Ugro Capital Ltd (UGROCAP) Q1 FY23 Earnings Concall Transcript

Ugro Capital Ltd (NSE:UGROCAP)Q1 FY23 Earnings Concall dated Jul. 25, 2022

Corporate Participants:

Shachindra Nath — Vice Chairman and Managing Director

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Anuj Pandey — Chief Risk Officer

Amit Gupta — Chief Financial Officer

Subrata Das — Chief Innovation Officer

Analysts:

Chinmay Bhargava — Featurespace — Analyst

Unidentified Participant — — Analyst

Unidentified Speaker —

Presentation:

Operator

Ladies and gentlemen, good afternoon, and welcome. Emkay Global Financial Services takes great pleasure in hosting the Q1 FY ’23 Results Conference Call for Ugro Capital Limited. We have with us from the management Mr. Shachindra Nath, who is Vice Chairman and Managing Director; Mr. Amit Mande, Chief Revenue Officer; Mr. Anuj Pandey, Chief Risk Officer; Mr. Amit Gupta, Chief Financial Officer; Mr. Nirav Shah, Chief Strategy Officer and Head of Investor Relations; Mr. Rishabh Garg, Chief Technology Officer; Mr. Subrata Das, Chief Innovation Officer.

So, without further — any further delay, I would now like to hand over the floor to the management for their opening comments. Thank you, and over to you sirs.

Shachindra Nath — Vice Chairman and Managing Director

Good evening, everyone. I’m Shachindra Nath. Thank you all for joining our Q1 result presentation.

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Yes, Shachin, we can hear you.

Shachindra Nath — Vice Chairman and Managing Director

Go to the next slide, please. So in fact this we have given, we started this in our last quarter as well. Our belief is that like consumer credit business in India, the small business financing is also rapidly embracing that data-driven underwriting. Since the start of demonetization and advent of GST, and creation of three layer of data India — data stack is ensuring that in the over next two to three years, the entire SME credit space would move toward data-driven underwriting.

The identity layer, the payment layer, and the data layer combined with the power of multiple alternative sources of data would move the credit to three different forms of credit, which we call Embedded Credit, Flow-based Credit, and Buy Now Pay Later. And this is also massively supported by the — now which is fully-implemented the OCEN network, and once the ONDC would come, the Merchant Financing business would also become very, very prominent.

This also we said, we have been saying this order period of last many quarters that the — there is a transformation of NBFC lending space is happening. The NBFC lending space is getting divided between some very large capitalized owner-driven NBFCs and the larger ecosystem, which has to converge to lending as a service. We have seen the last companies across Europe, UK and US, but India is now seeing the evolution of lending as a service. What basically it means? It means that unlike, conventionally, all of you have seen that lending outside the bank through NBFC is a business of leverage versus now it is becoming business of service. On one side of the spectrum, where we specialize is, being able to find or what we call source, filter, underwrite the customer. On the other side of the spectrum, we have the owners of the liability or the liquidity, which is banks and large financial institution.

We — the way we design ourself that why we are a principal lender, we have a highly capitalized balance sheet and we borrow on our balance sheet, but our eventual goal is being able to service the large ecosystem of small businesses in India, being able to filter them, use our data-driven underwriting and clear them through our score; and finally, the balance sheet belongs to the large banks. And that creates a very large cash — fee-generating model for businesses like NBFCs or FinTech, whatever you may want to call it.

Over next few slides we will explain that how we are evolving from a leverage business to LaaS as a business. But over this Q1, we have been able to prove that this is happening. We have been able to cumulatively disburse INR6,000 crores plus over a period of last four years, of which, roughly around two years were lost. We have an asset under management for INR3,650 crore, which is an growth of almost INR700 crore plus over a period of one quarter. And we have an off-book AUM, which is INR780 crore odd. So from a 16% of our balance sheet, which was off our books, now we have moved to 21%. We are now servicing 25,000 plus customers. We have a physical footprint of 95 plus location; beside our roughly around 1300, 1400 people we have around 1,000 plus partners who services our customer base. And for our supply chain business, we have very strong base of 75 plus OEMs and anchors in our ecosystem version.

And last but not least, I think so, Ugro has over a period of last five, six quarters have become a company which services the need of an SME or MSME customer, right from a small INR1 lakh loan to INR5 crore of credit in different format of what we call the product through multiple distribution. So we have an ability to do a secured business loan, machinery, unsecured business loan and micro-enterprises loan, supply chain financing, and merchant financings in a digital platform, which will be coming soon.

I hand it over to Anuj to talk you about how the data, how the data ecosystem in Ugro has evolved and what data would be doing to the MSME financing ecosystem in India. Anuj?

Anuj Pandey — Chief Risk Officer

Sure. Thank you, Shachin. So I mean for next couple of slides, I will just take you all through how the digital ecosystem has evolved, and how we seem to be in the right place at the right time with right set of design and execution capabilities to have a meaningful impact on the very large lending opportunity, which is present across SME lending in India. And first things first, a very quick review on how we have evolved in last three, four years. How we have been able to apply data analytics and technology, not only in the very core area of underwriting, which I will explain in detail in later slides, but also in other aspects of our institution.

In fact, we have been readily using comprehensively data — our data led insights in early warning systems. We have applied the same approach in our operations and collections team, are at the origination level. Right from day one we have been using it to a very large extent. In fact, to open our new branches in micro locations we have used data science extensively. So overall, not only in underwriting we have seen and found a lot of advantages in using technology and data platforms across. So we would probably be one of the first large scale NBFCs to do that.

Nirav, you can move on. And at the very heart of what we have done, is what we call a GRO Score. When we had started in January 2019 with our first loan, we had — we were using the first version of our GRO Score, which was based on a simple hypothesis and design that when you look at the customer via the lens of the sector in which it operates, one is able to understand his cash flow in much better way. And hence, one is able to predict the portfolio performance much better. And this got severely tested and we passed that test successfully during both pandemic one and pandemic two.

Our portfolio has remained intact, and is in much better shape vis-a-vis competition, but — and also during that impact, we learned that the banking behavior also is a very key contributor in predicting future portfolio performance for SMEs. So we launched our GRO Score 2.0 version, which made use of not only the repayment behavior analyzed through the lens of ecosystem, but also the banking behavior. And it became a very, very powerful tool. We implemented that in July of 2021, and as of March 2022, data is now sufficiently analyzed and we can see that directionally we have found a way to template and standardize and scale an underwriting methodology for all across SMEs in India.

Our ambition now is to include the GST data as well, and internally we call this GRO Score 3.0. The target is to launch it by third quarter, end of third quarter in this year. And once we do that, then it becomes a real tripod and one of the most powerful tools in underwriting to SMEs. We have already — and this has been done by our own portfolio generated data has been very, very thoroughly tested statistically. We have analyzed more than 45,000 bank statements, more than 21,000 applications have been processed post our GRO Score 2.0 application. So from as far as statistical rigor is concerned, we haven’t left no stone unturned. And we really want our GRO Score to become the benchmark as far as underwriting to SMEs is concerned.

