UGRO Capital Limited (511742) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q2 FY '24 Results Conference Call of UGRO Capital hosted by Emkay Global Financial Services. We have with us today, Mr. Shachindra sir, Vice Chairman and MD; Mr. Anuj Pandey, Chief Risk Officer; Mr. Amit Mande, Chief Revenue Officer; Mr. Kishore Lodha, Chief Financial Officer; Mr. Om Sharma, Chief Operating Officer. [Operator Instructions] Please note that the conference is being recorded. I now like to hand the conference over to Mr. Avinash Singh from Emkay Global Financial Services. Thank you, and over to you, sir.

Thank you, Akshay. Good afternoon, everyone. On behalf of Emkay Global, I welcome you all to the quarter 2 FY '24 earnings call of UGRO Capital. I would like to thank UGRO management for giving us this opportunity to host the call. Without taking much of your time, I would like to hand over the call to Shachindra Nath to discuss the results, followed by Q&A. Over to you, Mr. Nath. Thank you.

Thank you, Avinash. Good evening. I'm Shachindra Nath, Founder and Managing Director of UGRO Capital Limited. I'm joined by the management team of UGRO, and let me take a few minutes to introduce them to you. Mr. Kishore Lodha, our CFO; Mr. Anuj Pandey, our Chief Risk Officer; Mr. Amit Mande, our Chief Revenue Officer; and Mr. Om Sharma, our Chief Operating Officer, are joining me in this call. They and the management teams below them are the real strength of this company. We have all shared vision to make UGRO to grow as the India's largest small business financing company in years to come. This would be my 15th earnings call since we started in July 2018. With every passing quarter, when we reflect on our journey, we get more and more convinced that India needs a large small business credit institution, and we are in the right path to be that institution. Our investor presentation is already uploaded, and I would be referring to the sales presentation during this conversation with you. Most of you are always keen to understand the number and then our story. We have now constantly delivered to the promise we have made to ourselves. Our quarterly results are a reflection of starting with a large capital, reinvesting in data analytics, technology, liability and distribution infrastructure. At the end of FY '23, we decided to leverage the established operating infrastructure and deliver growth and bottom line. Our current quarter reflects the same. I'm on Slide 3 of our presentation. In H1 FY '24, we have delivered 2.2% return on assets and 9.5% (sic) [ 9.2% ] return on equity. Slide 4 in the presentation details our key parameters of our business metrics in more details and articulate our expected delivery on the sale on a sustainable basis beyond 2025. Our business now being set to deliver an AUM growth on 30% plus, cost-to-income ratio of sub 45%. Credit costs sub 2%, which would bring closer to our estimation target, targeted ROA of 4% and ROE of 18% on a steady state basis in the next 2 years. Most of the mainline lenders in India, which are vintage with a large parent or group had benefited -- benefit of higher rating and higher leverage, which leads to better ROE. We have been able to establish in India the alternative of high leverage in form of co-lending, and this continues to be the key part of our business strategy, and we would be at an off book of 50% or higher sooner than expected. If you refer to Slide 5 now, while the credit gap for a small business and the opportunity is always well understood. The most intriguing part has been that within that set, where is the biggest credit gap and how data can solve that faster. Our targeted customers is the underserved Indian registered MSME customers in the turnover range of INR 15 lakhs to INR 15 crores. The studies have shown that out of total INR 85 trillion credit gap, around 95% is within these set of customers. These customer set are fast adapting to digitization, driven by adoption of GST, digital payments, digital banking and high existing credit history. Over the last 5 years, we have mastered the art of addressing the credit for this segment to existing data lens and not necessarily relying on documented financial record. We have segmented this addressable market through our 5 broad verticals. Our philosophy had been and would remain to built a long-term sustainable portfolio, which can deliver sub-2% credit cost, which we believe is a function of leading to loss ratio curve. Within our segment, we are one of those unique companies which addresses the credit rate of customers in the yield band of 12% to 18% with credit cost estimation from 0.5% to 4% and an asset composition, which delivers mandate portfolio level targeted credit cost of less than 2%. On Slide 6, we have explained on how we address the need of this divest set of customers from 6 different channels. These channels operate like a set of companies within UGRO framework. Customers and business turnover of INR 1 crore to INR 15 crore range are served through our prime branches, which are present in metros, Tier 1 and Tier 2 cities. We offer prime secured and unsecured product to this set of customers and underwrite them by assessing their GST banking and cash flow statement of their business. In case of prime secured products, prime property of customer forms the collaterals. The overall price segment constitutes nearly 60% of our assets under management. These customers come to us through our 25 branches supported by more than 900 grow partners. We target lended yield on secured loans in the range of 13% and unsecured in the yield band of 18%. Micro businesses in Tier 3 to 6 cities with an annual