Neogrowth looking to raise Rs 500 crore, eyes AUM of Rs 4,000 crore by March

Neogrowth is looking to raise funds

Neogrowth, a digital lender focused on micro, small, and medium enterprises (MSME), is looking to raise Rs 500-crore growth capital through private equity investment even as it is keeps options open for a strategic stake sale, managing director (MD) and chief executive officer (CEO) Arun Nayyar told Moneycontrol.

“We are looking to raise primary capital, IIFL is our banker and the primary capital can be raised through multiple ways, either through private equity, large buyout, or strategic acquisition. As a company we are open to all options to bring in growth capital for Neogrowth,” Nayyar said.

In January 2023, Neogrowth secured $ 10 million debt capital from US-based impact investor Microvest Capital Management. A year earlier, the company had raised Rs 300 crore in debt and equity from a clutch of investors.

Nayyar said the additional capital would be crucial to expand and grow the business as the lender aims to double its assets under management (AUM) to Rs 4,000 crore by March 2025.

In FY24, Neogrowth reported a gross revenue of Rs 601 crore, up 57 percent from the previous year.

Its profit before tax (PBT) rose to Rs 95 crore in FY24 from Rs 24 crore in the previous year. In FY24, it managed assets worth Rs 2,750 crore.

“We are close to (Rs) 700 crore of capital secured as of now and we will need another 500 crore, so we can double our balance sheet over the next three years and that is our thinking…We will scale up to Rs 4,000 crores of AUM by March 2025, we are presently at Rs 2,800 crores. We intend to close the round this financial year,” Nayyar said.

Path to profitability

The firm’s growth slowed after the coronavirus outbreak, which forced several MSMEs to shut shop. The firm reported a net loss of around Rs 39 crore in FY22 but turned profitable the next year. It reported a net profit of around Rs 17.5 crore in FY23. Neogrowth’s average ticket size is between Rs 15 lakh and Rs 20 lakh.

“We are looking at 35-40 percent CAGR in the next five years and we are well on track. We are in 30 cities and more there is more untapped opportunities. We will add more branches and expand further to sustain and grow our profitability. However, as this is a lending business, we need capital to grow further,” Nayyar said.

Founded in 2011 by finance industry veterans Dhruv Khaitan and Piyush Khaitan, Neogrowth serves MSMEs across 75 segments across 25 or more locations in India. As a new-age digital lender, the firm offers a daily repayment option to its customers with multi-channel repayment modes.

The firm is backed by investors such as Omidyar Network, Lightrock, Khosla Impact, Accion Frontier Inclusion Fund – Quona Capital, 360 One Asset, FMO, and Leapfrog Investments.

Speaking about IPO, Nayyar said the firm would likely enter the market over the next two years.

“What we have delivered on growth and profitability this year has given us confidence that Neogrowth is ready for an IPO in 18-24 months down the line. This round will be the larger round before the IPO. The next big raise will be through an IPO,” he said.