Moneyboxx Finance Ltd (BSE: 538446) Q4 2025 Earnings Call dated May. 29, 2025
Corporate Participants:
Deepak Aggarwal — Co-Founder, Co-Chief Executive Officer and Chief Financial Officer
Analysts:
Mamta Nehra — Analyst
Mihir Shah — Analyst
Unidentified Participant
Sahil Vora — Analyst
Harsh Shah — Analyst
Nikita Surya — Analyst
Darshil Shah — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Moneyboxx Finance Limited Q4 and FY ’25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Mamta Nehra from MUFG Intime India Private Limited. Thank you, and over to you ma’am.
Mamta Nehra — Analyst
Thank you. Good afternoon, ladies and gentlemen. I welcome you to the Q4 and FY ’25 earnings call of Moneyboxx Finance Limited. To discuss this quarter’s business performance, we have from the management, Mr. Mayur Modi, Co-Founder; Mr. Deepak Aggarwal, Co-Founder; Mr. Viral Seth, Finance Controller.
Before we proceed with this call, I would like to mention that some of the statements made in today’s call may be forward-looking in nature and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company’s website and stock exchanges. Without further ado, I would like to hand over the call to the management for their opening comments, and then we will open the floor for Q&A.
Thank you, and over to you sir.
Deepak Aggarwal — Co-Founder, Co-Chief Executive Officer and Chief Financial Officer
So effectively, only 30% of our old branches will be allowed to do unsecured business and which will lead to strong portfolio shift towards the secured lending. As on March 2025, we have made significant strides in building a truly pan-India presence. Our operations now span 12 states, including an expansion into four new states in South India during Q2 of FY ’25. This growth reflects the strength and scalability of our tech-enabled digital operating model.
Our branch network has grown considerably from 100 branches in March ’24 to 163 branches as of March ’25. We plan to expand this further to 175 plus branches by March 2026, ensuring deeper penetration and better service delivery across regions.
On the partnership front, we now have visibility of INR500 crores per annum through lending collaboration, including business correspondence and co-lending model arrangements. In terms of funding, we continue to benefit from low cost and diversified sources with a lender base of 33, including 12 leading banks.
Now moving to total income, which grew strongly by 56% year-on-year, reaching INR199 crores in FY ’25, up from INR128 crores in FY ’24. For Q4 FY ’25, total income stood at INR52 crores, reflecting a year-on-year growth of 23%. In FY ’25, our net interest income also witnessed healthy growth, rising by 60% to INR136 crores compared to INR85 crores in FY ’24. Talking about our net interest margin, they have remained at around 16.23% for this quarter.
In terms of cost efficiency, our operating expenses as percentage of AUM remained at 12.8% in FY ’25. This includes non-cash expenses like ESOPs as well compared to 12.7% in FY ’24. While our declining opex trajectory temporarily paused primarily due to branch expansion and lower-than-expected AUM growth. As I’ve mentioned in earlier quarters, reducing operating expenses continues to be a key focus area for us. We are targeting to bring down our opex below 10% over the next two years, supported by growth in AUM and ongoing efficiency improvements.
I would like to again emphasize here that opex is very much driven by the amount of AUM you have because — for example, every INR100 crores of additional AUM, average AUM gives you almost INR12 crores of contribution to cover the opex. So, the opex for this year is really impacted by the low AUM growth last year.
Now coming to our profit after tax for FY ’25 stood at INR1.25 crores as compared to INR9.14 crores in FY ’24. It’s largely driven by; one, the AUM could not grow and almost all the operating profits were eaten up by NPA provisions. So, that’s what you will see that largely an impact of movement towards NPA. In terms of returns, our return on average equity stood at 0.6%, while return on average AUM stood at 0.2%.
Looking at our yields and spreads, the company stood at 28.13%, which is still good for FY ’25 and as spreads reduced to 15%, but remain at a very healthy level. The slight dip in spread reflects the rising share of secured loans, partially balanced by lower borrowing cost.
