Ugro Capital - Opportunity To Invest in a Fintech-like Company Below Book Value

Ugro has raised 138 Cr. of debt through a fund in Switzerland, backed by Danske Bank, Credit Suisse and the Swedish International Development Agency.

These entities joined forces to contribute to the Sustainable Development Goals of the UN 2030 agenda and launched a social bond that bundles loans to innovate companies in capital scarce regions operating in in the financial inclusion, healthcare and WASH (water, sanitation, hygiene), agriculture and climate finance sectors, and that have a measurable, positive social impact.

What Ugro doesn’t have right now is a proven track record of asset quality over multiple economic cycles, but it’s encouraging to see their ability to raise money from foreign funds.


Concall Invite. The meeting will be held via Zoom as in previous quarters.

I am not able to find the zoom call, only getting the audio recording. If anyone has access to the video call, please do share it.

Any takeaways from folks who have been tracking Ugro for longer than I have would be good to read! @Chins

There are some talking points after the results.

  1. Three independent directors have resigned. Ugro tells us that every time they go to any bank for a term loan for normal business operations, bank needs to schedule a board meeting to approve these loans. This is because people on Ugro’s board are also directors on the boards of other banks (Navin Puri is an independent director at Equitas). This is from an old RBI circular which prevents possible related party transactions by introducing barriers. As a result, there are significant delays due to this process, and this repeats every time they need to transact with banks. (On the concall, they explained how SBI’s board won’t convene to discuss something of the size Ugro needs.) Therefore to remove these barriers, three directors have resigned.

After all our religare discussions, I spent some time thinking about whether this is a corporate governance flag.

The good:

  • There’s truth to this statement, explanation is reasonable. I ran a check across other NBFCs I track closely - CreditAccess does not have a single independent director that sits on the board of any other bank/SFB, neither does Mas Fin. Aavas has one independent director that’s also on the board of an NBFC.

  • They’ve appointed two replacement independent directors. Both are industry veterans - one has had a long career at LIC and is now on the board of L&T, ITC and Tata Power. The other has had a long career with SBI and Indian Overseas Bank. If the replacement directors were less high profile / anonymous, perhaps that would be a flag, but the appointments give me comfort.

The questionable:

  • This circular has been in place for years, from Ugro’s inception. One wonders why they didn’t think of this before, especially with the amount of experience the management team has. Maybe it was an oversight and only came to light in practice. Either way, rookie mistake given their experience.

  1. PAT looks lower YoY due to them getting a tax rebate in December 2020. Numbers are excellent if we look at PBT, but not a huge surprise given the monthly updates we’ve had.

  2. Management has been very conservative with provisions in light of omicron. PBT would have been 50% higher without these additional provisions (against the trend shown by nearly all financials this quarter - PAT beating street estimates due to lower provisions).

  3. When Jan’s monthly updates come out, we should expect lower disbursals from December levels on account of covid - management expressed that they showed caution. Bounce rates for Jan may reflect this too, and normalcy should be expected in Feb.

  4. From the concall:

  • SBI co-lending hasn’t gone live yet, but will go live imminently. Co lending deals are generally deals in perpetuity - limited by the asset side, and not fixed term contracts. Reiterated that they want to be India’s largest co-lending platform, and largest MSME lending platform. ( I was wondering if the 500 Cr. by March news we had with SBI was a one time contract until March …)

  • Some very interesting people were present on the concall. The senior investment manager at a French impact investment firm (The Grameen Crédit Agricole Foundation | Crédit Agricole) asked about the social impact that Ugro has had - as they cater to the MSME sector. Perhaps we could see more deals from impact investment firms.

I also expect the RBI circular from November 2021 will have a positive impact on co-lending, as stage 3 / NPA asset recognition was one of the key differences between NBFCs and banks.

If you’re wondering what happened to the stock price today, I have no answers :slight_smile:

Disclosure: invested, biased.


UGRO Capital goes live on Scienaptic’s credit underwriting platform

Really good to see U GRO partnering with Scienaptic to strengthen its own LaaS platform. Apparently, Scienaptic is used by lenders with assets exceeding $100 billion, enabling them to process over $22 billion in credit decisions, benefitting over two million credit union members and millions of borrowers across banks, auto and online lenders.


Sorry for replying late, have been away from VP for a few days and swarmed with work. Timely ha, with all the carnage in the markets :slight_smile:

I concur with most of your findings. The resignations of the directors was explained quite clearly in the concall by Mr Nath. It was definitely oversight. Also loved how the increase in RoE due to the co-lending model was explained eloquently. I was hoping to see the slides as they are not available on YouTube.

