Results are good, given the market. At PB of 1 Ugro is attractive. I just don’t like management boosting. I hope they give a honest picture of their ROA-4 plans. I am not sure they are even moving in that direction.
Disc: Invested.
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Guidance for FY26:
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AUM Growth: Projected at approximately ~30% year-over-year. This significant expansion is indicative of robust demand for Ugro Capital’s services and a strong market position in MSME financing. The growth underscores the company’s capability to scale operations efficiently.
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ROE: Expected to soar above 18% from the current ~8%. This leap suggests enhanced profitability and operational efficiency, potentially attracting more investors looking for high return on equity.
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ROA: Anticipated to reach ~4% from the current ~2%. This improvement in return on assets signals better asset management and profitability per unit of asset, making Ugro Capital an attractive investment in terms of asset utilization.
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Leverage: The leverage ratio is expected to increase to 4x-5x from ~3.5x, indicating Ugro’s strategic move to leverage more debt to fuel growth while maintaining a healthy balance sheet. This could lead to higher returns if managed well.
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Credit Cost: Projected to be between 0.8-1%, demonstrating effective risk management and potentially lower provisions for bad loans, which enhances the bottom line.
Hypothesis on Valuation Rerating:
If Ugro Capital achieves its FY26 guidance, particularly the ROA at 4%, there’s a strong case for a rerating in its stock valuation. Here’s how:
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Price to Book (P/B) Ratio: Currently, Ugro Capital’s P/B ratio might not reflect its potential due to the lower ROE and ROA. However, with the ROA projected to double, this could lead to a significant rerating. If the market starts pricing Ugro Capital at a P/B ratio of 4, akin to high-growth financial institutions, it would reflect:
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A recognition of its asset quality and profitability.
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Confidence in management’s ability to execute their growth and efficiency strategy.
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An acknowledgment of the company’s niche in the high-demand MSME sector, which is less volatile than consumer lending.
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Market Sentiment: The substantial growth in AUM and profitability metrics could change market perception from seeing Ugro as a mere MSME lender to a growth-oriented financial institution. This shift could attract both value and growth investors, pushing up demand for the stock.
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Comparison with Peers: If Ugro’s metrics outperform those of its peers, particularly in ROE and ROA, it might command a premium valuation. A P/B ratio of 4 would not be out of place if its financial health and growth trajectory outstrip industry standards.
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Risk Management: Low credit costs suggest a robust risk management framework, which could further justify a higher valuation as it implies a lower risk profile.
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Potential Catalysts:
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Expansion into new sectors or regions could further bolster growth prospects.
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Strategic alliances or acquisitions like the one with MyShubhLife could open new revenue channels and improve market penetration.
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In conclusion, if Ugro Capital meets or exceeds its FY26 guidance, the market’s perception could shift, leading to a revaluation of the company’s stock. A P/B ratio of 4, while optimistic, would align Ugro Capital with leaders in the NBFC space that demonstrate similar or superior financial performance metrics. This scenario would not only reflect its current state but also its potential for future growth and profitability.
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" if Ugro Capital meets or exceeds its FY26 guidance", this is a big IF.
There is expectation build-up that happens for so long. Cost to Income Ratio has gone up this quarter, and they are targeting 200 branches by FY 26 end, which means CI Ratio won’t come down drastically. Management has drawn how they can achieve their target, but I am also curious as to what excuse they are going to say, if not achieved.
Till they reach the branch expansion to reach desired level and let the branches consolidate, atleast the CI part won’t come down.
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I agree, time for management to prioritize actions and talk less and get focused. I believe they set lofty goals on their guidance, ROE and ROA which are harder and markets would measure them on.
Disc: Invested at higher price point.
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I am considering interest rate cut cycle, once it starts things will start to change
In 9months, timeline has been relaxed [refer star 1 and 2 comments]. Hence, they are now aspirational goals and no more milestones to achieve by FY26.
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Credit cost is projected to be around 2%. Please check!
Whatever all the members have been saying does make sense, and there is no doubt about that. Nevertheless, we have to be really mindful of the situation we are in. High-interest cycle for many quarters now, bank lending to NBFCs has literally come down (baring lending to AAA or corporate driven NBFCs), exorbitant level of delinquencies in the system, and believe me, not a single institution is unaffected by this, including the giant Bajaj Finance.
Look at what is happening with all the MFIs including the banks that have high MFI exposure, such as Indusind and IDFC bank, also look at the numbers of industry leader Credit access who posted losses in this quarter. On the contrary, Ugro has posted significantly robust numbers; credit cost in absolute number came down from 44 to 42 cr, GNPA is stable at 2.1 and NNPA increased slightly to 1.5 from 1.3, posted increased PAT, slight decrease in CoB. For me, this is a very direction the company is embarking on.
