Ugro Capital Ltd Management Discussions

Global Economic Review

The global economic environment continues to be challenging given the global economy witnessed slow growth, estimated at 3.2% during 2023 due to the cost-of-living crisis, tightening financial conditions in most regions, Russia?s invasion of Ukraine, the lingering COVID-19 pandemic effects, weak growth in productivity, and increasing geoeconomic fragmentation. The headline inflationneared its pre-pandemic level in most economies for the first time since the start of the global inflation surge. However, the global economy has been stabilizing after enduring several years of negative shock, with 2023 global markets experiencing a mix of resilience and challenges amid fluctuating economic conditions including those from the war in Ukraine and the conflict in Gaza and Israel. As global inflation descended from its peak, economic activity grew steadily, defying warnings of stagflation and global recession. The United

States and several large emerging market and middle-income economies displayed the greatest overperformance, with aggregate demand supported by stronger-than-expected private consumption amid easy labour market. Larger-than-expected government spending further supported the expansion of aggregate demand in most regions. The euro area also displayed the smallest upside growth surprise, reflecting weak consumer sentiment and the lingering effects of high energy price. However, in lower-income countries, inflation exceeded expectations due to higher-than-anticipated pass-through into domestic prices from international food, fuel, and fertilizer costs, as well as currency depreciation. This led to significant price pressures and slower-than-expected economic growth, indicating a negative supply shock. In China, inflation unexpectedly declined, driven by steep drops in domestic food prices and the resulting impact on underlying (core) inflation.

The latest update from the International Monetary Fund (IMF) provides a ray of hope, indicating a slight improvement in growth forecasts for 2024 and 2025. IMF projects global growth prospects for Fiscal 2024 and Fiscal 2025 to hold steady at 3.2%, attributed to resilience observed in the United States and several major emerging market economies, coupled with fiscal support measures in China. The World Bank expects global growth to slow to 2.6% in 2024 which is slightly above the typical 2.5% threshold that often signals a recession.

Indian Economic Review

Despite the prevailing global economic challenges, strong growth in the manufacturing sector, higher-than-expected agricultural output, and robust government spending have made India the world?s

The manufacturing sector maintained strong growth momentum, benefiting from favorable demand conditions and lower input prices. On the supply side, significant enhancements in manufacturing fastest-growing major economy in FY24. Along with being one of the fastest growing major economies in the world, India ranked fifth in the world in terms of nominal GDP for 2023. From Fiscal 2021 to Fiscal 2023, the Indian economy has outperformed its global counterparts by witnessing a faster growth.

As per IMF, growth in India is projected to remain strong at 6.8% in 2024 and 6.5% in 2025 as against 5.2% in 2024 and 4.9% in 2025 for Emerging and

Developing Asia, reflecting continuing robustness in domestic demand from a rising working-age population.

The Union Budget 2023-24?s emphasis on bolstering public infrastructure through increased capital expenditure spurred growth and catalyzed private investment with substantial multiplier effects. As a result, the full-year FY24 real GDP reached around INR 172.9 trillion, marking a 7.6% year-on-year increase, buoyed by fixed investment and improved net exports.

and construction activities contributed to overall growth. The agricultural sector has played a pivotal role in India?s economic recovery and development, underpinning the nation?s resilience and potential. Over the past three years, investment rates have consistently exceeded FY16 levels relative to GDP, driven by all sectors of the economy, indicating confidence in India?s future economic prospects. India has experienced fluctuating inflation rates over the years, with periods of both high and low inflation.

Factors such as supply shocks, notably in food and oil, have historically influenced inflation spikes. The factors attributed to moderation in world oil prices and base-year effects, certain food items like pulses and cereals have continued to see price increases.

In terms of policy, the Reserve Bank of India is committed to maintaining macroeconomic stability and controlling inflation through flexible targeting. Inflation is forecasted to moderate to 4.5% in FY25 reducing towards RBI target of 4%.

Despite global challenges such as the COVID-19 pandemic, inflation, and geopolitical tensions,

India stands out as a major contributor to global economic growth. With a resilient financial sector, growing foreign trade, and stable investment activity supported by government initiatives, India?s economy is expected to outperform others, with growth rates exceeding 6% in the coming years, positioning it as the third-largest economy globally by 2027.

