Ugro Capital Ltd (NSE: UGROCAP) Q3 2025 Earnings Call dated Jan. 27, 2025
Corporate Participants:
Shachindra Nath — Founder and Managing Director
Kishore Lodha — Chief Financial Officer
Anuj Pandey — Chief Risk Officer
Unidentified Speaker
Analysts:
Aman Vishwakarma — Analyst
Narendra Khuthia — Analyst
Avinash Singh — Analyst
Ganesh Nagarsekar — Analyst
Anil Tulsiram — Analyst
Amit Mehendale — Analyst
Unidentified Participant
Hari Prasad — Analyst
Meghna Luthra — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Eugro Capital Limited Q3 and Nine-Month FY ’25 Earnings Conference Call hosted by PhillipCapital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Aman Vishwakarma from PhillipCapital India Private Limited. Thank you, and over to you, sir.
Aman Vishwakarma — Analyst
Thank you. Good afternoon, everyone. On behalf of PhillipCapital Private Client Group, I welcome you all to the Q3 and nine months FY ’25 earnings conference call of Capital Limited. From the management, we have Mr., the Founder and Managing Director; Mr. Lodha, Chief Financial Officer; Mr. Anuj Pande, Chief Risk Officer; Mr. Amit Mande, Chief Business Officer; Mr. Sharad Agarwal, Chief Operating and Technology Officer. I now hand over the conference to Mr. Nath for his opening remarks, and we will then open the floor to question for the floor for the question-and-answer session. Over to you, Mr. Nath. Thank you.
Shachindra Nath — Founder and Managing Director
Thank you, Awan and PhillipCapital for hosting this call. Good afternoon, everyone. Thank you for joining us for Capital’s Q3 FY ’25 earnings call. The financial sector continues to experience significant regulatory changes and market challenges, particularly for NBFC and microfinance. Despite these headwinds, Capital has demonstrated resilience and continue to deliver strong performance, reinforcing — reinforcing our commitment to empower India’s MSME. We are proud to share that Capital’s asset under management reached a record INR11,067 crores, reflecting a robust 32% year-over-year growth. Our net disbursement hit an all-time high of INR2,098 crores, showcasing our operational strength and strategic focus. Our emerging market channels previously referred to as Max Micro branch network has been standout performance for this quarter. The renaming of this channel reflects our focus on differentiating ourselves from the microfinance business, which Euro Capital does not engage in. Instead, the emerging market channel focuses on addressing the credit need of MSE in smaller compounds and semi-urban markets, delivering a tailored solution to help these businesses thrive. This channel’s disbursement grew to INR543 crores compared to INR180 crores in the same quarter last year. This exceptional growth has been supported by additions of 74 new branches, taking our total to 224 branches across 11 states. However, while our performance remains strong, it is important to acknowledge that the realization of our 4% ROA target has been delayed due to lower volumes, primarily driven by slower liquidity environment. Despite this, we are actively expanding at a faster pace than before, enabling us to transition to higher-yielding portfolio more quickly. This strategic calibration will strengthen our profitability trajectory over the long-term. At the same time, the regulatory around unsecured loans have created a perception challenge for NDFC. While co-lending volumes have temporarily declined as banks have become cautious on business loan segments, hence the volume in this quarter dropped to INR372 crores from INR615 crores in the previous quarter. New growth capital’s unsecured loan portfolio remains well incurred as these loans are guaranteed under CGTMSE credit guarantee fund for fund the micro and small enterprises scheme, ensuring portfolio quality and reducing risk. We expect that most of the banks would restart the business loan segment in the current or ensuing quarter, which would bring back the volume of co-lending for new growth. In the interim, given expansion of our emerging market channels, expansion of our secured volumes are also growing, which would also compensate for a shortfall of unsecured in co-lending. Despite this, the broader market’s inability to differentiate MSME lending from personal and consumption loans has posted a temporary challenge. Despite these headwinds, Capital has maintained a stable GNPA ratio of 2.1% and net NPA of 1.5%, reflecting our disciplined underwriting practices and proactive risk management. On the funding side, we mobilized INR1,400 crores this quarter, underscoring the trust we have built with a diverse lender base. While we are navigating a slow liability environment, our cost of borrowings remained flat at 10.68%. We continue to believe that our rate of borrowing is higher than our market. However, given the volume of borrowings and RBI tightening on banks lending to NBFC, these have not come down as. We are taking active measures to optimize it further to improve net interest margin. We believe that continued scale of operation and good performance, our rate of borrowing would gradually start coming down as L bit at its lower pace. Looking-forward, our roadmap of achieving 4% ROA and 16% to 18% of sustainable ROE includes focusing on high-yield emerging market loans, expanding this segment allows us to cater run under MS&E semi-urban and rural market, delivering both impact and return, optimizing funding costs as our credit rating improved and our financial position strengthens, we see significant scope to reduce borrowing costs, leveraging economies of scale, our scalable infrastructure ensures that fixed costs remain efficient as AEM grows and accelerating portfolio recalibration by expanding faster and increasing the share of high-yield segment, we aim to drive profitability — profitable growth in the near-term. Additionally, our acquisition of My Sug Life, an embedded financing platform continues to progress well. My Sug Life’s AUM stand at INR302 crore as of December 2024 and it has served over 28,000 customers since we announced the acquisition through partnership with platforms like, Fino,, AirTel, Movie Quick, and we expect more partners to be onboarded in this quarter. With access to potential market of over 3 crore merchants, MSL is helping us address critical credit gap in the small retailer ecosystem. While NBFC and microfinance sectors face scrutiny, new growth capital remains uniquely positioned. Our focus on MSE financing, supported by strong risk management practices, our diversified portfolio and a strategic approach to growth ensures that we remain on a solid path of achieving our long-term goals. As we close quarter three FY ’25, Capital is well-positioned to deliver 30% AUM growth year-on-year, enabling across India to size. I extend my heartfelt gratitude to our team for their relentless dedication and to our investors for their trust in vision. Together, we are building a financial institution that not only delivers value, but also transforms the backbone of Indian economy into small businesses. Thank you, and I look-forward along with my team addressing all your questions. Aman, over to you.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question comes from the line of Narendra from RoboCapital. Please go ahead.
