According to screener notes management expecting GNPA to stabilize around 3-3.5% which is around 50% higher than current NPAs…
Is screener notes showing right details? Did management provided such guidance?
3-3.5% is only for micro enterprise vertical and not for all the verticals. Rather than GNPA, I would focus on credit cost and that would be <2% as per management and that’s very healthy.
Charging 20% interest rate per se is not bad. If you know, how buy now and pay later schemes and buy on EMI works, you will understand that the companies charge 15-18% interest rates. Here, I am talking about consumer segment. So, the actually problem is over leveraging the consumer, means giving multiple loans with this interest rates to a single person and kind of throwing him in a debt trap. This is exactly what happening in MFI segment.
On the other hand, Ugro not giving any loan to a individual consumer, rather to a enterprise with credit history and GST number. Loan is only given after triangulating several data sources to ensure that the enterprise is not over leveraged, and has the capacity and intention to pay. On the top unlike the consumer loan where the money is used to buy TV and Fridge the credit given to a enterprise is used for generating revenue and using it for productive use.
Ugro being Five-star, I am not buying this idea. Ugro has far healthy and scalable business model.
Disc. Invested
8 Likes
Very telling interview:
8 Likes
Very nice thread and discussion on Ugro capital. Got to learn a lot!
Couple of points i would like members to clarify on.
- Why is Ugro’s Provision coverage ratio under 50? Is it because most of their assets are not mature enough and provision increases with the maturity? Not being from a finance background i don’t know much about these things so would greatly appreciate if somebody could clarify this as cursory reading seems to suggest it’s very low.
- Management has said they are going to focus on loans to Micro enterprises which will lead to higher yields and I’m assuming there will be less competitive intensity but wouldn’t this be much riskier leading to higher probability of future delinquency/NPA’s?
I understand they are confident on their proprietary scorecard and deep understanding of the sector but micro enterprises by their very nature will be extremely risky.
On an unrelated note wouldn’t something like a Northern Arc capital be a better bet? They also have a good proportion(20%+ if I’m not wrong) of MSME lending along with other segments+ Fee income from placement and asset management. They have much better return ratios albeit they are much older and have already incurred costs upfront(Discl: invested & biased)
Disc: Not invested but in my watchlist.
3 Likes
Thanks for sharing bro. At around the 8 min mark, he touches upon his exit from Religare. What happened was a matter of speculation; was good to hear him speak about it.
1 Like
10 Likes