The one answer I couldn’t really digest was when someone asked why DZB Cyprus has reduced their holding significantly, and Mr Nath said that they did this to provide more liquidity and float to the stock. He made it sound like DZB was reducing their holding in the interest of the larger shareholding community and the public at large. Seemed a bit much to me. What do you think?

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Credit rating update. A good report to go through.


Dear all,

I realised after a recent interview that the data points I shared earlier were wrong. I had posted a table on the % of the loan book co-lending takes up.

The table I posted of the off-balance sheet loan book is wrong. I had assumed that

What I know now is that the loans disbursed through co-lending are across verticals, and will not show up in Partnerships and Alliances.

The correct % of the loan book should be taken from management commentary, and as of Q4FY22, 20.7% of disbursals made during this quarter (and this quarter alone) have been through co-lending.

To add some value to this post, sharing the quarterly updates.

  • We’re now at 3000 Cr. AUM. Current run-rate is 400 Cr. per month.
  • 90+ branches opened ( in line with guidance of 100 branches in FY22 ).
  • Collection efficiency in the branch led channel is at 94.1%, up 50 basis points from December.

To monitor:

  • Can they bring cost of funds down?
  • Can they disburse 40% of all loans in FY23 under co-lending (current guidance). This would have a significant upside to RoE profile.

D: invested, biased


I was on the concall. Got a chance to interact with management, and had my questions answered.

Amidst all the good things, there is an elephant in the room that needs addressing.

Starting with the good:

  • Disbursals are at 3000 Cr. as of FY22.
  • PAT has risen significantly, is up 292% YoY.
  • NPAs are down, from 2.7% GNPA to 2.3% GNPA.
  • Branches up to 91 as of FY22.
  • New co-lending partnerships, 16 active discussions with 6 private banks, 5 PSUs, 5 NBFCs, 2 SFBs.
  • Co-lending is 16% of the book at the end of FY22.

Now, here’s what they see as the year ahead:

While none of this is new, one can read between the lines to make an observation:

  • They see OpEx reducing from 73% in Q4FY22 to 60% in FY22. In the concall, Mr. Nath addressed this to say that the existing branch framework (OpEx) is sufficient to meet FY23 disbursal targets. Therefore, they’re stopping branch expansion for a year and allowing PAT to catch up. What this means is that a reduction in OpEx, and a subsequent increase in AUM should drive the PAT up very significantly from the 6 Cr. that we see in Q4.

  • Concall + presentation have a nice new explanation of their ML model. They’ve included a Proof of Concept in the presentation (Usually PoCs are much more detailed and technical. This is just a slide in an investor presentation, and actually explaining PoC would take pages and pages. I was happy with answers to my questions on this).

Elephant in the room

Ugro needs a fundraise to successfully scale AUM past 10,000 Cr. In the board meeting, they’ve obtained permission to do a QIP up to the tune of 500 Cr. (or half their market cap!!!)

Now here’s the elephant. A QIP this large is currently half the market cap. Investors from ADV, Samena, NewQuest would not take kindly to a dilution at this share price. Ugro’s currently trading at book value, and roughly 10 rupees per share higher than they paid for it back in 2018. While the company has scaled successfully so far, these investors have little to show for it in terms of returns.

A QIP at the 52 week high of 220 would at the least be much easier to digest. Management needs to find a way to keep investors happy by doing the QIP at a higher price, but as we’ve seen in the last month, Mr. Market is in no mood to oblige.

If they don’t QIP / raise funds, there’s a limit on how large they can grow with a limit of 3.8x gearing, even with the additional benefit of co-lending allowing them to disburse 4x the amount of loans with the same equity base compared to traditional lending. If the AUM faces a bottleneck, Mr. Market will most definitely not reward shareholders.

In the concall, the reply was encouraging: that they can also raise funds through other means, and the eventual QIP isn’t set in stone as 500 Cr. This is just board permission to raise the amount if needed. I’ll be watching with interest how this plays out. However, it has no real bearing just yet, as they’re still at 34% CRAR.

@Malkd you’d mentioned being on the call, please do add your thoughts.

Disclosure: I’m (very) invested, biased.

I’ve not found much joy in writing updates to this thread due to my position size: found here. I feel hesitant to write, should my posts be coloured by bias.

I’ll be stepping back from this thread from now on.


Hey @Chins
You captured the concall perfectly so i won’t add anything more. The thesis since last year has played out exactly as planned so far.
Regards the QiP… I’d asked the management regards this last year and they did mention being open to a QIP if needed at higher valuations and about 2 years down the line since their current funds would see them through atleast end of FY23. They are still well funded so they won’t need to do anything drastic for atleast a year. Considering the huge jump in revenue and profits this quarter and considering the covid threat seems to be behind us for sometime i believe they expect to be at a much higher valuation when they do go for a qip and are just keeping the option ready incase market mania does indeed hike the price up ie With the funds in hand and with npas under control they have probably just kept the qip option incase they go to a higher valuation in a year. I doubt they would dilute us at current valuations.

