- #Sensex, #Nifty trade flat
- #UGROCapital & #KEIIndustries in focus
Find out what's happening in trade so far with Hersh Sayta and Smriti Chaudhary on 'Market IQ'. #NDTVProfitLive
- #UGROCapital & #KEIIndustries in focus
Find out what's happening in trade so far with Hersh Sayta and Smriti Chaudhary on 'Market IQ'. #NDTVProfitLive
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00:40 Hello, and welcome to "NATV Profit."
00:44 You're watching "Earnings Edge."
00:46 I'm Smriti Choudhury, and with me is Harsh Saita.
00:49 The company we are focusing on today is UGROW.
00:52 The company reported its third quarter numbers a while ago,
00:55 and the stock is up as its profits more than doubled.
00:58 Harsh, good set of numbers?
01:00 Well, yes, looks like a good set overall, Smriti.
01:03 But a couple of things that we may
01:05 need to understand better is to try and break down
01:08 as to what's happening with regard to the NII sequentially,
01:11 because that's been largely flat when I'm looking
01:14 at it on a sequential basis.
01:15 So that's one thing.
01:16 Also, I want to understand how asset quality is really
01:20 playing out, because your credit costs currently
01:23 are in a good cycle, and your credit costs are benign.
01:26 Roughly 1.5% is where the credit cost annualized number
01:29 has come in at this quarter.
01:31 And therefore, going forward, which is the below 2% guidance,
01:34 can we stick to that?
01:36 That's the couple of key questions.
01:37 And of course, to discuss more about the numbers,
01:40 we're joined by the founder and managing director, Sachin
01:43 Dharanath.
01:44 Welcome to Earnings Edge, sir.
01:46 This is that show where we try to break down
01:48 the numbers behind some of the smaller names.
01:53 Thank you.
01:54 Thank you so much, Harsh.
01:55 Right.
01:56 So try and help us understand what's happening,
01:59 especially with regard to NII.
02:03 How are your margins really evolving?
02:05 Because I see both on your cost of borrowing,
02:08 which is largely flat over the last one year, which
02:11 is impressive, and so have your yields.
02:13 They've largely trended flat.
02:15 So why are we seeing a flat NII kind of a growth sequentially?
02:20 So Ubro, Harsh, you should look at very differently.
02:23 Ubro is not a typical lending business whose earning
02:26 is only net interest income.
02:29 Out of our 8,300-crore portfolio,
02:31 you should remember that 47% is an off-balance sheet portfolio
02:36 out of full lending plus direct assignment plus co-origination.
02:39 So you should look at increase of the total income,
02:43 because net interest income is only interest earning,
02:45 which we do.
02:46 But majority of our earning, because 47% portfolio
02:48 is off-balance sheet, is in form of the fee income, which
02:52 is also into that.
02:53 So unless you look at the combination of the net interest
02:56 income and the fee income, which come from the full lending,
02:58 you will not be able to see why the operating
03:00 leverage is coming.
03:01 Because if NII is flat, what you are seeing,
03:04 but if you look at our operating leverage,
03:07 from a 40-crore of PAT last year,
03:10 we are at roughly around 86-crore of PAT
03:12 in the first nine months itself.
03:14 So we have moved PAT from 7-crore in '22 to 40-crore.
03:18 And this year, we should be at our target of 120-plus crores.
03:23 All right.
03:24 So Smriti here, could you tell us the roadmap to 45% cost
03:29 to income ratio?
03:30 It's currently at 53%, if I'm not wrong.
03:35 Yeah.
03:35 So look, our cost to income ratio
03:37 is a function of our scale.
03:41 So as we have evolved--
03:43 remember, UGRO is India's first listed startup.
03:46 We took a shell listed company.
03:47 We raised 1,000 crore of capital in mid-2018.
03:51 We suffered from DHFL and Yes Bank and ILFS crisis,
03:55 but we started building our business in April '19.
03:58 In the first year, we did 850 crore.
04:00 Then COVID hit.
04:01 During COVID, we massively increased our infrastructure.
04:05 From 120 people, company went to 1,500,
04:07 nine location, 205 location.
04:10 Our data analytics technology team
04:12 moved from five people to 275 people.
04:15 So we outfronted all of our op-eds,
04:18 and that resulted in AUM growth.
04:20 So from, as I said, 3 to 6 to now almost 8,300 crore.
04:25 We'll test 9,500 or 400-odd crore.
