Moneyboxx Finance - Good compounder for our money?

Moneybox finance - Business Overview

  • Founded in 2018 by Deepak Aggarwal and Mayur Modi, Moneyboxx Finance is a listed NBFC that offers unsecured and secured credit to underserved micro enterprises. Run by promoter management having significant experience at JP Morgan, KPMG, Bank of America, Deutsche bank etc,.
  • Company disburses loans in the range of INR 70,000 to 3 Lakhs in unsecured loans and 2-10 Lakh in secured with tenures ranging from one year to seven years in Tier 3 and below locations (rural/semi-rural/semi-urban).
    – The key area catered by them is diary. Unlike other finance companies which go by cluster based approach, Moneyboxx is going after essential based approach which helps in protecting in credit cycles.
    Diary customer is one with 5 min. livestock and agriculture land. Which gives 2 streams of income. Diary forms 60% of portfolio. Diary is followed by Kirana which comprises 10% of portfolio. They have veterinary doctors in their payroll.
    – Opportunity size in 1-10 Lakh loans is 22L Cr. The size in organized in 2L Cr. Alternatively, livestock accounts for 7% of GDP which is 15L Cr. Using both methods of estimation, opportunity size is huge. Kirana is double the size.
    – Microfinance with a ticket size of upto 40K INR is better served with 2.5L Cr credit while very small loans is only served by 1L Cr. This is a dated report (July 21) but gives a picture on the underserved opportunity.

– There are 250 NBFC/MFIs which give loans to 8-10 with a ticket size upto 50k INR. This is a 3 lakh Cr industry running since last 2 decades.
– Moneyboxx wants to address the ticket size above 50k INR. Tenure is upto 2-3 years in case of unsecured and 4-7 years in case of secured.
– The loan target group don’t have ITRs/GST history/Banking history.
– Earlier they were primarily into unsecured loans. Over time, as cost of borrowing started coming down, they moved to secured lending as well. In Q4FY23, 6% of disbursement is in secured and in Q2FY24, 22% of disbursement is secured.
– The model has higher opex in the beginning and it comes down over a period of time.

  • This is a branch led model with 100% digital processes where loan officers are hired for the branch and try to source loans in nearby villages. They will be visiting the locations physically to onboard and collect money.
    – The Loan Relationship Manager (LRM) who disposes the loan is responsible for the collection as well.
    – The incentive structures - bonuses etc,. - are directly tied to the asset quality.
  • Cumulative disbursements of 917 Cr with 536 Cr Outstanding AUM out of which 17% of outstanding loan book is secured. 64% of the lending is on-book while rest of it is managed.

Progress

  • Branch footprint - Grew from 11 branches/4 states in Mar’20 to 86 branches/8 states in Dec '23.

    – No state has more than 26% AUM. (In June 22, it used to be 32%. In Dec 22, 29%. Steady improvement)
    – In case of larger players like Finova, Sarvagram, Five Star, Veritas top 3 states form 85% of portfolio (mangement’s words).
  • Average AUM per branch goes up as the branch ages.

    – 27.1% loans are from repeat customers
    – An average branch takes 2.5 Cr AUM and 6 months to break even.
    – There are branches which did 10% PBT at 11-12 CR AUM.
  • AUM/branch (aged > 2 years) grew by 44% YoY.
  • Lending Partnerships - working with 30 lenders including 9 banks. Testament to their underwriting to be able to work with many reputed lenders.
  • They’ve a co-lending/BC line of 35 Cr per month from Vivriti Capital, MAS and Utkarsh SFB
  • Improving Spread - Spread improved by 3% due to increased lending IRRs and reduced borrowing costs. 32% yield in unsecured and 24-25% in secured. Cost of borrowings used to be 17.5% in FY20, 16.4% in FY21, 15.2% in FY23. Incremental borrowing cost is 12.48%.
  • Asset quality - Credit costs are in the range of 1.28% to 2%. Reasonable for 13-16% interest spread.

    – management is guiding 1.5-2% credit costs in unsecured loans and ~1% in secured loans.
    – lead generation to asset quality ratio is in the tune of 13-14%
  • Equity capital - Company has raised a cumulative 174 Cr equity capital from March '19 to Dec '23 out of which 99 Cr raised in this financial year.

