Frankly, I am also rather apprehensive about this decision. Nevertheless, let’s take a step back and impartially assess the situation.
- Fraud, Is it Gensol in making??
64% of the company is owned by institutional investors and they all have appointed a nominee director on the board. Additionally, the current set of board members are the best in the fraternity and that was one of my primary reason behind investing in this company. Ugro in my opinion is the perfect example of best in class corporate governance. It’s a professionally managed company and not promoter driven. In such companies, PE players have huge oversight on the governance and it’s nearly impossible to carry out a corporate fraud. So, let’s not in frustration make the situation look filthy, It’s not. - Then what is the problem, there has to be one?? Truth be told, I am also regularly assessing my investment decision as I have allocated a significant portion of my portfolio to this counter. There are following issues as per my own understanding:
- Market as well as investors are literally bleeding because of sky rocketing NPAs in MFIs and in many other banks and NBFCs. Nobody has any whatsoever interest in investing in small NBFCs, not even in efficiently managed likes of UGRO. I can hardly pin point any NBFCs that have investors attention as we are talking. That could also be the reason why the investors who got warrant issued are now backing out. I don’t blame them, it’s the capitalist world we are leaving, I may have also done the same. Why does anyone want to pay 30% premium. In the market you either pay a premium for stability that you basically pay for consumer staple companies or you pay a risk premium. In the case of UGRO, investors need an allocation at low price, basically asking for risk premium as nobody right now wants to get their hands dirty (
) in the small NBFCs. - Does this mean the company is fraud or going to report high NPA numbers? I don’t think so, considering the corporate governance standard I am banking on. The company is still able to raise very high credit from institutions for forward lending. This wouldn’t be possible, if the company were of low quality.
- The current P/B value is actually 1 as the current book value per share (BVPS) should be somewhere around 190INR. The current BVPS of 200 as shown in screener is not including some 93lacs CCDs that shall be converted into shares as the money has already been received as of last year. Raising money at P/B of 1 is really fine for NBFCs that are in the nascent stage or also please consider the current Macro environment. For us investors, this is quite bad but the company along with us are the slaves of macro environment. Not every NBFC has a reputation of Bajaj finance who was able to raise a billion dollar just before the macro sentiment wet out of whack.
- Personally, I am of the opinion that the company has a very good future ahead, we just need to stay afloat during this turbulent time. The risk premium of P/B=1 could become a stability premium of let’s say P/B=3 once the company (as per plan) reports ROA of 4%.
Note: I do not know why the company is raising money. If I were to second guess, it would be for equity capital raise and not for acquisition.
Disc: Invested, Biased