Broker’s call: UGRO Capital (Outperform)

Posted on by

Target: ₹345

CMP: ₹263.05

Key factors underpinning UGRO Capital’s positive outlook include: a significant opportunity in MSME lending; superior productivity metrics, highlighting the scalability of its business model; advanced systems and data analytics that bolster asset quality management; a focus on co-lending and co-origination, which enhances capital efficiency, AUM growth, and profitability; and an upward trajectory in RoA and RoE as high-yield loans gain a larger share and operating leverage improves.

UGRO Capital is projected to achieve a CAGR of 41 per cebt in AUM and 42 per cent in EPS from FY24-26, with anticipated RoA and RoE reaching 4.2 per cent and 15.8 per cent by FY26.

This growth is anticipated to double UGRO’s AUM to ₹17,896 crore by FY26. Despite this rapid AUM expansion, expenses are expected to grow at a slower pace, thanks to frontloaded investments made in earlier years. As a result, the company’s C/I ratio is set to decline from 54 per cent in FY24 to 45 per cent in FY26.

The sustained expansion and increased profitability are expected to drive a favorable re-rating of the stock, which currently trades at a meager 1.38x FY26 P/Adjusted BVPS.