Regarding management setting higher goals or milestones and aspiring to a better valuation, I mean, why shouldn’t they? Doesn’t every founder do this? The company is scaling aggressively, has co-lending agreements with numerous institutions, and has some of the best PE funds on the cap table, delivering very stable performance in this slim situation.
Regarding the increase in CI, they are scaling aggressively not just in terms of expanding branch network but also AUM. Their microenterprise branches now breakeven in 8–12 months; hence, the 75 branches that they opened in this FY will be profitable by the end of the calendar year 2025 and will significantly contribute to PAT. Their aspiration of reaching a ROA of 4% was based on the situation when the guidance was given; for example, every one of us was expecting that RBI would start cutting int. Rate in November last year, but that didn’t happen. This led to not much decrease in the CoB. Now, if tomorrow China invades Taiwan and the world order is disturbed, we can’t lambast the management for not meeting the guidance.
At-last, have you ever heard of some anecdotes about how a grandson found the share certificates of MRF or other companies that are now worth some crores? This happens because you trust the company management and invest for some number of years. It’s an institution in making, so let them do their work. The management is super transparent in sharing numbers, their detailed presentation is testament of this.
Some statistics:
- Depreciation of credit access Grameen in Q3 2025 was 16 CR, and they have 2000+ branches; on the other hand, for Ugro it was 12 CR with some 224 branches. Eventually, when the assets will be depreciated, the PAT will shoot up dramatically.
- Of-course, Ugro doesn’t need to open 2000 branches, but maybe 600-700 to cover most of the MSME clusters. (Assumption: Five Star has 660 branches, and to reach this number in the medium term could be an aspiration.)
- Ugro’s aggregate CoB is some 10.68% and recently, they have raised funds at 10%; if we were to extrapolate this, their average cost of borrowing in a year would be around 10%, the difference. Of 0.70% will flow directly to their ROA and PAT.
Disc-Invested and biased
The market is driven by sentiments and the greed to make quick bites, if by any means Ugro reaches 300, everyone will flock to buy it. Ugro should reward in the long run, but considering the macro environment, I don’t expect any wild moves in the short term.
I agree with you, not sure how Ugro has raised the debt, whether it is term loan or long term fixed interest loans. I believe majority is floating interest rate loan, hence, the CoB will decrease by the same proportion as the RBI interest rate.
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What matters is Ugro Capital is a Standout Performer in Challenging Times
One key highlight from Ugro Capital’s Q3 FY25 update is its impressive growth trajectory, especially when many financial companies and banks are grappling with asset quality and loan growth challenges. Ugro has demonstrated resilience by consistently expanding its AUM, disbursing record-high loans, and diversifying its lending mix.
The standout factor appears to be their proprietary GRO Score model and tech-driven underwriting processes, which are playing a pivotal role in maintaining customer quality and minimizing risks. This robust credit assessment framework, combined with the management’s disciplined execution, has enabled Ugro to not only grow but also improve operational efficiency during a tough macro environment.
Kudos to the management for leveraging technology effectively and steering the company through these challenging times. This focus on quality, backed by consistent execution, makes Ugro a compelling story to track in the NBFC space.
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Deepak bhai,
Firstly, thank you for your posts on Ugro. They are very helpful and insightful, and I look forward to your posts on this thread. I feel I am also of the same mind in terms of long-term view on this company i.e. believe the future is bright and there is a good chance of the company performing well in the long-term.
What is irritating me (only an irritant) is the tendency of management to talk big and tom-tom positive moves, while remaining silent or not acknowledging when things don’t move so well. For example here:
I would probably have appreciated them acknowledging that the environment is tough, and explicitly calling out that their previous ROA target is now an aspiration. In the star 1 and star 2 that @Surender has kindly marked out, the removal of the explicit timeline from the ROA target is not acknowledged, the timeline is silently removed.
Doing business is very difficult, and I understand that things rarely work out per plan. I remember Laurus Labs also facing the ire of the market for giving a guidance and failing to meet it. Giving guidance is a double-edged sword. On the positive side, sharing a vision can get the market excited and may energize the org, but this could backfire if things don’t go per plan.
I like the approach of Natco Pharma’s management in terms of guidance. The promoter acknowledges that giving guidance is fraught with challenges, and does a great job of setting expectations.
This probably says more about me than about management/ promoters. Personally, I would love if Ugro’s management picks up some of Natco’s style of guidance. My guess is that since a fast-growing lending business requires regular fund raises, the “storification” and talking positive is done to help in fund-raises.
