very superior to a classified customer. So I think that these are the changes which we have brought in and which are making sure that we are confident of the scale which we can get now. Second is that India is a very large country. SMEs are in different pockets. We call it vast geography, varying data, and multiple sources of an origination. So we have multiple types of small businesses, and most of them are still private. Some of them are now coming in public market. But there are people who serve the micro MSME segment, sub-25 lakh in a particular state. There are people who serve machinery finance business, people who serve supply chain, people who do Buy Now Pay Later merchant financing, we have tried to build it because we said that our aspiration is to take 1% market share of outstanding credit, serve 1 million customers, and that's why we decided to build the distribution franchise, which has an ability to serve right from INR 1 lakh borrowing customer to INR 3 crore borrowing customer. And we have done this in 4 ways. So I think one of the advantage of pandemic for us, we had the time to continuously build our infrastructure. While we are a highly digital company, you can call us as the fintech as well. But our belief is that any digitization without the support of physical infrastructure in India doesn't work. And that's why we have taken a 4-pronged strategy in terms of our distribution channel. Branch-led, wherein we have physical branches. Ecosystem wherein we look at a particular ecosystem and finance that. We have a platform wherein we are bringing multiple types of partners with whom we lend. And in the last quarter this year, we launched a full digital platform as well. In terms of our branch-led channel, we have 2 parts: one, what we call the prime branches, we are at around 14-odd locations. We will take it to 25 locations. We have micro branches, we are expanding rapidly. So today, we have 41-plus branches, we'll take it to roughly around 100 by this end year, and we'll take it to around 250 in the next few years. So these are the 2 types of the branches. The reason why they are segregated is the kind of product we do. In our prime branches, we serve at prime customer. The definition of a prime customer is a customer between INR 50 lakh to -- INR 15 lakh to INR 3-odd crores by defining by 3 different products. They are prime because both on the rating curve, they're either in the Bureau CMR 1 to 7 customer. Their type of collateral is prime and reported, and their payment behavior is all formal. And most of these businesses are done through intermediated custody, which means that there is a point of intermediation or a partner wherein our underwriting risk collection, all of that is in-house. But the customer is being brought to us in the main prime location by somebody. Second is the micro segment, which is the Tier 2, Tier 3, Tier 4. We have taken in the call that we will operate in 5 or 6 states, wherein our data shows that there is a resilience of portfolio which can be generated. And these are the customer which is retail trade, small wholesale trade for up to INR 25 lakh of borrowing. And there are different price curves. So not only we serve customers from INR 1 lakh to INR 3 crores, we also today serve customer with the borrowing needs between the price range of 9% to 18-odd-percent. So that is the universe, which we have started operating in our branch-led channel. Second is our supply chain. So India has around $100 billion of credit gap just in supply chain itself. We think that that is what would take collateral to cash flow-based financing. So we've invested very heavily in our entire supply chain framework. We are now going live on threads. We have built the entire GeM Sahay platform, and we look at supply chain in both. We do it through an anchor-led wherein we do vendor financing distributor delivery. We go right up to the last mile value chain. We can also do a non-anchor-led. So if you are a supplier of a honey to Dabur, we don't need Dabur to confirm anything. Our data analytics platform can look at the periodicity of your invoice in the payment period, basis that can discount the invoice. So that's our second channel of ecosystem, which we call supply chain. Why we call it an ecosystem because we rely not just on the customer data, which is his turnover and cash flow, but we also look an ecosystem through which he operates. And second is the -- second part of our, and as we said, that we have anchor plus we have fintech partners to do that. We have built India's first prototype fully integrated OCEN network platform on GeM Sahay. We are integrated probably we are the largest lender on GeM Sahay. Roughly around 700,000 plus sellers are there. We have done a large number of transaction and it is growing there. Second part of our ecosystem is what we call the productive asset financing, which is machinery. In India, actually, if you look at and we have companies like Electronica and Siemens, who do machinery finance. The advantage of machinery-led secured financing is that when you lend against a property, sometimes the money can flow out of the business of SME. It is not used for productive -- generation of productive asset versus a machine that has a productive revenue attached to that. So we have been embedding ourselves with roughly around 150-plus of OEMs in their point of distribution and originate and finance the machinery. And this base of MSME customer is potentially available for us for cross-sell, the term loan, the working capital. So that's our second channel. Third is we have built -- and actually, we have evolved this as India's probably largest platform of supporting and reaching to the last mile. So as you know that there are a large number of merchant ecosystem emerging out of Amazon, Flipkart, Zomato, many of them. There are 2 ways to reach and service those customers. We go and integrate with them directly, which we are also doing that. But the challenge there is that mostly these portfolios are generated at a 20%, 25% yield rate, but have a potential loss ratio of 3% to 5%. We have taken this call that reaching to that last mile, the massive fintech ecosystem and small NBFC ecosystem, our cost of capital can support going through them. So we -- it's an API box platform, wherein our score underwriting combines with a partner score underwriting, and we service the last mile customer while we might have to take a spread. So if their customer is at a 25% yield, we are, might be doing at 15% with our partner, but the partner would give you, give us the first loss cover, which means that our portfolio would not have the same level of delinquency, which is potentially there in that segment of the market. So that is the way we have evolved this. And on the same, this is a platform called GRO Extreme. On the same side, other side of the platform, we have large banking partners coming. So we have live with Bank of Baroda. We are live with IDBI. Soon we should be live with another large bank. Eventually, these banks are co-lending on the portfolio generated by us, but banks would have an opportunity also through our platform to do co-lending to all of our underlying partners. So this can eventually become a very large marketplace. Co-lending is future, so this can become eventually a very large marketplace for large liability providers to become a co-lender to not just to us, but many of our partners. And as we said that last quarter of this year, given all of what we have done, we have now ability to launch a digital product. I think by end of the next quarter, we will -- we come with full flow of what digital program and how we -- our customers can reach to us directly and can take an on-tap financing. This is our platform. What we have done that over a period of time. Our platforms are fully integrated. I think it's one of the only platform in India, which has an ability to lend with our approval loan within the first 60 minutes without the physical touch and then supported by underwriting team. How we are funding our customers? So as you know that this company is it's an institutional platform. We are driven by a large number of institutional capital provider, and we continue to diversify and grow our capital base, and we divide our liability side in 3 parts: balance sheet-led, co-lending and securitization. In terms of the balance sheet side, I think we feel very happy that over a period of last 3 quarters, the large number of financial institutions have now started relationship with us. Almost the entire universe of public-private sector bank, SFBs, NBFCs are now with us. We have done multiple capital market trade. And now we have -- we have DFIs coming to us. You would realize that all of our portfolio, we cover -- out of the total SDG goal, our portfolio qualifies for 5 of the SDG goals, we are an ESG-compliant company, and the kind of impact which we are creating, we are now being able to attract multiple small to large DFIs. So as a source of capital, this would become a permanent source, but more so our belief is that banks term lending to NBFC would continue to evaporate, because banks are not comfortable taking exposure on to the NBFC, but they are more happy to take exposure of the end client. Now it's a very complicated process. It is evolving as securitization has evolved 10 years back. Co-lending is now evolving, but we are at the forefront of it. Our 2 years of effort both on the technology side and also on the underwriting and understanding in bringing the bridge, we have large partnerships, which are now emerged. Bank of Baroda, IDBI and State Bank should happen soon. We have already signed partner with them, but under the revised guideline, we will start soon. But that gives us an ability to become really a lending as a service, originate and automatically sell, where we focus on the core, which is distribution, underwriting and servicing the customer and ability flow keep coming to us. And also, it eliminate the need of constantly raising capital. And this is very efficient to use. The ROE creation through a co-lending model is very, very superior. So hopefully, like it has happened in U.S., it should happen in India as well, and this should become permanent structural change for NBFCs in India. In terms of our governance and team, this is a company which is completely driven by its Board. Any shareholder which is more than 10% of our company have automatic right to get a Board seat. Our entire Board is supervised by a set of majority independent directors. We have brought people from multiple domains in financial services industry. We have invested besides our main management team, which is here with you, we have made sure that our initial period of time, we invest heavily in all of our 3 layer of organization. So this company is not driven by 1 or 2 people. This company is driven -- the 700 people are driven by a very high-quality, very experienced of 75-plus management team, which is what we call L1 and L2. In terms of the portfolio view, most of this data is already reported. So the largest channel continues to be a branch-led prime channel, which contributes 62-odd-percent. And all our channels have now started growing. Majority of our head count is growing in our micro business. And because most of our branches are 3 to 4 months old, the real result of that would start happening in next financial year. By end of this year, we should be exiting at a good run rate, but the high-yield portfolio, which will come in our micro business would start happening in next year. This is our sector and portfolio snapshot, regional portfolio snapshot. Last but not the least, I think so in terms of this, there is a lot of noise around portfolio quality. Obviously, pandemic was not in anyone's control. We didn't design anything for that. But fortunately, because in our pre-pandemic period, we had focused largely on low-yield secure business. Our portfolio quality have remained stable, and it has come back very strongly. All of our Stage 1 assets are more than 95%. In terms of our restructured portfolio, we are at 7%, which is much lower than the industry peer set. And within that the largest contribution is obviously hospitality and education. Education is coming back very strongly. None of our restructuring is wherein we have -- we have created a turning out, which means that we have delayed the problem for a long period of time. Most of our restructuring is EMI reset. I was paying in INR 10 lakh of EMI. My cash flow has now become half. So we have reduced the EMI 5 years and we increased the tenure. So that is the kind of restructuring which we have done. In terms of the financials, I think we have done relatively well. I think our base effect of AUM build-out is now resulting in our profit to increase over a period of time. But structurally, where in quarter 2, we did a PBT of INR 4.7 crores but we genuinely believe that every passing quarter because of our AUM is growing and OpEx is not growing in the same sense. While our head count is growing exponentially, but not in terms of the absolute costs, our profitability would start tracking towards an upward trajectory. And this is what we -- how we want to build on asset side. We continue to open our physical branches and mature our prime branches and invest heavily in our digital infrastructure. Liability side, we are now targeting DFIs to come and co-lending to become functional. And this is what we will do in next few years is given. So I'll pause here and wait for questions. I, along with the entire management team, would be very happy to answer any question. We have actually 95 people, so we'll take questions right away.