And just a little more on how the GRO Score works, and it works — the basis of that of how, what we are able to do is actually a very, very extensive library of about 25,000 plus data features, which we have been collecting methodologically since day one of launch. So for all customers, whether we approve them or we reject them, we collect last 12 months of banking data in a Machine Learning format, and last 24 months of GST returns. And from that, the machine learning tool keeps extracting data features, which can eventually be used to correlate with portfolio performance. And now, a third layer of GST is planned to being added there.

This, we had referred to in our last call as well, but this is a very important slide because it is telling us that directionally it is possible to completely templatize the way SMEs are underwritten. Very simply, our new GRO Score 2.0, which is live since July of 2021, classifies all customers which we underwrite in five risk bands, and depending on that risk band, there is a probability of default which is assigned. And now we are already seeing data for customers who are now more than six months and up to 12 months, where the risks stacking, where a GRO Score A customer, which is the least risky versus a GRO Score E customer, which is the most risky.

Their performance, both on our books and both off books, where we have been tracking their performance in other financiers is stacking up the way it should be. In the longer run, we would want to reach a situation, where physical underwriting inference and input becomes as low as possible. The underwriter’s role would be to do a quality reference check and apply his mind to improve the scorecard and the machine taking over. And in that direction, this is a very, very important step.

Nirav, you can move on. And all this was made possible, if you recall people who have been listening to our story, because we are focused on our customers via the lens of the sector in which they operate. So when we started, the endeavor was to look at sectors which are large where the macro and microeconomic parameters were favorable in short to medium term; and also there was enough data available to make use off. So, we had done a very large exercise with CRISIL, and we had chosen eight sectors in which our target segments were smaller SMEs, where we can give loans up to INR5 crores, and this eight sectors were healthcare, hospitality, light engineering, auto components, education, electrical equipment, chemicals and food processing.

We also during our journey about 1.5 years back introduced a new sector which we called micro enterprises, because we realized and industry data was telling us that this differentiation basis sector was not really applicable if the size of the enterprise was very small. The size itself was a differentiator. So we included new sector called micro enterprises, where the focus was to focus on very, very small businesses with loans up to INR25 lakhs. So today, we are focused on these nine sectors, eight of our original plus ninth which came about last year.

And now, I’ll ask Amit to take over and he can take you through how we are designed in terms of technology, our product structure, and the financial numbers. Over to you, Amit.

Amit Gupta — Chief Financial Officer

Thank you, Anuj. And like you rightly said, this is to all our GRO Score, our proprietary GRO Score, we call it the magic sauce sometimes we call it the our coke formula, remains at the heart of everything that we do. So, around this GRO Score is what we have really built the — a very robust tech platform. There was a need for a strong — strong platform, there was a need for differentiated platforms to harness the power of [Technical Issues].

Shachindra Nath — Vice Chairman and Managing Director

I think so, we have lost him, right?

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Yes.

Shachindra Nath — Vice Chairman and Managing Director

Can somebody ping him?

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Anuj, would you like to take this?

Anuj Pandey — Chief Risk Officer

I will take it up. In the meanwhile, he will be in the line back.

Amit Gupta — Chief Financial Officer

Can you hear me, Anuj?

Anuj Pandey — Chief Risk Officer

Yes, yes. Now we can hear you.

Shachindra Nath — Vice Chairman and Managing Director

Yes.

Amit Gupta — Chief Financial Officer

There was some disconnection. So anyway, so I was saying this remains at the heart of our robust technology platform, it was — there was a need to have customized differentiated platforms to harness every ecosystem. And what this slide really shows is our different platforms, our GRO Plus platforms looks at our intermediary distribution in the prime branches. Our GRO Direct, is where we go direct to the customer.

GRO Chain is a very, very interesting, very high-end platform that allows us to harness the ecosystems of the anchors and the suppliers on our supply chain business. And the most important and Shachin did — Mr. Nath did touch upon the — touch upon this as our route to becoming lending as a service entity, a extremely important platform. Our GRO Extreme actually connects the FinTechs and the NBFCs on one side, the public sector banks on the other side, making us a truly loan against — making us a truly lending-as-a-service platform. All these really revolve around this one thing that we are very proud off, which we’ve done a proof of concept and has stood the test of times, is our GRO Score 2.0.

With this, we — Nirav, can you move on? With this we really — what are we doing is, we are servicing every credit need of every MSME. So, we’ve designed products starting from INR50,000 to INR5 crores. Products that have tenures from 30 days to around 15 years, and all kinds of needs being serviced. What really this GRO Score does is, the GRO Score really credit evaluates customer, and then if he is worth delivering credit to, depending upon what kind of product he wants, is the customer price. The customer’s price depending upon what kind of security he brings on the table.

And so, we are able to do multiple products like our loan against property. We do have our productive asset financing, unsecured loans, supply chain and our micro-enterprise loans. All of these revolve around this one simple concept of GRO Score and supported by our platform. More importantly, on the distribution side, we are now at about 96 locations.

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Amit, we can’t hear you. We can’t hear you. Amit, sorry, we can’t hear you.

Amit Gupta — Chief Financial Officer

Can you hear me now?

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Yes, yes.

Amit Gupta — Chief Financial Officer

Okay. So, I was talking that our distribution strength continues to improve quarter-on-quarter. We have about 96 — we are now in 96 locations, more than 1000 GRO Partners. Our ecosystem of Anchors and OEMs, who power our supply chain and the productive asset financing machinery finance business, again has been growing quarter-on-quarter. And of course, our employee strength at the front-end, now is more than 700 people, that bring in — that work on all these platforms.

If we were to look at how we are — how our distribution is, Nirav, can you go to the next slide. Yes, how our distribution is, we are — we have a very — we’ve realized that there are multiple customer cohorts that we want to reach to. And we have very different distribution models, our branch-led channel looks at the prime branches and the micro branches. They service the intermediary distribution, they take to the customers our loan against property, our affordable LAP, our unsecured loans business. Our ecosystem business, our distribution model actually harnesses the ecosystems of the Anchors for the supply chain, both on the vendor and the distribution side.

It harnesses the ecosystem of the OEMs for the machinery finance business. There is a large, like I said on the growth GRO Extreme platform. On one side, there are large number of partnership and alliances, NBFCs and FinTechs, where we do very, very differentiated products with them to reach to the last mile. And most importantly, our digital — direct-to-customer digital channel, that is — that will now get enhanced in by end of August, to really step up our customer acquisition engine, and this will be one of its kind, direct-to-customer channel that we will launch in August. We will of course see the launch, it will be a visible launch and we will be able to divulge a lot of more information possibly in the next quarter.

But as we continue to build our distribution, as we continue to build our asset book, one important thing, Nirav, I wanted to talk about the lending-as-a-service platform. So, if you could go to the next slide. As we continue to build this, our partnerships with the PSU Banks and NBFCs for co-lending NSFCs continue to increase. In the last quarter, we’ve had about five, we’re now increasing this, we’ve got Punjab & Sind Bank onboard. We’ve signed with Punjab & Sind Bank for all products. By next quarter, we will have another two banks having signed up. So that takes care, not only of just our liability position, but our ability to off-book our AUM.