In FY ’25, our average cost of borrowings stood at 13.1%, while the marginal cost was lower at 12.3%. In fact, for the first nine months, we borrowed at 12%, which is at par with the best in the industry at this level of rating and AUM level. However, in Q4, we did some large NCD transactions, which made the average cost of borrowing little higher to 12.3%, but still, it’s on a continuous decline mode. This year-on-year decline reflects the benefits of our improved credit rating and growing scale of operations.
During — so COP will continue to decline. During the quarter, we witnessed steady improvement in our collection performance. Our overall collection efficiency, including current and up to 30 days past due improved to 99.4% in March 2025, which is definitely the best in the industry, up from 97.3% in December 2024. Similarly, collection efficiency for current and up to 90 days past due rose to 98.4% in March compared to 95.2% in December, again, among the best in the industry, highlighting consistent progress in our recovery efforts.
That said, our credit cost as a percentage of average AUM stood at 3.33% for the quarter, reflecting some pressure from the broader industry-wide stress in the unsecured segment. But as I said earlier, we are taking — continuously improving our collection infrastructure month-on-month every month, and this will show up results. This has already started showing up results, especially up to 90 bucket, but recoveries will start taking — take some time. But as we take more and more steps every month, things are improving.
Our on-book gross NPA increased to 6.61% in Q4 FY ’25, up from 5.6% in Q3 FY ’25. Similarly, our net NPA rose from 3.42% from 2.88%. Our GNPA will become elevated in FY ’26 due to slowdown in rural economy and negligible write-offs. Our provision coverage ratio remains steady at 50%, reflecting our prudent risk management approach.
I would like to mention here that as an industry-wise, when we compare to the MFI, it’s including the write-off, the number is around 23% to 24%. For us, it is around 7%, including write-off. So that’s kind of the difference versus when we say that we are not an MFI. But yes, exposure to rural hurted us this year. Now, since inception, the company has successfully raised INR270 crores in equity up to March 2025. In FY ’25, we also achieved our highest NCD raise of INR185 crores. In fact, from 23rd Feb to 23rd of March, in one month time, we raised about INR165 crores in NCD, which is the highest ever in one single quarter, further strengthening our funding profile.
Our net worth grew by 54%, reaching INR261 crores as of March ’25, up from INR169 crores in March ’24, driven by the equity fundraise during the year. Net worth will significantly improve this year as well as INR85 crores in spending from the issue of share warrants. Our debt-to-equity ratio stood at 2.44 times, and we maintained a healthy capital adequacy ratio of 29.25%.
As we look ahead, we remain committed to building a sustainable business that leverages both technology and deeper customer insight to deliver value to all our stakeholders. We remain watchful of the fast-changing global environment and are well positioned to ensure rapid deployment of capital, scalability and maintain cost efficiency. We will continue to uphold robust credit underwriting standards to effectively manage risk and safeguard the quality of our portfolio.
Thank you. With this, we can now open the floor for Q&A.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Mihir Shah from Riddhi Enterprises.
Mihir Shah
So, sir, my question was like with the numbers reported this quarter, I think the investor confidence is slightly shaken. And like a lot of our assumptions have been invalidated. Like we had assumptions in the past like, agri and allied dairy and all of those will help us on the unsecured side when the cycle turns and all of that. So, could you please help us with some tangible targets on the cost cutting front, credit cost and growth for the upcoming quarters so that we can continue to maintain our confidence with that?
Deepak Aggarwal
First of all, I think the confidence should not be shaken. We have to compare this with the way industry has reported numbers for this year. I think there is no doubt that last year was one of the most challenging year we have seen in recent times. This is far more severe than even COVID waves because it was hit at every angle. Especially, any lender who has some kind of rural exposure has suffered, and you would see how the industry– I think numbers are known, how industry has shaped up.
But yes, as I agree that we still maintained the growth in AUM, but I still agree that it is not as per anyone’s expectation. And the same is true for us as well. Going forward, there are many, many steps which we are taking. One is obviously the shift of book towards secured. And in fact, we are — today, 10% of our book is now above INR5 lakh kind of loans, which is where we are lending even INR15 lakh, INR20 lakh with good MSME customers. So that focus is shifting. That’s one part of the area. One is that building a secured book wherein asset quality can be improved.