Industry Overview

Indian NBFCs

The financial sector has long been essential in maintaining economic stability for households and businesses throughout India. Non-Banking Financial Companies (NBFCs) are fundamental components of India?s financial ecosystem, contributing significantly to sustainable fiscal growth by enhancing last-mile funding. NBFCs have played a crucial role in closing the credit gap for diverse sectors of the economy, especially Micro, Small, and Medium Enterprises (MSMEs). These institutions have complemented traditional banks by providing financial services to bridge the credit gap for MSMEs in India.

With a focus on a digital ecosystem, NBFCs have invested majorly in technologies and platforms? last-mile connectivity and agile systems ensuring personalised and seamless credit disbursement.

Sectoral Distribution of NBFCs? credit reveals that the industry sector remains the largest recipient of credit extended by NBFCs, followed by retail loans, services, and others. The Gross Credit Deployed by NBFCs has witnessed a significant uptick, reflecting a year-on-year growth rate of 25.8% as of Sep-23, reaching INR 36.9 trillion. This upward trajectory underscores the crucial role of NBFCs in India?s financial system. The growth is primarily driven by the escalating demand for unsecured loans, particularly in the retail sector, including vehicle and housing loans, along with the rising need for credit among MSMEs, contributing to the overall expansion of credit. As of Sep-23, the credit contribution to the industry sector stood at INR 13.5 trillion, indicating a substantial year-on-year growth of 20.6%. While NBFCs continue to extend credit to the industry, their credit to the services sector has marginally declined, mainly due to reduced credit to commercial real estate and transport operators. However, credit deployment to the service sector reached approximately INR 4.9 trillion as of Sep-23, reflecting a notable year-on-year growth of 21.6%.

Retail loans, including housing, vehicle, consumer durables, and personal loans, have emerged as a focal point for NBFCs in recent years. The sector has witnessed a surge in demand as consumers increasingly seek financing for lifestyle needs. As of

Sep-23, retail loans accounted for over one-third of NBFCs? gross credit deployed, reaching INR 11.9 trillion. This growth in unsecured retail lending has outpaced the overall credit growth, with retail loans demonstrating lower delinquencies compared to corporate lending, further driving NBFCs? focus on this segment.

Several key growth drivers are fueling the expansion of NBFCs. Last Mile Financing and catering to the unbanked population have propelled NBFCs? presence in underserved areas, leveraging internet accessibility and enhancing their consumer base. Additionally, technological adoption and co-lending arrangements have enabled NBFCs to develop innovative products, lower operational costs, and reach a broader audience. Moreover, shifting consumer behavior towards borrowing and rising retail demand signify promising opportunities for

NBFCs to capitalize on.

NBFCs? credit is expected to grow between 16% to 18%

CAGR over FY23-25 as against systemic credit of 13-14%. This growth is expected to be driven by sustained demand for retail loans, including vehicle loans, home loans, unsecured personal and consumption loans, as well as microfinance loans. Despite regulatory changes impacting risk weights, NBFCs remain well-positioned to capitalize on robust credit off-take, supported by strong public expenditure, the anticipated revival of private expenditure, and robust demand from retail and MSME segments.

Indian MSME Sector

The MSME sector stands as a formidable force in the nation?s economic landscape, showcasing robust growth and significant contributions across various metrics. With over 44 mn MSMEs registered on the Udyam portal, the sector underscores its vibrancy and dynamism. Micro-enterprises dominate this landscape, representing approximately 98% of registered MSMEs, followed by small enterprises at 1.6% and medium-sized enterprises constituting the remaining portion. The MSME sector is poised for rapid growth, with India having the largest MSME base in the world after China. The government?s push for a self-reliant economy or Atmanirbhar Bharat has led to significant policy support for the sector.

Women owned MSMEs constitute 20.5% of Udyam Portal registrations, contributing 18.7% to employment and 10.2% to turnover. Various initiatives support their growth and empowerment in the sector.