Look at how beautifully the off-booking of AUM continues to grow quarter-on-quarter. So last quarter we were in about 16%; this quarter, we are at 21% of our AUM off-book. And this is, thanks to all our partnerships with the PSU Banks, and some of our leading NBFCs, where we do co-lending and co-origination. Nirav? Nirav, can you go to the next slide?

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Amit, I am on to next slide.

Amit Gupta — Chief Financial Officer

Okay. I don’t know if the slide is changed Anuj for you.

Anuj Pandey — Chief Risk Officer

Yes, it is changed.

Amit Gupta — Chief Financial Officer

Okay. So I’ll continue. So we kept saying that we wanted to do lending-as-a-service. We wanted to build a large — when we spoke last time after our annual results, we said that we wanted to build a INR7,000 crore AUM by end of the year, and this is really where we are saying that we are absolutely on track to deliver. Our first — we had a great first quarter, our AUM stands at about INR3,656 crores of off-book AUM is at 21%, our net total in terms remains healthy at 10.5. Importantly, our credit cost is very much under control and so it’s at about 1.4%. So overall, I think the real message here is that, we have started this year to get to a INR7,000 crore AUM, 35% off-book out of that, and 2% ROA, more than 2% ROA. And I think we are completely on track to get those numbers. Our first quarter has been a testimonial of that.

So, with that, thank you and I open this for discussion.

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Nase [phonetic], I think we should just take up the questions one by one.

Questions and Answers:

Operator

So an anonymous attendee question, what percentage of sourcing is done through the DSA channel?

Amit Gupta — Chief Financial Officer

So at this point of time 55% of our business comes from the prime branches and in which there is also machinery finance business. So amongst our book about 48% to 50% of our book will be generated by the intermediaries, the rest 50% is through direct and through other partnerships.

Operator

Do we have any other questions in the chat?

Shachindra Nath — Vice Chairman and Managing Director

Can people ask question or they have to only do it through chat?

Operator

Okay. We have a question from Chinmay Bhargava. Nirav if you could please unmute his line?

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Hi Chinmay, please go ahead.

Chinmay Bhargava — Featurespace — Analyst

Hi. Good afternoon. Nice to see you all, and congratulations on the numbers this quarter. I have about three questions in the business. So let’s get started. The first question is on our GRO Score, and we spent a lot of time explaining this, but I have a few more basic questions with the GRO Score itself. So, we have 25,000 data points as you’ve said, right? But the more data points we add to a model, the more complex the relationship becomes between the data, and the more noise and contradictions you’ll have between different data points.

So, what framework do we use to choose which data amongst the huge set to prioritize? And could you tell me if we’re using like a Bayesian framework, a stochastic framework? How are we using our probability models? And more basically, if we take a case study, right? Like, if we discuss nursing homes, for example, can you tell me how our understanding of this single business has changed from GRO 1 to GRO 3, where we are now.

Shachindra Nath — Vice Chairman and Managing Director

Subrata, do you want to take this?

Amit Gupta — Chief Financial Officer

You are on mute, Subrata.

Subrata Das — Chief Innovation Officer

Yes, I can take the question. The first part of the question, which says there are 25,000 attributes and the method used. So first of all, these are — first of all, it’s a future library, it is a total universe of parameters which could be potentially used to predict the probability of default, and you’re right in saying that not all of them could be used without a loss of significance. We use — we’ve — the approach that we take is we make as many parameters as possible, based on our functional and business expertise. And that maximizes our chances of fitting a very powerful model, which holds the test of back testing.

Having said that, there is a scientific and elaborate method of reducing those dimensions into eventually a set of around 35 to 40. The approach that we use, you mentioned Bayesian and stochastic processes. What we use is basically supervised learning technique, because we are predicting a zero or one outcome, or a good or bad outcome on our trading data set. And we follow very well defined objective framework to gradually reduce the 25,000 to the set of 35 or 40. Most important significant parameters, which have least correlation with each other. However, in conjunction are most powerful in predicting the default rate. The exact formula are the system of waves, which is used to arrive at the probability of default, that is the part which we keep as proprietary to ourselves.

Chinmay Bhargava — Featurespace — Analyst

Okay. That makes sense. Could you just tell me a little bit about the — how our understanding has changed from GRO 1 to GRO 3.

Subrata Das — Chief Innovation Officer

So your — so when we did GRO 1, and we availed data for own and we were working in conjunction with a large credit bureau and developing models on something that we call look-alike population, one that best resembles our target segment. However, they were not our data sets. From there we moved on to 2.0, which is currently invoked since July 2021, which has two major components, one that being developed on our own incoming data, and with all in-house models that predicts much more sharply.

Second, it combines the credit bureau history of the borrowers, both the commercial entity, and as well as the individual co-applicants, as well as the bank statement, into one consolidated scoring model. And 3.0 is more incorporate the GST records of the entity and thereby it is going to be first of its kind, and a very robust predictive model, which captures the intensity of business in a real-time GST. The financial discipline or they intend to pay through the bureau record and they ability to pay through — so let’s say the current cash situation and the credits and debits feasible in the bank segment. That is how we promised to pay.

Chinmay Bhargava — Featurespace — Analyst

Okay. Thank you. Yes. Two follow-ups there. So one, the recent push from the RBI to onboard the PSU banks to the account aggregators, do you think that’s a significant data point for us to improve our model?

Shachindra Nath — Vice Chairman and Managing Director

Yes.

Subrata Das — Chief Innovation Officer

Definitely. Yes, it is.

Chinmay Bhargava — Featurespace — Analyst

At present — yes, please go ahead.

Subrata Das — Chief Innovation Officer

I think it just depends on how much of participation we see, in what span of time, but in a destination state where account aggregator has the participation of the entire banking sector and that it can really definitely change things.

Chinmay Bhargava — Featurespace — Analyst

Okay. Second question the —

Shachindra Nath — Vice Chairman and Managing Director

Sorry. Can I just add on to that. So, currently, the problem is of friction. So today, banking, which is one of the most important component to us is the cash flow of a customer. So, what we see ability to pay, comes from a physical bank statement and the conversion and the friction from physical to a data and being able to analyze that, you know it requires multiple level of curing and intervention, but when the same dataset would come from account aggregation is become very efficient.

And second, one of the big constraint for a non-bank lender, is that our ability to refresh this data on a periodic basis. So account aggregation, not just for the bank, but also GST being part of that, would allow us to fetch the same data on periodic basis, and update our model and look at the, not the — at the point of lending, what is the risk associated. But it improves our EWS model, Early Warning Signals model. Anuj, if you want to add something to that.

Anuj Pandey — Chief Risk Officer

Yes, you’re right. So basically, on the — so today, whenever we are getting data, it is at the time of acquisition, and there is no way that we can — we get data for monitoring purposes. Once account aggregation is fully live and all the banks are participating, and a lifetime consent framework is also established. Then not only at the time of acquisition, but during the life cycle of the loan as well, we would be continuously monitoring this data, cash flow data and that would be much more robust.

Chinmay Bhargava — Featurespace — Analyst

So, I can imagine. So it’s a real-time data, which allows you to understand very quickly how sensitive your models are to change. Okay, last question on the proof of concept here. The proof of concept that you have uploaded so far is for GRO 2.0. Will we have anything out for the newer models like do you expect it to be better?