Second, it’s a long-term book so that we will have a higher AUM. We can reduce cost of borrowing, say, at every level, we have scope. Right now, our average COB is 13%, although incremental is at around 12% now. So there is a scope of about minimum 3% to 3.5% reduction over next two, three years. Similarly, there is significant scope in reducing the opex. So, once you take a deep dive, in FY ’21, the opex was 25%, then 20%, then 15%, then 12.5%.
So every year opex has reduced. It’s just a combination of — largely driven by AUM. For every INR100 crores you make, you get a INR12 crore kind of contribution towards your opex. So, I think that will also play around. I agree that last year in terms of numbers, it’s a wipeout year, although there are a lot of activities which has done. We have improved our team levels. We have improved our collection vertical, which is still improving the secured portfolio.
So I think multiple steps are taken. And in terms of — as you asked about the AUM target; with lenders, we are at least targeting a 50% growth, in fact, over 50% growth in AUM for the current year. So, I hope I have answered all the queries.
Mihir Shah
Sir, any guidance on the — like target for the credit cost and opex cost cutting?
Deepak Aggarwal
Opex, I believe it should be between 11% and 12%. It all depends on how soon we are able to grow our AUM. Our target would be to remain anywhere between 11% to 12%.
Mihir Shah
Got it. And on the credit cost front?
Deepak Aggarwal
On the credit cost, see, there will be — although the numbers are improving, the shift to NPA, say, for example, INR24 crores moved to NPA in last quarter as in December quarter. For Q4, it was INR18 crores. For Q1, it will again decline. So my guess is that — but given that there is some portfolio, which has already moved to NPA, maybe around 3% kind of credit cost we still see for the current year.
Mihir Shah
Got it. Right. And sir, my second question was that like you mentioned, right, that the secured portfolio is much better when it comes to credit costs and other stuff. So, in that case, is it right to assume that currently, like our unsecured portfolio has completely blown up because like our NPA numbers are — GNPA numbers are 6%, right? And 50% is secured.
Deepak Aggarwal
No. It’s not 12% NPA. But try to understand, it’s not blown up. I mean, see the situation currently that there were sectors in the rural economy because of the reasons I mentioned, even if you have 2%, 3% kind of [Indecipherable] out of 100 borrowers; if three, four customers go bad, right, you have a higher NPA levels. So that’s what has happened. It’s not that a full book has blown up.
So these customers take time to repay and then, we will go legal, we will do collection measures. So the money will come. It is still coming. I mean it’s a slow process. So it’s not like that everything is blown up. But yes, there are times when you have to take some changes in the portfolio level where last year was some — had some exceptional circumstances, and that’s what you see across the board. I mean it’s not that — so any lender which had rural exposure last year got some hit.
But I think the way we are seeing, the way we have given the numbers of collection efficiency things are improving now. And these are the same — it’s not that I could achieve a 99.4% collection efficiency from only secured book. So both — in fact, initial five years, we had 1.5% credit cost when largely it was an unsecured book. So I think last year had some very, very pressing situations, which led to this movement towards NPA. So, I think take it as a one-off scenario, not something which is a consistent thing.
Mihir Shah
Got it sir.
Deepak Aggarwal
But yes, lessons being learned. We have significant improvement in our collection infrastructure, which I have told even in earlier earnings calls. And it continues to improve every month.
Mihir Shah
Got it, sir. And sir if you look at the numbers for last quarter, 30 DPA and this quarter. So like, roughly if we negate the impact of AUM growth, then most of our 30 DPA is moving to NPA, whereas like on the write-off front, like we are only taking 50% write-off after 90 days. So if we are not able to like get the 30 DPA collections back, can we expect that we’ll get the 50% off the NPA?