Geographically, the distribution of MSMEs across states reflects diverse regional contributions, with Uttar Pradesh, Maharashtra and Tamil Nadu comprising the majority share of MSME activity, collectively contributing a substantial portion to the sector?s overall presence in the country. The number of MSMEs in the country is expected to grow from 63 mn (of which only 25 mn have ever availed credit from formal sources) to approximately 75 mn in the coming years, growing at a projected CAGR of 2.5% (Source: IBEF MSME,

March 2024). Domestic business requires a strong financial stimulus with concessional working capital loans to ensure adequate liquidity is maintained in business operations from the government and financial institutes. The sector?s access to credit has been pivotal in driving growth, particularly amidst economic uncertainties and the challenges posed by the COVID-19 pandemic. As per RBI data, the gross bank credit by scheduled commercial banks to MSMEs under priority sector lending norms grew by 18% in April 2024. The Government of India has designed various policies for the growth of MSMEs in the country.

• Since the launch of the Credit Guarantee Trust Fund for Micro and Small Enterprises (CGTMSE), till November 30, 2023, guarantees amounting to INR 5.3 trillion (US$ 64.4 billion) have been issued under the Credit Guarantee Scheme for Micro and Small Enterprises (CGMSE).

• Under Pradhan Mantri Mudra Yojana (PMMY), In FY24, INR 4.8 trillion (US$ 58.1 billion) was sanctioned under 58 mn Mudra loans to non-corporate and non-farm MSMEs.

• In the interim budget 2024-2025, an establishment of a corpus totaling INR 1 trillion (~US$ 12 billion), offering 50-year interest-free loans was announced. This initiative aims to incentivize the private sector, particularly MSMEs, to enhance research and innovation in emerging sunrise domains.

Indian MSME lending

NBFCs/Fintechs/Banks cater to the underserved

MSME pool on account of the higher availability of data on these entities. MSME loans grew at a fast pace, registering a CAGR of 17% between FY16-23. However, in FY19 and FY20, the segment saw a relatively muted growth owing to the NBFC liquidity crisis and a cautious stance taken with respect to lending to MSMEs amid a slower economic growth. In FY21, Covid-19 pandemic weighed on the MSME industry which impacted MSME lending growth for that year and the next. However, in FY23, as the pandemic started fading and economic activity started picking up, MSMEs rebounded strongly. Towards the end of FY23, the overall MSME loan outstanding stood at INR 26.4 trillion growing at 17% on year. Industry reports estimate MSME loans to grow at 12-14% CAGR between FY23-26 on continued government support, use of technology and data availability making underwriting easier.

The SIDBI MSME Pulse report for February 2024 highlights the increasing share of NBFCs in MSME lending over the years. Between September 2020- September 2023, contribution of NBFC?s in the lending mix has gone up from 12% to 26% for Micro enterprises, from 8% to 20% for Small enterprises and from 8% to 16% for Medium enterprises.

According to the Ministry of MSME, the states mentioned in the below table collectively represent 50% of all registered micro, small, and medium enterprises (MSMEs) in India. With increasing MSME penetration in these states, there will be a corresponding rise in credit demand within the industry. UGRO?s major contribution in Assets Under

State-wise MSME credit penetration vis-?-vis UGRO AUM mix

	Industry	UGRO Capital
States
	State-wise MSME Credit penetration*	State-wise AUM mix	Branches
Maharashtra	19%	21%	6
Delhi	22%	20%	5
Tamil Nadu	11%	13%	26
Telangana	11%	11%	15
Gujarat	17%	10%	15
Karnataka	9%	8%	16
Rajasthan	12%	8%	25

*Source: CRIF Highmark

This is primarily owing to the NBFCs? focus on serving the needs of the customer segment, cost-effective credit through leverage of technology, faster turnaround time, superior customer service and geographic reach. The trend could continue in future aided by increasing data availability and improving efficiency in the credit assessment process.

Management (AUM) mix emanates from these states and the Company intends to capitalize on this favorable position to further expand its market share in MSME lending.