Note: i too am invested and biased. I’ve refrained from posting in this thread ever since the low liquidity led to some crazy moves last year post ugro getting some attention. Not a sebi advisor


Big news for Ugro.

This will massively aid in their underwriting.

Mr. Nath had written about this in detail - nice read from 2 years ago:

And some slides from the Q3FY22 investor presentation that illustrate the benefits of AA:

Disc: Invested


A good read on U-gro Capital

Did they raise the capital ?

Great results! Q1 profit jumps more than 4-fold to Rs 7.34 crore, total income more than doubles to Rs 123.8 crore. The company has recorded a 332% year-on-year growth in profit at Rs 7.34 crore for the quarter ended June 2022, compared to Rs 1.70 crore in same period last year. Total income jumped 141.4% to Rs 123.80 crore during the same period. Revenues and PAT up both QoQ and YoY. Has anyone noticed anything negative in the results? Thanks.


Ugro capital achieved 4000 cr AUM vs 2900 cr in Jan’22. If they maintains asset quality, Hockey stick growth can be seen going forward.

I have been tracking this company since last 1 to 1.5 years. In their conversations and otherwise, they seem to be striking all the right chords - sector focus, leveraging technology, co lending, backed by PEs, professional management, etc. One needs to see how they deliver - even discounting Covid in between, their actual business performance has been a bit shaky.
Disc - invested since 1 to 1.5 years


I have a question.

From what I understand, MSME lending is not one that inspires brand loyalty. With co-lending where you’re partnering with another financial institute (legacy or new-age), what is stopping them from taking a MSME away from UGRO after the said MSME has proven themselves creditworthy?

Is the continuous evaluation of the MSME’s GRO Score the only barrier to this?
Or is the company hoping to hold onto the client by passing on the benefits of future lower cost of capital?
Has the company mentioned anything else that can ensure that UGRO can hold onto their better MSMEs?

I’m rather new to this so apologies if the question is moot. (though I’d love to know why)

Disc: Invested


In co-lending, the NBFC is the only one who faces the customer. They own the customer relationship and there is no customer interaction with the bank.

The rate of a loan extended to a customer does not depend on which institution is lending to it. Its not as if person A will be entitled to a loan at X% if the loan is made by the NBFC and X-2% if made by the bank with a lower cost of capital The interest rate depends on the customer’s risk profile and will remain at X% irrespective.

When a bank does its own due diligence and decides to take on 80% of a loan underwritten by an NBFC at a lower interest rate, to the best of my knowledge they also get some first default charge protection from the NBFC i.e. the NBFC provides protection against default to the extent of 10-15% of the bank’s exposure to the loan. This is in effect default protection for 10-15% and allows banks to have the comfort to lend at a lower interest rate.

Take an example:
Loan amount INR 100
Customer interest rate 12%
Bank interest rate 10%
NBFC on-book amount of loan INR 20
Bank on-book loan amount INR 80
NBFC interest on on-book loan = INR 2.4 (12% on INR 20)
Bank interest on on-book loan = INR 8 (10% on INR 80)
NBFC Default protection guarantee = INR 8-12 (10-15% of INR 80 loan on bank books)
NBFC off-book income due to co-lending = INR 1.6 (2% on INR 80)
NBFC overall earning from loan = INR 4 (INR 2.4 on-book + INR 1.6 off-book)
NBFC ROA = 4%. At 4x D/E, this is 20% ROE

This is a great model because NBFC is incentivized to do good underwriting even under co-lending otherwise credit protection may get triggered. NBFC can increase its ROA because this model is asset light. Bank gets access to new customers and can increase its book, often they get a lot of PSL loans via co-lending for which they have to hit Govt targets. Its a win-win.


Hi nirvana_laha,

Chances of credit enhancement are pretty less, as currently most of the colending arrangements follow the option akin to direct assignment

In the direct assignment, any form of credit enhancement is not allowed. Colending banks specify some stringent criteria on certain metrics of MSME such as debt equity ratio, interest coverage ratio etc

NBFC’s for maintaining long term relationship with banks, will do good credit underwriting

Regarding banks taking away good MSME customers, that depends on banks may be. As part of colending, nbfc provide all details about MSME to bank. Loan details will be shared to credit information companies by both banks and nbfc. Bank may mine that data and use it for cross selling.