Buy UGRO Capital; target of Rs 270: Emkay Global Financial

BUY

Emkay Global Financial's research report on UGRO Capital

Ugro reported a satisfactory performance in Q3FY25, in terms on AUM growth, asset quality, and credit cost. The company registered its highest-ever disbursement, of ~Rs20.5bn (grew 32% YoY/4% QoQ), resulting in AUM growing ~9% sequentially. Margins were under pressure on account of lower origination via co-lending, while opex remained elevated owing to increasing branch presence, guarantee fees, and disbursement-related expenses, which the management expects will moderate as the business scales up and branches reach maturity. Additional rundown of the supply-chain finance book continues, whereas the Embedded Financing (MySubhLife) business is scaling well (disbursed ~Rs3.4bn in Q3). The management maintains confidence on growing its book at 30% in the near term, and achieving ROA/ROE target of 4%/17% in the medium term. To reflect the Q3FY25 developments,

Outlook

We adjust our FY25-27 estimates, leading to ~6-10% cut in FY25-27E EPS. We reiterate BUY on the stock, with revised down (by 25%) Dec-25E TP to Rs270 (earlier Rs360), implying FY26E P/BV of 1.2x.

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