Narendra Khuthia
Hi, sir. Thanks for the opportunity. Am I audible? Yes. Yeah, yeah. Hi. So my first question is regarding the cost-to-income, right? We can see that this quarter it has ended-up. So was there any one-off in this or should we take this as the trend going ahead?
Shachindra Nath
Kishore, you want to take that? Briefly, as I said in my opening remarks, you know it’s continuously accelerating its branch infrastructure to grow because we believe that our wish to a high ROA is a function of how quickly we can expand to our emerging market channels. We have added 75 plus branches. As you know, good thing is that our first set of 25 and 75 branches took almost 18 months-to breakeven. Our — the newest set of our last 90 branches took only eight months. That gives us the confidence that we should continue to expand our branch infrastructure and some of the opex increase which you are seeing is just a sheer function of that. Vishur, if you want to add something?
Kishore Lodha
Yeah, that’s right, Rachin. So as we have now 214 micro branches in emerging markets. So this trend is not one-off, this is part of the plan and probably next few quarters, we may — as we expand our footprint in the emerging market, I just say trend may continue for few quarters.
Narendra Khuthia
Okay. So what could be the cost-to-income in that case for this year as well as next year, if you could throw some light.
Kishore Lodha
Yeah. So this year, we should then closer to 55% or 1% year-end year. And next year it will — it should go down depending upon how next three months pan-out as far as distribution is concerned, so we’ll reevaluate it in the month of March based on the distribution that how it will pan-out in the next year.
Narendra Khuthia
Okay. So this INR125 crores of operating expenses should continue for every quarter for the next two, 3/4 at least, right?
Kishore Lodha
Yes.
Narendra Khuthia
Yes. Okay. And my second question was regarding your secured, unsecured mix, right? So what is our mix between secured and unsecured? And in the secured segment, what would be our LTV?
Anuj Pandey
So I’ll take that. This is Anuj. So our broad intent is to keep secured, unsecured mix as around 30, 30 70 and within the unsecured loans also now 41% of our portfolio is covered under the central guarantee scheme. So — and we — and we started this exercise about 1.5 years back. So every new sourcing which we are doing for each quarter, we are covering it under the central guarantee scheme. So this is likely — and on an average on LTVs for secured loans, we are at around 55%.
Narendra Khuthia
Okay. So your secured would be 70% and unsecured 30%, right?
Kishore Lodha
Right.
Anuj Pandey
Yes.
Shachindra Nath
Yes. Okay. Understood. Is that what generally market unsecured to unsecured portfolio because it carried credit guarantee cover of which is called CGT and 75% of outstanding loan, the credit-loss on that is guaranteed by the coverage. Most of the market would not create that as unsecured, but we differentiate between collateralized loan and non-collateralized loans. So loans which doesn’t have any type of collateral constitute around 30-odd percent. But if you take the CGT MSP guarantee as a form of the security, then unsecured portion of our book is roughly around 18%.
Narendra Khuthia
Okay, understood. And going ahead, all the unsecured loans are going to get covered under the scheme, right?
Shachindra Nath
Yes. Try to take as much as coverage possible, we are — we have calibrated between the cost of the guarantee versus expected credit costs. And between the two, depending upon what the situation in the market is, we take the coverage.
Anuj Pandey
Understood. Understood. Got it. And in your opening remarks, you mentioned that the 4% ROA guidance has been delayed. So by when can we expect to reach that kind of a number, if you could throw some light?
Shachindra Nath
Yeah. So I think the way we are expanding, I think our capacity is now completely is getting built-out of — as you will see that in our disbursement number. Last quarter was also our highest quarter in form of a both AUM and gross disbursement. This quarter is both. We continue to believe that our capacity built-out is much larger than what we are seeing in form of the liquidity. I think so with the — that is — will get released now, given that the lower-growth which NBFCs are showing, bank finances NBFC would start reviving by even a quarter or little later than that. And also we don’t want to expand liability at an expensive cost. This guidance is keeping that in mind was to give confidence to people and our shareholders and investor fraternity that new continues to be on the path of its build-out. It is demonstrating both its capacity of origination, its infrastructure and credit costs and credit delivery. But if the liquidity remains little tighter or it is coming at an expensive pace, we just don’t want to chase assets at any cost and that’s why the guidance. I wish it’s very difficult to calibrate and give you a clear guidance of when it would be. I think so we are seeing around two to 3/4 of delay, what is what area we should have been versus what we are, it is shortly seeing at least a two to 3/4 delay.
Narendra Khuthia
Okay. So the main pain point is the cost of funds, is that right?
Shachindra Nath
And absolute liquidity which is available in the market for our size of NBFC.