04:28 And so next year, when you see that our costs remaining
04:32 more or less flat with a 5% increment,
04:34 because we are opening 75 branches,
04:37 AUM now doubling from where we are more or less,
04:41 your cost to income ratio would come down.
04:45 Understood.
04:46 That makes sense.
04:48 And therefore, would that be the lever where
04:51 ROAs will continue to expand?
04:55 So the expansion of ROAs on multiple count.
05:00 One, obviously, is the AUM growth,
05:02 and same operating expenses leveraging and spreading more.
05:05 Second also, as the maturity of our business
05:08 and our data stack is working more efficiently,
05:11 our incremental growth is sequentially
05:15 happening from what we call more granular business.
05:18 So as we say that we are today in five states
05:20 with 75 locations doing small businesses, which is up to
05:23 2 and 3 crore at an average ticket size of 10 lakh
05:27 at a gross yield of around 19% to 20%,
05:29 we are adding 75 locations for that.
05:32 So that would deliver 75 crore per month by second quarter
05:36 or third quarter next year.
05:38 We are now maturing our retailer financing business big time,
05:42 because we have realized that in the supply chain ecosystem,
05:45 there is a $100 billion credit gap
05:47 when it comes to the last mile financing between a dealer
05:49 to retailer, and the technology and the GST data
05:53 stack work very efficiently.
05:55 So we are now onboarding very large bases of retailers
05:58 to large ecosystems.
05:59 So we would have yield enhancement,
06:02 as well as our incremental portfolio
06:05 would be to these higher yield segment,
06:07 and overall AUM growth would deliver higher ROAs.
06:11 Understood.
06:12 So where would your yields therefore move,
06:14 if I were to ask?
06:15 Currently at, if I'm not wrong, it's
06:19 currently at roughly 17 odd percent, 17 and 1/2 odd percent?
06:23 No, 16.3.
06:24 The 17% is gross yield.
06:26 So, yeah.
06:28 So look, I think so when we will end the year,
06:31 we normally do a full guidance for the next year itself.
06:37 Mostly by the end of mid-Feb, we will recast everything.
06:41 We will go back to trenches.
06:44 We will think about what can be done,
06:46 what readjustment has to be done,
06:47 how liability is shaping up.
06:49 My estimate as of today that we would have an 150 basis point
06:54 yield enhancement by end of FY25.
06:59 Understood.
07:00 And that would come straight to margins,
07:02 and your borrowing cost would largely remain unchanged,
07:08 because you're levering up, right?
07:11 Yeah, yeah.
07:13 So we look at as not just the borrowing cost,
07:16 but the total cost, right?
07:18 So we can earn the spread between the gross yield
07:21 minus borrowing cost and our co-lending rates, right?
07:25 So even if our, say, borrowing cost is 10 and 1/2,
07:29 some of our co-lending rates from the banks and the fee
07:31 we churn is much higher, right?
07:33 So it's 100 basis point probably lower.
07:35 So the combination of the three, we think, so will remain flat.
07:39 If the borrowing cost would show attraction of upward movement,
07:43 then we would move the trajectory of co-lending
07:45 from current 47% to, say, 55%.
07:48 We have that lever in our hand.
07:49 Number of bank partners and the ability
07:52 to increase partnership and move more asset into the co-lending
07:55 is a very great lever which we have in our hand.
07:58 And we utilize that so that we can protect our margins.
08:02 So understood.
08:03 Let me come to asset quality, because you're
08:06 in a segment where asset quality can get tricky at times.
08:11 What's helping you hold up that asset quality number,
08:14 despite having such a high yield book?
08:16 So I think I would definitely recommend
08:22 that this quarter result, we have done one first slide.
08:24 You should look at it.
08:25 We just talked about the macro and how MSME economy is doing.
08:30 You have to remember this, that.
08:32 I keep saying this is a decade.
08:34 As you've seen a decade and a half for consumer financing
08:37 and retail financing, you will see this decade
08:39 for MSME financing only and purely
08:41 on account of formalization of small business customers.
08:44 Because most of the customers are now in GST net.
08:47 Most of the customers are formal in banking.
08:49 Their bureau behavior is visible.
08:51 We have invested very heavily in building a machine learning
08:53 platform, which uses these three data
08:56 and define what is the eligibility
08:59 and intent of the customer.
