Actually, my assumption is that the QIP will not be done for capital raise rather for a strategic acquisition. If this happens, it will be ROA/PAT/EPS accretive. This shouldn’t be a problem and good for UGRO.
If it was done for a capital raise and to allot shares to the previous warrant holder, i agree with you, it could be considered a misgoverned QIP. Nevertheless, I don’t think they would do that. Let’s see what they come up with tomorrow.
Interest Expense and Credit costs have increased substantially compared to growth in income. Q4 results doesn’t look that good. Hope things should improve going forward with all the money the management been raising and plan to, going forward.
Discl: Invested, holding/trading/tracking for few years now. 7% of portfolio.
Any idea if ROA has improved? They were targeting 4% in a few years time.
Highly likely that it has gone down further. AUM increase is more than increase in PAT, right? Looks like closer to 1 - 1.2% actually.
Finally, CoB is going down and Net Yield is inching upwards.
CoB= 10.61% (10.68% in q3 2025), Net Yield= 17.3% (16.9% in q3 2025).
ROA is just doing fine at 2.5% for fy 2025. Management is saying ‘if we excluding the impact of EM branch expansion, Cost to income is 51.0% and ROA is 2.9% for FY25’. Directionally, this shows that the credit engine is working as it was intended, with time ROA must reach the guided level of 4%.
Risks:
Discl: Invested, around 10% of my portfolio
Given that the QIP is 500 crores , you are correct in assuming its for a contigency make up of the shortfall from the previous qip, in case some warrantholders dont subscribe.
find it a bit odd that co reports AUM which includes assets sold/held together with banks, but ROA is calculated on what’s on own book. thought the co gets a part of the interest on that as well, right?
isn’t some part of the profit coming from the loans sold to banks.
Growth of 33 % in AUM is good but increase in GNPA is cause of concern. Growth always comes with increase in NPA. Cost to income ratio is declining which is good thing. They also like to increase the no. of branch to almost double by march 2026. Also want to increase the AUM by 32-35 % in 4-6 quarters. One thing that catches eyes is the P/E value shown in latest result presentation. Management should focus on business , rather than showing how undervalued is the company.
My take: GNPA no. need to be watch as company is trying to achieve higher AUM growth. Cost to income ratio will again increase till the time operating leverage kicks in. Holding & biased.
Yes, but at this point i am sure management is interested in a better share price so that they can raise money with kess dilution. See at the end of the game, this is a NBFC. the tech thay they use can onky help lower the default rates, so if NPA improvement is marginal over peers, it breaks their whole tech enabled concept. I like the company currently and yes, according to me it is highly undervalued. Question is how long can they afford heavy dilution for growth. Seems like a vicious cycle of heavy dilution for growth, shareholders dont like that and thus devalue company, then they are forced fo raise money at lower valuations. At some point they need to sacrifice short term growth if market keeps punishing them.
Some quick notes from q4 concall:
So the QIP was just the standard end of year approval - hope it remains just a contingency measure as obviously the capital adequacy will not be an issue unless warrant subscription is withheld. Given there are large institutional chunks in the warrants, its unlikely. Even if warrant subscription is withheld, this will be positive in my opinion as the 25 percent paid deposit shores up the balance sheet without any dilution
Management is confident that growth has atleast two moats (a) tech enabled speedy decision making (b) distribution and reach - which seems to be the poonawala template as well
Colending can accelerate when the RBI draft guidelines come online
Risk management is there for the EM portfolio - LTV cieling is 55 percent ish and affordability metrics are also tracked. The EM product replaces higher interest rate supply from sahukars, semi formal micro lenders and smaller nbfcs in tier 2 to tier 5 towns
A derivative of the discussion was that excluding marginal EM capex,opex for next quarters RoA growth, like for like RoA has definitely expanded nearer to 3 pc
You have captured the short-term emerging pressures very well. I would like to add a complementary perspective considering the current market valuation P/B ~0.8-0.9x) and the medium-term setup:
Net yield compression and rising GNPA/NNPA are real. Profitability metrics like ROA (2.4%) and ROE (8.7%) have dropped sequentially. Emerging market portfolio stress (expected GNPA of ~4%) is indeed a red flag to monitor carefully.
At 0.8-0.9x Price to Book, the stock is now trading close to historic trough valuations seen for growing NBFCs in early-cycle phases. Even lower-quality NBFCs with inferior underwriting standards often trade near 1x Book during stable growth phases. UGRO’s core MSME segment and secured lending expansion (especially Micro Enterprise secured portfolio) could stabilize yields and support future profitability, although with a 2–3 quarter lag.
Operating leverage will likely kick in once recent branch additions (100+ branches in FY24) start breaking even (guided breakeven within 8–9 months). Embedded finance and co-lending model, although riskier, gives UGRO flexibility to improve ROA with low incremental equity requirement. Capital adequacy remains strong (>23%), so no immediate dilution risk exists. Management still guides for 16–20% ROE and 3.5–4% ROA targets by FY26–FY27, albeit with execution risks.
Key risks to monitor are: GNPA trending above 4% and credit cost >3% would structurally depress return ratios; rising competition in MSME secured lending could lead to further margin pressures; and if Emerging Market portfolio slippages aren’t contained, growth alone won’t rescue valuations.