    – equity capital helps with new branch initial capex/opex till branch becomes profitable, FLDG and to maintain debt/equity ratio.
    – Covenants from lenders allow them to do 750 Cr AUM on 100 Cr Equity. However, they’d like to do 500 Cr AUM for 100 Cr equity so that debt/equity stays at 4:1
    – To hit the target of 6850 Cr by FY28, management assumes 1500 Cr equity is needed. From the current levels of 175 Cr networth, 800 Cr could come from additional equity in next 4 years and remaining from profits.
  • Aided by increasing margins, average age of branches, company became profitable in FY24 demonstrating increasing ROEs YOY


    – management is guiding double digit ROE soon.
  • Opex % coming down as AUM scaled over time
  • Ratings - Currently rated at IND BBB- (Positive). FY24 is turning out to be a profitable year and company subsequently raised 75 Cr. Could result in ratings improvement. In case of NBFCs, better ratings help in negotiating better interest rates.

Ambitious Targets

  • FY24 - 800 Cr AUM/100 branches. As per filing on Jan 1st week, company reached 90 branches.
  • FY25 - 1600 Cr AUM - presence in 3 additional states - karnataka, telangana and tamil nadu. Expecting to cross 15% ROE. With secured loans, AUM goes up quickly as loan sizes are bigger.
  • FY 28 - Long term AUM Target of 6485 Cr (20x AUM growth), 400+ branches (6x growth)

Cons/risks -

  • Higher valuation - At a CMP of 277.5, Company is richly valued @ 5.26 times book (Book Value Per Share = 53.86).

  • Political risk - during elections, loan waivers result in NPA spikes.

  • Credit rating stayed the same BBB- since last 4 years of their operation. Dropped a note to moneyboxx team. Will update once I get response.

  • Competitors: Five Star Finance, Finova and Aye Finance, Vistaar, Veritas, Sarvagram (Gujarat,Maharashtra) etc,.

Conclusion: It is easy to give loans. To grow reasonably well, one has to maintain good asset quality over long period of time. In India, there is huge underserved opportunity beyond banks. However, maintaining asset quality is important. Company is at an inflection point with reducing interest rates => Increasing yields and moving to secured portfolio => reduces credit costs.

Disclosure: Interested. No position yet.


Sources:

  1. Lendingtech Startup Moneyboxx Finance To Raise INR 75 Cr
  2. Q3 FY24 Investor Presentation
  3. Moneyboxx Finance Ltd financial results and price chart - Screener
  4. Nov 2023 Earnings Transcript
  5. Ratings - Sep 2023
11 Likes
Sr No. Particulars Comments
1 Promoted By-
Mr Deepak aggarwal - Chartered Account - Has affiliation with Equity firms, NBFC and Debt funds - Ex - BOA, KPMG, Founder Avancer capital (PE Fund)
Mayur Modi - ex- HSB, JPMC Associate director in HSBC
2 Has Requested to allow BOD to increase Borrowing limit from 500 crores to 1500 crores > the current AUM is 400 crores
3 BOD -
Uma Shankar Paliwal - Rich Experience in Banking Ex- RBI and current Charimen/member in UV asset reconstruction and Fusion Microfinance and Dillip Buildcon
Ratna Dharashree Vishwanathan - Director in Dillip Buildcon and Fusion Microfinance
Other Memebers are mostly CA, IIM with good background
4 Most Underserved segment i.e. Lower ticket size segment → 50k - 300k in unsecured loan and 100k to 1 million in Secured loan Financial Inclusion target for Indian Economy more competition is below 40000 ticket size loan as more than 230 lenders active in this segment
5 34 - 35% almost new customers - taking credit for the first time New customers (taking loan first time)with low ticket are less likely to default on their loan
6 Have opened 61 Branches with in 4 years of starting of business
7 Target AUM of more than 6000 crores of AUM and 400+ branches If ROA are 1.5-2% the Bottom line can be 90-120 crores, IDFC first is targetting 2% can be higher around 3% also can do the math
8 Moat - the different approach they follow is Direct to customer - Talk with HDFC branch manager
9 Lowest NPA due to new to credit approach
10 Low attrition rate - 18% 4 years New team - Normal
11 Opex as a % of AUM is on spree of declining - See SOIC banks Video, operating leverage picks when Branch starts sweating Equitas Small finance Example
12 Net NPA of 0.3%
13 Leverage ratio of 4:1 approx will keep the same and keep raising the equity funds for the same for 6000 crores AUM the Equity will be 1200 crores hence almost same amount of mcap will be diluted
14 Lenders → DCB, AU, Uttkarsh. Tata capital
15 Highest Loan no. in Moneyboxx Vyapar Loan (Unsecured)
16 (i) focus on secured products, (ii) steady-state operations and increasing branch vintage, (iii) stable sources of funding, and (iv) rising share of repeat loans with higher loan ticket size.
17 DTC approach and also Robust underwritting process collection efficiany never went below 95% (95 in covid and normal level is 98%)
18 Workforce growing 134%
19 has entered into Co-lending agreement with Vivriti capital, MAS Financial services, Utkarsh small finance bank
20 Impacted the life of many customers See AR giving the source of income yielding 70-80k income from per catlle
21 Free VAT services - better underwritting - HDFC bank
22 Credit ratings - BBB- Icra Positive
23 Also has ESOP Outstaning
24 Has Outstanding NIMs of 15% --30% Yield is Normal HDFC branch manager
25 Profitability to improve once the Opex as a % of AUM goes down
26 Promoters are taking more than 3 crores p.a. as salary ? Signs of worry Second level thinking that Associate director/partner and a person handling his own sub 2000 crore funds in US will get almost 200-250k P.a. we can consider that he will atleast take his opportunity cost
27 Payment to auditors 600000 100000 is Audit fess and 500000 is Certification fees
28 Couldn’t Find auditor on Likedin
302000 options outstanding
It’s like investing in startup
29 Life - 2-3 Years in Unsecured and 4-7 years Secured Lending portfolio
30 Dairy Industry - 60% of Loan, Kirana stores 10%, furniture, eataries 2-3%
31 Some of the conservative bank as HDFC are also part of Co lending PF
32 Blended Yield of 30% << 24% Unsecured and 32% secured
33 Business corospondence with utkarsh << asset light model (cash light model)
34 13% secured and remaining unsecured average tenure is 4.5 years
35 Starting in Gujarat
36 it takes 6 months for branch to be profitable
37 37542 customers and 27-28% are repeat customers
38 build a book for a third party, like say Utkarsh SFB. So, although all the underwriting methods Moneyboxx apply in line with Utkarsh policy, but the funding is done by Utkarsh. So, say, for example, if we have a yield of 30% on a loan and Utkarsh charges 13%. So, the balance 17% which is the monthly differential interest rate which we get, is the major part of that fee income in this income, which I said the BC business, which we do. The
second part is obviously that whenever we do a loan, the loan is priced at 30% which means that 28% is a rate of interest, and say 2%, 2.5% is a processing fee. So, there is that component of processing fees, which
is included in the fee income.
39 Cost of credit - Borrow at 11-13% IRR going ahead if credit rating improves cost of credit could go down
40 Even in spite of rejecting 85% of the leads, we are still able to grow at a very healthy rate. Yes, we have
been using proprietary underwriting models, because of the fact that we have now an experience of 4 to
5 years plus 2 years of COVID has really kind of, I know, tested our model and we have kind of tweaked
that. So, there is a lot of proprietary information in terms of geographical and geography, the
segmentation, the behavior, customer behavior through different credit life cycles that has all got built in
into the model and it is getting refiner by the day. So, as we move forward, I think we do have a
competitive advantage in terms of understanding the segment better and execution is top notch.
41 Secured loan will be almost 45-50 in 2 years

Some of my notes on Moneyboxx Business is good, Promoters seem solid with good background, BOD composition is Top notch
Have not invested due to one reason that IMHO credit quality seems to be peaking out, when the things are too good to be true they usually are
I like the business but prevailing environment around industry is very optimistic that makes me a bit fearful
Have Not invested but certainly in my watchlist

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