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Madhya Bharat Agro Products Ltd

| Q4 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤22nd Apr 26

Summary : SG Finserve reported strong FY26 results, driven by supply chain finance, with ambitious AUM growth targets and a conservative, nil-NPA strategy.

Management Perspective positive : Management highlighted 'excellent' financial performance for FY26.Expressed confidence in 'humongous' growth space for supply chain finance.Stated 'under-committing, over-delivering' suits their business best.Reiterated commitment to 'conservative lender' philosophy and nil NPAs.

Concall Report Analysis & Insights

Business Overview

  1. Operating income reached INR 334 crores, a 96% year-on-year growth.
  2. Loan Book achieved INR 3,936 crores, growing 75% year-on-year.
  3. Profit after tax was INR 128 crores, a 58% year-on-year increase.
  4. Q4 PAT was INR 42 crores, representing 30% sequential growth.
  5. Core business is supply chain finance, comprising over three-fourths of operations.
  6. Factoring business was commercialized in March, contributing to growth.
  7. Gross disbursements for the full year exceeded INR 25,000 crores.

Future Growth Prospects

  1. AUM growth guidance is 25-30% for the medium to long term.
  2. Aspiration for FY27 AUM growth is set at 35-40%.
  3. Target AUM of INR 10,000 crores in 3-4 years without fresh equity.
  4. Expanding into Tier 2 dealer financing and deep tier financing segments.
  5. Factoring business is expected to continue its growth trajectory.
  6. Will continue onboarding new anchors and entering new industries.

Management Insights

  1. Financial performance for FY26 has been excellent across all metrics.
  2. Our core business, supply chain finance, has inherent strength and stability.
  3. We maintain a simple, conservative approach to lending and operations.
  4. Our philosophy is to avoid any loss, even a single rupee, in the market.
  5. We aim for conservative guidance and over-delivering on our commitments.

Signs of Skepticism

  1. Analyst questioned if steel price increases contributed to AUM growth.
  2. Analyst suggested the 35% growth target might be too low.
  3. Analyst sought clarification on the significant jump in Q4 fee income.

Risk Factors

  1. Potential stress due to ongoing geopolitical issues is being monitored.
  2. Vigilance is required for indirect impacts of geopolitical situations.

Good To Know

  1. Company operates in auto, steel, construction, white goods, and IT peripherals.
  2. Business is 100% domestic, with no import-export financing activities.
  3. Average ticket size per borrower is approximately INR 5 crores.
  4. Currently serves 30 pan-India locations, covering a 100 km radius from hubs.
  5. Holds INR 18 crores in provisions for expected credit loss on its balance sheet.

Key Drivers

  1. Strong financial performance.
  2. Conservative lending strategy.
  3. Significant market opportunity.
  4. Expanding product offerings.

Key Analyst Discussions

Competitive Environment

  1. Competitors include private banks and NBFCs with AUM of INR 10,000-15,000 crores.
  2. Believes in co-existence, as there is enough market space for all players.
  3. The overall supply chain finance market size is estimated over INR 1 lakh crore.

Market Trends & Consumer Behavior

  1. No direct impact from geopolitical situations, but the company remains vigilant.
  2. No stress observed in top sectors, but geopolitical vigilance continues.
  3. Impact of steel imports on domestic manufacturers is evolving, potentially positive.

Financial Highlights

  1. ROA breakdown: NII ~7% of AUM, total income ~7.5%, Cost to Income <15%, ROA 4.8%.
  2. Last year's ROA appeared high due to virtually zero leverage for six months.
  3. Current leverage is 1.9x, with a comfortable range of 2x-3x over 2-3 years.
  4. Q4 fee income jump resulted from a strategic focus on fee generation.
  5. Average AUM for Q4 was INR 3,265 crore.

Product Composition

  1. Beyond supply chain, cross-sells working capital and business loans for expansion.
  2. Expanding into Tier 1, Tier 2, and deep tier dealer financing, plus factoring.
  3. Industry focus includes auto, steel, construction, white goods, and IT peripherals.

Strategic Considerations

  1. Nil NPAs maintained through tripartite relationships, monitored end-use, and early warning systems.
  2. Company's DNA is business financing; no plans to enter retail consumer finance.
  3. Additional AUM will be funded through existing bank lines and leverage headroom.
Madhya Bharat Agro Products Ltd (MBAPL) Concall Report Analysis & Insights | Dhanarthi