PAT includes the interest delta that they earn on off-balance sheet AUM.
your primary logic seems correct. However, as per my understanding, 20% of the co-lending volume is included in 55% of overall AUM itself. It is not additional.
Hi everyone, I was researching Ugro Capital due to the company’s growth projections and noticed its low P/B ratio of 0.75. However, I observed that the ₹510 Cr infusion through upfront warrants in Q2FY25 significantly increased the book value. Considering this, can we evaluate the company without factoring in this ₹510 Cr, which would adjust the book value to approximately ₹158-₹160 per share, making the P/B ratio around 1…can we interpret this?
510cr infusion lead to the dilution by around 2cr shares. Total outstanding shares then would be around 11.32cr.
Total net worth as reported by Ugro in q32025 earning presentation is 1998cr.
BVPS= 2000/11.32 = 177INR
at CMP i.e, 160 the P/B =0.9
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Hi @dpk1994
I noticed you have been closely tracking this one. I am also unable to understand if its only the market sentiment which is driving the valuations so low or there’s more behind it.
In the recent credit report I found:
"UGRO began operations in 2018 and it has built an AUM of INR101.6 billion since then. While UGRO’s portfolio has been witnessing strong growth, the franchise size remains at a medium level. Also, the seasoning in the portfolio is low, as nearly 61% of AUM was generated in the 12 months ended September 2024.
The gross stage 3 for UGRO stood at 2.1% in 2QFY25 (FY24: 2.0%; FY23: 1.6%)%), with credit costs of 2.9% (on on-book AUM). However, on a one-year lagged basis, the gross NPA remained elevated at 5.1% in 2QFY25. Also, the gross stage 3 provisions coverage was 47% in 2QFY25 (FY24:48%; FY23: 49%), with total provisions at 1.0% of the AUM."
As more of the book matures we could see the GNPAs trending upward. And if it hits the 5% mark that does sound troubling. Do you see this as an important factor which is deriving the valuations where they are today?
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There are several moving wheels deciding the valuation, like:
- General sentiment of market against the NBFCs, thanks to the chaos created by MFIs.
- RBI sucked out the liquidity from the entire banking system, especially from NBFCs.
- RBI rate hike which leads to elevated cost of borrowing for NBFCs likes of Ugro.
- Finally, the over exuberance in small cap stocks leads to hammering of all the small caps, irrespective of fundamental.
I would personally not read to much into this:
It’s a general risk highlighted by the credit agency. they are comparing the yoy growth in NPA. When we already know that we are not in the best credit cycle, such variations are acceptable. 70-80% of their book is secured so, I wouldn’t lose my sleep over it.
Major risk for me is the consistent unavailability of low cost liquidity which will prevent the decline in cost of borrowing. Situation should improve going forward especially when/if RBI cuts interest rate again in April. However, at that time you may not get this market price.
Disc: invested and biased
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Just trying to understand the weakness reported. Paraphrasing it below:
UGRO is a relatively new company (started in 2018), and most of its loans (61%) were issued in the last year. This means there’s limited data to assess how well these loans will perform over time. While current bad loans (2.1%) seem low, older data shows a higher delinquency rate (5.2%), hinting that more loans could turn risky as they age. Additionally, the company’s reserves to cover potential loan losses (47%) may not be sufficient if defaults rise.
- Current NPA (2.1%): Includes all loans, even brand-new ones (61% of UGRO’s loans are less than a year old). New loans haven’t had time to default yet, so they artificially lower the NPA ratio.
- Lagged NPA (5.2%): Focuses only on older loans (issued at least a year ago). These have had time to show defaults, revealing the “true” risk of UGRO’s portfolio. We should take this as the worst case scenario.
Now, from the latest earnings call, we have the management talking about CGTMSE policy and how 75% of the unsecured loan amount is kind of backed by the government. (note that for CGTMSE, claims still take ~1 year to process, straining short-term liquidity).
Given these, I wonder what a worst case scenario would look like for UGRO. If you have calculated it, it would be quite useful.
My rough attempt below using OpenAI:
| Metric | Base Case | Worst-Case Scenario | Difference |
|---|---|---|---|
| Total AUM (Cr) | 11,067 | 11,067 | – |
| Secured Loans (Cr) | 7,747 | 7,747 | – |
| Unsecured Loans (Cr) | 3,320 | 3,320 | – |
| Effective Unsecured (Cr) | ~1,993 (after CGTMSE) | ~1,993 (after CGTMSE) | – |
| Current Gross NPAs (Cr) | ~232 (2.1% of AUM) | ~372 (≈3.36% of AUM) | +140 Cr |
| Current Net NPAs (Cr) | ~166 (1.5% of AUM) | ~300 (≈2.7% of AUM) | +134 Cr (approx.) |
| Additional Provisioning | – | ≈140 Cr | +140 Cr |
This would wipe out the company’s net profit. But still, wont be a big loss.
Disc: Invested
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Good analysis. Just one check, have you also considered disproportionately higher npas in supply chain financing which they have discontinued now or do you see only marginal impact of that on your workings?
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