turnover of less than INR 1 crores are served through our micro branches lined in the vicinity of such enterprises. The loan requirement of such customers is typically less than INR 10 lakhs. Cash flow of these businesses has to be assessed through a predefined calculated by credit officers. We believe these customers are fast adopting to the digital ecosystem and potentially would be upside in the future. These loans are secured by business property of the bank moreover. The target of 20% for this channel. Microchannel constitute 8% of our overall AUM. We have currently 75 branches in 5 states. And in the next 2 quarters, we are opening additional 75 branches. We are adding UP, MP, Andhra as new states besides the existing states of Tamil Nadu, Karnataka, Telegana, Rajasthan and Gujurat. Our ecosystem channel taps in the opportunity of different of OEMs for machinery manufacturers. Business turnover of this segment largely ranges between INR 1 crore to INR 10 crore range. We believe that this is an excellent wide space, which can be expanded quite well and also gives us opportunity to add on cross-sell multiple other loan products to these set of customers in future. In addition to this, more than 20 million retailers in India, which are associated with brands and large corporate ecosystem to struggle for their working capital base to buy and stock material. We offer supply chain financing across the ecosystem value chain, ranging from suppliers of raw material to retailers selling final products. For underwriting, GST and banking records of the businesses are assessed, while machine are disabled from the collateral for machinery and supply chain financing expected. Our GRO-Xstream platform provides support to other NBFCs and fintech to serve the MSME, which are located in remote areas outside the ambit of our prime and micro branches and our targeted Indian credit risk plan. Annual turnover of such businesses is typically lower than oneself to our branches. Our partner source and carry out joint underwriting of such customer. Our portfolio act as [indiscernible] secured owing to FLDG that we collect from our partners. Finally, to serve the working capital lease of small kirana shops and other such enterprises who need instant collateral free credit, we launched GRO X app last year. These are small loans with ticket sizes of like INR 1 lakh. If you look at Slide 8, you will be able to appreciate that our early investment into data plus technology, distribution and liability engine have been able to propel our net loan origination, which has grown from INR 642 crores in Q2 FY '22 to approximately INR 1,450 crores in Q4 FY '23. In the quarter, it was at INR 1,476 crores. Our origination engine is stable at this range of disbursement, and we will now gradually gear up to increase it to keep in mind the aspiration we have for FY '25 without sacrificing on the bottom line performance. The disbursable funnel has taken us to INR 7,592 crores of AUM at the end of first half of current financial year from approximately INR 2,000 crores 7 quarters back. Slide 10 and 11 gives you description of our path breaking credit engine, with a combination of GST plus banking plus bureau, its performance continues to make us belief that the future of India's MSME credit now is in the heart of data analytics. We continue to mature our platform with every passing days. While everyone likes the growth, but in credit industry, people also worry about portfolio performance in future for lending companies growing at a fast pace. We continue to believe that given our approval rate still below 30%, our portfolio construct of lower to median yield and balancing between secured and unsecured would keep our portfolio quality stable. So most of our product lines, we have seen the full cycle, and they are behaving on the expected line. Slide 12 and 13 are reflective of our overall portfolio quality. We are diversified and granular distribution. In summary, we have a collection efficiency of around 99%, gross NPA of 1.9%, net NPA of 1.1%, provisional coverage ratio of 49% and a Stage 1 asset of 95%. We feel confident to maintain these numbers even going forward. Finally, lending business is more of a liability than asset in India. The asset performance to some extent, is a function of liability infrastructure. On Slide 16 and 17 details of our liability infrastructure, the most important pillar of our strategy has been to build a large partnership model and the full lending framework. Today, we have more demand than supply. And over last 1 year, almost all of our products are now getting accepted in the co-lending models in the bank. Of the total AUM to date, we have INR 3,405 crores in the form of off-balance sheet assets. Correlation was primarily with large NBFCs but now gradually moving with banks under co-origination model and co-lending continues with some of the large banks in India. On our on-balance sheet liability engine, it is now benefiting from having a large number of diversified set of domestic banks, global DFIs, capital markets and large NBFCs. Now we are seeing existing lenders increases their ticket size with us and the cost of borrowing has remained stable. Our constant endeavor is now to reduce on-balance sheet liability cost, which we believe is a real possibility as we gain more vintage. In summary, we have proven our growth engine. We have delivered healthy bottom line. We are maintaining credit quality. And now getting ready to be the large player for credit to small businesses in India. Thank you so much. The management team of UGRO is here to answer any questions. Operator, you may open it for question-and-answer please.