Anuj Pandey — Chief Risk Officer

The newer model is expected to go live only in December 2022, so we are still about — it’s right now in the development phase. So once we implement that, post that we will require some time for that to for some data to get set and established, and post that we will do that. But there is the framework already of whenever we launch a new model, what kind of testing we want to do in terms of back testing. And once it goes live, then at what rate we should do proof of concept.

Chinmay Bhargava — Featurespace — Analyst

Brilliant. Thank you.

Shachindra Nath — Vice Chairman and Managing Director

So just add the difference between 2 and 3, the 2 predict the default, categorize the customer in five bands. 3 would be able to predict the default as it has being done in 2.0, but also would be able to predict the ability of the customer, whether the customer can afford INR100,000 worth of loan or a INR250,000 worth of loan, which is today is estimated through our policy and product program on front-end, so that’s the core difference.

Chinmay Bhargava — Featurespace — Analyst

Okay. So your approval rates, false positives, all of that will improve. Your early warning systems with real-time data all of that will improve. Brilliant. I have one last question from my side, which is, if I look at our sector mix now, this quarter and I compare it to Q1 FY ’22, I can see that education and hospitality, which comprised about 15% of our book is now down to below 5%, for example. I know, this is because of restructuring. But my question is, what is our plan for education and hospitality, going forward? Are we going to be looking at a different sector? Do you see it returning to giving us the scale that we chose it in the first place?

Anuj Pandey — Chief Risk Officer

So we are already seeing a lot of encouraging signs in both these sectors, both in terms of our own portfolio, which is a good portfolio which has been restructured, and a lot of demand also seems to now getting up especially in education with children coming, going back to school. So slowly, the plan is to keep building this up.

Chinmay Bhargava — Featurespace — Analyst

Okay. Thank you so much, and all the best for the year. I’ll jump back into the queue.

Shachindra Nath — Vice Chairman and Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Anandhi. Nirav, if can you please unmute her line.

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Yes, I’ve done that. Anandhi, please go ahead. Anandhi, just unmute yourself and please go ahead with your question.

Unidentified Participant — — Analyst

No questions. It was my mistake. Thank you.

Operator

Right. The next question we have from the line of Samiksha.

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Samik, please go ahead.

Unidentified Participant — — Analyst

Hi. Thanks for the opportunity. So my — I just wanted to understand how this OCEN network is used by the company and how is it integrated with the GRO ecosystem that you all have?

Anuj Pandey — Chief Risk Officer

Okay. I will answer that. So OCEN, is Open Credit Enablement Network. The broad concept of this network is to have data in a marketplace, which is driven — data storage, which is driven by a protocol, which is standardized across. The first used case of OCEN in India is a platform called GeM SAHAY, where we were the first lender. So the way it works is, the GeM, Government e-Marketplace is a marketplace. SAHAY is the OCEN network over and above that, where on one side the sellers are SMEs and the buyers are PSUs. And the data of their transaction is stored in that marketplace in a format, which is universal. That data we have integrated with the GeM SAHAY platform.

In fact, not only us, now we were the first ones. But there are many more finances, which are doing that. It accesses the moment an SME takes/gets an order on GeM, then their previous history of that transaction and SME’s demographic is available for a financier to make use of farm business rules around that data and do an instant approval for that case. So we are already live in that. More and more OCEN framework based platforms will keep coming up, once more and more people start adopting that. And as far as we are concerned, our business rule engines and API network is ready whenever a need arises to further integrate.

Unidentified Participant — — Analyst

Okay. Okay, understood. The other question is regarding the expansion model, so would it be more branch based going forward or would the focus be more towards digital penetration like any numbers on this?

Amit Gupta — Chief Financial Officer

So, in our earlier plan, we did have a large expansion plan this year on the micro piece. The micro branches we do micro-secured, which is a high yield secured product, and is a focus product for us, but we are today with 75 branches over next two quarters, we want to make it highly profitable, and then focus on further expansion of micro branches. Any expansion further from here will only be on micro branches; on the prime branches where we do the intermediated business, there we don’t see any large expansion plans. That’s number one.

Number two, the expansion will be in products of machinery finance, supply chain, and direct-to-customer, which essentially means that to some question that — to a question that somebody earlier asked, what is our direct distribution? What is our intermediated distribution? Our focus is to keep improving our direct distribution going forward with micro branches and with the businesses where there is direct-to-ecosystem and there are no intermediaries.

So did I answer your question in terms of what are the plans on distribution and expansion?

Unidentified Participant — — Analyst

So it will be selective in terms of which areas require intermediation, like a personal contact with the customer, so like as you said micro area?

Amit Gupta — Chief Financial Officer

So the answer is that, we will continue to expand our micro branches where there is a direct-to-customer digitally-assisted footprint, and a direct-to-consumer digital acquisition.

Unidentified Participant — — Analyst

All right, all right. And my last question. So just a lot of people were still not know how to go about a loan approval, or a loan application process. So is there anything you are doing for improving awareness about how to go about this online loan application procedure?

Amit Gupta — Chief Financial Officer

So two things, one, the moment I said that we are going micro branches, direct distribution, we have feet on street. So it is an customer assisted model. And so, it will assist the customers to run through their customer journeys. On the direct-to-customers, we will start with very simple small tickets, small tenure products where the data requirement is very low.

And eventually, take this up to a more complex product where we need their involvement — where we data on their GSTs, where we need data on their securities, their properties all whether it’s machinery. So initially direct-to-consumer will always be a little simple journey, simple data requirements, and a over period of time will graduate with the customers to a higher-end products.

Unidentified Participant — — Analyst

Okay, okay. And one last question, could you possibly give me a split between off-book and on-book disbursements for last two or three years?

Shachindra Nath — Vice Chairman and Managing Director

It is given. If you look at our few of our slides, you can see that. As of March ’22, 16% of our book was off book, as of Q1 and it is 21%, as of — we are targeting as of FY ’23 it to be 35%.

Unidentified Participant — — Analyst

I was just talking about the disbursements, sir, that I think is the of AUM. Correct?

Amit Gupta — Chief Financial Officer

Right. So the disbursements, month-on-month will be at — in the range of between 35% to 40% off book.

Unidentified Participant — — Analyst

All right. All right. Thanks a lot. That’s all from my side.

Operator

We have the next question from the line of Manish Agarwal.

Unidentified Participant — — Analyst

Hello, sir. Am I audible?

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Yes.

Unidentified Participant — — Analyst

Congratulations on good set of numbers, sir. Just a couple of questions I have. Like this time in presentation there is no mention about provision coverage ratio or NIMs. So could you help me with that number? What are the NIMs in this quarter?

Shachindra Nath — Vice Chairman and Managing Director

Yes. So, Nirav, can take this. But I’ll just broadly, I think so, some of the conventional metrics which are applied to NBFC, gradually you know, we are saying is not relevant to us, because the net interest margin, which is a function of our blended portfolio yield minus cost of borrowing is actually not relevant for us, is not a right parameter to judge us, because we may have an higher cost of borrowing vis-a-vis, some of the large-rated NBFC. But our liability come from co-lending or off balance sheet, because that maybe at much lower rate. So our gross income component is our interest income plus the fee income, which comes from off balance sheet minus our cost of capital. And that’s why broadly it has not been given. But just to get you a sense, our portfolio, it is around 16.5, our cost of borrowing is 10.5.