Narendra Khuthia
Okay. Okay, understood. So the sourcing of funds is a pain point, right?
Shachindra Nath
No, so our last quarter was highest quarter in terms of overall borrowing. We bought — that was the largest quarter. But the capacity of the disbursement which we have built, if we have to match, our cost of borrowing would shoot up, which we don’t want. So we have to balance between the kind of growth which we can undertake given our infrastructure versus what we would like because ultimate final P&L is not only a function of just simple disbursement, it is also the cost of borrowing. So that’s why it is — since the bank’s overall market liquidity and risk perception around NBFC in general doesn’t change, I think it would remain little slower. It’s nothing to do with us. We are not in microfinance, we are not in some of the consumption led loan either we are in CL nor we do all of that. But overall when generally when RBI takes action on NBFC, general construction on NBFC is lower, it impacts every player in the market.
Narendra Khuthia
Yeah. Okay. Okay. Understood, sir. Thank you and all the best.
Operator
Thank you. [Operator Instructions] The next question comes from the line of Avinash Singh from Emkay Global Financial Services Limited. Please go-ahead.
Avinash Singh
Yeah, hi. Thank you for the opportunity. Two questions. The first one is on co-origination of CLM1, that CLM one or coordination has been kind of very, very weak for last four, five quarters. So what is sort of underlying region? Is there some kind of a discount for the banks have or something else playing out? So that’s one. And the second, if I come to this emerging market lab or a small-ticket lab, what is the typical, I mean, duration of these loans or this question I’m asking because if I see you know the quarterly disbursement and if I see the AUM accrual, up, the difference is to kind of awide and suggest that, okay, nearly every quarter, 20% 25% of the loan is being repaid. So because in this size ticket size, we would not expect much of a balanced transfer also. So what is happening here? I mean, like in particular, if I see this quarter in the emerging market lab, we have INR543 crores kind of a disbursement. But the AUM accrual is just like a 260, that suggests that okay, out of INR11 crores that was at September, nearly 25% has been paid-off in this quarter. So what’s happening here? It will be my. Thank you. Yeah. Anash, I’ll take the first question. I’ll just Amish take the second one. I’m just trying to see the data which you are seeing. On the first one with respect to co-origination. So as you know, just for the broader audience perspective, there are two-for-one, core origination as a term in our balance sheet of INR1,412-odd crores, this is largely our business loan being done with the larger NBFCs. And other form of co-lending and co-origination, what you can do with bank. Banks are typically continue to do co-lending, which is option two of co-lending, which is a keen to DA, which means we onboard the customer on our balance sheet and on T plus three of five days that goes into the co-lending and get trans — 80% of that loan get transferred to the bank and we get the refinancing against that. With respect to co-origination, earlier the business loan was as a segment was not being accepted within the bank because there was no credit guarantee. Once the credit guarantee came, all banks started doing co-lending on business loan and that’s why our volume and relation to most of the large NBFCs stopped and that volume moved to the bank. And that’s why there is a drop and that increased the co-lending volume for the bank per se. In last few quarters, what we have seen general disperception around so-called unsecured core lending volume in the banks have also now slowed down around — gone to all the banks and explained that unsecured consumption and PL is not an unsecured MSME loan because banks generally do unsecured. I think that most of the banks have understood, DFS has also taken a note of that and there are a lot of industry-wide consultation is happening and we expect that some of these banks would restart the business loan segment and one of the largest bank or large bank in the country is starting the business loan segment. So it would restart. So that’s broadly the color why you see drop-in co-origination happening because that volume got subsumed in banks. Bank’s volume has come down because they want to do only secured. But at both would pick-up, if we see a systematic change of banks not wanting to do unsecured or business loan segment, then we reinitiate you know, the co-lending coordination with other NBFC. Second part is, as Anuj said, we want to keep only 30% of our balance sheet at AUM level non-collateralized loan. Once we acquired Life, the volume delivery there on embedded financing, all of a sudden accelerated. So last quarter itself, we did INR300 odd crores and we were doing roughly around INR225 crore of business loans. Put together that would have become 50% of our disbursement volume. So we naturally brought down our business loan segment to now INR100 odd crores, so that on balanced on AUM basis, we continue to remain within 30%. The entire embedded financing fees, which is coming from our Fintech Life cannot be co-originated or co-lend because that are short tenor one-year loan to be repaid on a daily AMI basis through payment platform aggregation. So that’s why you will see over a period of time, business loan to remain mostly through embedded financing on-balance sheet and not go in co-lending format. We would replace that with more secure volume, which is now happening because of the land expansion. I hope we’ve explained the neutral picture. Anand, do you want to take the second one?
Anuj Pandey
Yes, I will take it. Hi, Avinash. So our average years in our emerging market, our product is about seven, eight years. But what is — what — what we have tried is also to introduce our Sanjivni bigger ticket loans in these markets. So what has — and that is why a little bit of confusion has happened in terms of AUM increase. So while in the — the investor deck, the emerging market lab product is — the product up to INR25 lakhs ticket size. So while we have done INR543 crores from the emerging market channel, some of it is larger tickets also, which is what we wanted to plan and that is a strategy because in Tier-3, Tier-4, Tier 5 towns, there is an opportunity to do slightly bigger tickets, there is lesser competition and we have the underwriting wherewithal to do that. So out of that 543 whatever is relevant for emerging market less than INR25 lakh, that is being reflected in the emerging market AUM, rest is in Sanjimi product AUM. So there is no gap and in the sense that whatever we disburse has not translated into AUM, it’s just that it is shown into two different products.