[Operator Instructions] The first question is from the line of Nirvana Laha, an individual investor.

Mr. Nath, am I audible?

You are audible.

And congrats on...

Mr. Laha, are you there? Sorry, we lost you.

Can you hear me?

Yes, please go ahead.

Congrats on another great quarter. My first question is on co-lending. So we have different products within co-lending, like unsecured loans we're doing now. We're doing machinery financing. My question is what are the unit economics within co-lending? Is there a particular product that has a higher delta for us? For example, how does it differ between these products within co-lending?

So I think we don't disclose the product levels in unit economics, but I can give you a broad guidance. If you look at our on-balance sheet cost of borrowing is roughly around 10.5%. On most of our co-lending products, except the unsecured business loan, that spread to us is superior to our on-balance sheet cost of borrowing. The reason for that and the way it is beneficial for the company is that earn the spread of let's say 5%, 6% on-balance sheet, while we have to provide for at least 20% of the capital. On the co-lending side, you are more or less paying spread or loan spread without providing the capital. That's why it's very capital efficiency in this model. The reason why the spread from the co-lending are superior because for banks the risk rate lend to an NBFC for -- our rating band, let's say 100% or 50%, while the risk rate for underlying customer segment of our is far lower. So the credit cost adjusted OpEx zero, banks having the cost of capital of less than 5%, actually it is far more attractive than lending to an NBFC. So the core hypothesis of co-lending in India is that banks can undertake and originate investor segment without recurring OpEx.

Got it. My second question is with a deal with SBI. I believe in the starting stages, there were some dealing issues. And I heard from them that they've onboarded a tech partner to sort of help with integration. Could you give us an update on how things are moving now compared to where things were a couple of months ago?

