Excellent call on OFSS. What have been the recent triggers behind improved financial performance and arre the se nos sustainable ?

Moneybox finance – Business Overview

• Founded in 2018 by Deepak Aggarwal and Mayur Modi, Moneyboxx Finance is a listed NBFC that offers unsecured and secured credit to underserved micro enterprises
• Company disburses loans in the range of INR 70,000 to 3 Lakhs in unsecured loans and 2-10 Lakh in secured with tenures ranging from one year to seven years in Tier 3 and below locations (rural/semi-rural/semi-urban).
  – The key area catered by them is diary. Unlike other finance companies which go by cluster based approach, Moneyboxx is going after essential based approach which helps in protecting in credit cycles.
  – Diary customer is one with 5 min. livestock and agriculture land. Which gives 2 streams of income. Diary forms 60% of portfolio. Diary is followed by Kirana which comprises 10% of portfolio. They have veterinary doctors in their payroll.
  – Opportunity size in 1-10 Lakh loans is 22L Cr. The size in organized in 2L Cr. Alternatively, livestock accounts for 7% of GDP which is 15L Cr. Using both methods of estimation, opportunity size is huge. Kirana is double the size.
  – There are 250 NBFC/MFIs which give loans to 8-10 with a ticket size upto 50k INR. This is a 3 lakh industry running since last 2 decades.
  – Moneyboxx wants to address the ticket size above 50k INR. Tenure is upto 2-3 years in case of unsecured and 4-7 years in case of secured.
  – The loan target group don’t have ITRs/GST history/Banking history.
  – Earlier they were primarily into unsecured loans. Over time, as cost of borrowing started coming down, they moved to secured lending as well. In Q4FY23, 6% of disbursement is in secured and in Q2FY24, 22% of disbursement is secured.
  – The model has higher opex in the beginning and it comes down over a period of time.
• This is a branch led model with 100% digital processes where loan officers are hired for the branch and try to source loans in nearby villages. They will be visiting the locations physically to onboard and collect money.
  – The Loan Relationship Manager (LRM) who disposes the loan is responsible for the collection as well.
  – The incentive structures – bonuses etc,. – are directly tied to the asset quality.
• Cumulative disbursements of 917 Cr with 536 Cr Outstanding AUM out of which 17% of outstanding loan book is secured. 64% of the lending is on-book while rest of it is managed.

Progress

• Branch footprint – Grew from 11 branches/4 states in Mar’20 to 86 branches/8 states in Dec ’23. No state has more than 26% AUM. In case of larger players like Finova, Sarvagram, Five Star, Veritas top 3 states form 85% of portfolio (mangement’s words).

  

• Average AUM per branch goes up as the branch ages. A branch reaches its near peak potential as it reaches 2-3 years of age.

  

  – 27.1% loans are from repeat customers
  – An average branch takes 2.5 Cr AUM and 6 months to break even.
  – There are branches which did 10% PBT at 11-12 CR AUM.

• AUM/branch (aged > 2 years) grew by 44% YoY.

  

• Lending Partnerships – working with 30 lenders including 9 banks. Testament to their underwriting to be able to work with many reputed lenders.

  

• They’ve a co-lending/BC line of 35 Cr per month from Vivriti Capital, MAS and Utkarsh SFB

• Improving Spread – Spread improved by 3% due to increased lending IRRs and reduced borrowing costs. Incremental borrowing cost is 12.48%. 32% yield in unsecured and 24-25% in secured.

  

• Asset quality – Credit costs are in the range of 1.28% to 2%. Reasonable for 13-16% interest spread.

  

  – management is guiding 1.5-2% credit costs in unsecured loans and ~1% in secured loans.
  – lead generation to asset quality ratio is in the tune of 13-14%

• Equity capital – Company has raised a cumulative 174 Cr equity capital from March ’19 to Dec ’23 out of which 99 Cr raised in this financial year.

  

  – equity capital helps with new branch initial capex/opex till branch becomes profitable, FLDG and to maintain debt/equity ratio.
  – Covenants from lenders allow them to do 750 Cr AUM on 100 Cr Equity. However, they’d like to do 500 Cr AUM for 100 Cr equity so that debt/equity stays at 4:1
  – To hit the target of 6850 Cr by FY28, management assumes 1500 Cr equity is needed. From the current levels of 175 Cr networth, 800 Cr could come from additional equity in next 4 years and remaining from profits.

• Aided by increasing margins, average age of branches, company became profitable in FY24 demonstrating increasing ROEs YOY

  
  

  – management is guiding double digit ROE soon.

• Currently rated at IND BBB- (Positive). FY24 is turning out to be a profitable year and company subsequently raised 75 Cr. Could result in ratings improvement. In case of NBFCs, better ratings help in negotiating better interest rates.