Business Overview

UGRO Capital is committed to addressing India?s MSME credit gap, estimated at INR 92 trillion for FY23, through a diversified portfolio of financial products including Secured Business Loans, Business Loans,

Machinery Loans, and Supply Chain Financing backed by property, machinery, receivables, and other collateral types. Over the past few years, we have successfully leveraged the Co-lending model through partnerships with 13 financial partners

This strategy has allowed us to increase our off-book Assets Under Management (AUM) proportion to 45% in March 2024, up from 40% in March 2023, demonstrating our robust liquidity funnel and our capability as a reliable credit underwriter.

Our strong base of over 55 lenders and effective Co-lending partnerships have enabled us to expand all distribution channels and achieve significant overall

AUM growth, surpassing the INR 9,000 crore AUM mark. As of March 31, 2024, UGRO Capital employs more than 1,650 professionals.

Multi-channel Architecture

At UGRO Capital, our goal is to meet every financial need of every MSME, ranging from short-term working capital loans to long-term secured loans. Our offerings span from INR 25,000 working capital loans to INR 5 crore secured loans, backed by property, machinery, receivables, and other collateral types. Our data-tech models incorporate a broad spectrum of data, including banking, credit bureau, GST, and multiple alternative data sources, enabling us to deliver credit based on a cashflow-based lending method.

We have structured our customer asset origination

. into four firstis our Micro specific channels. The

Enterprises branches, which have seen significant growth, with the number of branches increasing from 98 branches by March 2023 to 150 branches by March 2024. Our Prime Intermediated Business channel is where customers engage through our intermediaries and GRO partners. Our Ecosystem channel taps into business opportunities within various ecosystems, particularly with equipment finance OEMs and Rooftop Solar Manufacturers. Our

Direct & Digital Alliances channel is dedicated to addressing every MSME?s financial needs through strategic partnerships and alliances.

Through these diversified channels and innovative data-driven approaches, UGRO Capital remains at the forefront of providing comprehensive financial solutions to India?s MSMEs.

Micro Enterprises

UGRO Capital operates Micro branches located in semi-urban and rural areas, serving businesses with a turnover of less than INR 1 crore. These branches primarily offer low-ticket, high-yielding Micro Enterprise loans with ticket size ranging from INR 5 lakhs to INR 25 lakhs and an interest rate of 21%. During the year, we expanded our network from 75 branches in March 2023 to 127 branches in March 2024, adding 52 new branches across various states. This includes our entry into Andhra Pradesh with 13 branches, Haryana with 6 branches, Madhya Pradesh with 11 branches, and Rajasthan with 8 branches. Our sourcing model for Micro branches relies on a "feet on the street" approach, ensuring a strong local presence and engagement. This expansion has given us a nationwide presence for our micro enterprise branches, and future expansions will continue within these states during our next phase. Our Micro branches operate with the philosophy of meeting every MSME need, providing credit for

Secured, Equipment, Rooftop Solar, Supply Chain, and

Business Loans, thus serving as a true multi-product channel for our customers.

In tier-2 and tier-3 locations, our micro enterprise branches have established a strong presence through various activities such as catchment area marketing, local branding, and co-branding with existing customers. We have also partnered with associations that have a hyper-local presence. Notably, we have partnered with Laghu Udyog

Bharti, an organization dedicated to supporting and promoting micro-enterprises. This partnership has led to a series of seminars, workshops, and events in several micro-markets, focusing on government schemes, digital credit, and strategies for success in today?s evolving business landscape.

Through these efforts, UGRO Capital?s Micro branches effectively support the growth and success of micro-enterprises, ensuring that we continue to meet the diverse needs of MSMEs across India.

Prime Intermediated Business

Our Prime Intermediated Business operates through prime branches in metro and tier-1 locations, serving businesses with turnovers ranging from INR 1 crore to 15 crore. As of March 2024, we operated 23 Prime

Branches. These branches source Secured Business Loans, Business Loans, Equipment Finance, and

Rooftop Solar Loans to meet every credit need of MSMEs in prime locations, thereby enhancing the productivity of our GRO Partners and the profitability of this business segment.