So I think whereas Nirvana, you should look at co-lending, I will not like to comment any specific bank partner or their technology provider or a vendor of that. But I think you should look at in the context of this. The securitization industry in India started in 1982. The first securitization transaction was done between Shriram Finance and Citibank way back '82 and for it to reach to INR 4 lakh crore, it has taken almost 4 digits. While the co-lending in the first 3 or 4 years have reached about INR 75,000 crores in aggregate in the U.S. bank. So I think the speed at which the co-lending is growing in India is still exceptional. Obviously, as the originator of asset and bank as a buyer of this asset, we all would like to say [Foreign Language]. But -- and the second is that you should look at it in this -- the co-lending and its progression in this way. The banks understanding of the customer segment which we serve and to begin with was their understanding, while we do it in a very different way. So to bring into the alignment there in the banks understand our credit at which the product, the policy and philosophy and bring it that far had been a journey. It has taken us 2 to 3 years. But I would say at different banks are at a different level, but some of the large banks, some of them which you have names have accepted new growth credit methodology, all I would say, up to 95%. Second is the technology aspect. So as you know, the banks have their technology engine and we have our technology engine, and they are intermediary platform in between which are integrated with 2 of the partners. And that, again, is at this point in time is an evolution of journey. I think some of the technology players are working very hard to create this as a, I would say, 100% smooth journey, today it's more or less in a hybrid form. But each bank and each partner are progressing fairly well. I'm quite confident by end of this year and the next 2 quarters, the next financial year, you will see almost 70% to 80% efficiency rate when it comes to the technology integration. And after that, you should see even further explosion of co-lending industry in India.

Okay. My last question is on the cost to income this year like we were hoping to see with no branch expansion this quarter that weekly operating leverage play out. But actually quarter-on-quarter, the cost income hasn't fallen. Could you tell us why this has happened and where we expect the end of the year to fall on?

Kishore, do you want to take this?

So cost to income ratio has been constantly reduced in the organization. So if you look at the past data, 2022, the cost-to-income ratio at 72%. Last year, it was for the full year, it was 64% and now we are closing -- closer to 55%, 56%. Though the cost-to-income ratio, we expected it to be slightly lower by first half, which is slightly 2%, 3% more than what we had expected. It is not because of any business concern or rate functions. It is largely on the premise that for some time, we are holding on some amount of liquidity on our balance sheet, which obviously gives some comfort on the business line, some comfort on the lenders, but at the same time has a negative carry. So which has some impact on cost-to-income ratio because the news become lower compared to whatever negative carry is getting generated. So what we have guided at the beginning of the year that we should be closer to 50% in terms of cost-to-income ratio, we'll see it would be still lower by almost 10%, 12% compared to previous year. We still believe that we -- at the end of the year it will be closer to 50%, 52% kind of cost-to-income ratio.

The next question is from the line of Rahul Bhangadia from Lucky Investment Managers.

Congratulations on a very good set of numbers. There are 2 questions. First one is actually just a continuation of the last one on the cost structure bid. We have seen an 18%, 20% absolute cost structure rise Q-on-Q. So -- but you have already guided for a 50% to 52% kind of cost-to-income ratio depending upon the balance sheet side, but that is on the balance sheet angle point of view. The absolute number itself has grown at a 20% Q-on-Q or 18% Q-on-Q number. Some sense on that, sir?

Again, I would like to take this question, Rahul. Thanks for asking this. Actually, if you look at our numbers, 2 places, you would see some rise compared to the previous quarter. One is on the employee cost, which was closer to INR 37 crores, which has moved to almost INR 46 crores this quarter and other operating expenses have moved by almost INR 3 crores from INR 25 crores to INR 28 crores this quarter. So as far as the employee cost is concerned, there has been no addition on the employee cost or no increase in overall wage cost per se, but what has happened that in last quarter -- in last year, we have provisioned for almost INR 12 crores on the employee bonuses, actual bonuses which were distributed during the first quarter of the year for the last year performance was INR 7 crores. So there was a saving of INR 5 crores -- reversal of INR 5 crore of bonus which has happened during the last quarter. And this quarter, we have made a provision of around INR 2.5 crores for this year bonus, which will be actually paid for during the next year. So if you take these numbers out, then we are slightly as far as employee cost is concerned. So there is no addition of manpower, neither there is addition of manpower, nor there is an increase in manpower cost per se. On other operating costs, we are slightly more compared to the previous quarter by almost INR 3 crores. Most of it has come because of the GST reversal. And NBFC, now we are entitled for only 50% of GST, but 50% is the cash that comes from the well the P&L for whatever services we take. So this increase of almost INR 3 crores, INR 3.5 crores, 50% of that has been contributed by the GST reversal, which is a charge. And on operating side, we are expecting - actually, there is no significant increase in operating costs. And whatever budget we have taken for the full year, we are fairly confident that on the operating cost side, we will be either same or lower compared to whatever we have guided for.