09:01 And that's why, even at a lower approval rate of only 28%
09:05 from gross log-in to disbursement,
09:07 we are being able to filter the customer who
09:09 can, on a sustainable basis, can make the repayment over
09:13 loan tenure period.
09:15 And overall, the economic growth of MSME is remaining stable.
09:19 And you'll see the granularization
09:21 happening in tier two, tier three towns.
09:23 Unless there is an event of COVID kind of thing
09:26 happens, where these businesses get hurt very badly,
09:30 we don't think so that there is any challenge with MSME economy
09:33 at the moment in India.
09:35 Both services and the manufacturing.
09:38 And we have to see--
09:40 be part of that massive growth which is coming in that.
09:44 So I understood.
09:45 I had one quick question with regard to cold ending.
09:48 What are take rates like these days?
09:51 And this would contribute meaningfully, right,
09:55 to your other income as well as to your top line.
10:00 How is it contributing going forward?
10:02 How are you seeing some of these metrics add up?
10:06 So as we have always said that we
10:07 would like our on balance sheet and off balance sheet
10:10 to be a mix of 50-50.
10:12 We are at 47 odd percent.
10:15 But depending upon the cycle-- so for example,
10:19 bank lending to NBFC, we think so
10:21 would a little bit slow down from where we are today.
10:25 We are only 42% of our total borrowing is from the bank.
10:28 And we are seeing other sources of financing,
10:30 especially DFI financing and other to kick in quite
10:33 meaningfully.
10:34 But if that remains the same, we have no challenge
10:37 in terms of increasing that 47% to 55% or 60% as well.
10:42 The capital adjusted return on cold ending
10:45 is fairly superior, right?
10:47 So when I borrow at 10.5% and I lend at, say, 15.5%,
10:51 I earn the margin by holding at least 20% capital
10:55 against that margin.
10:57 Versus I earn-- even if the same margin on cold ending,
11:00 I don't need to hold the capital.
11:02 So the setting of equity capital on the cold ending
11:05 is fairly superior.
11:07 Ideally, we should do all of the business in cold ending,
11:09 but that's not practically possible.
11:11 We are a principal lender, where we are partnering with the bank
11:14 and we would like to hold on principal asset on the balance
11:16 sheet as well.
11:18 But that would obviously continue
11:19 to meaningfully contribute, I think.
11:21 So I keep saying that traditionally, banks and NBFCs
11:24 are priced on the basis of price to book value, which is--
11:29 and that's why there is a capping,
11:30 because the return on equity is to an extent capped,
11:34 because there is no free cash flow.
11:36 Cold ending and off balance sheet
11:37 give you a free cash flow, which means
11:39 that you are more as a services business than just
11:41 an on balance sheet business.
11:43 All right.
11:44 Thank you so much, Mr. Nath, for joining us on the show
11:47 and for taking the time out.
11:50 You answered a lot of our questions.
11:52 Now, it's time for a short break.
11:55 But as we get closer to the interim budget,
11:57 we get you the top corporate voices from the industry
12:00 on what they expect on the budget.
12:02 Here's what Mayank Shah of Parle Products
12:05 has to say about his expectations from the budget.
12:07 We'll be right back.
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15:56 Welcome back.
15:57 You're watching Earnings Edge.
15:59 Now, another company in focus today
16:01 is KEI Industries that came out with its results.
16:04 Just to talk a little bit about how the company has fared,
16:08 we have the revenue grew about 15% from last year
16:13 to 2,000 odd crores.
16:15 EBITDA also rose 16% to 229 crore.
16:18 Margin expanded slightly to 11% from about 10.9% last year.
16:25 And net profit also rose 17% to 150 crores.
16:31 And to talk a little bit more about this,
16:37 we have the management of KEI joining us today.
16:41 And we have Mr. Anil Gupta joining in from KEI Industries.
16:54 And welcome, sir.
16:56 And thank you for joining us on the show.
17:00 Thank you.
17:01 So let's talk about your results.
17:04 We saw a good set of numbers this time.
17:06 But in terms of market share, if we look at it,
17:12 in terms of the biggest player compared to KEI Industries,
17:17 there's quite a considerable gap there.
17:20 So what is KEI Industries doing now
17:24 to expand that market share?
17:28 First of all, we are not in a race
17:31 to emulate the market leader or number one player.
17:38 We are not in the number one or number two race.
17:41 We are growing steadily over the last 15 years.
17:44 And to maintain the growth momentum,
17:48 we are doing brownfield and greenfield
17:51 CAPEX in our existing plants, as well as our new plant coming
17:55 up at Sanand near Ahmedabad.