The year FY23-24 saw a robust engagement program for our intermediaries and GRO Partners. The "GROW with UGRO" GRO Partner Meet was organized to acknowledge and celebrate their collaborative efforts in helping us achieve the remarkable milestone of becoming a Billion Dollar

AUM company. These events also encouraged our partners to join UGRO Capital?s growth journey. The response was highly positive, with partners showing great enthusiasm for our multi-product offering and incorporating equipment finance and rooftop solar into their portfolio origination with UGRO Capital. Through these initiatives, our Prime Intermediated

Business continues to strengthen its relationships with intermediaries and GRO Partners, driving growth and expanding our reach within the MSME sector.

Ecosystem Channel and Green Asset Financing

Our Equipment Finance business continues to thrive in key segments, including Metal Cutting and CNC Machines, Printing Machines, Packaging Machines, Woodworking, and Medical Equipment Finance. We have strengthened our relationships with over 100 Original Equipment Manufacturers (OEMs) across these sectors. Expanding our offerings from the initial 23 prime branches, we now provide Equipment Finance services through the entire UGRO branch network across India. In 2023-24, we actively participated in industry exhibitions and expos such as IMTEX Forming, HIMTEX, Machine Tool Expo, PAMEX, Die & Mould, PLASTVISION, and DMTX, among others.

A significant development this year was the launch

Green Asset Financing within our ecosystem channel. We partnered with major solar panel manufacturers to fund their supply chain and provide rooftop solar loans to MSME consumers. This initiative aligns with our commitment to sustainable and green financing solutions.

There has been a substantial push at the ground level for Rooftop Solar. We collaborated with the National Solar Energy Federation of India (NSEFI) to conduct various Rath Yatras aimed at raising awareness and extending rooftop solar financing solutions to micro and small enterprises. Our participation in these Rath Yatras, along with various solar symposiums, conferences, and events, has established our presence with Rooftop Solar Manufacturers, Energy

Efficiency Companies, and EPCs. These efforts have also generated strong leads, reinforcing our position in the green financing sector.

Through these initiatives, UGRO Capital is making significant strides in both Equipment Finance and

Green Asset Financing, ensuring comprehensive support and innovative solutions for MSMEs across India.

Direct & Digital Alliances

Our Digital Business and Alliances channel leverages partnerships to originate loans in locations beyond our direct geographical reach. Loans are sourced through five sub-channels: Fintech entities, NBFCs, Anchor partners for retailer finance, cross-selling to our existing customer base, and direct-to-customer through our GroX platform.

In 2023-24, we launched a last-mile Retailer Financing product, which holds significant potential and aligns with our vision to address the credit gap, particularly for micro enterprises. This initiative aims to reach last-mile MSMEs, furthering our goal of inclusive financial support. We have partnered with several large FMCG and consumer goods companies to fund their last-mile supply chains, with a plan to onboard 50,000 retailers this year. This strategy will enhance the granularity of our portfolio.

Within the Partnerships & Alliances segment, our focus last year was on innovative products such as credit lines, daily instalments, EV financing, solar financing, and wallet-backed small-ticket loans. This focus will continue into the next year, driving further growth and diversification.

Significant improvements have been made to

GRO X platform, our direct distribution channel, both technically and strategically. We have broadened our distribution by offering pre-approved credit lines on GRO X to existing UGRO customers and partnered with large marketplaces to take GRO X to a wider audience.

Through these efforts, UGRO Capital?s Direct and Digital Alliances channel continues to expand our reach and enhance our product offerings, ensuring we meet the diverse needs of MSMEs across India.

Snapshot of AUM and disbursements across products

		AUM		Net Disbursements
Product Category	Collateral type
		FY24	FY23	FY24	FY23
Secured Business Loans	Property	2,385	1,727	1,175	1,097
Business Loans	CGTMSE	2,936	1,899	2,170	1,464
Micro Enterprise Loan	Property	813	472	722	553
Supply Chain Financing	Receivables	632	567	65	298
Machinery Loans	Machinery	1,168	701	771	552
Partnership & Alliances	FLDG	1,112	715	964	677
Total		9,047	6,081	5,867	4,641

Operationalizing Co-lending Model

Over the last couple of years, the Company operationalized multiple Co-lending / Co-origination arrangements and emerged as one of the leaders in this business model. As of March 2024, we have

13 Co-lending / Co-origination partnerships with large Banks and NBFCs. During FY24, we entered into Co-lending partnerships with 6 partners, which reiterates the confidence of our lending partners in our business model. There?s a strong demand for co-lending across our products, particularly for Secured

Business Loans, Micro-Enterprises and Machinery loans where the off-book share in AUM is close to 50%. Our off-book AUM as on March 2024, stood at INR 4,078 crore (45% of the total AUM), which is inching towards our long-term stated goal of 50%.