Sorry, if I've understood it right. In Q1 FY '24, there was a reversal of a bonus element which you would have accounted for in FY'23. Is that understanding correct broadly? That's what you have done?

No. So the FY '23, yes, you're right. So FY '23, we have provide a provision of INR 12 crores for this year bonus, but actual bonus distribution was INR 7 crores.

Right. So -- okay. So that explains one part of it. Now two smaller questions, sir. Do you -- initially, we were targeting an AUM broadly of about INR 10,000 crores as we end this year, kind of -- we are on track for that?

So I would let Amit to answer that question, Rahul, but one thing -- so we always put out a very high aspiration number. Our aspiration number continues to be INR 10,000-odd crores. But over the last 1.5, 2 quarters, we are focused -- we are tightening the shift. We are keeping our operating costs flat. We are making sure that on every product line, our yield increases and even if we have to sacrifice INR 500, INR 600 crores of AUM on that, but we maintain -- improve the PAT by certain basis points, we would do that. But broadly, we are in line with our aspiration target of INR 10,000 crores, guided by INR 500 crores. We are currently from our plan numbers, we are short by INR 300 crores, but we are pushing all pedals to get to where we want to. Amit, do you add something?

No sir. You put it very accurately that we are on -- so rightly said, we are about INR 260 crores, INR 280 crores short of our plan as of this quarter on a total AUM of INR 7,600 crores. However, in the next 2 quarters, we should be able to track as per plan, and we should there as close to INR 10,000 crores with a deviation of 3%, 4%.

Great, sir. Just a small clarification. I need on your presentation, then I'll come back to the queue. Slide #12, you generally give a product mix and the interest yields across the products. There seems to be a big drop in the partnership and alliances yield this quarter from what we have seen in the previous quarter. It's just a typo? Or should we understand something there?

No, no. I think we used to give a gross fees. So if you look at the partnership alliances, our customer, obviously, when we lend to the end customer, there is a gross fee and then we pay a service fee or interest share with the partner. So I think this time, we have actually given the net yield, if I'm correct. Kishore, is that right?

Yes sir.

Okay. So the only difference is that in the partnership alliances yield, you just cut out the portion that the partner takes away.

Yes.

The next question is from the line of [ Nilesh Saha from Julius ER ]

Am I audible?

Yes, you're audible, Nilesh.

Okay. Yes. So I would like to -- would like your help in understanding the go-to-market strategy that you have, I think you mentioned in your presentation that you have 95 branches and you are not looking to expand your branch footprint. Is that right?

So we have -- in my opening commentary, I said that today, we target the customer segment of INR 25 lakhs turnover to INR 15 crores turnover. We target the customer band between 12% yield to 18% yield. We maintain a healthy portfolio mix of secured to unsecured because we believe that, that delivers a defined credit cost. And when we go to these customers from 5 different -- 4 different distinct channels. Branches divided in 2 parts, prime branches, which target the prime customer in top 25 cities, 75 branches for micro enterprises, which is direct distribution and in an ecosystem in which we do machinery to OEM. We do retailer financing through large anchors. Then we have a partnership and alliance channel where we do with -- along with other fintech and NBFCs, and we have a new channel, which is called GRO X, which is a direct -- digital distributing ecosystem. So that's what is the funnel is. With respect to branch infrastructure, we believe that in order to get the desired yield, the ROA to ROE, we have to make -- expand our physical footprint. Our 75 branches which were started in '21, '22, we are now reaching this key productivity, almost INR 70 lakhs, INR 80 lakhs per branch. And that's why next 2 quarters, we are adding another 75 branches and we've added 3 states. We believe that the incremental OpEx to that because most of these branches by the time they will come up, the year would be passed by. So the incremental OpEx to this year financial performance would not be there. And next year, our size would be larger enough, if you absorb this cost, but the benefit from a higher yielding secured product, which we want to expand now.

