Hot MSME Growth: Top Undervalued Pick in NBFCs

UGRO Capital’s strength lies in its deep understanding of the SME ecosystem, enabling it to identify promising businesses with growth potential. With a credit gap of around INR 92 lakh crores in this segment, UGRO addresses a crucial need by providing access to capital, thereby fostering entrepreneurship, job creation, and innovation across various sectors.

One of UGRO’s key differentiators is its use of data analytics and proprietary risk assessment models to evaluate borrower creditworthiness accurately. This approach minimizes the risk of defaults and ensures prudent lending practices. The company’s senior management, led by industry veteran Mr. Shachindra Nath, brings extensive expertise from the financial services sector, further bolstering its credibility.

UGRO’s impressive growth trajectory is evident in its expanding portfolio, which reached over ₹9000 Crore by March 2024, supported by around 150 branches pan-India. The company’s strategy of empowering SMEs has been underscored by its data-driven lending approach, which analyzes various data points from GST filings to bank statements, ensuring thorough risk assessment.

To fuel its expansion and growth, UGRO recently raised funds amounting to Rs 1,333 crore through the issuance of compulsory convertible debentures (CCDs) and warrants. This capital infusion, targeted at existing and new institutional investors, highlights UGRO’s commitment to strengthening its market position.

The acquisition of MyShubhLife (MSL), a financial services platform, further enhances UGRO’s market presence and service offerings. With MSL’s capacity to attract 200,000 new retailers, UGRO stands to gain significant growth potential, translating into additional assets under management (AUM) and profitability. This expansion is expected to translate into an additional AUM of INR 1,500 Crore and a PAT of INR 100 Crore for UGRO. MSL, a prominent Embedded Finance Fintech platform, boasts partnerships with industry leaders such as Pine Labs, Fino, Airtel Payment Banks, Mobikwik, and Spice Money.

UGRO’s recent financial performance reflects its promising trajectory, with a remarkable surge in net profit and sales in the quarter ending March 2024. The company witnessed a 132.83% increase in net profit compared to the year-ago period, reaching Rs 32.69 crore, accompanied by a 54.29% rise in sales to Rs 322.41 crore. Similarly, for the full fiscal year 2024, UGRO reported a substantial surge in net profit and sales, demonstrating robust growth.

In terms of stock performance, UGRO has delivered a 30.29% increase in share price, reflecting investor confidence and resilience amidst market volatility. When comparing UGRO to its peers viz., SBFC, Five Star, MAS etc., it stands out with an attractive valuation of 1.8x, still suggesting potential for future growth despite the recent price appreciation. UGRO has set ambitious targets of achieving a 4% Return on Assets (RoA) and an 18% Return on Equity (RoE) in the next 18 months. This positions UGRO as a strong contender in the market, with significant room for growth and price appreciation.

UGRO Capital’s strategic initiatives, coupled with its robust financial performance, make it a compelling investment opportunity in the NBFC sector. With a mission-driven approach to fuel SME growth and economic prosperity, investing in UGRO Capital offers not only financial returns but also the opportunity to contribute to positive societal impact. As investors seek avenues for growth and innovation, UGRO Capital stands out as a promising choice—a blend of financial prudence, social impact, and innovation in India’s burgeoning fintech sector.

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