Broker’s call: UGRO Capital (Buy)

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Target: ₹407

CMP: ₹276.05

We initiated coverage on UGRO Capital on January 27 when the trading price was ₹150. The stock has doubled since then and is currently trading at ₹281.

In this report, we compare the company’s business model and financial metrics with SBFC Finance Ltd which has recently gone public. Our examination explores a multitude of critical facets to provide a comprehensive understanding of the competitive landscape and positioning within the financial sector.

UGRO has strategically positioned itself at the forefront of the evolving MSME lending landscape, which is shifting from collateral-based to cashflow-based underwriting. The company excels in this transition, leveraging a robust underwriting model driven by machine learning. GRO Score 3.0, an AI/ML-powered internal scoring model. This model stands out in the NBFC industry due to substantial data repository surpassing.

UGRO has set an AUM target of ₹10,000 crore for FY24. For FY25 management aspires an AUM target of ₹16,000-18,000 crore with on book projected AUM of ₹7,800 crore and off book projected AUM of ₹7,800 crore, a Cost/Income ratio of under 45 per cent.

Considering UGRO is trading at inexpensive valuations (1.5x P/B FY25E vs. SBFC at 3.5x FY25E) despite similar band of RoE/RoA estimates for both companies, we update our price target of UGRO Capital to ₹407 (based on FY25 2.1x P/BVPS).