Deepak Aggarwal
No, I think it’s not moving like that. I mean if you have — we have almost minimum 60% collection efficiency in 30 to 60 bucket. It even goes to 70%. And even now, this looks like 60% to 70% collection efficiency in 30 to 60 bucket. And in 60 to 90 bucket also, the lowest we reach is 40%, but largely, it is — between 50% and 60%. So that’s not the case that anything which moves to 30 plus goes towards NPA. That’s not the case.
Mihir Shah
Because sir, 88.17% [Phonetic] of our 30 plus was — of our portfolio was 30 plus last quarter and like 6.6% is the gross NPA this quarter.
Deepak Aggarwal
Yes. But because see, there is a movement. I mean, anything which is coming, if you have, see — what the way we have to see is there were — at some point in time in December, there were like 1,600 to 1,800 cases flowing towards the next bucket. And then it came to 1,000, then it came to 800. In March, only 450 cases moved to 30 plus out of the 51,000 customers.
So I’m saying that you see a month-on-month reduction. And anything which is coming from that, which is already in 30-60, 60-90 will take some time. But that’s what I’m saying that out of the same portfolio in December quarter, we had a movement of INR24 crores. In March, it was INR18 crores.
So, incrementally, it is coming down. So I’m sure that once the bucket is improved at X, I mean, the current level, after two, three months, you see the impact on the NPA level. So which we have very, very significant focus and I’m sure you will see the result in Q1 and Q2.
Mihir Shah
My last question is like…
Operator
Sorry to interrupt, Mr. Mihir, we request you to join the question queue again as we have other participants waiting for their turn.
Mihir Shah
Sure. I’ll just complete this one follow-up. Like, are we looking at another no profit here like with 24% yield and like 12% borrowing rate, 11% opex and 3% credit cost?
Deepak Aggarwal
No, not like that. See, you look at it, one is that this is not 24% yield. Our yield is still at 28% plus. So it’s not that — even with 24% ROE you have PF of 2.5% and then you have multiple other sources of income. So, one is that yield is at 28 point something percent today, not 24% and borrowing cost, yes, 12%. So, it’s not the case. I mean there are other sources of income.
Even this year, after so much of cost, it was not a 0 profit year. You have money every time you give a two year to three year unsecured loan, it comes for a repeat after a year. And then you again make money on PF. You make log-in fees, you make multiple other fees, even when the top-up comes in secured, even then you make fee income. So, it’s not that the yield is not 24% in any case.
Operator
Thank you. [Operator Instructions]
Deepak Aggarwal
I would like to say here — Mamta, I would like to say here, just to answer Mihir’s question. See, we are not — in terms of our yields, we are very well placed. You see any players, any large player with a 25% — so we are at 20% — 28%, but even at a 25% yield, it’s a very good yield. What you reduce as you grow, one is your cost of borrowing, which is with large player, you will have anywhere between 9% and 10%, nothing more than that.
So one, if you reduce your cost of borrowing, you — with secured portfolio maturing, you will have your opex at 6% to 7%, 8% max. So that’s the way you have to look at that in the initial stages, you cannot compare it with a large company. In initial stages, it’s a buildup stage. So what you gain is from the increase in net worth and increase in portfolio, very high level of growth. But profit comes in later years. I mean, in terms of exceptional profits start coming in when you cover your cost. So every INR100 crores, then gives you very high profitability. Yes, please go-ahead, Mamta.
Operator
[Operator Instructions] The next question is from the line of Mamta Agarwal from AVS Investment.
Unidentified Participant
Sir, my first question is, since now secured lending accounts for 45% of your AUM, which is like significantly up by 24% in the previous year. So, could you elaborate on key drivers behind this? And what market signals or like internal metrics led to you prioritize secured assets? Also, it would be helpful if you can like throw some light on what are your medium to long-term goals for this portfolio?
Deepak Aggarwal
Okay. So one thing is you asked that what is driving. So the main thing is Mamta, that we have made all the new branches. So there are the six new states which we entered; Gujarat, Bihar, and the four states in South, they do only secured business. So, this is one driver where we say that we have to do only secured business. And I’m telling you that there is no single case in these six — only one case actually in a 30 plus bucket in these six states.
