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Ugro Capital Ltd

| Q4 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤27th Apr 26

Summary : UGRO Capital is strategically pivoting to higher-yield, capital-efficient segments, expecting improved profitability by FY29 despite near-term flat AUM.

Management Perspective positive : Management stated, 'all five [commitments] are on track', 'underlying earnings trajectory is exactly where we said it would be', and 'more confident in UGRO's trajectory today than at any point in our history'.

Concall Report Analysis & Insights

Business Overview

  1. UGRO Capital completed Q4'FY26 with a strategic realignment of its business.
  2. The company is now focusing on Emerging Market LAP and Embedded Finance verticals.
  3. The non-focus intermediated book is being intentionally run down.
  4. Acquisitions of Profectus Capital and Data Science Technologies were completed.
  5. Net total income grew 51% year-on-year, and PAT grew 26% year-on-year in Q4.

Future Growth Prospects

  1. Targeting 85% of total AUM from EM-LAP and embedded finance by FY29.
  2. Aiming for a steady-state annuity-led cash ROA of 3% to 3.5% by FY29.
  3. Focus verticals (EM-LAP, embedded finance) are expected to grow at 25% CAGR.
  4. The company is now capital-generating, funding growth from internal accruals.
  5. Expects a significant bottom-line jump in FY28-FY29 as the strategy matures.

Management Insights

  1. Management stated all five strategic commitments are on track after one full quarter of execution.
  2. The underlying earnings trajectory is exactly where we said it would be.
  3. Consolidated opex base will reduce from INR 750 crores to INR 490 crores plus in FY27.
  4. The Emerging Market LAP build-out is complete with 317 branches across 13 states.
  5. Embedded finance AUM grew 27% quarter-on-quarter, achieving 6x growth in 15 months.

Signs of Skepticism

  1. An analyst questioned why the company exited a business contributing 70% of AUM.
  2. Concerns were raised about AUM growth being flat for the next two years.
  3. An analyst noted the higher risk associated with small-ticket, granular loans.
  4. Questions were posed regarding potential increased competition in high-yield segments.

Risk Factors

  1. AUM is broadly flat quarter-on-quarter due to intentional run-down of non-focus book.
  2. GNPA increased from 2.2% to 2.5% due to a denominator effect from the non-focus book run-down.
  3. Higher risk is associated with small-ticket, lower-turnover customer segments.
  4. Potential for increased competition in lucrative high-yield segments was acknowledged.
  5. FY27 is a transition year, with bottom-line ROA expected to be only marginally better.

Good To Know

  1. Q4'FY26 financials are presented on a consolidated basis, including recent acquisitions.
  2. A one-time restructuring cost of INR 25 crores was incurred in Q4 for the transition.
  3. The cost of borrowings improved for the fifth consecutive quarter, reaching 10.16%.
  4. Net worth stands at INR 2,906 crores with a healthy leverage of 3.7x.
  5. All CCDs are matured and converted, with no further equity dilution expected.

Key Drivers

  1. Strategic pivot to high-yield segments.
  2. Significant cost savings realized.
  3. Strong growth in embedded finance.
  4. Internal capital generation for growth.

Key Analyst Discussions

Competitive Environment

  1. Acknowledged the potential for competition in high-yield segments.
  2. Stated the current market is large and the branch network provides differentiation.

Market Trends & Consumer Behavior

  1. Targeting micro-SMEs with turnover under INR 3 crores for EM-LAP.
  2. Embedded finance targets small retailers using payment ecosystem QR codes.
  3. Credit demand is structural, durable, independent of global macro factors.

Financial Highlights

  1. Management explained INR 220 crores annual cost savings from strategic decisions.
  2. Discussed the impact of cost savings on Q1'FY27 profit and loss statement.
  3. Clarified that GNPA increase is a denominator effect, not incremental portfolio deterioration.
  4. Addressed credit cost stabilization, expecting it to remain in the 2% zone.
  5. Explained capital adequacy calculation and RBI's conservative view on net worth.

Product Composition

  1. EM-LAP offers secured loans (INR 7.5L-50L) via dedicated branches.
  2. Embedded finance offers digital, short-tenor loans (INR 1L average) via payment platforms.
  3. Unsecured loans (embedded finance) will not exceed 30%-35% of the total portfolio.
  4. Secured portfolio (LAP, machinery loans) constitutes about 67% of total AUM.

Strategic Considerations

  1. Explained rationale for exiting lower-yielding, capital-intensive DSA-led book.
  2. Clarified co-lending remains part of strategy, but focus shifts to direct annuity income.
  3. Profectus acquisition enabled opex rationalization and portfolio addition.
  4. Discussed the strategic pivot from sheer growth to bottom-line profitability.
  5. Confirmed all 318 branches are operational, with investment in expansion complete.