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Capitalized and powered for the next leg of growth

With the recent capital raise of Rs13.3bn (Rs2.75bn of CCD and Rs10.58bn of Warrants) and acquisition of embedded lending Fintech (“MyShubhLife”), Ugro Capital is well capitalized and powered for the next leg of growth from Rs90bn to Rs200bn of AUM, with RoA improving to 4.3% from 2.3% over FY24-27E. Strong capital adequacy post the capital raise and visibility on the same in the coming years, as well as seasoning of the loan book, will likely drive better credit rating and lower cost of borrowing. Focus on higher yielding Micro LAP loans along with improved cost of borrowing and continued operating leverage will drive sustained RoA improvement. To reflect the Q4 developments and capital raise, we adjusted our FY25-26 estimates and introduced FY27E. We reiterate BUY with revised Mar-25E TP of Rs410 (implying FY26E P/B of 1.8x)

FY24 marks a year of solid progress

Ugro Capital continues to deliver strong performance with Q4FY24 PAT at Rs327mn, registering 133% YoY growth (flat QoQ), led by a robust income of ~Rs1.2bn in Q4 (vs Rs764mn in Q3) from its off-book AUM. Overall, NIM+Fees (on book AUM) stood at 16.9% – a significant jump of 209bps QoQ/233bps YoY, on account of increasing offbook AUM and some rate reset to end customer, resulting in higher upfront income recognition. Opex-to-AUM increased marginally to 4.84% vs 4.34% in Q3, which could be due to addition of 46 new branches in the quarter and continued investment in digital infrastructure. Credit cost on total AUM came in at 1.89%, increasing by 40bps/64bps QoQ/YoY, largely on account of higher than normal write-off (Rs100mn higher write-off), while asset quality remains stable with GNPA/NNPA at 2%/1.1%, respectively, with a PCR of 48%.(Exhibit-4)

Capital raise and acquisition to power the company for the next leg of growth

The acquisition of ‘MySubhLife’ (MSL) is expected to boost the customer acquisition process and market penetration of Ugro. The management expects incremental AUM of Rs15bn over the next 3 years. In terms of profitability, we expect UGRO to start delivering ~15% ROE from FY27, on account of improving yields and fee income (also supported by MSL acquisition), Opex moderation, and stable credit cost. The recent fund raise of ~Rs13.2bn is a strategic call, where the upfront capital received would be ~Rs5.4bn and the ~Rs7.9bn balance by Nov-25. With this capital raise, the company is well capitalized to grow its AUM to Rs200bn and its on-book AuM to Rs100bn over the next 2-3 years.

We expect strong growth to continue; reiterate BUY

To reflect the Q4 developments, Management’s commentary and the capital raise, we have adjusted our FY25-26 estimates, leading to meaningful changes in our headline estimates, and introduce FY27E. We reiterate our BUY rating on the stock with our EREbased revised Mar-25E TP of Rs410/sh (from Rs430 earlier) as we see Ugro to be better prepared to grow profitably and compete in the MSME lending space. (Exhibit-3)

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