Got it. Got it. Just if you could describe right, how the structure of a branch looks, right? Because it seems to me that you guys are doing a lot both in terms of the number of industries, the number of products, how these products are funded, right? So what does a typical workforce in a branch look like? How many people are doing sourcing? How many people are doing collection? How many people are doing credit? Can you help us understand?

I think it's a very long conversation, and we'll be happy to be a session with you separately as well. But I think it's a function of setting up for scale. As you said 2 quarters back, I was giving somebody this example that. If you started Jio Convention Center in BKC, you will end up with a first event of 5 lakhs people versus starting boutique, hotel and having a 100 people. So that's our philosophy. A company which started with INR 1,000 crore of equity capital, started one of the most established management team with the largest liability infrastructure and which has aspiration to build India's largest to small business financing company would on the -- if I say it would look like it would be or not, but we are being able to do a lot because that's the infrastructure which we are putting in first place. Philosophically, we drive our business through a data lens, which we call GRO Score. UGRO has India's one of the largest data analytics plus technology team of 275 people. Then we have -- then we have a sectoral view that we look at the customer, we know our data engine through length of 9 sector and 100 subsectors. That gives a templated method of underwriting for our different customer set and then we have these 5 different distribution channel run by the separate management team. And there is a common liability infrastructure, which borrows on-balance sheet and some of our asset lines get funneled into the bank. So in summary, this is what would drive or deliver what we call the 30% CAGR growth rate, cost-to-income ratio of less than 45%, ROA of 4%, return on equity of 17%, 18%. So I think that this is a 5 year of hard work through which this large format business has been established in India.

Just one last question is that from a collection point of view, how are you guys organized?

Amit, you want to take this?

Yes. So we have a large collection team in our team of approximately 250 people, and it is organized broadly within 2 verticals. There's a large on-field collection team and then there's a large in parallel litigation team. And depending on the size of portfolio in each location, these collection teams are further subdivided by buckets and by product. They are all headed by a very senior recruit, which you can call the Head of Collections and litigations. And under in, there are 3 national level provisions, National Collection Head for secured loans, National Collections Head unsecured and a Head of Litigation. So most of it is done in-house.

All of it is done in-house. But I think our collection infrastructure is a function of our choice of the customer profile. 100% of our customers are not new to credit customers, they are what we call the under-subsegment of the credit mark. They all have some kind of history of the credit and all of them come to the banking system. So 100% of our collection happens through bank systems. And depending upon the product lines, and at different stages, different collection and teams on ground need a collection. But our collection is also powered by what we call a very, very stablish early warning segment. So our data analytics team not only does the credit underwriting platforms at the point of origination, but also provide an EWS system which input to our collection so that we have a proactive collection system. And our data analytics team also looking at cross-sell the products. So our collection engine as it could be for any bank or for any last format NBFC, it's the combination of digital infrastructure, combination of physical footprint in our branches and automated collection engine through banking system.

And I will touch base with you guys separately for a deeper conversation. Thank you.

Please do that.

The next question is from the line of M.B. Mahesh from Kotak Securities.

Sir, just 2 questions. One is how often do you scrub the data of your borrowers or they're taking any form of a fresh credit once they have been onboarded as a client?

So for our existing customers, we do a scrub once a quarter.

And if you could just tell us what kind of trends are you seeing from the scrubs?

So primarily, we use this scrub for 2 reasons. One is on our early warning signals, and we do an on book and off book comparison and try to asserting through machine learning platform, whether the overall leverage of the customer is going up or down. And second, we want to -- we use that scrub in ascertaining and refreshing the probability of default of the customer for the next 12 months. So what we are up to now is, overall, not much change, the turnovers of the customers have gone up in our chosen target segment. And the leverage overall is also going up around the same piece.