Shachin, you may want to give -- just try for video rights once again. We'll try and have the management team video switched on.

Well, I would do that.

Just try it once. If not then...

[Operator Instructions] So to begin with, we request Anil to please go ahead with your question.

And let me tell you, sir, your presentation is very detailed, and I will rank it among the best among all the NBFCs and banks. So thanks for excellent disclosures. You have already touched about the co-lending in your presentation, but I have a few more questions on that, just to understand it better. So you have a product called Pratham, under which you are lending at less than 10%. So what I want to understand is, I think it is on the co-lending. So because of co-lending, do you get any cost of funds advantage because of which you will be able to compete better with the larger NBFCs and banks? That is the first question on NBFC. And the second related question on co-lending is your ROAs, will it be same under co-lending versus if you take directly term loan from the bank? So that is -- these are the 2 questions on the co-lending.

Yes. I would take a stab and Amit Gupta can add on to that. First and foremost, sir, we would have not been present in that segment of the market had it not been a co-lending. Our cost of borrowing today is roughly around 10.4%, 10.5%. So obviously, logically, we cannot lend a customer at 9%. The reason why we have been able to do is because when I lend to a customer at 9%, 80% of my book gets transferred to the bank post-disbursement. And on that 80%, I get a fees. And that's why my blended return on my 20% is higher than my cost of borrowing. And that's why we are being able to do that business. Second, in lending business, if you lend -- or if you have an outstanding book of 100, you have to minimum for our size of NBFC will have to be at least INR 30 of capital to earn your spread of 3%, 4%, 5%. In co-lending, actually, you earn the same spread, but you don't have to provide capital because it's an off-balance sheet asset, and you don't have to give any capital -- you have no capital charge and you have no -- it is a pari-passu transfer of assets. So we don't provide any kind of credit support as well. Amit, if you want to add something?

Mr. Nath, you have added, you have actually explained most of the advantages. The one, another thing, which basically co-lending brings to the table for an NBFC like ours, most of our secured term loans are actually done door-to-door of 10 years or maybe sometimes higher. So when you do co-lending, your average tenor on the secured portfolio because most of our co-lending is actually being done for our prime products, where our tenor and prime secure products where our door-to-door tenors is 10 to 12 years. When you do co-lending, immediately, your 80% of that book actually gets transferred to the bank with whom you are doing the co-lending. So your duration on the asset side actually comes down, which ensures that by doing the co-lending, you are also able to do your asset liability management in an efficient manner because on your liability side, it's very difficult to get liabilities, which would be matching this kind of tenor.