At current P/B, much of the stress in profitability and asset quality appears factored in, unless asset quality worsens materially beyond management’s guided ranges. UGRO Capital today represents a classic high-risk, high-reward setup: if execution improves (credit costs normalize, branch productivity improves, ROA scales towards 3%+), re-rating to 1.5–2x P/B over 2–3 years is quite achievable. If execution falters (sustained GNPA spike, poor cost control, further ROE deterioration), valuations could stagnate or worsen.
While caution is warranted looking at short-term deterioration, the risk-reward at current book value is skewed positively for patient investors who can track quarterly metrics and adapt if asset quality signals deteriorate further.
In the Q4 concall Ugro MD Sachindranath assured the investors that the Board approval for raising additional equity was just a yearly formality and there is no immediate proposal to do it. He also told that none of those who subscribed to warrants @264 have backed out when the price fell to 160
During earlier fund raising @264, the investors were told that it was to cushion up if there is any black swan event and to enable AUM growth upto 20000 crores…
After that in Q3 concall Sachindranath said that they wont be raising additional equity at a low price of 240 and that it was not fair to existing investors. So by AUM of 20k crores, if the share price is not up significantly Ugro will consider growing at ROE% only…without raising additional growth capital.
Now on 20th May, there is a Board meeting to raise equity by Rights issue / QIP? Why?
Why is the mngt going back on its assurance within one month?
Is Ugro about to be hit by huge NPAs?
Whats the use of having a conference call when the whole purpose is to lie and mislead the investors?
Market just does not have a good opinion on the Balance sheet of Ugro capital or its top mngt…who promise a lot and fail to deliver and then blatantly mislead investors…with this behaviour, ugro stock price may just languish at lower levels…below book value for a long time..
Sachindra nath deserves to be thrown out…ugro wont improve till he is leading it…this may turnout to be another Religare
I exited this long ago. I think in SME lending space, there are much better companies out there compared to Ugro(from shareholders point of view).
UGRO Capital’s Assets Under Management (AUM) reached ₹12,003 crore as of March 2025, with plans to expand to ₹20,000 crore. This ambitious growth trajectory may necessitate additional capital sooner than initially anticipated .
Ugro has posted highest ever profit and EPS so saying that it will remain at lower levels are sceptical.
Definitely Asset quality needs to be monitored and dilution should be taken with pinch of salt but it should not be concluded as fraud.
If you soeak one thing in concall and do the oppsite 20 days later , it is fraud!!!
Gensol I remember did equity diluation too much and see its price…now only thing they can do this dilution is any organic expansion or allot prefrential at 264 which may restore any confidence in this company , otherwise mkt will never beleieve it
Yess..agreed. If they are raising money to acquire another company, then its ok…otherwise its a bad omen.
Frankly, I am also rather apprehensive about this decision. Nevertheless, let’s take a step back and impartially assess the situation.
) in the small NBFCs.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
Wework and byju too was majorly owned by pe firms and know the fate of their investor…and how would they face investor of whose warrants are still to be converted if they issue taking 30 day avg price may be nearing 160/170. They have raised nearly 4500 cr of equity capital ( some comitted) and is valued at 1700 cr… there is something wrong which we are not understanding…Listen to aseem dhru of sbfc and then to ugro management you would know the difference… one talk of slowly building business and other in t20 format.. one is valued at 3.5 p/b amd other at .9 p/b
You have rightly pointed out the issue yourself.
SBFC is a pure LAP Micro finance institution quite similar to Five Star as oppose to UGRO who wants to build a comprehensive one stop solution for MSMEs. The difference is in the fundamentals, UGRO wants to build the business by following the footsteps of Bajaj finance and SBFC maybe like a generic housing finance company (just a example to show the risk averse nature of the management). If you look closely SBFC has basically just one product and that is low ticket LAP loans on the other hand Ugro has a collection of products to serve nearly all the needs of MSMEs.
It is rather easy to replicate the business model of SBFCs to that of Ugro. The major problem with Ugro is that majority of its current portfolio has very low yield, maybe around 3-4% as most of them are secure business loan or of similar kind. This leads to depressed ROAs and ROEs. This problem would become a very strong moat when they get credit rating upgrades in future as with declining cost of borrowing the same yield will inch upwards.
Out of many ways of getting rating upgrades, one is to grow very fast with good ROA numbers (3+). Ugro was following this approach but got badly hit by declining macro trends. Instead of declining CoB they unfortunately say an slight increment not because of bad work but due to rising interest rates. Fun fact: For getting a rating upgrade beyond, I guess AA- you must reach a certain AUM number the same is when you want even a higher rating.
So, let’s not directly compare SBFC with Ugro as it won’t be a fair comparison. SBFC is a pureplay Housing finance kind of LAP company, very low risk, high margin and slow growth business (even slower after a certain AUM as the market will saturate), UGRO is a pure play MSME finance company that is catering to the whole ecosystem of MSMEs. You can think of Ugro as a company that encapsulates many individual companies.
Some of the unique offering of Ugro are:
Disc: Invested, Biased