Okay. And you are seeing instances where multiple lending is becoming common or it still remains the same as what it was probably about a year or 2 years back?

So we will always fund -- we don't fund new to credit. So we always fund customers who already have a credit line. So in terms of number of trade lines, at the time of onboarding, we haven't seen too much of a change.

Okay. So you don't see this as a risk -- you don't see the current set of developments that is coming in the media as a source of risk, where there seems to be a lot of multiple credit lines being issued by the customer?

No, that is more for consumer loans. In MSME, we are not seeing any such trend.

I would -- Mahesh, I'd like to add just one more thing, I think so the conventional way to look at [indiscernible] credit versus the way we look at it is slightly different. As I said that if you look at our slide, I think 12 or 13, you see there is -- still get proprietary tool of us what we call the GRO Score. Our GRO Score actually is built around the retailing capabilities of the customer, which also takes the tenacity of the turnover and cash flow, which comes out of the banking. And then it categorize our customer in 5 different risk bands. We are on the version 3 of our GRO Score. We also show performance for both set of our customers. So while we scrub the bureau for our existing customer every quarter, but we also scrub for all the customers which we have not meant to. And then we compare that how the performance of our score has been. And because we predominantly rely in the difference what you see the media noise around the unsecured loans versus small business loans, unsecured consumption loan doesn't take in account the repayment capability because you're funding predominantly a consumption purchase versus our lending is purely dependent upon the repayment capability. So every time machine calculates the eligibility of the customer and if it is an unsecured loan, it discounts the cash flow, presuming that there'll be multiple lines of credit along with us or outside us would be coming to the customer.

Perfect. And sir, just to kind of explain that argument, given that the SME borrowers cash flow at the company level and at the individual level are largely interchangeable. You don't see it as a risk right now that while it will not be showing the corporate balance sheet or the SME balance sheet, it may be seen in the personal balance sheet of the consumer.

I'll let Anuj give you the detailed answer, but I would say it depends upon what's your target customer segment. What you are saying is for the SME, which are predominantly bank customers, the customers which are in the conversion range of say INR 25 crores to INR 100 crores per se. In our customer segment, as you go much granular and deeper actually, most of our businesses are either proprietorship, from our partnership or a portion of that company, this interchangeability doesn't impact that much because we are looking -- our credit is depending upon the cash flow, which we are analyzing through system for what the business entity per se. And as long as we are more conservative to that extent, and if he is taking more credit at a personal level and then deploying in the -- that get reflected in zero in bureau because we search the bureau of the customer, we search the bureau of the entity, which search the bureau of the individual, which are associated with the equity. So our system to some extent undertake that as well. Anuj?

Yes, you're right, Shachin. And just to add, and specifically in case of proprietorship, where the proprietor's personal consumption would get reflected in its consumer bureau, our GRO Score has been designed to take that input also into account. So when we are now scoring the customer, especially for proprietorships, we are also additionally looking at the proprietor consumer bureau as well. So we are -- so in a way, we are taking into account any additional risk if it's taking at his personal level.

[Operator Instructions] The next question is from the line of Omkar from Vasuki India Fund.

Yes. So I just wanted to go back to the guidance part. So for '24, we had a guidance of around 3% for ROA, right?

Sorry, your voice not very clear. Can you come back?

Yes. I just wanted to confirm on the guidance part. So for FY '24, we had a guidance of ROA of around 3%. So are we maintaining that? Or is there any change?

Kishore, are we maintaining that?

Yes, we are reasonably confident that we would be able to achieve of 3% of ROA by the year-end. So there is no change in the guidance on that part because whatever we have as far as ROAs are concerned for first half, whatever we have planned for, we have achieved it through the [indiscernible]. So at this moment, there are no indicators which led us to believe that there would any change in that kind of -- achieving that kind of ROA. So we certainly believe that we shouldn't be able to achieve that kind of ROA.

