Moneyboxx Finance - Good compounder for our money?

[naruto]

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.

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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

[Ashar_Mann]

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

[manhar]

MONEY BOX

ABOUT

Moneyboxx Finance Limited, having its registered office at New Delhi. The Company is registered with the RBI as a NBFC. The company operates in the unsecured business loan segment, and had assets under management (AUM) of INR530cr (as on 31st dec2023), With 97 branches with 1165 employees, spread across 8 states (RJ, MP, HR,UP,GUJ.BR .CG & PUN) at Dec 2024, located in Tier-2 and below towns, the company caters to micro entrepreneurs operating in essential segments (livestock, kirana, retail traders, micro-manufacturers). The unsecured book (81% of AUM) have an avg ticket size of INR1,40,000 with a tenor of 1 to 3 yrs and the secured book (19% of AUM) have an avg ticket size of INR3,50,000 with a tenor of 4 to 7 yrs

MANAGEMENT

Founder – Mayur Modi, Co Founder – Deepak aggerwal

Linkden profile - https://www.linkedin.com/in/deepak-aggarwal-0511043/ (Deepak)

MAYUR MODI - MONEYBOXX FINANCE LIMITED | LinkedIn (Mayur)

CHIEF RISK OFFICER

Linkden profile - https://www.linkedin.com/in/vikas-b-7ab78b7/

CREDIT UNDERWRITING

They lend to the essential segment with avg ticket size of 1.25 to 1.5 lakh. Their segment wise AUM in different geography is as follows

Some key points

1.During FY20 to FY22 which was supposed to be the worst period because of covid and on top of this the Lumpy Skin disease (A lumpy viral skin disease which effects the cattle) they still managed to have a 2-3% credit cost at 30% yield. On a static pool FY20 delinquency was 3% and 2.4% in 2021.

2.They have a proprietary system in which they enter 200-250 points and create the entire balance sheet, P&L statement, whole income statement and cash flow analysis of the borrower. They do this even for a ticket size of 70000.

3.They only lend to customers with self-occupied residential property, they don’t lend to migrants, so this helps them know their relatives, neighbours also this tell they are living in the country since birth (permanent establishment)

4.They don’t lend to single income, 99% of their customers have agriculture as a second income, they look for at least double to triple source of income. In livestock it has to be minimum 5+ cattle with the borrower.

If you think of this point, cattle business can be done from your home, so this is generally done by the women and this is like a second or their income to the family.

5 They have a central credit team in gurgaon where all the loan approval takes place, even a 70k loan, so each branch does not have the authority to approve a loan

6.They always try to get the women as a borrower and create a joint liability when lending, 55% of their borrowers are women and 34% are new to credit. They help their borrowers double their income in 3yrs.

7.They loan officer who does the sales also has the responsibility to collect, this help him know the exact status of the borrower, this does not happen with most of the lenders where the sales and collection team is different. The company’s business model relies 100% on in-house sourcing and collection and hence requires on ground effort.

8.For Cattle borrowers they have hired vet doctor at their branch and provide free services to monitor the health of cattle. They help in cattle management, feed stock, vaccination drives. Having Vets help money box borrowers tackle the lumpy virus problem. 259k ++ free cattle diagnosis done.

9 They help their borrowers plant fruit bearing trees through CSR activities for big corporations, this helps in increasing the second income of farmers and builds a relationship. 12000++ Fruit bearing trees planted

10 Any branch whose 30 day DPD crosses 2.5% of either branch AUM or loan officer AUM (who manages the entire portfolio from sales to collection) then that branch incentives until all the collection is done is stopped

Current GNPA is 1.51% and NNPA is 0.94% this has deteriorated but the management has guided for 2% credit cost so not a surprise with the kind of growth they are doing and this is still best in class in the industry. Need to look watch these numbers closely

Credit cost of competitor’s

Aye is the closest comparable with MB having the closest gearing to MB and unsecured being the significant portion of total AUM .Moreover Aye also deals in the livestock segment , we can clearly see the difference in underwriting when compared to Aye. The secured guys like Five star have the problem of having almost 5% to 10% of the 30 day DPD bucket whereas MB almost has a NIL here as well.

Lets understand Average cash flow of a livestock borrower

1. Their Average Ticket size is 1.5lakh, on an average their borrowers have 8 cattle so yearly income from cattle is 4.2lakh and 99% of them have agri income on top of this. Now they end up paying 15% or so (as interest, plz note every month principal is being paid back) in the entire 2yrs tenure they end up paying 1.8l to 2l approx. So from livestock every year I have 95k (interest + principal) of outflow and 4.2l of inflow.

Please note - these are rough calculations to give a border perspective based on average numbers given by the company, I might make no sense here and might be wrong as well

LIABILITY SIDE

Debt side

1 They have a total of 31 lenders which includes 10 leading banks

2 Their lenders are willing to lend them even at 7 to 10x gearing. So at any point they can lend up to 10x of their equity

3 They already have commitments of up to 40cr per month or 500cr per annum lending tie up…

4 DCB was their lender at 60cr AUM, IDFC bank at 100 cr AUM, SBI at 150cr AUM and Tata Capital at 170cr AUM

5 If we notice all the players in this field are unlisted and backed by VC, for them getting money from the equity side is way easier than debt, getting money from marquee lenders on the debt side is a testimony of the quality of business because debt guys have limited upside. The reason they get this support is because they operate at a yield spread of 16% (highest in their space) & a credit cost of 2%, they have clearly found a whitespace in lending.

