UGROCAP - UGRO CAPITAL LIMITED Share Price

Management Outlook and Major Points:

• Resilience and Growth: Despite regulatory and market challenges, UGRO Capital demonstrated strong performance with AUM reaching a record INR 11,067 Cr (32% YoY growth) and net disbursements at an all-time high of INR 2,098 Cr. The Emerging Market channel (224 branches across 11 states) was a standout, with disbursements surging to INR 543 Cr (vs. INR 180 Cr YoY), focusing on underserved MSMEs in smaller towns.

• ROA Delay and Strategic Adjustments: The 4% ROA target is delayed due to slower liquidity and cautious bank lending. Management is accelerating expansion into higher-yielding portfolios (e.g., secured loans, machinery financing) to offset co-lending declines and improve profitability.

• Co-Lending and Asset Quality: Co-lending volumes dropped to INR 372 Cr (from INR 615 Cr QoQ) as banks paused unsecured lending, but expect revival as regulatory clarity emerges. Unsecured loans (41% CGTMSE-guaranteed) maintain stable asset quality (GNPA: 2.1%; NNPA: 1.5%), differentiating MSME loans from riskier consumer credit.

• Funding and Costs: Raised INR 1,400 Cr in Q3, though borrowing costs remain elevated at 10.68%. Focus on optimizing funding costs through scale and credit rating improvements.

• Strategic Initiatives:

  • MyShubhLife Acquisition: Embedded finance platform contributes INR 302 Cr AUM and 28,000+ customers, targeting 3 crore merchants via partnerships (PhonePe, Meesho, etc.).
  • Portfolio Diversification: Targeting a 30% secured / 70% unsecured mix (with CGTMSE coverage reducing risk).
  • Operational Efficiency: Branch expansion drives scalability; newer branches breakeven faster (8 months vs. 18 months earlier).

• Long-Term Goals: Focus on 30% YoY AUM growth, leveraging technology/data-driven underwriting, and stabilizing ROE at 16"“18%. Expect liquidity and market perception challenges to ease, enabling renewed co-lending momentum and ROA improvement in 2"“3 quarters.

Key Risks: Liquidity constraints, slower co-lending revival, and regulatory scrutiny on NBFCs. Management remains confident in MSME-focused differentiation and scalable infrastructure.

Question 1:
"My first question is regarding the cost to income, right? We can see that this quarter, it has inched up. So, was there any one-off in this or should we take this as the trend going ahead?"
Answer:
The rise in cost-to-income ratio reflects ongoing branch expansion in Emerging Markets. New branches take 8 months to break even now (vs. 18 months earlier). This trend will continue as UGRO expands its network, with operating expenses likely rising for the next few quarters. Cost-to-income is projected to end FY25 near 55% and improve thereafter.

Question 2:
"And my second question was regarding your secured and unsecured mix. So, what is our mix between secured and unsecured? And in the secured segment, what would be our LTV?"
Answer:
UGRO aims for a 70% secured (collateralized) and 30% unsecured mix, though 41% of the unsecured portfolio is backed by CGTMSE guarantees. Secured loans average 55% LTV. The unsecured portion without guarantees is ~18% of the total portfolio. All unsecured loans are progressively covered under CGTMSE.

Question 3:
"In your opening remarks, you mentioned that the 4% ROA guidance has been delayed. So, by when can we expect to reach that kind of a number?"
Answer:
The 4% ROA target is delayed by 2-3 quarters due to slower liquidity and cautious bank co-lending. UGRO prioritizes cost optimization over chasing high-cost growth. Expanding high-yield Emerging Market loans and improving funding costs are key to achieving ROA, contingent on market conditions.

Question 4:
"On co-origination of CLM1... what is the underlying reason for weak volumes? And in emerging market LAP, why is there a disparity between quarterly disbursement and AUM growth?"
Answer:
Co-lending volumes dropped as banks paused unsecured business loans due to regulatory scrutiny. UGRO expects revival as banks differentiate MSME loans from consumption loans. Emerging Market LAP's AUM-disbursement gap arises from larger-ticket loans (Sanjeevni) being classified separately. Disclosure will be revised for clarity.

Question 5:
"How are we looking at machinery loans in terms of growth and expansion?"
Answer:
Machinery loans (average ticket: Rs.35L, tenure: 3.5 years) focus on productive assets with stable credit quality. UGRO targets scaling monthly disbursements to Rs.150"“175Cr by FY26 through broader channel integration. Current monthly run rate is Rs.75"“80Cr, driven by partnerships with OEMs and DSAs.

Question 6:
"What is UGRO's long-term moat, and how critical is technology?"
Answer:
UGRO's moats include data-driven underwriting (GST/bureau integration), diversified asset channels (LAP, machinery, embedded finance), and scalable co-lending partnerships. Removing technology would raise costs and NPAs. Its multi-product, pan-India presence and risk-calibrated growth differentiate it from peers.

Question 7:
"How does CGTMSE coverage impact GNPA reporting and provisions?"
Answer:
CGTMSE covers 75% of guaranteed loans, but NPAs are reported until claims are processed. Provisions (3.8%) account for unsecured exposure. Reimbursements reduce GNPA over time, with claims filed annually up to twice the premium paid (1% of portfolio).

Question 8:
"What is the branch-level profitability and OPEX outlook?"
Answer:
Emerging Market branches break even at Rs.5Cr AUM (monthly cost: Rs.4"“4.5L). New branches (90 added recently) will take 2"“3 quarters to turn profitable. OPEX growth (Rs.38Cr to Rs.59Cr YoY) stems from branch expansion, GST input limits, CGTMSE costs, and inflation.