Nirav, if I’m correct, unless you can clarify.

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

No, I think Shachin you are right. Absolutely.

Amit Gupta — Chief Financial Officer

In fact. That is represented by the net total income that has been given in the, Shachin what you said is really as is represented in the results as well, which is 10.5% for the quarter.

Unidentified Participant — — Analyst

Okay. So that is net total income. Is it the NIMs 10.5%?

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

So Manish, this includes the income from co-lending, so the total income has been calculated is total income minus the interest expense. Right? So, that’s how it is.

Unidentified Participant — — Analyst

And sir, what is the provision coverage ratio what could — around?

Anuj Pandey — Chief Risk Officer

On a total book, total provisions are about 1.7%. On Stage three, the provision coverage is around 28%.

Unidentified Participant — — Analyst

28%?

Anuj Pandey — Chief Risk Officer

Yes.

Unidentified Participant — — Analyst

Okay. And sir, just one thing I just need to qualify I heard somewhere that the company is making some kind of fund for the employees, where they would be buying the shares from the market, is it the right information? Or is just a — like news?

Shachindra Nath — Vice Chairman and Managing Director

It’s right information, sir. So I think so, if you look at our exchange disclosure in our recent present Board Meeting, our Board has approved an fresh ESOP scheme. This ESOP scheme is only for purchase of shares through secondary market. As you know, as per SEBI regulation we can do that up to 5%. In a particular year, we get it to up to 2% of the total market capitalization. So our Board has approved, a loan to an Employee Welfare Trust, which is the quantum is roughly around INR30 crore odd, and this money would be utilized to buy shares from the market, which would be held in this Trust for the employee’s pool and employees can vest these shares I think so in year ’25, if I’m not wrong. So as and when there is a market opportunity, this Employee Welfare Trust independently would buy from the market, and hold it and then it was like an ESOP scheme. These shares would be held in the Trust for the benefit of employees.

Unidentified Participant — — Analyst

Okay. So this — the money would come from the loan given to the employee, is that it?

Shachindra Nath — Vice Chairman and Managing Director

Loan given to Trust. So SEBI regulation on ESOP allows this that either they in ESOP, which can be directly given by the company on you can implement an ESOP through a trust. So there is a loan, which would be given to the trust, and that loan money can be utilized to buy share from the secondary market.

Unidentified Participant — — Analyst

Okay. Thank you so much.

Shachindra Nath — Vice Chairman and Managing Director

And the shares would vest in 2025. Employees would pay the cost of acquisition to the Trust, and Trust would then return that money to the company. Or Trust can — employees can ask the Trust to sell the shares, and pay the difference to the employees, and the principal amount would come back to the company.

Unidentified Participant — — Analyst

That’s very good. Thank you so much, sir. That was all from my side.

Operator

Thank you. We have the next question from the line of Jay [Phonetic].

Unidentified Participant — — Analyst

Hi, congratulations on the good set of numbers, especially in AUM and fee income. I have four questions, which have accumulated as the acquisitions went. I just start with the most recent conversation we had. So on ESOPs, will this transaction count towards the 8% cap in the Articles of Association?

Shachindra Nath — Vice Chairman and Managing Director

So, we have sir, 5.88%, which is the ESOP. And I think so you are, right. This will be roughly around 8% in total. I think so, we are going for a shareholder approval. So absolute quantum is INR30 crores, and if this quantum, because we don’t know what real percentage of shareholding we would be able to acquire because it is a function of price. And in any particular year, you cannot do more than 2%, but if it crosses the caption percentage of 8%. So when we are going for shareholder approval whatever is the calculation we will request for shareholders to approve for that change.

Unidentified Participant — — Analyst

That’s great. Okay. Then the second question was on the competitive landscape in co-lending. So if — in co-lending, if we say that we are the leading partner for banks especially PSU banks who have issues with front book growth and front book quality, who is our next competitor? And how far ahead are we in terms of using the data tripod, et cetera?

Shachindra Nath — Vice Chairman and Managing Director

So, sir, it’s very difficult to even talk about who our next competitor are, we can only talk about ourself. So I think, in terms of this co-lending as a business model, let me give you some perspective. So there are — you look at from a large public sector bank’s perspective, think of an SBI or a Bank of Baroda or a Union Bank or a Standard Bank. Most of them would like to partner with an NBFC of substance. NBFC of substance means, that they would look at some significant amount of capital. They will look at a profitable track record, they would look at a healthy portfolio quality, and some vintage, and then they like to partner. So this is what banks want.

Now if you look at in terms of the market participant, you have three types of — and last but not least, co-lending would be the priority sector. So the asset class, which can go in co-lending is either MSME, Agri or [Technical Issues] and nothing beyond that. So fortunately, then if you look at the market participants, so there are three types of participant. You have AAA to AA diversified, large NBFCs. I think so for them, because not necessarily that most of them are in priority sector. So, there are lot of asset these large NBFCs do, which is beyond priority sector. And also for them it is much easier to do, take a leverage on the balance sheet and continue doing the business as they want, because their balance sheet will have a combination of wholesale, corporate credit, wheels business, SME, gold loans, so on and so forth.

And that’s why most of those Top 10, are large NBFCs are today not entering into co-lending. And most of their asset classes are not putting for the bank. And you have roughly around 100 or 50 plus NBFC which are while looking on Agri segment, but are neither well capitalized not the portfolio track record, wherein they can get accepted by the bank. Let me, clarify them, anything between BBB minus to a BBB plus companies. And that’s why that segment of the market is also getting excluded.

We have because Ugro with INR1,000 crore of capital with the A-rating and five-year of vintage, with a very mass portfolio quality and focus on digitization are becoming a preferred player for multiple banks to do co-lending with us. I’m not saying that we would only be the one who would be doing it. Over a period of time, there will be a convergence which would happen. The large NBFC would also start doing co-lending and a smaller NBFC would become little larger and do co-lending. But we think so that we have a window of — between market leader in this in next three years by the time this catch up happens.

Unidentified Participant — — Analyst

Okay. And in terms of all micro branches are they like a strong contributor in this co-lending portfolio? And how do we avoid cannibalizing with our partner PSU banks?

Shachindra Nath — Vice Chairman and Managing Director

I don’t really understand the question on cannibalization.

Unidentified Participant — — Analyst

So basically, our micro branches, they don’t compete with the likes of Bank of Baroda, Punjab & Sind Bank, right? We’ve made sure that they don’t compete with them.

Shachindra Nath — Vice Chairman and Managing Director

Sir, our segment of the market don’t compete with the banks. I think across every segment of the market, I think it is proven by time that the segment of the market, which are FinTech or an NBFC service, while banks have much bigger, larger, massive presence, we’ve catered to two different need, right? Even if we’re in a same location, where a Bank’s branch would be there, their method of underwriting onboarding a customer and assessing the customer is completely different.