Got it. And sir, second question I'm sure many people must have asked -- already asked you this question. We have target to reach 1% of MSME, which means we need to double our balance sheet every 12 to 18 months. So definitely, our processes and others are large superior to other NBFCs. But in the past, whenever any NBFC or bank is trying to grow at these rates, they have faced some problems. So what are we doing so that we don't face any such problems?

Yes. So I think it's a very difficult question to answer, but I actually have to contextualize in this way. One size of the market; second, our capital support and the kind of distribution infrastructure, which we are building. You are right, we have said by 2025, we would have an AUM of INR 20,000-odd crores. But remember that large portion of that business is coming from our prime segment and an average ticket is of around INR 2-odd crores but going largely. So we have said that of that INR 20,000 crores, almost 50% of our business is our balance sheet is through securitization and co-lending model. Second is as the number of asset channels, which we are -- now we have built. So UGRO for MSME segment within our defined 8 sectors and Micro has distinct 6 verticals through which the assets are being originated. And there is both management capability, technology infrastructure, risk of protection, mitigation infrastructure has been already built. So prime wherein our prime business under Mr. Mande is managed by 3 national sales set. And then by multiple structure of regional head cities infrastructure and 25-odd locations. Our Micro business is headed by a Chief Business Officer and then 2 National credit head and then a large number of branch infrastructure. Our supply chain business is headed by a very experienced business head who has done the same business for the last 22, 25 years and then the full infrastructure around that. Our machinery business is headed by a person who has done machinery business for almost 25 years and building full infrastructure around himself. Our partnership and alliance channel is a completely digital channel wherein we have invested very heavily in building an API bot, which has an ability to integrate with our underlying partner and digital would be a digital infrastructure. Why people falter? And I have no way to figure that out is because when you try to do -- first, you have to keep your portfolio granular. Second, you have to have a philosophy of risk curve. So what -- today, this company can actually generate double of its profitability by just taking our 30% unsecured portfolio to 60% unsecured portfolio. So we balance that. We believe that the price yield to loss ratio curve is very defined in India. And the breakout of that would happen over a period of time. And that's why today, a large portion of our portfolio, we keep it prime, secured, lower yield, and we optimize on the other side by doing other products and like. So I think we will constant -- we have to constantly match this business with capital, people, infrastructure and technology infrastructure. It's half glass full half glass empty story, sir. When you start with an INR 1,000 crores of capital and in 7 -- 8 years, if you can't go up to INR 20,000 crores, and this would happen through multiple rounds of capital raise, I don't think the market opportunity is so less that you can't build it. Why -- what you think is a very hyper growth, we believe that given the kind of infrastructure which we built, it's not an hyper growth. Once you break the -- once you reach to that level after that, obviously, you cannot continue growing and doubling your AUM every year. Then you get to what we call 10% to 15%, 17% growth rate. So an HDFC or a Kotak would not double their AUM every year but would do 10% to 15% or 20% growth after maturity. But in ancient period, because of the base effect, they will go up to that hockey stick curve and then stabilize from there. Anuj you want to -- Amit Mande, anything you want to add.

Just one more point. Just one more point, which I thought I should basically cover here. One of the very important aspect of basically ensuring that we continue to grow, as per our business plan is the availability of capital. That is where our unique business model actually comes in very, very handy. And I think maybe when we were designing this business model, we were probably not really focusing on that. This has actually come by accident. Our sectoral approach has actually helped us in ensuring that access to capital is much more efficient. Why I'm saying that? If you look, as an example, on 7th of May 2021, RBI actually announced a scheme of on-tap liquidity for banks, which was to be deployed for health care services. That is an INR 50,000 crore scheme, where banks were actually given double advantage. One is basically those assets which are basically getting created through this liquidity scheme gets classified as PSL, which is a normal advantage. The second one was in today's world, the banks are actually awash with liquidity. That liquidity can actually be passed with RBI at a rate which is 40 basis points higher than repo to the extent they deploy that much in the health care scheme. So because of that thing because we have got health care as a focus area, industry focus area, we could convince these lenders that they can lend to us for on lending to health care activities and they can make -- they can take advantage of this line. Similar to this food processing industry, which is also another focus area. We have actually been able to mobilize certain credit lines which will actually go for these kind of industry sectors. So availability of capital also is something which is given our business model, we are able to address that very, very efficiently and effectively.

I would like to add to the hyper growth story. Can you hear me?

Yes, yes. Amit, very well.

So I would like to add to the hyper growth story and just add to what Shachin said. I think to summarize the last 3 years and last, in fact, essentially 1.5 years, we've got our risk models right. We've got our risk models right across all our 5 pillars of business. That's one. Two, now we are in a phase where we've got talent on board, which has tremendous execution capabilities, whether it is distribution, whether it is technology or whether it is being able to mine alternate data. And so risk models in. We've got talent on board. We've been able to -- we have the people who have done these execution skills and have a proven track record. The next path is all about execution. And with that kind of people on board and with that kind of talent, I think we're pretty much confident that we are going to move this book size in a prudent manner and at the pace that which we want. So there is no question that we are worried that whether this hyper growth is going to add incremental risk. The answer is no. And are we confident? The answer is yes.

I would just take a few questions, Shreepal, which are on the chart, if that's okay?

To do that. I think they have been posted some time back.