Liability Update

UGRO follows a 3-pronged approach to liability. These include balance sheet-based borrowings from

Banks & other financial institutions, co-origination partnerships with larger Banks and loan securitization to raise funding against our asset pool. During the year, we raised ~3,500 crores of total borrowings across products in FY24 and added 12 new lenders. This is also a testimony to the fact that the larger lending ecosystem recognizes UGRO?s ability to churn out a higher quality portfolio. During

FY24, we raised debt from 5 Development Finance

Institutions and Impact Funds (FMO, ADB, WaterEquity,

MicroVest and GMO), aggregating to INR 667 crores, and raised INR 200 crores through Public NCDs. Our blended liability interest cost on all outstanding debt as of March 2024 stood at 10.7%. Total Debt as of March 2024 stood at INR 4,653 crore. The company has a vast lender base of 55+ lenders and looks to consolidate the count of lenders and increase ticket size per lenders with keen focus on lowering cost of borrowing. We have very strong processes and policies to manage our ALM to enable us to better manage our assets and liability.

Credit Underwriting

Our Company has adopted robust and comprehensive risk management capabilities boosted by sectoral expertise, prowess in data analytics and superior technology infrastructure, and powers our journey of accelerated growth with best-in-class governance and asset quality. With the growing needs of the business, the company has strengthened the requisite areas across lines of defence by enhancing the team structures and headcount across analytics, credit, fraud control and collections strategy. Data analytics lies at the heart of credit assessment and has enabled a migration from traditional income document-based assessment to cashflow-based underwriting using the tripod of credit bureau, banking and GST information.

GRO score 3.0, an enhanced version of our proprietary scoring model, in addition to analyzing banking and bureau behavior, also extracts and analyses critical information from GST – like sales momentum, purchase behavior, margins, scales of business, counterparty relationships, product mix and filing discipline – to calculate and predict the likelihood of the company repaying the loan. The company has also implemented a predictive modelling driven Early Warning Signals framework to generate trigger alerts for portfolio stage collections activity. The company has in place a supervisory risk evaluation and capital adequacy framework with comprehensive coverage of enterprise level risks. Company has undertaken a thorough ICAAP assessment, including identification and review of material risks, assessment of forward-looking business model and operationalization strategy to assess the impact of material risks on the level and quality of capital.

Use of Technology

Our Company?s lending related aspects and process is supported by technology which spans across all stages of the customer?s journey including origination, distribution, credit, analytics, operations and collections. We have (a) 25+ API integrations

(b) bank, CIBIL and GST statement analyzers (c) automated policy approvals (d) machine learning

OCR technology (e) in house Business Rule Engine (BRE) (f) customized sourcing modules and (g) data pool for 360-degree customer view all of which facilitate us to deliver a loan in-principle approval in 60 minutes to the customer.

We have developed proprietary technology platform for each distribution channel which are customized to support various business needs, such as:

Segment wise/Product wise performance

Our AUM has increased from INR 6,081 crore in FY23 to INR 9,047 crore in FY24. Across our offered products, our average ticket size stood at ~ INR 13 Lakhs and our average lending rate stood at 16.6% as of Mar-24, which is broken down as follows for each business segment.

Product category	Collateral type	AUM (Cr)	ROI (%)	Ticket size (Lakh)
Secured Business Loans	Property	2,385	14.2%	69
Business Loans	CGTMSE	2,936	19.5%	17
Micro Enterprise Loan	Property	813	21.2%	8
Supply Chain Financing	Receivables	632	14.0%	12
Machinery Loans	Machinery	1,168	13.8%	36
Partnerships & Alliances	FLDG	1,112	14.9%	4
Grand Total		9,047	16.6%	13

Our portfolio was well diversified across geography and sectors, with no exposure to any single sector exceeding 25%.

