Buy Ugro Capital Limited for target Rs.323 - Keynote capital
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In Q3 FY24, Ugro Capital Ltd (Ugro) recorded a strong growth in total income, driven by Income on Co-Lending which grew by 18% on a QoQ and 78% on a YoY basis to Rs. 764 Mn. Further, Interest Income grew by 6% on a QoQ and 37% on a YoY basis to Rs. 1828 Mn. PPOP increased from Rs. 389 Mn to Rs. 761 Mn, showing a robust growth of 95% on a YoY basis. AUM has increased to Rs. 84 Bn, growing by 10% on a QoQ and 64% on a YoY basis.
Strong Loan Origination
Ugro continues to deliver strong net loan origination which amounted to Rs. 281 Mn in Q3 FY24, growing by 33% on a YoY basis. This was driven primarily by the Partnerships & Alliances, Machinery Loan and Prime Unsecured segments which grew by 78%, 68% and 52% respectively on a YoY basis. The Company has seen business rebound in the post pandemic times as evident in the increase in total loans per customer from Rs. ~4-4.5 Mn in CY19-21 to Rs. ~7-9Mn CY22 onwards. Such persisting growth and a huge market opportunity (Rs. 92 Trn MSME Credit Gap) shall further solidify Ugro’s market position.
Operating Leverage continues to unfold
Underpinned by Ugro's early investments in operating expenses and infrastructure, the Company continues to witness robust growth in both top line and bottom line performance. In 9M FY24, Ugro achieved a notable 64% increase in AUM on a YoY basis, alongside a threefold rise in PAT from Rs. 257 Mn to Rs. 867 Mn, propelled by a formidable operating leverage. Further, over the past eight quarters, the Company's PBT has consistently climbed from Rs. 50 Mn in Q3 FY22 to an impressive Rs. 460 Mn in Q3 FY24. This upward trajectory correlates with the tripling of AUM, rising from Rs. 25 Bn to Rs. 84 Bn, and can be attributed to strategic early investments in a diversified distribution channel, robust partnerships with leading banks and major NBFCs for co-lending and coorigination, investments in the GRO score and sustained support from its balance sheet liability providers, demonstrating the seamless integration of strategic foresight and operational leverage.
View & valuation
We have revised our estimates and maintain a BUY rating on Ugro Capital Ltd with a target price of Rs. 323 (1.7x FY25E BV).
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