I just repeat very quickly. Okay. So I think this is a question why new investors are not buying your idea of growth rather existing investor is exiting at almost at entry cost and able to recover even their financial cost. So there are 2 parts of it. One, this company, if you look at this capital structure, so we had -- when we raised our capital, our capital was raised from 3 -- 4 key investors who came along with me and invested capital, which we believe, which own 21% of the company, NewQuest, which is own 21%, Sameena 13% and PAG Asia 19%. And there's 3 of them are now on our Board. And then we have done a QIP of INR 120 crore allotted equity to a large number of individual investor family offices and others. For -- other than our private equity investors, most of other investors came from a short-term gain benefit because the pricing at which we were allotting equity was very cheap at that point of time. And those investors, in my personal view came with a 1- or a 2-year view. And now given the prices attraction, most of them would like to take the liquidity back. So there's a small set of investors. And as you know, some of our QIP came through investors, which are funds which are time driven. For example, one of our investors, which used to own around 4-odd percent of our equity had a fund life of 3 years, his fund life is over. So they have no choice but to exit. But most of those exits have happened clearly. Also for a company of our nature, we keep hearing this all the time for most of the institutional investors that the company is doing so well, but there are -- there is no liquidity. Markets are all built around buying and selling. At some point of time, somebody would sell and somebody would buy and then only the liquidity would happen. We can continue doing very well, but if there is no availability of liquidity or quantity, then obviously, there is no float which comes into the company. So that has started happening. Second question is why CFO and directors have resigned on recent time. I think the CFO is not a recent time. I think the stock exchange update is only about confirmation of that from our board, Sandeep, who was our CFO, came from ASK, which was an asset management company. He actually resigned around a month back, and Amit Gupta, who's on this call was our Head of Treasury. We have bifurcated our treasury and finance function, and Amit immediately took over as the CFO. Reason why Sandeep, before him -- lending industry was new. He did an experiment with himself, but now he want to go back to asset management industry there he spent almost 25-plus years. So that is the reason why this change. We think actually for a company, it is beneficial the person who has to manage the front end of the liability side, also control our entire finance and management reporting structure. We have -- yesterday, we have one of the nominee of PG, Mr. Kanak Kapur resigned. Primary reason of his resignation is that once a private equity investor has a nominee on the board, they become privy to what we call price-sensitive information, which enables them if they want or choose to provide some liquidity or take off some money from the market, they cannot do it till the time they are on the Board because our Board -- every 15 days, we do some other update, and sometimes those updates may be forward-looking information and may be price sensitive. And in order to avoid that conflict, Mr. Kanak Kapur decided to stay out of the Board, and his alternative alternate director. So when the primary director goes alternate director goes automatically. That's the second question. Third is what is the maximum ticket size of lending and how many lenders falling in that bracket. I'm not very clear. We do, as I said, that multiple product and program we do right from INR 1 lakh to INR 3 crore ticket size. Comparatively where you stand in the industry in terms of NPA, I think that's for market to decide. We believe that we are far superior in terms of our gross NPA, net NPA performance post 2 round of pandemic. Second, I think so next 12 to 24 months are the period of time when real NPAs would come because there's a lot of restructuring which has happened, which is not showing through picture. In last question, what is your forecast of raising equity. With this company at a rate which it is growing, our belief is that it will depend upon how much of our balance sheet assets which is happening and how much of on-balance sheet assets were happening. We have said that we would like to maintain debt-equity ratio capped at roughly around 3.8% to 4%. If we start crossing that, we'll raise more equity. Just now a follow-up question came that is PAT is looking to exit, sir, we don't know that. I think so it's about not they wanting to exit. Their process of buying and investing and they are mostly long-term shareholders, but obviously, as a shareholder, there is an interest among our large shareholders also to provide liquidity as and when wired to the market so that our shareholding base continue to get diversified. Given that the size at which we are growing and the visibility we are creating in market, we believe a large number of institutional shareholders, retail shareholders would continue to get attracted. So probably they will use that as an opportunity to provide liquidity. I think so that is one long question, which I think I tried covering and answering most of the question, which were there. So Shreepal, we can go back to...

Yes, we'll take that up, sure. So now moving on to the question queue. We have the next question from Kushal Kasliwal. Kushal, please go with your questions.

Yes. Firstly, I just wanted to understand the SFC financing space. I see a lot of start-ups raising funds, VC funds. How is the space looking to you? And what is the kind of growth rate you can expect on that -- on that particular space? Like I recently read that Progcap raised capital for retail financing market. How are you looking at that market?

You're right, sir. So I think the people who have a base of -- so all payment platform, merchant platform who have base of merchant flow are now adding credit to them. So BharatPe, Progcap multiple of that. I think we are also in the similar space that except that the public market probably don't understand the potential which this company showcase. We look at it 2 ways. As I said, the lending in India is moving from collateral to cash flow and cash flow attached to transaction flow, which will be given by this whole OCEN network where automate credit in a very big way. And we are there. But our approach is to not just look at -- we are not just funded by VC and we are not burning cash. For building a future, we are building a sustainable business model we generate cash flow so that we satisfy -- we make sure that we are not driven by only equity capital risk. But I think structurally, we see that as a bigger market opportunity. And over a period of time, as we get more comfortable, we will do that. Almost all of these things, which are raising capital, they come to us and partner with us, and we integrate with them to provide the balance sheet support. So that is the way we look at the model. And I think as the last quarter of this year, we would also do some of the large partnerships, and we'll start looking merchant financing, but we want to constraint the size of the portfolio currently because remember, most of the VC-funded businesses don't have to go to an SBI and PNB and Bank of Baroda and raise liability capital. Because when you go to a large bank and when you have to raise liability, if your portfolio profile is contrary to what they can absorb your liability lines can get completely stopped. So when you build your business, you have to build portfolio construct, which is sellable both to your liability and both to your asset side. Anuj, Amit, do you want to add something on that?

I mean, from potential perspective, as Mr. Nath was saying earlier, sky is the limit in the MSME lending space, and there are various formats which are available. Now the space in which we are, we are maintaining a very fine balance, both from our liability stakeholders' perspective, and our assets ambitions. So -- and we think this is a very sweet spot. And I would also like to explain how we are approaching this differently than -- because somebody asked earlier and the connotation was that if you press the pedal too fast, there is a chance of dilution of your risk framework. And how we are different than others in the sense that because we are focused on sectors and our internal developing models are now proven through last 3 years of portfolio management. When we are expanding, our rules are very clear of what we do. And a lot of times, the data science is directing those rules, pan-India versus any other format where the expansion means more discretionary call. So this is the major difference between any other player. So we think we are, at this point of time, very suited to any kind of format because our end target segment and our ability to underwrite that segment is very clear and very scientific.

Understood. Another question which I had is the India Stack 2.0, which is like the account aggregator the use and network. I understand it's sort of an open network which can be used by all the lenders. So how do we differentiate while we use these networks? And how are we kind of beneficial versus other large lenders or other NBFCs who use this India stack going forward?