Ambitious Targets

• FY24 – 800 Cr AUM/100 branches.
• FY25 – 1600 Cr AUM – presence in 3 additional states – karnataka, telangana and tamil nadu. Expecting to cross 15% ROE. With secured loans, AUM goes up quickly as loan sizes are bigger.
• FY 28 – Long term AUM Target of 6485 Cr (20x AUM growth), 400+ branches (6x growth)

Cons/risks –

• Higher valuation – At a CMP of 277.5, Company is richly valued @ 5.26 times book (Book Value Per Share = 53.86).

• Political risk – during elections, loan waivers result in NPA spikes.

• Competitors: Five Star Finance, Finova and Aye Finance, Vistaar, Veritas, Sarvagram (Gujarat,Maharashtra) etc,.

Conclusion: It is easy to give loans. To grow reasonably well, one has to maintain good asset quality over long period of time. In India, there is huge underserved opportunity beyond banks. However, maintaining asset quality is important. Company is at an inflection point with reducing interest rates => Increasing yields and moving to secured portfolio => reduces credit costs.

Disclosure: Interested. No position yet.

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Sources:

1. Lendingtech Startup Moneyboxx Finance To Raise INR 75 Cr
2. Q3 FY24 Investor Presentation
3. Moneyboxx Finance Ltd financial results and price chart – Screener
4. Nov 2023 Earnings Transcript
5. Ratings – Sep 2023

HCC earnings call recording – https://hccindia.com/uploads/reports/Analyst-Meet-Recording-Q3-FY24.mp3

My short summary
Q3 FY24 Revenues up ~8%, EBITDA margin at 12.4% slightly down, standalone and consolidated PAT up (from standalone losses in FY23). Bids worth 7000 crores submitted, and pipeline of 46000 crores in future bidding (in the next 3-12 months. A good part of it seems to be in hydro and pump storage, but medium term expect to more in the transportation segment – railways, tunnels etc. with the odd hydro project. Nothing mentioned about nuclear except that they were clear they won’t focus on nuclear projects opportunities outside India). Mumbai Coastal Road – first large-scale monopile project in India.

Money from Steiner AG sale (partly used to fund Steiner – seemed vague, partly to return capital to HCC for growth, not for debt). One can potentially expect to see either exit or dilution of Steiner AG development business too in the next few quarters (my inference from the answer to one of the questions). Larger fund raising planned in a couple of quarters – to support growth and strengthen balance sheet with more liquidity (rights issue, expecting approval soon).

Current execution run rate of about Rs.1200 crores per quarter. Looking for average size of projects only around 1000-1500 crores, with some projects of over Rs 2000-3000 crores. Lumpiness expected because of fewer projects that are more material in size.

Debt – OCDs outstanding of Rs.2000 crores (annual repayment on or before 31st March each year, i.e. bullet payments; repayment of 340 crores this March which will reduce debt further. Net debt reduction by about 100 crores in FY24). Weighted avg interest rate of 11% on debt. Interest cost going forward expected to be around Rs.400-450 crores in FY25 (reduced by half from past – not sure if it’s FY23 or FY24). Will focus on refinancing debt after building order backlog and cash flow improves. Will try to prepay debt as arbitration awards come in. Arbitration awards – for 4-5 awards, trying to settle via Vivaad se Vishwaas scheme, but for bulk of awards, not opting for it as it’s financially unattractive.

Land parcels worth 50 acres (Navi mumbai, Thane, Mumbai etc.) – indicated they will disclose more details next time.

I think it will be interesting to see how much of that 46000 crore in pipeline translates into wins. They haven’t won anything in 6 months (also because they have bid very little), but these projects are in their areas of strength, so a good win rate here is important.

Question – Can anyone share some perspective on how rights issue tend to get priced? I mean it will be at a good discount for sure, but I don’t know much about how the pricing is arrived at. Would love to understand better.

Disclosure: I trimmed ~20% of my position last month. I am optimistic about the company but with the upcoming dilution, uncertainty of order wins, possibility of having to raise debt again (never know what can go wrong), and heavy reliance on government projects, it is still a risky investment proposition.

relying solely on order book investing can lead you to ignore efficiency of the business and therefore its results

you should diversify into other themes as well to reduce/mitigate the risk factor

manufacturing is not the only theme that govt is interested in

im sure youll find more option to consider investing in

thank you

I don’t think there are any comparable listed competitors.
The management gave KPIT as one of the peers. But, it’d be futile to take it as a fair comparison.

Valuation wise we may value them on par smallcap IT cos. But, the growth rate has been good with operating leverage playing and would do so in future. So, may be 20-30x P/ E depending on general market conditions.