Risk Management

The Board of Directors of the Company has formed a Risk Management Committee to frame, implement, and monitor the risk management plan for the Company. The Committee is responsible for reviewing the risk management plan and ensuring its effectiveness. The Committee considers the risks that impact the mid-term to the long-term objectives of the business, including those reputational in nature. The Company has an elaborate risk charter and Risk management policy. The Audit Committee has additional oversight in the areas of financial risks and controls.

Internal control systems and their adequacy

The Board has adopted policies and procedures for the governance of orderly and efficient conduct of its business, including adherence to the Company?s policies, safeguarding its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial disclosures.

The Company?s internal control systems are commensurate with the nature of its business, the size and complexity of its operations. The internal control system is supported by an internal audit process for reviewing the design, adequacy and efficacy of the

Company?s internal controls, including its systems and processes and compliance with regulations and procedures. Internal Audit Reports are discussed with the Management and are reviewed by the Audit

Committee of the Board, which also reviews the adequacy and effectiveness of the internal controls in the Company.

Summary of key financial items

Particulars	FY24	FY23
Total AUM	9,047	6,081
Total Net Disbursement	5,867	4,641
Total Income	1,082	684
Total Expenditure	903	600
Profit before tax	179	84
Profit after tax	119	40
Earnings per share
- Basic (INR)	13.39	5.69
- Diluted (INR)	13.20	5.66
Net worth	1,438	984
Book value per share (INR)	157	142

 

Key Ratios
Particulars	FY24	FY23
Off-book AUM (%)	45%	40%
Debt to Equity ratio	3.2x	3.2x
CRAR (%)	20.8%	20.2%
Net Total Income (% of On-Book AUM)	13.5%	12.2%
Cost to Income Ratio (%)	54%	62%
ROA (%)	2.3%	1.1%
ROE (%)	9.9%	4.1%
GNPA (% of AUM)	2.0%	1.6%
NNPA (% of AUM)	1.1%	0.9%

The AUM of the Company as of March 31, 2024 is reported at INR 9,047 crore with a growth of 49% as against INR 6,081 crore as of March 31, 2023. The net total income (as % of gross on-book AUM) has increased from 12.2% in FY23 to 13.5% in FY24 on account of increasing mix of higher yielding products and higher off-book share in AUM. The cost to income ratio has reduced from 62% in FY23 to 54% in FY24 due to improvement in operating leverage. The improved profitability along with increased equity has resulted in improvement in return on assets from 1.1% in FY23 to 2.3% in FY24.

Credit Rating

Crisil Ratings Limited upgraded the long-term rating of the company on bank loan facilities and non-convertible debentures to "CRISIL A/Stable" from "CRISIL A-/Positive" in March 2024. As of March 2024, our Company?s borrowings enjoy the following ratings:

Facility	Ratings
Bank Loan Facilities	Crisil A /Stable, IND A / Stable,
Commercial Paper	CRISIL A1, IND A1
Non – Convertible debentures	Crisil A /Stable, IND A / Stable, Acuite A/Stable
Sub-ordinated Debt	IND A/ Stable

Equity Capital Raise

In April/May 2023, the Company raised equity capital of INR 340.49 Crores through mix of Qualified

Institutional Placement of INR 100.49 Crores and Preferential allotment of INR 240 Crores to IFU (Investeringsfonden for Udviklingslande). IFU is an independent Denmark government-owned fund and is one of the largest DFIs of the world.

In June 2024, the Company successfully completed its equity capital raise and the allotment of Compulsory Convertible Debentures (CCDs) and warrants cumulatively amounting to INR 1,265 crore (CCDs amounting to INR 258 crore and warrants amounting to INR 1,007 crore). The Company saw strong backing from its existing private equity investor Samena Capital, which committed INR 500 crore through warrants. Other significant commitments came from institutional investors such as Aregence and several of India?s marquee family offices. UGRO?s founder, board members, and management team also subscribed to the Warrants issue. These warrants can be exercised within 18 months from the date of allotment, with subscribers paying 25% of the issue price now and the remaining amount payable 18 months later.