Sir, caution worldwide. I think it is the story of incumbent versus the new entrant. The problem of the incumbent is that there is a legacy system. There is an embedded knowledge which you have to leave to transition to something, right? So it is not that why the fintechs are -- players like us are gaining traction because we don't have a legacy to chase, we can adopt faster, we can learn faster and we can automate credit versus for a legacy system, it has to change something. So that is the first one. And that is not just in India, it's happening worldwide. Number two, I think it is about where your focus is because we are a deeply focused player because everything we have started with building knowledge around our sector, subsector, we then build up our capability around our data analytics and then we've built technology and physical infrastructure. Our -- so the data is commoditized, right? It is a democratic data. Your ability to decipher that data and create decisioning system is what would differentiate us. So when I said that today, 100% of our underwriting is on the Tripod of GST, Banking, and Bureau, it is about our ability and 1.5 year or 2 years of work, being able to pull the GST, pull the Banking, pull the Bureau and being able to come to an algorithm math of saying that this customer is eligible for INR 5 lakh or INR 50 lakh and predict whether he will do a 1% loss or a 2% loss is what is differentiating. Fortunately, this was looked at for us. A year back when we talked about, or 2 year back we talked about it, it was with a great amount of skepticism. But now pandemic has actually proven that a forced -- an impact like that, our data analytics progress, our underwriting capability and the knowledge which we have built underline that is coming out to be true. That is the only differentiation. It is differentiation of being able to do differently than what legacy systems do. That this is just not In India. This is happening in U.S., most of them, whether it's on [indiscernible], lending circle, most of the neo banks. What that has happened, it is happening in Europe, it is happening by force in India. Because by that logic, actually, no neobank should exist by that logic, no BNPL players should exist by that logic. No -- other new generation player exists? I don't think that the difference is in terms of the capital capability or people capabilities about being deeply focused and use that data to your advantage.

Understood. If I can squeeze in a last question. In one of your slides, I think Slide 26, you mentioned that post our score filters applied, it becomes kind of more difficult to incrementally reduce risk by handpicking. So do we completely rely on the score filter? Or is there some kind of handling after that score filtering, which we do for MSME lending.

Anuj, you want to take that?

Can you just repeat?

Sure, sir. I was just referring to your Slide 26 in your Investor Presentation where you have mentioned that post your score filtering framework, which is like a proprietary tool for you guys, it becomes more difficult to incrementally reduce risk by handpicking the MSMEs which you want to lend. So my question is do you completely rely on the tech score filtering proprietary algorithm which you have? And after, once you are done with this score filtering, is there no handholding, which happens after that? Or how does it work? How does the actual lending work?

Understood. So what we have approved and we have to be practical and smart about this. In India, in the SME ecosystem, although a lot of data now is available through GST and Banking, we also know that there are a lot of other data, which is still has to be gathered through reference. So we have a 2-stage approval process. In the first stage, when we gather all the data, which is GST, Banking and Bureau, the system gives an in principle decision. And once the system says an in principle okay, then the transaction moves in a typical credit managers queue. And then he does the normal physical reference checks, does a personal discussion with the customer. And in case of a secured loan, the other due diligence, legal due diligence of the tightening, the technical valuation of the property, the field investigation of his dissidence kicks in. And then a final decision happens taking into account all these inputs. So the first filter is what the machine is saying. The second filter is what the value addition the credit manager has done through a physical meeting and then a final call is taken. So we are not going solely at this point in time by machine. But eventually, as our algorithms are getting more and more evolved, we are now in a position to start experimenting completely digital flow as well, and we will very shortly start doing pilot on that.

Thank you. We'll take the next question from the line of Rishi. Rishi, please go ahead with your question.

I would really appreciate if the -- people who are asking question, if you can just tell who they are, very briefly, then it would be very helpful.

Sure.

Thank you very much for sharing so much information. I mean this is one of the very few calls where we get to hear so much information. And well, I'm Rishi, I'm a retail investor, who is very keen on new growth since recently one of my closely followed leaders have joined UGRO. That's how I got introduced to the company and I've been watching your YouTube videos and broadcast regularly. My question is with regards to your platform, the GRO Extreme platform. I just wanted to understand when you say you're onboarding either a bank or the fintech, for example, Kinara Capital recently. What does that exactly mean? I mean how long does it take to onboard is that some sort of a discussion around each of your credit models? And what exactly is the USP of the GRO Extreme platform? How can it not -- I mean what sort of a moat do you have around it that other fintech platforms or lending marketplaces can't take away from you?

Absolutely. So Rishi, this is a very good question. Let me try attempt an answer to that. So look at this in terms of what we call the yield or the cost of borrowing curve. So today, you grow because of the size of capital, it's portfolio quality and the universe of the lending institution coming to us have a cost of capital of 10.5%. Now think of a Kinara or any other partner, they will have a cost of capital of 15.5%. The reason that is happening is because of the perceived risk on Kinara's portfolio and the size of the capital and their rating curve. Now we also want to service that customer, which Kinara is servicing, but we don't want to take the same amount of perceived risk. So the approach we find is that you go partner with Kinara, understand their credit policy overly our credit policy and score platform and then agree that you would co-lend with them to their end customers. It's all very good until that point of time. But it's about bringing efficiency and that's where the platform come into play. It's an API-driven platform wherein once an end customer originated on their system, it flows through API to our system, tested against the defined -- predefined credit policy and all parameters and the end customer is funded. It is customer funded at, say, same 22%. We would take 15% net rate to us. And there is some form of a credit first loss cover is being given by our partner. So the portfolio being generated at the same level, but I think so the perceived loss risk in our portfolio is lesser, which means my lenders is still comfortable to continue giving me money at 10.5% without any OpEx, I'm transferring that to a partner of ours. And that is a large ecosystem you can build. So that's 1 side, what we call the asset spectrum. Now look at the other side of that spectrum of GRO Extreme platform, which is the large banks. So today, if the large banks, they are very comfortable sign a co-lending partnership UGRO integrated with an API and a branch-led channel secure business, they are co-lending in same 20:80 ratio. But those banks also at some point of time, want to go to likes of Kinara and others, But the difficulty is how do you understand for a large public sector or private sector bank to go right up to the bottom of the pyramid is very difficult, both technology-wise, credit-wise, everything. So eventually GRO Extreme platform would support our balance sheet to go to our partners without we taking the same level of risk and also eventually a large liability provider or a big bank being able to do co-lending with my partner through my platform. So that's why it becomes a virtual place. So -- and we don't talk too much about it, but we think that GRO Extreme platform can enable capital from end to end, from a very large institution to a very small entity through us. So that's our model. And obviously, it's a fee-based platform. So it earn fees on most side of the spectrum.

