Buy Ugro Capital; target of Rs 395: Centrum

Centrum's research report on Ugro Capital

UGRO Capital reported strong operating performance with total income, operating profit and earnings 5.7%, 7.1% and 4.9% ahead of our estimates. The beat was driven by higher other income (FV gain on derecognition of Financial Instruments) and opex control. AUM as on 3QFY24 stood at Rs83.6bn, up 64% YoY and 10% QoQ (2-yr CAGR at 80%). Total Income at Rs1.6bn, was up 51% YoY and 10% QoQ, lower than AUM growth as the portfolio yields (reported) declined by 100bps YoY to 16.3%. However, this was compensated by controlled opex (C/I ratio at 53% in 3QFY24 as against 64% in 3QFY23) resulting in strong operating profit at Rs 761mn (up 96% YoY and 16% QoQ). Credit costs (on AUM) inched up marginally by 8bps YoY and 12bps QoQ to 1.49% with the seasoning of portfolio. However, strong operating profit translated into handsome earnings of Rs 325mn (up 88% YoY and 13% QoQ). RoA for the quarter stood at 2.4%, up 10bps QoQ. GNPA increased 30bps YoY and 10bps QoQ to 2% while net NPA remained stable at 1.1%. We build in AUM/PPOP/PAT CAGR at 47%/74%/103% over FY23-26E and RoA/RoE of 3.6%/14.4% for FY26E. The stock is currently trading at 1.5x/1.3x FY25E/26E P/ABV.

Outlook

Given the strong AUM growth and RoA profile, we value UGRO at 2x 1HFY26E P/ABV to arrive at our Target Price of Rs395. Maintain Buy.