Shachindra Nath
Yeah, I think that we should change the…
Anuj Pandey
We’ll change that going-forward.
Avinash Singh
Okay, okay. Thank you.
Operator
Thank you. The next question comes from the line of Ganesh from Bharat Bet Research. Please go-ahead.
Ganesh Nagarsekar
Sir, my question is regarding our machinery loan segment. So we seem to be growing quite well in this segment and the broader asset quality for this is also quite positive. So broadly, going-forward, how are we looking at it in terms of the opportunities here? And is there a possibility of kind of expanding our presence in this segment further.
Shachindra Nath
So I’ll say that if Amit is on the call, we can also do that. Look, we continue to believe that productive asset financing, we call machinery as a productive asset. Our mainline lenders have not yet captured this opportunity fairly well. Our core of our underwriting is to do cash-flow analysis through our data analytics platform by analyzing the Banking and Bureau, create eligibility. Underlying collateral defines the tenure and the price. Now machinery, CNC printing packaging, plastic molding machine is a productive asset and have its own cash-flow. So when you add-in the cash assessment method, the cash-flow of the machinery, it becomes very viable product. It is a shorter turnover and a reasonable yield more or less at a secured yield and that’s why the portfolio has performed very well. We would like it to be expanded further. We’re doing average of around INR75 crore a month. Our target was to take it to INR150 odd crores. What we are seeing is that we have worked with roughly around 75 plus OEMs in India. What we have seen that expansion of the volume over here either would require expanding the ticket size or reducing the average cost of lending, both we don’t want to. And that’s why we are taking very deep calibrated efforts to gradually increase the size and deepen our penetration. We have taken two steps, one of which is successful and one of which is not so successful. In our intermediated prime channel, channel for the first time in India, we introduced machinery to all our intermediary partners we call DSAs and we have seen around INR25 crore INR30 crore of volume started happening there. It’s a new product, most of the DSAs in India either do unsecured loan or do MAP for them to do machinery was a new concept, but we marketed and they have now understood and we are looking reasonably successful there. We also have expanded our machinery product to all of our emerging market branches where we did not see so much of reasonable success because for our credit officer and credit fraternity to also learn because they have just learned from doing small-ticket lab to now big-ticket lab and now also graduate immediately to machinery was not very successful. We are making constant effort to monetize the entire branch channel and multichannel network to adapt machinery as a product. We are hoping that by end of this large quarter, the INR75 crores to INR80 crore of average volume hits from first milestone of 100 crores and next year we take it and stabilize it at around INR150 crores INR175 crores per month. So short answer is, this is extremely good product. We have seen its acceptability across all our co-lending partners with the bank. It is very good credit quality. It is reasonable yield and shorter tenure. We would like to expand it, but not on expand, not by increasing the ticket size or lowering the yield. So within the same band of 3.5 year of tenure and INR35 lakh is our average ticket size with an average yield of 14-odd, we will gradually increase it by expanding to our entire network.
Ganesh Nagarsekar
Understood. Got it, sir. And just the second question on — so on Slide 27, which is the gross core risk bank, over there, if you look at the risk ban B, the divergence between the disbursed and the non-disbursed defaults is quite high. So just wanted to check-in addition to this core, what is kind of driving the decision-making between disbursal and non-disbursal because that is quite a material gap that we’ve identified. So if you could just provide some color on that?
Shachindra Nath
Anuj?
Anuj Pandey
Yeah. So there are variety of other drivers. We don’t disburse a case unless we meet the customer. So we use as our primary filter and then other policy parameters, which would mean are doing reference checks of the customer or calculating his eligibility kind of property because property is not covered in the gross core, etc., are part of the other reject reasons. That is why — but the way the gap is, it actually tells us that the growth score is stacking quite well.
Ganesh Nagarsekar
Understood. Got it. Thanks a lot. That’s it from my side.
Operator
Thank you. The next question comes from the line of Anil Tulsiram from Value Edge. Please go-ahead.
Anil Tulsiram
Yeah. Thanks for the opportunity. My first question is on your emerging market loans, which is a small lap of 10 lakh to 15 lakhs. I think the most important thing here is collections and legal infrastructure. So can you elaborate how you are ensuring that now that our branches are expanding at a rapid pace for the last 18 months, we are ahead in forming correction infrastructure and the legal team?
Anuj Pandey
I will take that. So we have a very, very exhaustive collection and litigation infrastructure dedicated to emerging markets. So today, we have about 210 active branches and about 250 people in collections dedicated to these branches. The way this happens is a set of five branches are combined into a cluster and set of three to four clusters combined into a state and states combine into a region. For each of these, we have a collection fraternity and a collection supervising channel. Also for each set of five to 10 branches, we have a dedicated litigation domain expert who — whose only job is to execute the litigation orders which we get. So we are quite aware of this and have invested a lot on this.
Anil Tulsiram
Sure. Yeah, got it. And sir, the second question is on co-lending. So just give me one or two minutes to expire to explain the concerns. I’ve spoken to a few industry experts. And according to them, what’s happening in the industry, I’m talking about industry, not, proper risk-sharing is not happening in the co-lending industry, wherein the small players are being forced to replace the bad assets with good assets by the big banks. Secondly, banks are hesitant to enter into co-lending because of micro supervision by the RBI wherein for any default of even NBFC this year that they will be held responsible and they may face sanctions or other things. So — and you are part of this co-lending committee which has been formed. So what are the steps being taken for these concerns which is slowing down the industry growth?