So, one is that we have communicated well that we want to touch upon a customer which is reasonably well off. So, in terms of business, in terms of stability of business, then in terms of good — having a good collateral, multiple sources of income. So that’s one that it’s an organization’s drive which we are making that even in our states like Punjab and Haryana, we are starting to raise very, very significant amount in the secured lending space. So that’s what is driving.
In terms of our outlook, as we have said earlier also, largely that next year target for secured is about 65%. And in ’27, it would be 75% plus. So it could be around 75% to 80%, more likely 80% than 75%. So that’s what I have.
Unidentified Participant
Okay. Great, sir. Sir, just one more question. Given the increasing stress being observed in the unsecured lending space across the industry, so what changes have you implemented in your underwriting process to mitigate the potential delinquencies and credit losses? And have there been any changes in your borrower selection criteria like geographic focus or product mix?
Deepak Aggarwal
The kind of customers which now we are focusing, I mean — or which are coming because now we are even giving INR15 lakh to INR20 lakh kind of exposure. So there are a lot of customers which have inventory level of about INR1 crore. So, I think there are customers who have multiple sources of income, very stable sources of income.
So that’s one area wherein the customer profile is also changing. With respect to your question related to unsecured segment, I think not just this year, starting last year only, we had made some changes in our underwriting model. So I mean, we have started taking less and less exposure in — with customers who have like low level of incomes. So, typically, which is an MFI customer. So that’s — we are getting away and away from them. So that’s one change which has happened.
Operator
The next question is from the line of Sahil from M&S Associates.
Sahil Vora
Yes. Sir, I have a couple of questions. Sir, the livestock financing currently constitutes approximately 65% of your total AUM, making it the single largest contributor to your portfolio. Could you elaborate on whether you see this segment continuing to grow as a proportion of your overall lending mix?
Deepak Aggarwal
I think the exposure will reduce in terms of percentage. So it will remain one of the focus areas. But as we are growing, so if I tell you in South with four states, the cattle book is only around 20%. Again, if you see Bihar, the cattle book is very small. So, one thing is that proportion will reduce. So maybe in few years, it will come down to 50% of our portfolio. But the quality there also is improving.
So although like in Gujarat, we have more than 90% of our portfolio is into cattle. But there are always — in each single case, there are multiple sources of income, although we mentioned that cattle is the main portfolio. But see, we don’t do any single case in cattle where there is no other source of income as well. So agri may be one other source — and especially in Gujarat, we’re seeing that there’s a significant other source of income with cattle. So, people will have some shop, some other activity also. So that way, I think — and plus we are taking many other steps also to improve this portfolio.
In terms of app, just to mention, we have made an app, AI app for cattle identification, which is a unique identification for each cattle. So this will be first in India and maybe first globally, the kind of app we are making to — we have already made and launched in terms of identifying cattle so that there is no repeat cattle we fund to identify any disease, the breed of the cattle, the lactation cycle of the cattle.
So, there are a lot we are doing to really improve this structure. And this cattle portfolio also gives us a lot of impact-related advantages. So like Rabo has given us a INR75 crore kind of line to build this portfolio, not line as a guarantee. So first 3% loss in our cattle portfolio when the cattle number is up to five cattle, there’s a 3% loss, which is taken by Rabo Foundation. So there are multiple things happening on that direction as well.
Sahil Vora
Understood sir.
Deepak Aggarwal
So just to answer, yes, it will be a key portfolio, but the proportion will reduce over a period of time.
Sahil Vora
Understood. Sir, additionally, how are you assessing the current trends in rural demand, especially in the context of monsoon conditions, agricultural income and credit appetite in your key geographies?
Deepak Aggarwal
I think it’s reasonable. I will not say that it is sharply up, but it is reasonable. And month-on-month situation is improving. So that’s one part of it. But as I said, we are now significantly — very significantly in terms of incremental debt, which we are giving, we are getting significantly shift towards non-agri profiles, which could be like where we are opening branches.