If you look at a longer term time horizon, 10 to 15 years, banks would learn through these NBFC and co-lending partners and adopt our method of underwriting processes and technology, but they have many other priorities also, right? So that’s why they — that option of this on their own would be slower, so I don’t think so there is any cannibalization there.

Unidentified Participant — — Analyst

Are these micro branches like, we are focusing on micro branches in our next phase of growth like to a limited extent. My question was, are these micro branches a strong contributor in our co-lending portfolio, grow at…

Shachindra Nath — Vice Chairman and Managing Director

Sir, yes. Micro branches would be a bigger contributor in terms of the overall portfolio yield and profitability. In terms, the AUM growth, they may not be a very large contributor as of now, but they are increasing. All of our banking partners are accepting our micro enterprises credit policy as a product for co-lending, but gradually as the funnel would increase, that should also start going into the co-origination lending.

Amit, do you want to add something to that?

Amit Gupta — Chief Financial Officer

No, absolutely, Shachin. To answer the question, the micro secured product that we have is a great high-yield product. It’s behaving extremely well. And so at this point of time, it also makes sense to keep some high yield secured business on our books. And so it will continue to be on books for a while. And at the same point of time, like Mr. Nath said, we have already started doing micro secured, co-lending in couple of banks; and it will continue to slowly move the — into the co-lending story.

Unidentified Participant — — Analyst

And a follow-up on that, does the — are we applying stringent collateral checks on this micro secured business?

Amit Gupta — Chief Financial Officer

Absolutely. So there is a clear policy on what we accept as collateral, and these are very much in lines with what are acceptable by the banks, and so that is the essential reason why even this product is today acceptable in a large PSU bank, because…

Unidentified Participant — — Analyst

Great, great. Yes, I got my answer. SBI and Bank of Baroda are comfortable looking at this. So it needs to be one of the — list of 10 items. Great. Last question was on the QIP, or the our leverage ratio, basically. So right now, we are at a debt-to-equity of 2.3. Obviously with co-lending, it’s not going to rise fast. But as and when we reach 3 to 4, we would need to raise funds to expand, considering that the stock price is a function of people volume as well, we might — we may need to do a QIP near book value. Is this something we’ve considered and have we considered options? I don’t need to know the options. But have we considered our options, six months, nine months down the line?

Shachindra Nath — Vice Chairman and Managing Director

Absolutely. So, I was writing to Tushar. I don’t know, if the same person is speaking or not. I was just writing answer to him. But so, first and foremost, at regulatory we are allowed to do up to six time of leverage, but as a company in our initial first five, seven years, we have said that we would lever ourself only up 3.5x or 3.8x. But that’s also tool enabled to us. One tool, we have other tool, which is co-lending. We have targeted 35% of our balance sheet to go in co-lending, but depending upon market condition we can push the pedal and increase that 35% to 45%. And our leverage would remain the same what we are targeted.

Third, I think so that our peer set as currently the public market is very muted when it comes to the lending. No, fault have occurred, the public market is muted because majority of the public market investors are worried about COVID and its impact on the balance sheets of banks and NBFC, and what is the adjusted book value, and that’s why they are not being able to ascribe their price. And that is muting the interest in the lending as a segment of the market. Now, we are completely out of that. We have no correlation, because pre-pandemic post-pandemic, we have demonstrated portfolio of quality, but once you are in a mix, you are in a mix and you can’t go beyond that.

But I’m — our view is that, as we continue to improve and show our growth, there are intelligent set of investors who would come dedicated for us, and that should improve our both price and also liquidity. Having said that, we — our source of capital is not necessarily only public market, our source of capital is multiple, in a listed company we raised roughly around INR950 crore of capital, not going to the public market, but from four large private equity investors. So source of capital today is available from private equity, DFIs, big family offices, and multiple others, who will compare or who are comparing us to the private market transactions.

There are multiple NBFCs or FinTech, who are raising equity capital anything from 3x price-to-book value to 7x or 8x price-to-book value. And while you get benchmarked to your listed price, but I think so, that’s the fair value where we should be and hopefully some of the private investors would look at it in that eye and angle.

Unidentified Participant — — Analyst

Okay, sounds good. So I think it’s fair to say that my calculations that six to nine months is, that can probably be considered that they were too short? The assumption was too short. So we can still sustain quite a few more months or a few more quarters?

Shachindra Nath — Vice Chairman and Managing Director

We can sustain for a full year. We can sustain beyond if we want to.

Unidentified Participant — — Analyst

Sounds good. That’s all from my side. Thank you.

Shachindra Nath — Vice Chairman and Managing Director

Thank you.

Operator

Thank you. We have the next question from Mr. Atul Prakash.

Unidentified Participant — — Analyst

Actually just a thing I wanted to understand. So we have mentioned that where at INR7500 crore is our plan by FY ’23 AUM?

Shachindra Nath — Vice Chairman and Managing Director

INR7,000 crore.

Unidentified Participant — — Analyst

If you see our book from FY ’20, the AUM was approximately INR800 crore to INR900 crore between, so we are growing our book to 9x in the matter of three years. And then there is a GRO Scorecard 1, there is a GRO Scorecard 2, and GRO Scorecard 3.0 is coming up. So how we are very much confident? This is also backed by the GNPA numbers, if we see I think 2.13% I think was our GNPA this time. So if you back-test it at FY ’20, your GNPA number would be very high. So how we are checking these things?

Shachindra Nath — Vice Chairman and Managing Director

So I would say three things. I think so you’re only looking at the headline number, but you are not looking the incremental opex, which is being incurred to build the base, so we raised our capital in July 2018, ILFS happened in September 2018. We started our business in April ’19. Even between the July 2018 to April ’19, a base infrastructure for the company was created. But given the liability market was extremely soft post ILFS, we decided only to deploy our capital. So out of INR958 crore of capital, we deployed INR850 crore odd, without leveraging our balance sheet. And immediately after that the pandemic first round hit very hard, and we shut down our business in first six months.

But we were confident that we have to increase our infrastructure. So as of FY ’20 we were a company of 170 people, as of FY ’22 we were a company of 1,111 people. We as of FY ’20, we are a company of eight physical location, as of FY ’22 we are company of 91 physical location. As of FY ’20, our technology team infrastructure was consisted of five people, as of FY ’22 it was 90 people. As of ’20 to ’22, our data analytics team were of roughly around grown 5x. So the growth is coming because this company, has taken very early big opex to build physical and digital infrastructure and basis that the growth is now coming. So it’s a base effect.

Number two, in terms of the portfolio of quality, I think so the, you can’t back-test it basis lower AUM because our lower — first year AUM obviously suffered from pandemic, but we have demonstrated that during the pandemic we could control the portfolio quality, much better than our peer set and already business then has to look at gross NPA on the basis of an expanding portfolio, and you know by cohort portfolio quality, and what is the early indicator. So we are showing you an early indicator of how our portfolio quality basis data analytics is building up, and what we think is would be the portfolio quality at future.

Anuj, you want to add something? Please take away.

