A professionally run NBFC in the listed startup bucket
Institutionally owned with high quality management, consistent fast-paced growth at >30% YoY, solid risk-management
In the evolving landscape of MSME lending, an innovative NBFC backed by pedigree management is quietly building a solid institution.
This NBFC offers tailored credit solutions leveraging both property and business assets as collateral, giving out loans starting from plant/machine, working capital, and expansion support.
The business strategy is customer-centric, focusing on the underserved MSME segment. The NBFC has established multiple channels to serve the diverse credit needs and is actively engaged in co-lending models to enhance efficiency and reach. A proprietary scoring tool, robust technology integration, and a strong focus on early warning signals and data analytics underscore its commitment to credit excellence.
What sets this NBFC apart is its blend of physical and digital frameworks, streamlining - sourcing, underwriting, disbursement, and collection processes. Customers are acquired through a widespread branch network, direct sales agents, and partnerships with manufacturers and financial institutions, coupled with a promising digital channel in the pipeline.
Their average ticket size is between 5 lakh to a crore, with an upper limit of 5 crores, ensuring a broad spectrum of businesses can be accommodated. The recent financial data revealed a remarkable 30% year-on-year growth, with assets under management (AUM) reaching 7500 crores.
Underwriting at this NBFC is a multifaceted process that harnesses data from multiple sources, including banking transactions and GST records. The NBFC is eyeing exponential growth in its capital-light, off-balance sheet products by amplifying its co-lending, direct assignment, and co-origination endeavors. These segments have seen a rapid ascent, now constituting 43% of AUM in the first quarter of FY24, a substantial leap from 4% in FY22.
The business model is attractive to banks, which are more inclined to lend through co-lending arrangements, benefiting from a granular loan book. At the same time, the operational management is handled by the NBFC partner. Despite its potential, the model’s long-term effectiveness will be closely monitored as it scales.
Financially, the NBFC stands robust with a hefty capital infusion leading to a solid capital base. The leverage ratio is maintained with prudence, and the debt-to-equity balance is carefully managed. The company's borrowing profile is diverse, with funds mobilized from over 60 financiers, indicating a strong trust in its financial stability.
Liquidity management is prudent, with substantial reserves to cover upcoming debt obligations, and a strategy in place to maintain a steady liquidity cushion. The on-balance sheet assets are complemented by strategic partnerships for co-lending, which further fortifies its liquidity position.
Since its inception in 2019, the NBFC has rapidly built a sizable AUM, demonstrating strong growth momentum. While the portfolio exhibits lower seasoning, this is balanced by the fact that the bulk has accumulated in a post-COVID recovery phase, suggesting a resilient credit environment.
The NBFC's financial performance is commendable, with positive profitability and a robust capital adequacy ratio. A well-thought-out business plan aims to maintain this trajectory, with targets for AUM growth, cost-income ratio, credit costs, and a confident outlook for asset returns.
Asset quality is carefully monitored, with the NBFC not observing a significant increase in multiple lending among customers. The credit assessment model takes a comprehensive view, considering various aspects of the borrower's financial behavior.
In terms of capital and funding, the company's institutional ownership and well-crafted expansion plans make it an attractive proposition for potential investors. The strategic direction set by the professional management team focused on sustainable growth and operational efficiency, positions the business for success. A network expansion plan is in place, with new branches expected to break even within a year to sixteen months.
The company is led by its founder-CEO, ex-MD Invesco, and previously the CEO at Religare. He also served on the boards of marquee business houses the likes of Landmark Group etc.
Final Remarks:
The NBFC stands out for its institutional ownership and solid management pedigree, rock-solid liability infrastructure, strategic partnerships, and commitment to financial education for its customers. With plans to reach an AUM of 10,000 crores and maintain high collection efficiency, the focus is on sustainable growth and a resilient business model.
While this is not a core-position for us at the moment, given the quality of management and their ability to consistently grow the business at the speed they are doing may eventually become a core position for us sometime down the line.
We want to emphasize that this communication should not be misconstrued as a recommendation, as we are not SEBI RIAs. It is crucial for readers to conduct their own due diligence and exercise caution. Therefore, we urge all readers to approach this opportunity with prudence and carefully consider the potential risks involved. While the prospects appear promising, it is essential to maintain a cautious approach and stay informed of the inherent dynamics of the industry.
Happy to chat and discuss this in detail
About Us -
Govind Shorewala - Entrepreneur (Mining, Textiles) & Investor (Private & Public Markets) → Reachout at: govind.shorewala@gmail.com
Aaroah Mittal - Early Stage VC → Reach out at: aaroah.m@people-group.com