Disclaimer: Invested, with the mental expectation to harvest only in the next cycle (I expect market cycles to be 7-10 years long; so my capital here is patient)
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https://www.indiaratings.co.in/pressrelease/74171
Key take aways:
For rerating to happen - Expansion of franchisee profitably (i.e. ROA 3.5% or more) while maintaining asset quality and reducing cost of credit
For de-rating - Any funding challenges, leverage exceeding 4.5x (they guided to keep it below 4x) and deterioration in asset quality eroding operating leverage which is just about to start playing out
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@parkhi_nazar While missing the guidances on multiple occasions cannot be overlooked, but regarding the acknowledgement that you mentioned. I guess this could be treated as one?
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RATE cut by RBI!!! 0.25%
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Bulls, bear come and go but UGRO goes nowhere.
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Volumes have dried up in last few days and the prices are closing negative. Already added to a significant as a significant proportion to my portfolio at higher levels. Valuations look lucrative now.
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265 crore NCDs issued at 10.28% in times of rate cut cycle, what could it mean for cost of borrowing?
I was expecting the issuance at 10% or below, market does not like it, stock down 8%, making 52w lows
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Just a hunch:
It’s not the final placement of NCDs, they are testing the demand in the market. They shouldn’t allot NCDs at more 10%, as just a few days before they have already allocated around 75cr worth of NCDs for a tenure of 48months @10.02%.
Of-course, considering the current temporary market sentiment, maybe the liquidity is tight and the management has to pay more.
From the last earning call; once thing is outright clear that the management is not willing to pay more for the funding and will follow a more calibrated approach.
Addition: Such a great company is available at dirt cheap valuation, I reckon that the company will certainly find buyers at this valuation.
Disc- invested
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Thanks Deepak.
The earlier PDF says 10.02% pa pm, is it a typo ? Or is it per annum per month (not sure what it means though!)
And you may have a point as they are mentioning ‘tentative’ unlike the earlier reports
Not a typo:
The term “10.15% p.a.p.m.” stands for “10.15% per annum, payable monthly.”
Note: It fell by 8% today with high volume and way higher delivery(75%). I don’t know exactly what to make out of it. Maybe high demand at this cheap valuation, maybe it has bottomed out today or?
Disc- invested
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- AUM Growth: Grew by 32% YoY, reaching ₹11,067 Cr in Q3 FY25 vs ₹10,157 Cr in Q2 FY25 and ₹8,364 Cr in Q3 FY24, showcasing strong momentum despite industry headwinds.
- Loan Disbursements: Achieved record ₹2,098 Cr in Q3 FY25, reflecting increasing demand and expansion across SME and micro-enterprise segments.
- Branch Expansion: Added 74 SME branches in 9M FY25, targeting 400 branches by FY26, indicating aggressive growth in distribution.
- Profitability Improvement: Net profit grew 15% YoY to ₹37.5 Cr in Q3 FY25, driven by improved operational efficiency and AUM growth.
- ROA & ROE Expansion: Current ROA at 1.9%, management guiding for 3.5-4%, with ROE at 8.4%, expected to reach 16-20% in 6-8 quarters.
- Asset Quality: Maintained GNPA at 2.1% and NNPA at 1.5%, ensuring a healthy loan book despite rapid growth.
- GRO Score Model: AI-based underwriting system helping in risk assessment, ensuring high-quality lending and low credit costs.
- Co-Lending Strength: 44% of AUM off-book, optimizing capital utilization and reducing risk on the balance sheet.
- Diversified Borrowings: Total debt at ₹6,151 Cr, sourced from banks (48%), DFIs (23%), capital markets (29%), maintaining funding stability.
- Cost of Funds: Currently 10.68%, expected to decline as leverage improves.
- Valuation:
- Current BVPS (Q3 FY25): ₹232.47, stock trading at ~0.77x P/B, significantly undervalued vs peer NBFCs at 2-2.5x.
- Projected BVPS FY27: ₹275+ with higher ROE.
- Fair Valuation Estimate: If P/B re-rates to 2-2.5x, potential stock price range of ₹550-₹690 in 2-3 years.
- Key Risks:
- Execution risks in scaling operations efficiently.
- Interest rate impact on cost of borrowings.
- Competitive landscape requiring continuous innovation in underwriting and distribution.
- Investment Rationale:
- Ugro is growing when many lenders face challenges, highlighting the success of its technology-driven lending model.
- The combination of high growth, improving profitability, and strong asset quality positions it for a significant re-rating opportunity.
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