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key pointers from the Elara Securities research report on UGRO Capital

  • Coverage Initiation: Elara Securities has initiated coverage on UGRO Capital with a ‘BUY’ rating and a target price of ₹226, indicating an upside potential of about 46% from current levels.
  • Strategic Shift: UGRO Capital is transitioning from a growth-led strategy to a profitability-focused approach, with emphasis on improving return ratios.
  • AUM Growth Outlook: Assets Under Management (AUM) growth is expected to moderate to around 10% CAGR during FY25–FY28, compared with 69% CAGR over the previous five years.
  • Profitability Metrics:
    • Return on Assets (RoA) is projected to improve from 2.1% in FY26 to 3.4% by FY28.
    • Net Interest Margin (NIM) is expected to expand by 240 basis points to 8.7%, supported by liability repricing and a shift toward higher-yield assets.
  • Cost Efficiency: The operating expense-to-AUM ratio is forecast to decline to 4.9%, driven by productivity improvements and technology-led efficiencies.
  • Business Model: UGRO operates a technology-driven MSME lending platform with a pan-India footprint of 325 branches, largely concentrated in tier-2 and tier-3 towns.
  • Inorganic Growth: Recent acquisitions are expected to enhance scale, including
    • ₹35 billion AUM from Profectus in FY26, and
    • ₹12 billion AUM from MyShubhLife in FY25.
  • Asset Quality: Gross NPAs are expected to stabilise at around 2.7% by FY28, supported by data-driven underwriting and portfolio rebalancing.
  • Earnings Outlook: Earnings per share (EPS) is projected to grow at about 40% CAGR during FY26–FY28, which could drive a valuation re-rating from current sub-book levels.