Shachindra Nath
Yeah. So this would require — this would be a very long answer. I’ll try for the benefit, one-time try to summarize it. One number-one, I — banks and regulators both and especially the government of India, all of them are aligned to the fact that for priority sector lending, NFC are well-poised to demonstrate the credit or deseminate the credit and that’s why banks are eager to participate further. And there is no doubt about it. Second, the process of co-lending has become more robust as passing of the day. In fact, in last quarter, we took certain large number of public market invested to multiple banks to showcase how co-lending happens. Third, now within different banks, they also understand that the co-lending is more return accretive than their own direct channels because at average banking advanced yield is around 9.5%, return on asset is 1.5%. Even adjusted for credit cost, the co-lending actually delivered them superior return on asset. Last but not least, simply, mean, RBI said that unsecured business should be brought down, a lot of bank became downward and it’s gone slow on the unsecured piece of the co-lending, but they are coming back. We are understanding that unsecured business, which is 75% is credit guaranteed, is not an unsecured day-in their business are lending to MSME without any collateral in March. Last but not least, in terms of, there is and there are three types of NBFC which play the clear end-market. One, large AAA NBFCs and AA NBFC. Most of them are on-balance sheet leverage there because they continue to get liquidity at a cheaper cost and co-lending being very hard to execute, they don’t get interested. Some of them I won’t name on the conference call, but some of them started and then stopped because they found it very. Second is the, which is A-rated NBFC reversal, 5, 7, 6, seven of us which are in the A-rating universe continue to do fairly well when it comes to the co-lending and that’s why we have a very disproportionate market-share on co-lending — MSME co-lending side. Last but not least, there are large number of players which are in the range of say BBB-minus to BBB-plus, banks continue to find it very discomforting to do co-lending with very small NBFC doesn’t have power of the capital, they don’t have their own balance sheet rightfully or wrongfully, you know, ideally the bottom of the pyramid credit, which is done by these NBFC should be adopted by the bank, but it would happen only over a period of time. In summary, I think the co-lending, you know, and that is — I’m not at liberty to tell you what has been recommendation of the committee, which was set-up by DFS. But in summary, all of the recommendation and the consensus was co-lending is here to stay, it needs to be strengthened, the operational hassle need to be removed, more technology integration should be — should be done and there should be more support and more widespread adoption of co-lending should happen within the banks.
Anil Tulsiram
Thank you, sir. Thanks a lot. I’ll join back the queue. Thank you.
Operator
Thank you. The next question comes from the line of Amit from RoboCapital. Please go-ahead.
Amit Mehendale
Thanks for the opportunity. My first question is on the emerging markets brand channel. I just wanted to know like what is the — how is the typical branch? What is the size of the branch, how many employees are in the branch? And what type of AUM do we need to breakeven, what type of products are being done from the brands? You know, just some high-level overview of the branch network.
Shachindra Nath
Amit, are you on the part? Are you it up?
Amit Mehendale
Yes. This is Amit here. Can you guys hear me? Yes, yes, we can. So to your question, every branch today has a branch manager about six sales officers, a credit manager, operations manager and a collections manager. So it’s a typically 11 member branch and the collections guy comes in month two. So the overall operating cost of a branch is anywhere between depending upon the city, which also includes rentals and salaries and incentives is about INR4 lakh, INR4.5 lakh rupees of this is the monthly operating cost. So the moment our AUMs touch about INR5 crores, operationally the branch breakeven and would be accretive going-forward. So that’s the back of the thumb by unit dynamics for a branch. On the product. Okay go-ahead. I’ll cover.
Shachindra Nath
Sorry, I think most importantly, the emerging market channel, it requires a level of hierarchy. Every branch, five branches have a cluster credit and cluster sales or every set of few clusters have then regional geography and then it rolls into states and then it is divided into South and West. We are the only small-ticket lab business or emerging market business, which is pan-India. Most of our peers that are either our South focused or not focused. We are very prominently present in Tamilnadu, Telangana, Karnataka, Andra in South. And now we are very strongly present in originally in Rajasthan, Gujarat, and now we have expanded into UP, MP and Maharashtra. So we have invested both in the branch infrastructure and but also hierarchy infrastructure and we are using our learnings of our data technology and how data can be used to do credit. These branches as of today do small-ticket lab, which is up to INR25 lakh and select branches, roughly around 50% of our branches now we have trained them to do also larger ticket lab, up to INR1 crore, as a ticket science coming around INR40 lakh, INR50 lakh. Over a period of time while we have rolled-out both machinery and roofstop solar, we have not seen uptick because we have to train people to understand how to underwrite credit on solar and machine, but our eventual goal is also to do that. Last but not least, our channel infrastructure growth also helps us indirectly in two of our additional businesses. So for example, in our embedded financing business, wherein India’s largest payment platform are now aggregate — integrated with us through our fintech platform, Life, we have capacity to do merchant financing in almost 3,000 plus FinCo because of over 300 plus physical location. Same way, our partnership wherein we partner with smaller NBFC and fintech, there also we can underwrite loans into all the physical geography we are expanding. So there is a direct benefit to growth of expanding our branch network, but there is also an indirect benefit that some of our channel we can underwrite businesses where others can’t go because we don’t have that much of physical presence.
Amit Mehendale
Right, that’s great. So we are not doing any unsecured from the branches. Is my understanding correct?