And thank you, Mr. Nath. Just to understand, in terms of competition for this marketplace, do you already have competitors in the market who have a similar platform. And also the close net platform like Mint by CRED, for example, that does allow the liability side to actually come from retail investors, for example, peer-to-peer lending that sort. Do you think at some point in time, you would be interested at all to open that up?

Yes. So this is a peer-to-peer lending platform. And the regulatory SAM framework in India actually curtails only up to INR 1 lakh per borrower. We're building this platform largely from institutional capital flow to a B2B platform, but not to the end customer see because our view is that, if you're not a bank, regulators are not very comfortable retail liability to flow to any institutional platform. So NBFCs are capped taking public deposits. It's only bank which is allowed to take public deposits. So any form of platform, which will become scale wherein retail investors are deploying money for a credit product and is not a bank, in some form or shape, would continue to be curtailed. So our view is that this is largely institutional. A large bank being able to lend to an end customer through a partner platform of ours through our GRO Extreme platform is our aspiration. As regulation evolve, our technology capability is also to take it to a peer-to-peer platform at any point of time. Right now, I think so the risk-reward ratio of investing time of our amount and money to bring this to a retail investor is not positively poised.

We have the next question from the line of Rishikesh from RoboCapital. Please go ahead with your question, Rishikesh.

Sir, my first question is, if you could share your disbursements for October month?

We have not gone public on that. Hopefully, we should be. We are doing monthly disclosures. We should be announcing that post Diwali. It should be in line with how you have seen in September.

Okay. Okay. I saw in an interview where it was mentioned that UGRO will be touching INR 350 crores of disbursements very soon. So I just wanted to know how soon can we do it like next 2 months, 3 months, like how we start this INR 350 crores?

Sir obviously, our interest is, so, we think that incrementally with every passing month, you will see the growth. Where we are, we think so we will and exit our year more than double run rate is our view right now. But as you know, that we are cautious I think so that given that 100 crore mark, which we have reached on vaccination, the risk on the third wave is received quite a bit. We are waiting for Diwali festivity to be over and see that there is no comeback of the COVID in the same thing. As soon as we are comfortable with all of that, I think we will continue. We will continue to grow in the same pace.

[Operator Instructions] So we have next question from the line of Mr. Vineet.

So Vineet if the question is what you have written on the chat, I can very quickly response to that. Okay. Let me respond. I think by the time he respond. Vineet's question is, isn't your loan tenure of 10 to 12 years is too long wherein the primary asset financed by you would have depreciated to scrap value. Sir, our 3 product Pratham, Sanjeevani, and Saathi, Pratham is at the tenure of 7 to 9, 10 years. And so as Sanjeevani. Saathi is around 4 years. These security under this is a collateral, which is self-occupied residential property, industrial property or a commercial property. They don't depreciate to scrap value. So the refinance the business, the working capital and term need for a small business, but the collateral is the property, which comes from the -- an entrepreneur itself and they don't depreciate the scrap value at all.

No, no. What I meant is if you finance machinery, does it not go...

Machinery, sir, we do maximum 10 out of 3 years.

3 years. And just one more thing. Like what is your total unsecured book size?

So sir, we have disclosed that our unsecured book will be roughly around 30-odd percent of the total book size.

No, 30%, I got, but in figures.

So INR 2,000 crores, 30%.

INR 2,200 crores 30% almost, isn't it? Around INR 600 crores?

Yes, Anuj, that would be right. right?

Yes, a little less than that.

[ INR 650 crores ] .

Yes.

Okay. And what will be the average ticket size per customer in this unsecured portfolio?

Around 17 lakh. Around 17 lakh, 18 lakhs.

INR 17 lakh to INR 18 lakhs each individual borrower in unsecured portion.

Yes.

And these are like doesn't have even the stocks or any such facilities? There's no hypothecation of stocks or any such thing...

I think they're loan, which has been given loans.

It's all clean. It's all clean.

Totally on the basis of the credit quality, where we have analyzed the GST, the Banking, the Bureau. And it's a small tenure less than 2.5 years tenure, working capital finance driven by that.

Okay. And one more thing, like I want to know what is the running facility that you give like the cash credit and order of facilities that you...

As an NBFC, we can only do term loan. We can do differentiate tenure of term loan. We can do 1 tenure to long tenure term loan, but we are not a bank. We cannot give a cash rate facility or an overdraft facility.

Not a single facility of running nature.

NBFCs are not allowed to do that. We are not a bank.

[Operator Instructions] So just one question from one of the participant. So the question is there are a lot of new banks also doing SME financing, and they are able to offer payments of payment accounting and other solutions. Given their comprehensive offering, how would you be able to compete with them? That is the question.

We don't need to compete with them. We are a partner to them because that's why I said in the beginning, there are people who have base of customer. It can be a merchant base, it can be a base of small businesses. It can come coming through a payment platform accounting and other solutions. What we have realized that most of the people who are in fee-based or a service offering when it comes to the credit, it is very difficult. It's a completely different ball game. Our approach is that we don't have to compete with any of them. We are integrating partner or provider of credit to all of those platforms as long as those have data set, which we can use to underwrite that customer.

Got it. Got it. Moving on to the next question. We have the next question from the line of Mr. Chirag Maroo.

I am from Keynote Capital, sir, I have 2 questions. One is like you have mentioned that you're going to be comfortable with the debt level, debt-to-equity ratio level of 3.15. So should I expect that till this level is reached, we are not going to do any kind of QIP and no equity raise?

Yes. I think so that, so I just look at you never take it to the brink and then think of it, but I think so that it is a function that is the range we would like to maintain in our initial time before our liability side and the rating agencies start getting uncomfortable. But in that Chirag, one of the biggest moving part is how much of, because we, as we said, that we are, we target 30% to 50% of our portfolio will start weakening off balance sheet. So today, we have a Pratham program, which is the Bank of Baroda, which goes out of our balance sheet, but it's not a big volume generator right now, it should become in the next 2 quarters. Very soon, we will have a very large bank, which will start doing for our core product, which is our Sanjeevani. And if that get operationalized, our leverage would come down, but our AUM would keep going up. So it is very difficult to predict when we raise capital, but you're right. I think so whenever we will be nearing to over 4x or 3.8x of leverage, we will definitely start thinking about more capital raise.