MONEYBOXX DEBT SIDE

We can clearly see Money box has very diversified and such large lenders at a very small size(430cr AUM). This shows their credibility of their business model, credit cost/underwriting, yield spread etc etc

.

AYE FINANCE DEBT SIDE

AYE finance lenders at almost 3000cr AUM size, we can clearly see MB being almost 6-7 times smaller than AYE has a better set of diversified lenders and they as a % of entire debt are also high. On the other hand these VC backed guys get money from Trusteeships, CAT 1 & 2 easily despite having an inferior business than MB

Equity Side

They have raised a total of 93cr out of which 43cr was raised in FY23. They have a target to raise over 100 cr in FY24.

1 Moneyboxx has to approach to HNI, individual investors to raise money for equity whereas All their peers are non-listed companies having investments form CAT 1 and CAT 2, this helped them raise equity very easily, whereas moneybox started as a listed entity because of which they don’t get funding for CAT 1 & 2 and CAT 3 either come in to the picture at 800cr AUM or a 30$ to 40$ million kind of investment.

2 Any delay in money raising for FY24 will not slow their growth because they just need another 25cr total 115cr of equity to reach a size of 800cr or 900cr of AUM and once they raise the money and reach their FY24 targets (800cr AUM, 25%secured etc) subsequent fund raising would become easier. They are confident of raising 100 cr+ by FY24 end.

3 Because of underperformance of UGRO for such a long time investors are sceptical about giving money in listed space but moneybox is not in a hurry they want to raise money at their own terms (5x PB) and they never want to dilute previous investors at a lower price, post this fund raising their new grow journey should start.

Total equity raised by competitor

GROWTH

MFI borrowers with average loans under ₹50,000 are adequately served by over 230 lenders. However, these small amounts are insufficient for acquiring income-generating assets or working capital to significantly boost their income. Secured loans exceeding ₹10 lakh are actively pursued by Banks and NBFCs. The unsecured/secured business loans ranging from ₹1 to ₹10 lakh, faces severe underservice due to challenges in income assessment without ITR/GST/Banking/books of accounts, limited credit history, and imperfect collateral. Fintech lenders struggle to serve this segment due to a lack of sufficient data and a minimal digital footprint. Addressing this issue necessitates a physical presence for understanding borrowers, their cash flows, and effective underwriting and collection efficiency. This segment presents a substantial market opportunity. Source- AR

Crisil says 22L cr market is relatively unserved in the Tier 3 & below segment. Digital lenders not able to enter that space

Growth which MB has achieved till now

Future plans

Very scalable business model, growth of some of the peers is as follows

:
The key to a good sustainable growth is good underwriting and strong liability franchise, we have already seen the credit underwriting and debt side. This FY24 equity raise and they achieving the FY24 targets would build a confidence in investors at different levels which would help them in future equity dilution.

Employee growth over the years

As on Jan 2024 - 1165

Pre and Post book value per share year wise if executed as guided

Share price CAGR of few competitors

Profitability ROA/ROE

1. Money box has one of the best yield spreads in the industry. They lend at 30% yield and borrow at 14%, with scale and having a PSL portfolio the cost of borrowing is expected to come down to 9%-10% in future. Secured loan is 19% of current AUM and they plan to take it to 25%-30% by FY24 and 50% in future. With decrease in borrowing cost and more of secured business (this reduces yield) they might still maintain the spread and the credit cost reduces further.
   

2. Their mature branches are doing a 12% PBT margin, taking 4x leverage on 100cr AUM and 9cr as PAT, they equity comes out to be 25cr this results in a 35% ROE (we know what king of ROE they can do if stopped growing), they are guiding for 5%-6% ROA and 25% ROE in 4-5yrs.

3 Aye is doing 60cr PAT on 3000-3500 cr AUM as on Q2FY24 MB with higher gearing, yield spread and lower cost and identical opex should easily their PAT guidance of 150cr at 2700cr AUM & 250cr at 4300 cr

Competitor ROE

Opex

1 It is generally taking 4 to 5 months for a new branch to be profitable; their opex has declined from 25% in 21 to 13% in Q1FY24 and 12% guidance for Q2 FY24. Opex of competitors is below

2 They can scale to 20cr per branch for their older branch with scale, Five star was doing 3.12cr per branch at 64 branches in FY16 (MB has 97 branches) and in FY23 with 373 branches they have almost 18.5cr AUM per branch. MB FY28 Guidance roughly comes out to be 16cr per branch. MB incrementally doing 10cr AUM per branch on more than 12 months vintage. Aye in FY23 doing 7cr per branch.!

Disc - Some of the details might not be upto date like the debt side I compared MB and Aye, it was just to convey my point. The company might do another preferential of 150cr (source-todays call at arihanth) post this raise their PB should be around 3 times, in case anybody is interested to take part in preferential you can DM me. Please note I am invested from 172 levels and I might be biased, take you decision after your DD. I have tried to present all the facts above in the best possible way.