17:57 So the overall CAPEX of the company from this year
18:03 to the FY28 will be close to around 1,200 crore rupees.
18:09 So that will boost our capacity to buy around 4,500 to 5,000
18:17 crore rupees per year.
18:19 So we should be able to grow 15% to 17% year
18:25 after year with the augmentation of the capacity.
18:29 Understood, sir.
18:31 Harsh, also joining in.
18:32 I want to try and understand.
18:33 You've always maintained that you
18:35 wish to be a largely debt-free company, very minor debt
18:39 on your books, maybe not even significant enough to mention.
18:43 So therefore, I just want to try and understand
18:45 how this CAPEX will play through, how long,
18:48 because you're working on multiple greenfield
18:51 and brownfield projects.
18:52 How will these over the next few years, how will these play out?
18:57 And how will the 1,200 crore be deployed?
18:59 And how will it be funded?
19:01 See, mostly the growth will be funded
19:04 from the internal accruals.
19:06 See, if we are generating a cash accrual of around 550 crore
19:11 rupees a year, so that is good.
19:14 And our CAPEX is not exceeding more than that
19:17 in a particular year.
19:19 So we remain largely debt-free.
19:23 And we already have 300 to 400 crore rupees
19:26 of cash on our books already.
19:30 But I mean, if for a substantial increase in the CAPEX
19:35 in a particular year, maybe next year,
19:38 if there is a small shortfall of 100 crore rupees,
19:40 we may utilize our working capital limits, which
19:44 we are having from our banks.
19:47 I don't see any large loan coming up on the books.
19:52 Sir, can you talk to us a little bit
19:54 about your institutional domestic revenue
20:00 in wires and cables?
20:01 It's slightly shrunk this time.
20:04 Could you tell us why that is happening?
20:06 First of all, it has not shrunk.
20:09 It is a issue of--
20:11 Compared to previous--
20:12 It is a issue of allocating our capacity
20:16 from domestic to exports.
20:18 Ultimately, we have already mentioned
20:20 that there was a capacity constraint.
20:23 So the export has grown by 100%.
20:26 So we have allocated some capacity
20:29 from the domestic to exports.
20:31 But overall revenue over nine months
20:35 has grown by almost 17%.
20:38 And in this quarter also, it has grown by 15%.
20:43 Sure, sure, Mr. Gupta.
20:44 I take your point.
20:45 Now, with regard to capacity utilization,
20:47 where are you currently?
20:48 And how quickly do these new capacities
20:51 start to come on board, therefore allowing
20:54 you to expand your top line?
20:55 At the moment, in the cables division,
21:00 we are operating almost at 95% capacity utilization.
21:03 And in the house wire division, around 70%.
21:07 Now, we are doing a greenfield capex
21:11 of close to 110 crore rupees in our silvassa factory
21:16 at Chinchpada at this moment, which should be
21:19 operational by end of March.
21:21 And another capex, which is coming up in our Pathedi plant,
21:27 which will be operational in the first quarter of FY25.
21:33 So that will give us the room to grow by around 50% to 16%
21:37 next year as well.
21:38 And by end of FY25, first phase of our Sanan plant
21:45 will be operational for low-tension power cables.
21:49 So that will give us room for growth in the ensuing year.
21:53 And overall project visibility of Sanan project
21:58 will be around 2 to 2 and 1/2 years,
22:00 where the complete project will be completed from now.
22:04 Sure, understood, Mr. Gupta.
22:05 And your margins, would you say, would probably
22:08 get a little better as you continue to scale,
22:11 especially with regard to the brownfield projects as well?
22:14 Shouldn't that typically help your margins?
22:16 Where will that go if we can--
22:18 Our margins will remain in the vicinity of around 11 to 11.5%.
22:25 Right.
22:26 You spoke of how business has been in the export segment.
22:30 I'm looking at a few numbers.
22:31 Could you maybe segment-wise tell us, in terms of exports,
22:36 what kind of trajectory do you see in the coming year?
22:41 At the moment, we are having around 12% of our turnover
22:46 coming out of exports.
22:48 We want to take it to 20% to 25% in next three to four years.
22:53 And as we get more capacity on board in our existing plant
22:59 and new plant, the efforts will be
23:02 made to increase the exports from the newly acquired
23:07 capacities.
23:10 Understood, sir.