Shachindra Nath
We are not. And that we believe that out of our total location, we have around 50 to 67 or 75 locations wherein there is a potential to do high-quality business loans. As you know, we have been doing business loan, which is under credit guarantee and we have done our volumes of around average of INR200 odd crores, which we have brought it down to INR100 crores. We are seeing the trend that between the two markets, prime market of 40, 50 cities in India and emerging market, the credit quality in emerging market is far superior. So we are doing a little bit of experiment of also doing business loan in some select branches where we see maturity of our credit clusters, credit fertility and sales fertility, but this would not be a mainstay of our business. Our mainstay of our emerging market business would continue to be secured LAP business.
Amit Mehendale
Right. And just a follow-up on that. So the business loans that we are doing, so those are from DSA in that case, right? Those are the DSA channel. Mostly business loans.
Shachindra Nath
Yes.
Amit Mehendale
So those would be — those would be what type — I mean, those would be working capital type of loans and what would be the end-use of those loans?
Unidentified Speaker
You’re right now, largely working capital or other business needs. These are short-term loans between 24 to 36 months and up to INR50 lakh. So you’re right, they are largely for working capital or inventory — inventory stocking up, etc.
Shachindra Nath
Yeah, right. And that’s where we are — let me move to the next question, but I would only ask you, sir, and also the broader market, you have to differentiate between unsecured loan to for a consumption, buying fresh TV scooter, our personal loan to invest, for example, in a cryptocurrency versus a business loan for a small-business, which is done on the basis of a cash-flow and guaranteed by. The entire focus of MSME financing in India, the government focus, the regulatory focus is to move MSMEs to cash flow-based underwriting. And most of these business loan which is done for short tenures are done through the lens of GSC, banking, cash-flow in the banking and completely automated and we have seen very steady credit cost of around 2.5% across our portfolio. But also we’ve given that they have no collateral, we keep this under control in terms of the total volume of our balance sheet.
Amit Mehendale
Yeah, that’s what I was trying to get to. Thanks for this. It was very useful. Thanks.
Operator
Thank you. The next question comes from the line of Kamal, an Individual Investor. Please go-ahead.
Unidentified Participant
Hi, thank you for taking my question. I’d like to hear a bit more about your long-term. I’m assuming that this is mainly data-driven lending. How central is technology to your data-driven lending? In other words, what would be the tangible impact to your AUM growth or to your NPAs if you completely removed technology-driven lending?
Shachindra Nath
The cost-income ratio would go up significantly and our credit cost would go up significantly. Our core belief that like it has happened in consumer financing space, if you look at pre-2008 of consumer financing and post-2008 of consumer financing, consumer financing in India expanded on the power of consumption given data demand. For employee population growing and your ability to do cash-flow underwriting basis euro score has not exploded the consumer financing market. We continue to believe the advent of the GST digitization of banking, maturity of bureau would continue to explore credit. It is not for the purpose of origination of the loan, but it is making our credit and sales fertility more productive and our credit costs more predictable. We cannot create its scale and size without continuously investing in our data analytics and our IT and technology infrastructure.
Unidentified Participant
Thank you. And just a quick follow-up, is that the only long-term moat that has or do you also seem to have different moats, which would be — which would differentiate you from other NBFCs of the kind?
Shachindra Nath
Yeah. Yeah. So I think within MSME space, number-one, we continue to believe that MSME market, you know, it gives a significant opportunity to create a very scaled business in India. Yeah, India’s credit market gap on MSME Finances is humongous. There has to be multiple players which has to step-up and there is the opportunity to build very scalable business. That is scalable business. Our continues to be to underwrite customer and understand the cash flows through the lens of data. Second, we are the only player in the country, which has a diversified asset channel and a focus on one customer segment, which is INR15 lakh to INR15 crore turnover, where we have the ability to do a loan of INR5 lakh to up to INR5 crores. We have the ability to understand multiple type of collater we do against the againstel against future property, industrial, commercial property, we do machinery, we do rooftop solar, we do embedded financing. So our distribution and its veracity is the second mode. And third is our liability in them, which is very diverse and deep. We are not just an on-balance sheet borrower, but we have ability to partner with very large banks and adjust our both distribution and credit to fit into that, that allows us to scale. So combination of these three is we think so it continues to be fairly unique or time would tell whether what scale, size, profitability and how we become the top run and we achieve across multiple product lines.
Unidentified Participant
Thank you very much. Thank you.
Operator
Thank you. The next question comes from the line of Rishi, an Individual Investor. Please go-ahead.
Unidentified Participant
Yeah, hi. Am I audible? Yes, Rishi. Please go-ahead you are. Yeah. So I just have a couple of questions. One on the CGTMSE scheme. So I’m not fully aware of what it covers and what it doesn’t cover. So earlier in the call, you mentioned that it covers 75% guarantee. So I just wanted to understand what is the G I mean GNPA that you currently have allocated to that means. Does that take into account the 75% or do you consider it as completely unsecured and you have a provisioned 3.8%, which is about INR120 crores. I think that’s about half of all the provisions that you currently have on the GNPA. So if you could just explain around that, it would be helpful.
Shachindra Nath
Thank you. Yeah. Anu, do you want to take that?
