Ugro Capital share price: 5 key reasons why brokerages see 60% more upside in this NBFC stock

Stock to buy today: Ugro Capital share price has been in uptrend after ushering in the new financial year 2024-25. The NBFC stock bottomed out at around ₹215 per share level at the end of March 2024. After bottoming out and touching 52-week los of ₹210.25 ion 26th March 2024, Ugro Capital share price has rallied to the tune of ₹272 apiece level, recording nearly 25 percent rise from its 52-week low. However, leading brokerages see a substantial upside in this NBFC stock after announcing Q4 results in 2024. These leading brokerages see the Ugro Capital share price touch up to ₹440 apiece in the long term, delivering around 60 per cent returns to its positional shareholders. On critical reasons that may fuel Ugro Capital shares in the medium to long term, the brokerages list five reasons that are as follows: strong Q4 results in 2024, Expansion in business via acquisitions, capital raise to meet the demand for growth capital, strong growth story, and rating upgrade by CRISIL.

Top triggers for Ugro Capital share price

1] Strong Q4 results 2024: Pointing towards strong Q4FY24 results, Sonal Gandhi, Research Analyst — NBFC at Centrum, said, "Ugro capital reported Adj. PAT of ₹396mn, up 70% YoY and 22% QoQ, 17% ahead of our estimates due to higher than expected other income on derecognition of financial instruments. Reset of interest yields on an existing book, increase in the share of co-lending and Direct Assignment, and some one-offs resulted in higher upfronted income in Q4. Total income at ₹2.0bn grew 60% YoY and 24% QoQ, 18% ahead of our estimates. Opex to AAUM at 4.8% declined 60bps YoY but increased 50bps QoQ. However, the C/I ratio at 52% declined 760bps YoY and 117bps QoQ, aided by higher total income in 4QFY24. Growth in operating profit was strong, up 90% YoY and 28% QoQ. Stage 3 assets remained flat at 2.0% on total AUM. However, there has slightly uptick in GNPA in Micro Enterprise loans, Supply Chain Financing and Machinery Loans. Stage 2 assets increased 20bps QoQ to 3.9%."

2] Expansion via acquisitions: "Ugro's board has approved the acquisition of 'MyShubhLife' (MSL), an embedded finance fintech platform, for an Enterprise Value of Rs450mn through a combination of 64:36 Equity: Cash transaction, thereby making it a wholly owned subsidiary. MSL offers solutions for small shopkeepers and distributors, providing daily and weekly instalment options and an OD facility. It has sourced 15 merchants through anchor partners like Pine Labs, Fino, Airtel Payment Bank, etc. With the integration of MSL, Ugro envisions onboarding 200k new retailers, incremental AUM of Rs15bn and PAT of RS 1bn within the next three years. Management alluded that acquisition will aid it in tapping smaller retailers based on alternate date bases income assessment and provide short term loans with high interest rates of ~30%," Sonal said.

3] Capital raise to meet the demand for growth capital: "With the recent capital raise of Rs13.3bn (Rs2.75bn of CCD and Rs10.58bn of Warrants) and acquisition of embedded lending Fintech ("MyShubhLife"), Ugro Capital is well capitalized and powered for the next leg of growth from Rs90bn to Rs200bn of AUM, with RoA improving to 4.3% from 2.3% over FY24-27E. Strong capital adequacy after the capital raise and visibility on the same in the coming years, as well as seasoning of the loan book, will likely drive better credit rating and lower cost of borrowing. Focus on higher-yielding Micro LAP loans along with the improved cost of borrowing and continued operating leverage will drive sustained RoA improvement," says Emkay Global report.

4] Strong growth story: Ugro Capital's strong financial performance in FY24 is a testament to its growth potential. The company reported a YoY rise of 49 percent in AUM growth, more than doubling its ROA and ROE. This robust performance is a clear indication of Ugro's ability to deliver consistent returns to its shareholders.

5] Rating upgrade by CRISIL: "The company received a rating upgrade to 'A' by CRISIL towards the end of FY24," said Emkay Global.

Ugro Capital share price target

On a suggestion to stock market investors regarding Ugro Capital's share price, Sonal Gandhi of Centrum said, "We have cut our AUM growth estimates by 8%/13% for FY25/FY26, thereby resulting in an earnings cut of 8%/7% for FY25/FY26. We build AUM/PPOP/PAT growth at 34%/50%/58% over FY24-26E. We roll over to FY26 and value UGRO at 2x P/ABV to reach our Target Price of 440. Maintain Buy."

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.