23:11 So my last question is more with regard to the kind of traction
23:15 that you're seeing in the marketplace.
23:17 Of course, real estate has good tailwind.
23:20 Infra has good tailwind.
23:23 Would you be happy with a 15%, 17%?
23:26 Or would you like to push closer to a 20% in terms of top line?
23:30 See, we can always push, provided we can produce.
23:36 So we are building up capacities to reach to a higher growth
23:41 level.
23:41 But we are always giving conservative numbers.
23:50 So we don't want to project too much.
23:53 All right.
23:54 Thank you so much, sir, for joining us and answering
23:58 all of the questions.
23:59 It was a pleasure having you on the show.
24:01 Thank you.
24:01 Thank you.
24:02 Now, as the interim budget comes closer,
24:05 here's a quick explainer by my colleague, Malika,
24:07 on what the interim budget and vote on account is.
24:11 Take a look.
24:13 What is an interim budget and vote on account?
24:16 In an election year, the elected government
24:18 is responsible to come up with a union budget
24:21 for that financial year.
24:22 However, until elections happen and the new government
24:25 is formed, the current government
24:27 comes up with a temporary financial plan, which
24:29 is referred to as the interim budget.
24:31 Because the current government's union budget
24:33 is valid only until the end of the fiscal year, which
24:36 is March 31.
24:38 So to meet the financial needs of the country
24:40 until the new government is formed,
24:42 an interim budget is presented.
24:44 Nirmala Sitharaman, the finance minister of India,
24:46 will be presenting the interim budget on the 1st of February.
24:50 Now, a vote on account is a formal permission
24:52 from the parliament to spend money
24:53 for short-term requirements from the Consolidated Fund of India.
24:57 Now, the Consolidated Fund of India
24:59 deserves all the revenue generated
25:01 by the central government in terms
25:03 of interest on loans, taxes, and portion of state taxes.
25:07 And money from this fund cannot be withdrawn
25:09 until it has been appropriated by the law.
25:12 Therefore, vote on account is the permission procedure
25:14 to do just that.
25:15 Well, also, the interim budget comprises
25:21 of multiple components, such as taxes, payments, receipts,
25:24 and more.
25:25 Mallika, again, is with us with a quick explanation
25:28 on direct as well as indirect taxes.
25:30 Take a look.
25:33 What are direct and indirect taxes?
25:35 Direct taxes are directly charged by the government
25:38 on income and profits.
25:39 The Central Board of Direct Taxes, or CBDT,
25:42 is responsible for the collection and administration
25:45 of direct taxes.
25:46 CBDT is governed by the Department of Revenue.
25:50 Now, unlike direct taxes that are
25:51 charged over income and profits, indirect taxes
25:54 are charged on goods and services.
25:57 They're referred as indirect because they
25:59 are paid to the government via an intermediary.
26:02 The Central Board of Indirect Taxes and Customs
26:05 is responsible for the collection and administration
26:08 of indirect taxes.
26:09 And it is governed by the Department of Revenue as well.
26:12 Let's look at some examples of direct and indirect taxes.
26:16 Income tax and capital gains tax are the most common examples
26:19 of direct taxes.
26:21 Income tax is imposed on the income
26:23 earned in a given financial year where
26:25 the tax is paid on the basis of income tax
26:28 slabs of the IT department.
26:30 Capital gains tax is a tax amount
26:32 that one needs to pay to the government on any capital gains
26:36 that may arise out of investments,
26:38 such as land or equity.
26:40 Capital gains tax is charged as long-term capital gains
26:44 or short-term capital gains based on the duration
26:47 of the investment.
26:49 GST and customs duty are common examples of indirect taxes.
26:53 GST is the most comprehensive indirect tax
26:56 as it unifies VAT, service tax, sales tax,
27:00 and others that were mandatory earlier under one umbrella.
27:04 It is imposed on goods and services
27:06 for domestic consumption.
27:08 And it is levied on the basis of the tax slabs
27:10 laid by the GST Council of India.
27:13 Customs duty is a tax paid on any international purchase.
27:17 It is levied to ensure that any commodity that
27:20 comes into India from abroad is taxed.
27:23 For more such quick explainers, stay tuned to NDTV Profit.
27:29 We'll keep bringing you more updates on the budget
27:33 as we come closer to the date.
27:36 But that's all we have on this edition of Earnings Edge.
27:40 But do stay tuned.
27:41 Lots more coming up on NDTV Profit.
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