So earlier, if we have a branch in X location, generally, the funding will happen interiors — in the rural areas. But now even in those cities with people, say, having an electronic shop, having an inventory of INR1 crore, we are giving them INR15 lakhs. There are people with large building material supply. There are larger manufacturers of various things, which have asset base of INR3 crores, INR4 crores.
We are — I mean, in terms of land and building, maybe not call it, INR3 crores, INR4 crores, at least in the range of INR1 crores to INR2 crores, where we are lending them INR15 lakhs to, in some cases, INR20 lakhs. So that portfolio is also changing quickly. Although, yes, it doesn’t show up in mass numbers or maybe, obviously, it takes some time to really show up, but things are changing from that perspective.
Operator
The next question is from the line of Harsh Shah from Sumaria Family Office.
Harsh Shah
Sir, my first question was regarding the opex guidance that you have given. So sir, I wanted to understand that in the last year, we have added 63 and in the.
Deepak Aggarwal
Your voice is breaking, Harsh. You said last year…
Harsh Shah
Last year, we have added 63 branches. And in the coming year, our target is to add another 12 to 15 branches.
Deepak Aggarwal
Right.
Harsh Shah
And the opex guidance that you have given is between 11% to 12%. So, don’t you think that, that is more conservative on the opex as a percentage of AUM, the value is more?
Deepak Aggarwal
More conservative as in you feel the opex will be higher than what we are saying? Is it that?
Harsh Shah
No, I meant the opex should be more lower than what you have guided for?
Deepak Aggarwal
So, Harsh, it actually depends on how soon we are able to increase the AUM from now. So opex changes with each INR100 crore number. So for example, if the way our calculation goes, if the average AUM for the current year is INR1,300 crores, opex will be 10%. If average AUM is INR1,200 crores, the opex will be — so yes, 11%. And if it is INR1,100 crores, it will be 12%. So what I’m trying to say, there’s a lot of dependence on the AUM growth and AUM at a particular level.
So it seems easy to say that there is a company which has a INR5,000 crore AUM has an opex of, say, 6% or 7%. But really, if you see the corporate expenses even at lower level of, say, INR1,000 crore AUM, you need all the functions. You need a CTO, you need a compliance head senior, you need a senior credit guy. Every position needs to be filled up and nothing comes at a lower price.
When you go for good guys, the pricing is same, whether you have a INR1,000 crore portfolio, whether you have a INR5,000 crore portfolio, things don’t change much. So that’s where I’m saying that as AUM, it’s a combination of AUM. Last year, if it were not bad, we would have reached 11% by now, even at last year level. So it’s just how soon we are able to pick up the growth level in terms of AUM.
Harsh Shah
Right. So, if — like if the maximum growth is in the second half of the year, our average AUM may be lower because of that…
Deepak Aggarwal
Yes, because current AUM stands at INR937 crores. So the most important thing is how soon we can grow our AUM, which will impact the opex level at end of the year. What I’m saying, you will notice that when a company reaches INR2,000 crores of AUM, that’s where really opex starts coming down. So everything starts falling in place. But other than that, I’m saying that, if you see year-on-year, COB is falling opex is falling. I mean this year was an exception just because of this branch expansion. Anywhere this year, we are saying that we are more in a consolidation mode and trying to optimize the AUM of the existing branches because see, 12 branches opening is nothing at this current level. So, current year, the agenda is to optimize on the people we have.
Harsh Shah
Right. Okay. And sir, my second question was, assuming that we get an average yield of 27%, our cost of borrowing is 12%, our opex is another 12% and credit cost is 3%. So, the ROA for this coming year should be negligible…
Deepak Aggarwal
As I said earlier also, this is not a simple calculation. There are other incomes you make. There are PFs, there are repeat PFs, there are foreclosure charges. There are penal charges, there are bounce charges.
Operator
The next question is from the line of Nikita Surya from SNK Ventures. Please proceed.
Nikita Surya
I have a couple of questions. First, being with ROE and ROA slipping to 0.6% and 0.2% respectively, in FY ’25, how do you plan to revive your return ratios going forward? And are there any specific financial targets in terms of ROE or ROE you aim to hit by FY ’26 or FY ’27?