Anuj Pandey
Yeah, I’ll take it. So we have — so there actually a couple of schemes from the central government where SidB is the facilitator which are targeted to encourage sourcing too for micro and small customers. The most popular and the largest one is called CGT MSC, where we are also part of that. Now what it does is it arrives — it studies the portfolio of the company and it arrives at a premium amount and you pay that as an yearly premium for the portfolio which you cover, which is approximately 1% of the total portfolio size. And for the duration of the loan, you keep paying this premium. And whenever an NPA happens, you can raise a claim. Typically, the claim which you can do in a particular year is two times of the premium paid. So we have been the — a member of this and have been covering our unsecured loans for last 1.5 years every quarter through this scheme. Typic — what you see as NPA was — as a good accounting practice, we keep showing the account as a NPA till the time we receive the claim from CGTMSC. What policy does is it gives — it guarantees 75% of the principal outstanding. So for example, if INR100 of loan is covered and it is covered under the guarantee scheme, then at the end-of-the — after it becomes NPA and the — and the documentation and normal operational paperwork is completed, then INR75 rupees of that government reimburses as part of the plan. So till the time we get that, we continue to show that as an NPA.
Unidentified Participant
Understood. So a lot of — I mean a part of it is expected to roll-back into…
Anuj Pandey
But yeah, yes. Yes. I mean, by next — by next year.
Unidentified Participant
Understood. And one other thing that I wanted to ask, I mean, this is more from a global perspective of how you see the business evolving. So I understand that the intention is to grow AUM at about 30%, and I mean, in general, if the return-on-equity is our target return-on-equity, I think it’s about 18%. So any lending that you do above the 18% is going to come from additional equity raised unless you want to change the leverage, which I believe that at the two-year mark, which we’ve been talking about, where our current committed equity is about INR2,800 plus-minus net profit. It’s probably going to be about INR3,000 crores. And on-book AUM would be about roughly with the leverage probably about 12,000 and off-book at the current ratio should be about 9,000. So beyond the 21,000 AUM mark, if the company is still interested in sort of like building an AUM at 30% run-rate. If the market’s feedback on the share price is not commensurate with the ROE and the ROA, will the company consider only growing at the return-on-equity rate. So I hope the question is clear because my question is basically…
Shachindra Nath
Sir, your question is very clear. All lending tuition, can I accept few deep south of the three South player except one most of the lending and banks, one of the reasons why RBI guide banks to not grow beyond 15% because RBI wants banks to grow lower than their ROE performance so that they are not stuck in the incremental capital requirement and they grow-out of their retained earnings. Most of the NBFCs, including the biggest one in India, grow at a rate higher than ROE performance. The only caveat being there is equity market give them a pricing power, which allows them to dilute further and which is accretive to the shareholder. If we continue to perform the way we are performing, which means on all metrics, I mean we deliver, but it does not get reflected into the share price, then which is something which is beyond our control, we would have no choice but to go at a lower pace because we cannot grow at 30% because we would need more capital and no capital cannot come when your share price performance is not there and your existing shareholders would not allow you to value further. So I hope the answer is right. We are hopeful that would not remain the case because there is no logical answer why a company — we continue to believe that this is just an adverse market cycle wherein all of the investors are coloring all NBFC in one brush and that’s why not rewarding NBFC which are different than microfinance and some other players in the market. But as the things get normalized curve, it should get — pricing should get normalized and allow us to raise more capital rated much better pricing than what than what it is today.
Unidentified Participant
No, absolutely, Mr. I think I understand that point because I mean, I just wanted to understand that whether the management was on the same page because other companies that have invested in the — the management worries more about the business. Here I understand that you hold a substantial part of your net-worth in the company. So I’m expecting that will be shareholder-friendly as well. And then a further question is just on the portfolio makeup. So the diversification based on the different secured and the different products that we have has obviously given us a much better profile in terms of risk when we see the microfinance institutions showing better ROE, but huge provisions these past few quarters. So — but on a global front, it looks like the company is more like an index of individually concentrated NBFCs. Would that be right to say? You are up?
Shachindra Nath
Yeah. So I think the way we should look we are your analysis is quite correct. I think within NFC space, there are four different type of diverse offering with different NBFCs provide for and we are in aggregation of all four for reasons which explained by me earlier. So there is a prime business channel which actually play — big players which are AAA NBFC undertake. There is an emerging market business with three or four listed NBFC undertake. We are little upper ticket size, there is a machinery and productive asset business, there are two, three players in that. And there is a high fintech orientation on our embedded financing platform. We have aggregated these four businesses as one company because we think that over a longer period of time, to serve our customers, this is the best way to do it. And over — at its scale, all of these have a point of confidence and you can benefit from each other channel very well. And also it reduces the risk to some extent while giving you the operating leverage. So you’ve got it very right. I think we continue to believe that we have…
Unidentified Participant
My own concern is that very long-time. Yeah, my only concern is that it takes a very long-time to understand this and I hope the market understands and appreciates the company. I mean, it’s very similar to HDFC Bank as opposed to commercial banks or only retail banks. I mean, so it’s a great model, but I hope you know, in the long-run, the market appreciates that. Thank you very much.
Shachindra Nath
Okay. Sir, I can only say that we are — we are constantly trying to explain, we have failed in that to some extent. We will develop on our effort to convince people of what we are doing is best for creation of an institution and hope that I think once the operation in-market goes away and people look at it on a normalized curve, they should bounce-back very quickly.
Operator
Thank you. The next question comes from the line of Hari Prasad from Claypond Capital. Please go-ahead.
Hari Prasad
I just wanted to check what would be the branch level profitability that we are talking about given that we’ve incurred significant opex on the back of new branch addition? And could you give us some guidance on the profitability going-forward as well?