Anuj Pandey — Chief Risk Officer

So I just want to add for a business model like ours where now 21% of the book is actually off in form of co-lending or co-regulation and eventually at the end of this year around 35%; and in 2025, 50%. In a good perspective, one can get if one looks at the GNPA by total AUM. So, in this quarter actually our GNPA is 1.7% if we add a net NPA at 1.2%, if you look at a total AUM, which is much more reflective of how the portfolio is doing. And in addition to what, Shachin you said, in a growing portfolio, especially the first year the denominator being lower, and then facing two pandemics, post that whatever has come out we are quite confident that directionally we are stacking up well.

Unidentified Participant — — Analyst

Okay. Just one more thing I wanted to understand on your GRO scorecard. So basically, there was a presentation where you were mentioning there was A band, B band, C band, and then there was disbursed loan and there was undisbursed loan. So if a loan is getting A band in your scorecard why then why you are not disbursing the same and basically how this scorecard is coming up there?

Anuj Pandey — Chief Risk Officer

So, the scorecard is primarily to predict probability of default, which is based on the financials and repayment behavior of the customer. But many times a customer with good financial track record may not have a good collateral, and we have to say, no, in terms of LTV. He has come for a INR1 crore loan against property, but his property value is INR80 lakhs. So many times we have a decline that case. And so, there could be other reference check reasons as well. Ideally, yes, we should not, but the practical way — the way it works is, that there can be reasons over and above that. Directionally, what we want to establish is that GRO Score stacking works, and eventually once enough data is there, then we are able to increase our throughput much more in desirable segments, basically GRO Score A and B.

Unidentified Participant — — Analyst

Okay. One more thing out of this restructuring portfolio which you have gone through, so can we just have a figure what is outstanding as on date, as on June-end, and out of which how this — how much is in the zero plus, and 30 plus, 90 plus?

Anuj Pandey — Chief Risk Officer

So our total restructured portfolio, at the end of June is INR120 crores, which is approximately 3.3% of the AUM. In that the — and out of this, 20% has become NPA, rest are 67% is current and 4% is in 30 to 90 bucket.

Shachindra Nath — Vice Chairman and Managing Director

You can also give color of the restructured portfolio by segment of the market? Who are all become an A.

Anuj Pandey — Chief Risk Officer

We can do that. So, overall, if you look at the total restructured portfolio by product, then approximately 60% of that portfolio is under secured, about 25% under unsecured, and rest in supply chain. And by sector, about 85% of the portfolio is under education, hospitality, or light engineering. What we have seen in terms of repayment behavior. We are seeing that education and light engineering is pretty back to normal at pre-pandemic levels. In hospitality, though overall segment is now looking up, but the stressed customers continues to — continue to be stressed. And we had done an internal analysis in last quarter, where we had predicted of how much more NPA can come in, especially from the unsecured hospitality sector, from our current restructured portfolio. And we have planned for approximately INR7 crores, INR8 crores more NPA coming from there.

Shachindra Nath — Vice Chairman and Managing Director

And our current provision is more than sufficient to cover it.

Unidentified Participant — — Analyst

Okay. Just one more thing I wanted to understand. We are going with a such a high growth plan, and we are on the track also on it. So there will be a capital adequacy ratio that you need to be maintaining, so how — what are the — our strategy at where we want to fix it on the capital adequacy ratio, where we will be maintaining it.

Shachindra Nath — Vice Chairman and Managing Director

So I think so this has been answered multiple times. It is showcased in our presentation as well. I said this in our previous answer, and I will try to summarize that. This regulatory, we have to maintain a capital adequacy of 15% which means that leverage of the 6x, but we would like to Ideally, maintain our leverage of not more than 3.8x or maximum 3.5x. And by virtue of that, with 35% of our business in off balance sheet, we would be looking at raising this capital. Now raising this capital, you know the timing of it, and when can be sourced, we will consider at an appropriate time.

But the company have multiple triggers to continue maintaining it’s growth without raising the capital, as when if it want to. First, we can — with our targeted leverage of 3.5, we can go further. Second, our targeted off balance sheet asset of 35% can be increased to say 45%, and leverage would remain the same. So I think so we have this completely in our control, and this does not worry us too much.

Unidentified Participant — — Analyst

Okay. One last query. See, the market or the news was there, that there will be some inflation will be struck in. MSME sector especially will have some struggle during this period. So, and we are corely into the MSME, so where we see our business going on that piece?

Shachindra Nath — Vice Chairman and Managing Director

So, sir, I think so SME and MSME is a very generalized term, which is being used. I think so SME and MSME should be looked by, the segment of the market in which one operates. And now in the revised definition, even a INR200 crore company is also — a manufacturing company is also MSME. We started with customer below INR5 crore of turnover. Large focus of this company is to service the retail trade in — within our defined segment. And most of our sector are domestic consumption driven economy. Our view is that domestic consumption driven economy, the interest rate rise and inflation does — would not mute the demand. One of the problem of our controlling inflation in our country, that you have to increase the supply side, constraining demand doesn’t help. So within our customer set, what we have seen till date, neither the credit demand nor the cash flow is getting a stretch, because we service very small businesses.

Unidentified Participant — — Analyst

Okay. Thank you so much. And all the best for the upcoming results as well. And congratulations on the good numbers.

Shachindra Nath — Vice Chairman and Managing Director

Thank you, sir.

Operator

Thank you. We can take up a few questions in the Q&A session. We have a couple of questions from the line of Mr. Vijay Chauhan. They are as follows: what will be co-spreading income as a percent of total topline example 3.2% has been taken in the last — example given on the last slide of the PPT? And the second question is, 18% target ROE by FY ’25, will this revise further if you prioritize co-lending or plain-vanilla lending?

Shachindra Nath — Vice Chairman and Managing Director

Nirav, the first one can you take? Second one, I will explain.

Nirav Shah — Chief Strategy Officer & Head of Investor Relations

Yeah, absolutely. So right now I think this — so basically, the 10.5% that we are talking about, includes the co-lending all this co-origination income that we say, the spread actually will be about 5.6%, and the rest will be the co-lending income, as of in this particular quarter.

Shachindra Nath — Vice Chairman and Managing Director

On the next question, on the ROE target 18% obviously on a INR20,000 crore, our current — it is — first, it is very hard for listed companies to give projection for the year, and for next three years. Now when you do that, you do most achievable targets and don’t make blue sky assumptions. While the ecosystem of co-lending is improving with every passing day, when we made this prediction in 2021, there was a general skepticism about co-lending or lending as a service model in India.

However we are proving our hypothesis right by going from 16% to 21%, and we are taking it to 50% by FY ’25. We know and understand, that if we increase it by other know 10% points. Our ROE would — we will kick in further, but we believe that pure marketplace model does not go well with when it comes to the lending as a business. All our banks and partners who are on the liability side, want to see us as a principal lending partner, so having a skin in the game, having its own balance sheet, helps. And that’s why we have made an estimate of half and half.

Operator

Thank you. The next question is from the line of Mr. Manan Modi. With the transformation of Ugro to lending as a service model, do you see the partnerships and alliances piece going down?