Deepak Aggarwal
First of all, to — see, the key is to reduce the — so even if this year, you see our initial target for the credit cost was about INR7 crores which actually became INR28 crores or INR29 crores. So the largest — if that credit costs were not there, we would have made the numbers as per the guidelines, wherein we were targeting a PAT of INR20 crores plus for last year, which got impacted because of very high credit cost.
So, one of the major areas of improvement is to stop fresh NPA. I mean it will not stop, but to minimize to the highest extent there will still be some write-off costs there. So one is to — at all levels to bring down borrowing cost, it may happen that it may decline to — incremental may decline to even 11%. I don’t see complete non-possibility given that repo is coming down, the liquidity levels will be better. But I’m saying we have to target each single factor.
The opex is on one side, the other side is definitely your borrowing cost. And third is stopping NPA movement to the best level possible, which is on track. And every month, we are improving that. So that’s one area of improvement. In terms of guidance, I think soon we should be able to share — we will internally discuss if we have to give it to the — because right now, we cannot say because it’s a listed company, we have to make it at a BSE level.
But definitely, the target is big and targets are good even in terms of — so ’27, I think we will have a full recovery as I see the projections, it will be — ’26 will be the year of recovery where I see that on the financials, as I already said that one year got lost, but this year will be the year of recovery and ’27 would look very, very significantly better. This — I mean, you should see how a company — profitability improves as it scales the business. It’s not just true for us. For any company, you say when it crosses INR2,000 crores kind of AUM, the numbers really start showing very different results.
Nikita Surya
Okay sir. Got it. My another question would be, like as of March 2025, Madhya Pradesh and Rajasthan remain the highest contributors of your AUM. So given this concentration, what steps?
Deepak Aggarwal
Not NP1, you have — Rajasthan hardly had any contribution. Rajasthan actually AUM came down from the last year. So largely, it was led by Gujarat getting almost INR45 crores of AUM; Bihar; some contribution from South states; then MP and UP. So these are the main states contributing to the growth.
Nikita Surya
Okay. So, sir, what are the steps like you are taking towards deeper geographical diversification?
Deepak Aggarwal
Deeper as in within the state you are saying?
Nikita Surya
No, the entire country.
Deepak Aggarwal
I think at this AUM level, we are among the most diversified company. I mean, people tell us that at INR1,000 crores, you are too diversified, which actually increases the opex level. So, we are in 12 states, 163 branches with AUM of INR930 crores-odd. So I think geographically, we are very, very well diversified. We can — obviously, once we scale up, there are two, three more states where we can start the branches. But I think Tamil Nadu, we just have 10 branches. You can have immense opportunity in Tamil Nadu.
So I mean, people are disbursing INR200 crores, INR300 crores every month there. So, I think within these 12 states only, there’s very large opportunity. And as I said that we are now going forward, trying to capture a very different set of customers, which we were not doing till now. Because as — initial years, you want to have a lower tenure because you are not getting a higher tenure. You want to keep your borrowing rate also high because your cost of borrowing is high. So I think all that is now aligning on the incremental basis. So I think on diversification, we are good.
Nikita Surya
Okay. So sir, are you witnessing any stress or early warning signals in these areas, in these states particularly?
Deepak Aggarwal
Nothing more than what has already happened. So now it is only on the — how to improve these areas. I think we had faced stress in Rajasthan and Haryana. So we have seen that. But I think from here on, we don’t see any further — anything worse happening. I mean it’s on the positive side only. Yes, what has happened has happened and it will have some impact on the financials. But I think nothing beyond that.
Operator
The next question is from the line of Darshil from ABC Capital.
Darshil Shah
Just on the previous participant’s question, actually I also have a question on the operating expenses. So, if I can just see your — from the results, operating expenses as a percentage of AUM, which stood at around 12.8% in FY ’25, which I can see it is flat as compared to FY ’24. I just want to understand this has seemed to taken a pause with the downward trajectory, which you have seen in the previous years. So I just want to understand what is the — I just want to understand what is the company doing? And could you elaborate any key reasons behind this pause in the opex reduction?