Shachindra Nath
Yeah. We do it quite quickly actually. So obviously, those opex are all-in the numbers which you’re seeing. For our emerging market branch, a branch at a gross disbursement of a monthly volume of INR1 crore and an AUM of INR5 crore not only breaks even but becomes fairly positively ROA accretive. Out of our total block, we have 90 branches, which are new branches and come in last few quarters are yet to reach that mark. Our rest of our branches are in the positive territory while we are adding 100 more branches. So over a period of stabilize at 400 odd locations. So I think so in 3/4 from now, all of our locations would be positive accretive. And then we will take a halt and we’ll make sure that the end result of all 400 location comes into the positive territory. Now we can take that and give you some more color on this on a separate call if required.
Hari Prasad
And can you help us sort of understand a little bit more or can you share some commentary on the other businesses as well, which have gone from INR38 crores in Q3 ’24 to approximately INR59 crores in Q3 ’25?
Shachindra Nath
Sorry, I didn’t get the question. Anand, if you’ve got the question, if you can take that?
Anuj Pandey
Hello, I also missed that. Can you please repeat?
Hari Prasad
I think just wanted to understand other expenses as well in the P&L, which have gone from INR38 crores same quarter last year INR59 crores this year. Is it all related to branch or are there other expenses as well, which are…
Kishore Lodha
I will take it. This is Kishore Lodha. So there are three components to it. One is purely a function of a higher disbursement. So there are certain costs which come along with the disbursement. With the increase in disbursement, the costs come. So that is one part of it. Second part of this expense would be GHT expenses because as an NBFC as the business grows and we are supposed to get only 9% of the input, create 50% of the input rate and 50% is charged up to the P&L. So second some portion of it is belongs to that as well. Third component is that as we are talking about a lot in CGTMA, it costs us 1% of the portfolio secured and we write it off over a period of 12 months because the coverage is for 12 months. So the third component, which is — which is related to CGTMAC cost. And fourth one is the inflation where when normally all costs are getting inflated to the extent of normal market, 6%, 7% inflation. And fifth one is the branch expansion. So all put together I think INR38 crore has become INR58 crores. It is not a function of one of these.
Hari Prasad
Got it. Thank you.
Operator
Thank you. The next question comes from the line of Megna from InCred Equities. Please go-ahead.
Meghna Luthra
Hi, thank you. I have a couple of questions. One is on the apologies not…
Shachindra Nath
Sorry, we can’t hear you. Can you be more closer to the mic, please?
Meghna Luthra
Yes. Is this better?
Shachindra Nath
Yes.
Meghna Luthra
Yes. I had a question on the yield. The net yield and the gross yield, the difference between the two and the movement in the quarter?
Shachindra Nath
Sorry, what is your question? Kishore, did you get that?
Kishore Lodha
Yeah. So Megna, if you look at the yield, it is — it remained flattish to 16.7% and this quarter there isn’t some uptick on the gross yield, which is 18.2%. It is largely because some Ranuj has explained earlier that we have partnered on some embedded finance side this time where the gross rates are higher, but our margins would be — so to the extent we have agreed with the partner, so the divergence is on account of that. While we have been talking about that our emerging market portfolio is expanding, which is higher-yielding. However, there has been some competitive pressures on the other channels, especially on the larger ticket lap and machinery financing where some pressure has been on pricing. That is why despite emerging market going there for this overall yield remain flattish for one or two quarters. However, as the mix would go up significantly from the emerging market, this trend will change and the interest-rate is likely to go up.
Meghna Luthra
Okay, great. That’s very helpful. Just one more question is on the yield. The net yield would be net of — what is the difference between…
Kishore Lodha
Rate of the partner share. So wherever we have partners who are originating for us, some portion of the yield they would take-away. So some NBFCs, smaller NBFCs are originating for us. Similarly in embedded partner finance, there are partners like, and others, Mishow, etc., would be originating for us and they would be taking a share of the yield as part of the arragment. Hence the — so whatever is going to the partner is the difference between the gross build and the net-debt?
Meghna Luthra
Got it. That’s very helpful. And I had two more questions. One is on a broader segment, are you seeing any asset quality stress coming up in any segment or is it stable? And the second question I had is on the other opex, as you mentioned, do you see the current run-rate to be carried forward for the next few quarters at INR48 crores or should it move?
Anuj Pandey
So on the asset side, from early portfolio indicators, there is nothing specific which we have seen. But from our acquisition engine, we do see a little more on decline by machine, primarily owing to our customers bureaus getting stressed, getting a little bit of over leverage and the turnovers are dipping. But those have not yet reflected on the portfolio and I don’t think they will get reflected. But from our acquisition perspective, approval rates will go down a little.
Meghna Luthra
Okay. Okay, that’s very helpful. Thank you.
Operator
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Aman Vishwakarma for his closing comments. Thank you.
Aman Vishwakarma
Thank you. On behalf of PhillipCapital Private Land Group, we thank all the participants for your valuable time and especially the entire team of Capital for letting us host this call. And for the closing comments, I’d now hand the call over to the management. Over to you, sir. Thank you.
Shachindra Nath
Sorry, I was on-mute. I was saying thank you so much for everyone attending this call. Our team of Head of Investor Relations at and her team would be very happy to answer any further questions. Thanks Philip Capital for hosting this call. Have a very good day. Thank you.
Operator
[Operator Closing Remarks]