Sir, any updates on the fundraise on the...

Sorry for the interruption. Mr. Omkar sir, your voice is not audible. It's very low. Can you please switch to the handset?

Yes. Yes. So I was saying, is there any update on the fundraise part on when it will be and how then?

So I think we have answered this question as we are very well capitalized at this point of time. We have a 25% capital adequacy. We have multiple tools getting of our portfolio covered under the credit guarantee. We have not used any clear tools. Our stated objective is to make UGRO as a well-diversified, well tracted listed public companies. And with that objective, we would like to tap public market for our next round of capital. We are in no hurry to do that. For the first time, the management is putting an effort to explain our broadest story to public market investors. And that journey we have started around 2 months back. And we will -- we will continue to do for next 2-odd quarters. And wherever we think that our existing shareholders in Board is comfortable with the price with the capital raise size and when the market is ready to provide us the capital, we'll do that.

Okay. I'm sorry, I missed the branch expansion piece. 75 branches you are planning over how much time?

So target is to get these branches more or less activated by end of this financial year. I think they will become productive gradually in Q1 next financial year. We are like -- while we started the process, but we are making sure that they are not accelerated at a pace where they need to start working or it completes our bottom line, but also we have an eye on how our FY '25, '26, '27 would be and that's why we are feeding the investments gradually because as you know, the micro branches is the highest yield generator and best portfolio quality creator for UGRO. So keeping that in mind, these branches, I think so should be at least at a stage of becoming productive by end of financial year.

And how much time does the branch take to breakeven typically?

Micro branches take between 12 to 16 months to breakeven. But the cost will be fairly low.

The next question is from the line of Rahil Shah from Crown Capital.

Earlier to one of the participants, you mentioned -- so you asked about the AUM aspiration of INR 10,000 crores by year-end. And you said that you are ready to sacrifice the certain amount of AUM in order to achieve your certain PAT target. So have you given any guidance for the PAT for this year? Or would you like to repeat if you have?

So actually, a lot of people keep advising us that we put hard numbers of what we would be doing in next year and year onwards. And most of people say, you should always give a band, right? Because public market investors, if you don't give them a hard number, if you -- what they expect and you overachieve, they feel very happy. But if you give a hard -- aspirational hard number on some of easily achieve then they feel -- they don't like you. So I think that we are between gradually cautious around what we say. But as a team, as a management, we are motivated by the size of the opportunity which we have in front of us. We always believe that the only way to capture that opportunity wherein we publicly commit what we want to build, and that's why we put those hard numbers. But what I was referring to that you don't hold us to the last seat if we miss 5% or 10% because these businesses are being built for generation, not for a quarter or 2 quarters or a year or so. So our guidance to the total bottom lies would be -- we have done around INR 55 crores, INR 56 crores for the half year and should be doing more than what -- if you multiply it for next half, we should be at least 20% above that is our guidance. On the AUM side, we are still saying that we will target to achieve what aspiration number we have put out, but if you have to make sure that we -- in order to get the gross yield number, if we have to take the reduction a little bit on the yield and the profitability, we won't do that. So that's the guidance. We are still targeting that number, but if we miss INR 400 crore, INR 500 crores, but we maintain our profitability, we are okay with that.

Got it. Got it. So like 20% more than what you have already done in the first half. Is that correct to understand, is something you're targeting?

Yes sir.

Okay. And lastly, just you've given other guidances for the year as well. I just want to know your advances growth. What do you expect to close this year? And that will be my last question.

We've answered that as -- we have said that [ aim would be ] in the range of between very close or near to INR 10,000-odd crores, anywhere between INR 9,000 to INR 10,000 crores, it should be there.

Our next question is from the line of Pruthul Shah from Anubhuti Advisors.

Yes. Am I audible?

Yes, please go ahead.