Ugro Capital LtdQ3 FY24Finance

Ugro Capital Ltd

Q3 FY24 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 2

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Full analysis

Revenue guidance

Category 2

→UGRO Capital targets sustained growth driven by micro enterprises loan segment expansion from 10% to 30% of portfolio by FY26, aiming for higher volumes in lower-ticket secured loans.
→Loan origination hit a new base of ~INR 1,970 crores in Q2 FY25, supported primarily by branch expansion (from 75 to 210+ branches currently, targeting 400 branches by FY26).
→The mix is evolving with prime secured business volume remaining largely stable (~INR 150-200 crores), while micro enterprise loan volumes are expected to accelerate growth.
→Co-lending with banks will be diversified, with no single bank or NBFC contributing more than 25% of total co-lending volumes going forward.
→Off-balance sheet assets and co-lending are expected to constitute ~50% of business, contributing to growth with controlled credit costs.
→Long-term vision expects AUM to double in 2-3 years, with sell-side analysts providing detailed growth projections.

Margin guidance

Category 2

→UGRO aims to significantly increase profitability in the current year compared to the last, with a healthy run rate in the first two quarters of FY25.
→The company targets a steady-state Return on Assets (ROA) of 4% by FY26, up from the current ~2%, driven by the expansion of micro enterprise branches and higher-yielding micro secured business.
→Profit growth in the near term has been tempered by rising credit costs, which are expected to stabilize around 2% of AUM in the next 4-6 quarters.
→Operating leverage is evident with a declining cost-to-income ratio (53% this quarter down from 73% in 2022), and breakeven times of new branches are improving, targeting 9-12 months.
→Expected credit cost and borrowing costs reduction will further enhance profitability, with a 75 bps expected drop in borrowing cost over the next 6-10 quarters.
→Overall, the company is on a trajectory for double-digit profit growth, with profitability expected to improve steadily as new branches mature and credit costs stabilize.

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Fundraise plans

Yes

→UGRO Capital raised ₹1,265 crores of capital in the current year and added around ₹500 crores to net worth, strengthening capital adequacy.
→With this capital raise, they expect to scale business sizably and improve profitability, targeting a doubling of profits from the current levels.
→The company aims to improve its credit rating and leverage better negotiating terms for borrowing costs, which should lead to reduced interest rates on debt.
→They are comfortable leveraging up to 5x in the next 12-18 months with the capital they currently have.
→No specific mention of immediate future fundraising plans via equity or debt, but the company views its current capital as sufficient to meet near-term growth and leverage goals.
→The focus is on sustainable growth, operational scale, and improving capital efficiency rather than seeking new fundraising rounds at this stage.

Order book

Yes

The provided transcript does not explicitly mention current, expected, or pending order book details for UGRO Capital Limited. Instead, it focuses on loan origination, AUM growth, co-lending diversification, and other operational aspects. Key relevant aspects related to business momentum and loan pipeline: - UGRO achieved a record loan origination of INR 1,970 crores in Q2 FY25, signaling strong business growth. - Branch expansion from 75 to about 210-250 by end of the year and a target of 400 micro branches by FY26 supports future growth. - The loan origination run rate as of September was upwards of INR700 crores per month, expected to form the new base level for subsequent quarters. - Co-lending with various banks and NBFCs is being diversified to maintain balanced partnerships. - Focus remains on micro enterprise lending, with strong disbursal volumes and operational scalability. No direct data on order book or pending orders was provided.

Capex plans

Yes

→UGRO Capital is focusing on expanding its branch network, having increased physical locations from around 75 to approximately 210, with plans to reach 250 by year-end and around 400 next year.
→Significant investment has been made in technology and credit process understanding to support micro enterprise lending and geographic diversification.
→The company is heavily investing in new branch infrastructure, with expectations that operating leverage benefits from this will materialize in the next 8 to 9 months.
→No plans currently to bring in new strategic investors; UGRO values its existing shareholders as its strategic investors.
→Capital raise of INR1,265 crores and an increase of INR500 crores to net worth have been completed to support scalable business operations.
→The firm aims for efficient leverage management, comfortable up to 5x leverage in the medium term, supported by improved capital adequacy.

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