Okay. And another question is that as you have said that going forward, we would be increasing our unsecured base to have a better yield on portfolio. I just wanted to ask that. And we have done some restructuring. So what kind of NPAs are you comfortable with?

I just got 2 different questions. Sir, Chirag. Let me answer on the unsecured portion, right? So unsecured as a connotation have different meaning to different people, right? So today, if I go to a merchant platform, if I go to a payment bank, wherein I have an ability to analyze the cash flow data on the payment platform, and then I use my GST banking platform and then give a small loan of INR 50,000 -- or INR 1 lakh to INR 5 lakh, while categorization of that may be unsecured, but we have a very deep visibility of the underlying cash flow, and that's why we are comfortable. Obviously, the pricing of it, unlinked -- cash flow unlinked loan is, say, 19% that would be at 16-odd percent. So when we say that we would like to increase gradually our funnel for more unsecured business, it is not -- it is blindsided that because the 19% yield portfolio will just grow up because of we are integrating with multiple such platform, and we will make calibrated move to grow our portfolio there, I don't think so that our profile of gross NPA actually changes a lot. Second, in terms of I think so the tolerance, not necessarily a little bit of higher gross NPA means loss ratios, because our gross NPA construct comes from multiplicity of secured and unsecured bucket. And finally, it is the gross NPA to loss ratio and how much of pre-provisioning or the buffer at the balance sheet which we are creating. Our view is that if we increase the portion of unsecured business by another 5%, we will create a pre-buffer of incremental yield. A little bit of that we will use as a creating pre-buffer so that if there is a delinquency, we can use that buffer to make sure that our balance sheet is resilient. So it's a little complex mix of how you operate at that. I think when Anuj made that comment. The comment was in the context that we are comfortable. Historically, we have done all our business at 11.5% yield if you look at our first year of portfolio. But we are now, because of the level of digitization, the success which we have received on our tripod of data, we are getting comfortable to increase our funnel on those side as well, but it will be dependent upon the level of liability because if a bank cannot give me a liability for an increased an unsecured portfolio, we won't do that.

Okay. And if I can squeeze one last question. As we are in the initial phase of our growth where we are expecting to reach a mark of INR 20,000 crores. I don't say that -- let's, it's going to happen now. I just wanted to understand like how are your internal targets getting? Are you able to achieve it? Are you able to overachieve it or is it under underachieved?

So we are there where we are. I think they look overall our financial business models are built around people productivity and efficiency around our technology and income to OpEx ratio. So to give you a color. Today, we have 50 people, front-end salespeople who are in our prime branches, which is the largest contributor of our asset. As of September and October end, the entire 50 people actually have gross productivity. So for example, in a secured relationship manager who is supposed to do 3 crores a month has done 4 crores a month. So that's why now we are doing 2 things. We are increasing people, and we're increasing the footprint in our prime branches as well. If you look at our Micro branches, we will have around 70-plus branches, and all of our branches are vintage of 3 to 4 months. Average time of Micro branch takes to breakeven is 9 months. I guess say next 4 or 5 months, those branches will mature and then you'll see a flow of new asset at the Micro secured lending and 18% to 22% start happening. So they are a different line of asset vertical at different level of maturity. We are very happy with our prime business. We are very, very happy with our partnership analyze channel. I think for next 2 quarters, we will deeply focus on our Micro machinery and supply chain business. And so to bring them at the level of productivity. Once they reach there, then we reinvest back in further infrastructure to grow again. So our growth model is driven by productivity plus infrastructure plus distribution.

The next question is from the line of [ Chet ].

Thanks for your detailed presentation. I'm an HNI investor. And I stumbled upon UGRO after I had invested in another SME company, SME finance here. I have 2 questions. One about the disbursals growth. You said that disbursals growth is going to increase faster. Can we expect that in the coming 3 quarters, the kind of scale you were saying that the business is actually built for. What is the time frame that, that kind of growth will kick in? And second was sector composition of the front book. Post-COVID, has the sector composition changed. And do you see yourself lending to sectors which post-COVID tailwinds?

Chet, I'll quickly answer. I think there is a lot of questions in the queue. One, I think, as I said, that our 2025 target is 20,000. We think so that the way it would get achieved exit run rate every year would double. In terms of purely from AUM, I've already said that we expect whatever run rate on the disbursement you saw in September. We think by March exit run rate, it will be double of that. Obviously, month-on-month it may vary, but that's our target right now for the current year. You can calculate what the exit AUM would be, and I think so we would be double of that in next year. In terms of the portfolio construct, we would -- so around 2 years back, we have stopped auto component, we will now open that. We are still not doing much on hospitality. Education is still coming back. I think we are still long term. We are still comfortable with all our sectors. I think incrementally because we are taking new types of liability under the RBI COVID scheme, which has come to the bank. So we might have a little uptick in our health care financing, but there is nothing extraordinary to that.

Sir, just 1 question, which is in the queue, which is with respect to the unsecured book. So in the unsecured book, the ticket size is INR 17 lakh and the overall book, we have INR 660 crore. So the question is how much is originated directly by us? And what would be the share of Kinara? And who do you think will compete with...

Yes, sorry very quickly. When we say talk about unsecured book, that is completely originated by us. The partnership alliances channel is explained separately. If you look at our asset book, all the 4 channel asset book are disclosed separately. Prime business is prime secured, prime unsecured in Micro. That's our branch-led channel, then we have supply chain channel plus machinery and then partnership and alliances. Partnership alliances, we look at as one big channel. Underlying partner may be doing different kind of products. Some partners are doing unsecured, some partners are secured, some partners other. Our relationship and credit metric depending upon the credit behavior of the partner, the pricing and the first-loss covers and technology integration is defined on that basis.

And sir, who do we compete with in this segment?

In the unsecured segment?

Yes, yes.

All prime banks, all prime, large NBFCs or anyone who is doing the top end credit for an unsecured loan, everyone we compete, we compete on the basis of efficiency, turnaround time and our ability to assess cash flow for the customer. Amit Mande, do you want to answer that very quickly?