Deepak Aggarwal
Okay. So, I thought I have already answered that, but just to say that again. See, the expenses have increased because of new expansion in four new states last year, adding 63 branches, adding a lot of senior manpower. If you go through our website and see the presentations, we have now functional heads which are very senior at each function level. So, I mean that has increased the cost. More importantly, the AUM has not increased.
See, ultimately, you get a contribution from the AUM increase, which has not moved up. It is not that it happened only with us. But a very large part of market, it happened that last year was a year of slowdown, where there was focus on collection, AUM could not increase, and this is where you cannot lend forcibly.
So I’m saying that it’s not that fundamentally something has changed. It is just that AUM did not grow in line with the amount of expansion we did. So, that is why we have now with focusing on that with those limited — which is not limited per se, we have 2,000 people today. So the idea is to optimize that thing and grow the AUM with the same number of people, grow the AUM. And so opex will automatically show the result.
Darshil Shah
All right. I have a couple of questions more. So if you can just see, we note a steady decline in both the average and marginal cost of borrowings over the past three years. With FY ’25 average cost of borrowings at around 13.1% and marginal cost of borrowings at around 12.3%. Could you just share some insights on the drivers behind this decline? I think you will see that companies which [Technical Issues] INR4,000 crores, INR500 crores AUM, they are borrowing at between 9% and 10%.
So that’s fundamentally as your scale of operations grow and as your credit rating improves, the pricing of loans decreases. And this is since inception in the last six years. We — first year, we borrowed at 20%, and now it is at 12%. So the decline will remain continuous for next three to four years until you reach a stage wherein you are borrowing at around anywhere between 9% and 10%.
So it could be like 9.5%, it could be 9.3%. I mean, because you get better rates for the cattle portfolio because it’s a SMF portfolio, once you have a better credit rating, you can get very good pricing for this portfolio. So I’m saying till it reaches — I mean, the average COB, which is 13% today, till it reaches at least 9.5%, even if I don’t get more aggressive than that, at least till it reaches, which is a 3.5% decline, the cost will continue to decline over next, say three years. Okay. Another question would be on the collection efficiency. So you highlighted a steep improvement in the collection efficiency.
Could you just elaborate on what specific measures or initiatives were taken during FY ’25 to achieve this improvement? And you also mentioned that stabilization is expected by Q1 of FY ’26. So what does the full stabilization look for you in terms of collection metrics? And also last question would be, are there any particular geographies or product lines which are still facing stress issues on company level?
Deepak Aggarwal
So I think, see, one is, from — we started building up our collection infrastructure starting from September. We got some around 50, 60 collection officers as on date. So it has been a slow buildup. But from 1st of February, we had a full telecallers platform. So each single customer gets a telecall, IVR, SMS, so — which improves the collection efficiency, especially in 0 to 90 bucket. So those results have been published already. So it’s a very significant jump versus what happened last year.
And I will continue to say, it has been an industry-wide stress. Any balance sheet, any presentation you see, it has been an industry-wide stress unless someone is not having a rural exposure. So that’s a different ballgame altogether. Having said that, the infrastructure keeps on — in terms of 0 to 90 bucket, I believe that the stabilization is seen in Q1. So, even the June quarter, I believe, will be as good as the March of last year, which is ’24, when we were just doing good enough.
In terms of clients which have moved to 90 plus, we are building our infrastructure, appointing collection agencies, doing all — I mean, we have a very senior resource now in collections. And incrementally, we are building state-level collection team, state heads for collection. So all that is coming up, legal part is coming up. So everything is coming up. I think especially the way we see early warning signals; we have a portfolio cut of whether these clients are paying to other customers. So there is a lot of data which we have seen. I believe that even what has moved to NPA will have a very decent recovery over a period of time.
Operator
Due to time constraints, that was the last question. Thank you, management speakers, MUFG team and everyone for joining us. On behalf of Moneyboxx Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Deepak Aggarwal
Thank you, everyone.