Acquisition of MyShubhLife

In May 2024, the Company announced the acquisition of ‘MyShubhLife? (MSL), a prominent Embedded Finance Fintech platform, for an enterprise value of INR 45 Cr (through a combination of 64:36 Equity Cash transaction), thereby making it a wholly owned subsidiary. MSL is a market leader in embedded finance for small shopkeepers and distributors. Scaling up embedded finance and penetration of payments players ecosystem and a cutting-edge data & technology stack. MSL?s proven track record on both counts, and its business model fits well with UGRO?s goal of reaching last mile retailers. MSL?s live embedded relationships with leading payment ecosystems (Pine Labs, Fino, Airtel

Payments Bank, Mobikwik, Spice Money, and EasyPay among others) and its technology architecture will addgranularityandyieldsonUGRO?sportfolio.MSLhas already sourced over 15 million merchants through anchor partners. With MSL seamlessly integrated into its ecosystem, U GRO Capital envisions onboarding 200,000 new retailers within the next three years, thereby unlocking substantial growth opportunities. The Company anticipates experiencing an incremental Assets Under Management (AUM) of INR

1500 Cr and achieving a Profit After Tax (PAT) of

100 Cr over the same period with MSL as its subsidiary.

Outlook for the company

Our company has invested upfront in headcount, technology and infrastructure in its initial years to build a formidable multi-channel distribution network and proprietary underwriting model that our well-experienced management team can scale multi-fold of our current AUM. solutions, specializing in offerings tailored

Well-capitalized post our recent fundraise, we have set the following goals for FY25: requires deep understanding

1. We aim to increase our share of higher yielding products in the overall AUM mix. Micro enterprise loans, retailer financing and Solar rooftop will be - our focus areas. We plan to launch new Micro branches that will take the Micro branch count to

~240. Within supply chain financing, we intend to go down the funnel and acquire retailers as part of our customer base.

2. Co-lending continues to be a key part of our liability strategy. We will continue to expand our co-lending model and increase our off-book AUM mix, in line with our stated goal of 50%.

3. Improving profitability remains one of our key goals. Augmenting the share of higher yielding products coupled with operating leverage will help us increase our return on equity.

Key Opportunities

1. MSMEs contribute nearly 30% of India?s GDP and the Government envisions to take this contribution to 50% by 2030. The Ministry of MSME runs numerous schemes targeted at providing credit and financial assistance, skill development training, infrastructure development, technological and quality upgradation and other services for MSMEs across the country. There is a huge credit gap in the sector, primarily due to the lack of documentation and credit history required to access financing from formal banking channels

This credit gap, pegged at INR 92 trillion for FY23, offers a huge market opportunity for MSME lending. Of the 63 mn MSMEs in the country, only 25 mn have availed credit from formal sources. With the formalization of the economy, we could see a shift towards organized lending that offer timely credit at competitive rates.

2. With evolution of GST & banking-based models, availability of machine learning tools now and launch of initiatives such as OCEN and Account

Aggregator, the future of data-tech led cashflow-based lending model is bright. It augurs well for India?s MSME segment, which will get access to easy & convenient credit. It will enable them to drive India?s wheels of progress.

3. With NBFCs facing a challenge in raising debt from banks at competitive costs, co-lending framework allows NBFCs to cater to a large customer base by leveraging larger balance sheets of their partners.

It also enables Banks and NBFC/HFC to share the risk and rewards throughout the lifecycle of the loans.

Key Threats

1. Negative economic developments globally or nationally may affect investor confidence and cause increased volatility in Indian securities markets. Any slowdown in the Indian economy could adversely affect the ability of our customers . to repay our debt which, in turn, would adversely impact our business, results of operations and financial performance.

2. Unanticipated changes in laws, regulations and government policies may increase compliance costs and may impact the viability of our current businesses or restrict our ability to grow our businesses in the future.

3. Our borrowing costs and our access to the debt capital markets depend significantly on the credit ratings of India and Company. Any adverse revisions to credit ratings for India and/ or the company by rating agencies may adversely impact our ability to raise additional financing

4. Access to funding in a timely manner and at competitive costs has been challenging, especially for smaller and mid-sized NBFCs post the increase in risk weights by RBI on bank borrowings to NBFCs.