Absolutely. So as like you rightly said, our competition will be everybody from the large banks like HDFC going down to NBFCs like the Fullertons or Tata Capitals in this segment. Rightly so the question is whether such large competition, how do we compete here? Given our sectoral scorecards, given our tech platforms and ability for not only customers, but also our partners, to access this platform and give quick turnaround times on approvals and disbursals, I think that's how we've been able to set a footprint in this business. And given the dark sector, the scorecards are behaving very well, that is where our confidence to continue this business and grow this comes from. And so we will keep competing with the larger players and build up book.

Got it. Sir, just one thing. So what would be the yield bracket that we have like because we are competing right from the top of the pyramid to the bottom. So then what would be the yield bracket?

The portfolio yield -- the company level yield we have given we are at 15-odd, 15.2% of a blended yield at portfolio level.

And for this unsecured loan segment?

We operate between -- Nirav, have we disclosed that the product-wise yield?

I think we can, we haven't disclosed -- we can obviously...

Yes, 17.5% to 19.2% yield is what we do...

That is only particularly for the prime loans, For the Micro unsecured, the lending rate would be around 24%. So 22% to 24%.

Yes, that was a very small portion of our Micro business.

At this point in time. Yes, I think.

Got it. Got it. So just squeezing in one more question there from the investors only. So how much of the book was restructured in OTR1 and in OTR2?

Well, that's quite -- so our total restructured book is 7.2% of our AUM.

Approximately half. Approximately half in the first skip and the rest in the next.

Okay. Got it.

Shreepal, we should just take the last question now from Saurabh Joshi. He has actually posted it on the Q&A this thing. [indiscernible] one of the first lenders.

Nirav, can I just take one more question, which is on the management because I don't want people to feel that we are -- difficult question, we don't answer.

Yes.

Yes, there's some question called some of the senior members have left the company recently. I don't have the name. It is concerning when the head of business keep leaving and can have an impact on the growth. What are the plans to reduce the likelihood of management changes in the future? So whoever it is here is the answer. This company has -- is now in an existence of 3 years. We have seen in financial services, the core management teams evolve over a period of 3 to 5 years. And the reason for that is that there is a set of aspiration for which the company has been designed. UGRO has been designed to build a scale platform for MSME financing, build deep data analytics and digitization and play on the technology and we needed a management team which comes and embrace that. But we realize in our first 3 years of operation most of our management team who came and who has left, we wanted to give people time to be able to work on this aspiration. And when we realize that there is an issue with respect to fitment in understanding the changing landscape, gradually, we have brought people with caliber, which is aligned to that. So there is nothing extraordinary about it. Actually, the management team enhancement which we have done is far, far superior. Today, UGRO is a place attracting talent across the board. We were roughly around 150 people or 170 people last March. We are around 300 people in March '21. We are 730 people as of today, 1,000 people by December and most probably 1,500 people by March. I think the UGRO has become a place of first choice for talented people who want to make a mark in financial services industry. What are the plans to reduce the likelihood of management changes? But as long as people perform, they like our culture, it's a company which has an ownership which is our institutional by nature. Our institutional shareholders and Board like the people to benefit from what they create. So management team, which will have -- and when we say management team is not just which is here, but people even 3 layers below them. People would like to create a name for themselves and create a mark in financial services industry and build the largest small business financing platform not lead this company. The level of freedom, autonomy and experimentation and innovation, which is available for management teams here is unparallel to any other company in the country. Yes, we can come to the last question of...

Saurabh has written the company has become one of the first lenders to be integrated on government GeM Sahay platform. Are there any other lenders who have been integrated with GeM Sahay? What is the expected business of the company from GeM Sahay? How UGRO is planning to compete with large lenders like SBI on the platform? Who have low cost of capital and provide finance at lower cost, what's the threshold yield below which this business become unattractive for UGRO Capital?

Saurabh, this is very excellent question. I think our effort of doing the pilot with the eyes spread and integrating as the first lender on GeM Sahay, was not with an objective to make this as a volume leader for us because we know that at some point in time, our cost of capital is uncompetitive for a platform like GeM Sahay because -- and SBI has ability to lend some 9% on a GeM Sahay platform, but they will take time because the level of data analytics, which has to be used to do that is it would take time for them. In the interim, what we are trying to do is we are trying to attract a large bank to become a co-lender with us, use our technology prowess and provide us the cost of capital so that the time, effort and energy we have invested on GeM Sahay platform can be monetized. More so we did this is to showcase our ability of creating platform, which can do what we call flow-based transaction-led financing. So this was the first full implementation of an open credit rail network in some form and shape. And the learning there, we can now replicate to multiple other platforms, which, some of them which may not be as price-sensitive as GeM is. GeM, as you know, is government initiative. Government has intention to bring down the cost of capital for MSMEs here. And in fact, some of the banks are talking to us on partnering with us using our credit underwriting and technology to become equivalent there on that.

I think Shreepal we have [indiscernible] the time. So it's already 1.

Sure. Sure.

Shreepal, is there anything any important question, which we might have missed, which you want to take it? So we can do that very quickly.

So we've taken -- so I've taken care of those questions also, like whatever were sent to me separately. So broadly, we've covered all of it. So with that, we conclude the 2Q FY '22 earnings call for UGRO Capital. Sir, any closing remarks if you have -- if you want to have any.

No. On behalf of the management and on my Board, I think so UGRO is a unique company. It is a creation of an early stage start-up in a listed domain. We have genuinely believe that most of the early stage start-ups who are coming now to the public market at a very, very extensive valuation and all the public market buys the future. UGRO gives a similar opportunity. So we are under both spectrum. You can compare us with an existing traditional lending institution. You can compare us to a next-generation fintech. Choose whatever you want. I think so we are very motivated. We are happy that the impact of pandemic is receding. We are happy that hopefully, the third wave would not be here. We are happy that our entire management team, technology, the amount of hard work which we have done is showcasing. We are seeing the result of that number of public shareholders which are increasing. The company is of a different size in nature. We would continue to invest time to keep coming back to every quarter and explain what we are doing. Our intention is to bring -- build this company as an institutional platform. A Board of 12 people of a size of our company is unheard of. So the quality of governance, the quality of technology and management team, what we have invested and invested time is something we would like investors to watch out for. We would come back every quarter and tell what we are doing. Thank you very much.

Thank you sir. Thank you for that, and thank you for giving us the opportunity to host you. Thank you all participants. I wish you all a Happy Diwali in advance and have a prosperous new year. Thank you, sir. And thank you all the participants.

Thank you.

Thank you very much.

Thank you so much.