Shachindra Nath — Vice Chairman and Managing Director

Answer is, no. Actually our aspiration is that we create a bridge. So on one side, and partnership-alliance is one of our channels. It’s a very good question. On one side, we have a large ecosystem of small FinTechs, small NBFCs, who otherwise can’t get access to a large bank. So today, on one side, we are doing co-lending with them. On the other side, our originated asset we are doing co-lending with banks. Our constant endeavor is through our experience our GRO Extreme platform and we would like to bring some of our large banks to become a direct co-lender to some of our partners, wherein we work as a bridge of providing technology, some form of credit enhancement and service that. So actually once, one of the such bank become a partner for our larger ecosystem. We think that over a period of time, our PLA partners would benefit from the co-lenders, which we are bringing on our platform.

Operator

Thank you. The next question is from the line of Chad. Instead of declining customers, who have less collateral, can we offer leading best practice to offer them smaller loans of different terms?

Unidentified Speaker —

So I think, so I think so — Amit and Anuj, I can answer. So look, see that — I think, so we don’t differentiate the customer when we are assessing them. So at that point of time, our GRO Score doesn’t differentiate whether the customer is bringing a property as a collateral, or a machine as a collateral, or is an unsecured loan, it says yes and no and categorize the customer in five different band. So to that extent, theoretically we can offer the same customer an unsecured loan, but the issue is about affordability. The customer who want to borrow against a collateral want a much longer-tenured loan, because that fits in their cash flow, and want a lower yield. So a customer, which is coming for a secured loan would not be satisfied with a very small unsecured loan, and also from a risk perspective, we offer up to INR3 crores in secured, but we offer, only up to INR25 lakhs in unsecured loan.

Amit, you want to add something that is our best.

Amit Gupta — Chief Financial Officer

No, absolutely, you’ve answered the questions, Shachin.

Operator

Thank you. The next question is, how many micro branches do we plan to open this year? How is the performance of the branches launched last year in terms of productivity and payback period?

Amit Gupta — Chief Financial Officer

Okay. I’ll take this question. So we launched — we opened about 70 odd branches in Q3 and Q4. As per our projections, we have a 12-month breakeven plan for each of these branches. By about — by the end of this quarter, the first set of branches have broken even, we will see all these branches at a breakeven and delivering high profitability by December.

Once proven, so while the first few branches have proven that they can be profitable in the first 12 months of launching, and so once proven, I think we will look at the next phase of expansion, depending upon how these branches behave and how early they break even. We will look at anywhere between 25 to 50 branches in this by this year end, possibly in quarter four.

Shachindra Nath — Vice Chairman and Managing Director

And overall, I think so for 2025 plan, in our identified five states Telangana, Tamil Nadu, Karnataka, Rajasthan and Gujarat, we have done massive data analytics of roughly around 3000 plus pincode, and this is a cluster approach and we believe that there are 200 AP clusters in these five states, where we would eventually would like to be present, purely from opportunity and credit quality perspective.

Operator

Thank you. The next question is co-lending is a space where banks have good cash and co-lender has good presence in areas where the bank is not present. But with Ugro, we have very few touch points, how can we benefit the most among competitors?

Shachindra Nath — Vice Chairman and Managing Director

So — I think so it is not a question of — it is not necessarily only physical touch point which matters. Over a period of time our touch point would also increase. But our origination and sourcing engine is multi-focused. So while our physical branch footprint in the top 25 location and what we call prime customer can — 40% to 50% of India’s MSME credit outstanding is within these 25 locations. So you can get as much volume as you want within that 25 locations. Our current 70 location actually they can — they are very — they are the first prominent point of credit origination purely from cluster corresponding cluster perspective, and that would continue to grow.

Third, we have a machinery financing business which actually doesn’t — not necessarily require every point physical presence, because of our source of origination is our OEM partners. Today, there are roughly around under 180 OEMs in India. We are live with a large number of them, and which is increasing, and as that increases, your customer origination keep increasing. Our supply chain financing business again is, you know, as you continue to increase the number of Anchors, the distribution channel, the distributor, the retailer; they can be anywhere, but the entire collection engine for that is driven digitally and that is also will go into co-lending.

Our P&A channel services almost the entire universe of India and their collection and infrastructure is being serviced by our partner, and we know whenever merchant financing platform would go live, you can be anywhere and we would be able to finance it, that would also go in co-lending. So I don’t think so that physical presence is any constraint. Our digital infrastructure — our partners’ infrastructure is what drive and propel our co-lending partnership and as well as our own balance sheet.

Operator

Thank you. The next question is from the line of Mr. Chinmay Bhargava. How soon do we expect to finalize a co-lending partnership with the private bank?

Chinmay Bhargava — Featurespace — Analyst

Thank you very much. We have — in the last week we have signed our first co-lending partnership with a private bank.

Operator

Thank you. Next question is from the line of Mr. Manan Modi. Regarding geographical expansion, are there any key states that might contribute to growth, especially West Bengal has seen some issues lately. Have you seen any stress in that state as well?

Shachindra Nath — Vice Chairman and Managing Director

This is a very interesting question. I think in our last Board meeting, our — some of our Independent Director raised this question and we presented the data to this Board. Anuj, you want to take this?

Anuj Pandey — Chief Risk Officer

Yes. So overall, where we are present currently and as Shachin was alluding, when we had selected sectors and we have been launched initially, we have mapped the sector concentration with the geographies where they were prominent. And we are — from our coverage perspective, we covered about 75% of total available target segment through our distribution network. Today, we are seeing healthy growth across all geographies. In certain sectors, owing to pandemic, we had deliberately slowed down, but a lot — but for other sectors and across all geographies, we are seeing a very, very healthy growth, in Kolkata too. Although in Kolkata we are present only in Kolkata city, and in our kind of target segment, where — with turnovers of businesses up to INR5 crores, we are not seeing any stress at all.

Operator

Thank you. Ladies and gentlemen, do we have any other questions?

Shachindra Nath — Vice Chairman and Managing Director

I think, that’s it.

Operator

Thank you. As there are no further questions from the participants, I would like to hand the conference over to Mr. Shachindra Nath for any closing comments.

Shachindra Nath — Vice Chairman and Managing Director

Yes. Thank you so much. Our endeavor had been over the last two quarters is to explain our business model. The evolving landscape of how data and digitization would transform the SME financing in India, while we know that this — from an outside, this seems to be a crowded space. People look at multiple number of NBFCs and I keep hearing this question, what is the core differentiation? We are trying to explain that differentiation. And we — I think so, we are gradually making the breakout of how multiple platform in the west has benefited, and how our customer can benefit from that.

From day one, while we have never done a formal IPO, but we started as a listed company raised all our capital in that in a hope that the broader public market would appreciate the business model. Because one of the thing which is actually, which is very unique that when we look at our peer-set, who are not listed, most of the investors who are putting in capital is in a very high threshold.

And eventually they come to the public market, and most of the public market investors are buying them very, very expensive versus we think that we showcase and opportunity to public market investor to benefit like a private equity investor of benefiting from our growth, quality of business, and huge infrastructure both digital technological, and also people infrastructure, which we have built.

Please feel free to ask any question, if you have. Nirav is here to support, and we will see you next quarter very soon. Thank you.

Operator

[Operator Closing Remarks]