Summary
UGRO Capital Limited - Q3 FY26 Earnings Call Summary Monday, February 09, 2026 4:00 PM
Event Participants
Executives 4 Anuj Pandey, Ritu Singh, Shachindra Nath, Shilpa Bhatter
Analysts 5 Arvind Jha, Ashish Gupta, Kishan Rungta, Mehul Panjuani, Piyush Bothra
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| AUM (Consolidated) | ₹15,454 crores | +40% YoY and +26% QoQ growth; scale driven by Profectus acquisition. |
| Disbursements | ₹2,217 crores | Sourcing shifted toward core growth engines; low-yield segment volumes deliberately reduced. |
| GNPA | 2.2% | Remained stable at a consolidated level. |
| NNPA | 1.4% | Portfolio quality maintained during the transition phase. |
| PAT (Consolidated) | ₹46 crores | +23% YoY; includes partial period of Profectus and specific provisioning. |
| PAT (Standalone) | ₹6 crores | -86% QoQ from ₹43 crores; primarily due to DA transactions being executed at Profectus level. |
| Cost of Borrowing | 10.24% | -13 bps QoQ; supported by easing macro conditions and repo rate reductions. |
| Off-book AUM | 36% | Realigned from ~45% due to the predominantly on-book nature of the Profectus portfolio. |
| Capital Adequacy | Healthy | Growth now funded predominantly through internal accruals; no incremental primary capital required. |
Geographic & Segment Commentary
- Emerging Market LAP: Focuses on small-ticket secured lending to micro-enterprises via a 300+ branch network. Strategic shift toward this segment (17.5% target yield) is designed to build a predictable annuity interest income profile. Performance is driven by on-ground underwriting and GRO Score 3 data analytics.
- Embedded Merchant Financing: Operates through the MyShubhLife digital platform, integrating with payment platforms covering 10 crore merchants. This segment features high-velocity, small-ticket (₹1 lakh avg) digital loans with daily EMIs and high yields (~25%). Together with Emerging LAP, this segment now accounts for 32% of consolidated AUM.
- Legacy/Intermediated Segments: Management is progressively reducing exposure to low-yield, high-ticket LAP, machinery loans, and DSA-led business loans. These portfolios (yielding ~13.5%) are expected to run down at 15-20% annually to optimize capital for higher-yielding direct business.
Company-Specific & Strategic Commentary
- Strategic Realignment: Transitioning from a “scale-building” phase to an “annuity-led” model to reduce dependence on transaction-linked co-lending income. The focus is now on direct, high-yielding MSME lending to improve earnings quality and durability.
- Cost Rationalization: Initiated an annualized cost takeout of ₹220 crores following the Profectus acquisition. Approximately 50% of this has been achieved, with the remainder flowing through in FY27 across sourcing, underwriting, and support functions.
- Digital Underwriting (GRO Score 3): Leveraging proprietary data analytics (transaction, behavioral, and bureau data) to assess MSME risk. This technology underpins the shift toward granular, relationship-led lending without needing material footprint expansion.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Core Segment Growth | 20% - 25% (FY27-28) | Driven by Emerging Market LAP and Merchant Lending expansion. |
| Legacy Portfolio | 15% - 20% Run-down | Intentional attrition of low-yield, DSA-led, and machinery loan books. |
| Yield on Portfolio | +200 bps improvement | Shift in mix toward higher-yielding LAP and merchant financing over the next 8 quarters. |
| Capital Requirement | No Incremental Primary Capital | Future growth to be funded via internal accruals due to improved quality of earnings. |
Risks & Constraints
| Risk | Context |
|---|---|
| Income Volatility | The shift from co-lending (upfront gain recognition) to annuity interest income may result in flat reported PAT in the near term as the mix changes. |
| Execution Risk | Realizing the remaining ₹110 crores of the ₹220 crore cost-cutting target depends on successful integration and notice period completions. |
| Negative Carry | Historical excess liquidity (₹1,140 - ₹1,600 crores) impacted finance costs; management is now optimizing cash levels post-merger. |
Q&A Highlights
Strategic Realignment & Standalone PAT
- Question: Why did standalone PAT drop from ₹43 crores to ₹6 crores? (Piyush Bothra)
- Answer: UGRO held high cash (₹1,200 Cr) and chose to execute Direct Assignment (DA) transactions at the Profectus level to avoid increasing negative carry at the parent level. Consolidated PAT correctly reflects the business health (Shachindra Nath).
Cost Synergies
- Question: When will the ₹220 crore cost reduction reflect in the P&L? (Piyush Bothra)
- Answer: Half is done; the rest flows through over 3-5 months due to notice periods for people and tech contracts. Benefits will fully reflect in FY27 (Shachindra Nath).
ROA Guidance
- Question: Is the 4% ROA target still valid? (Piyush Bothra)
- Answer: Previous guidance relied heavily on co-lending gains (>50% of ROA). The “new” ROA will be lower in percentage but superior in quality, driven by cash-accruing annuity income rather than accounting gains (Shachindra Nath).
Asset Quality & Provisions
- Question: Why was there an impairment reversal in the Profectus book? (Nitin Dhyani)
- Answer: Reversal was driven by realignment of ECL policies to UGRO standards, resolutions via asset sales, and seasoned DA transactions at the subsidiary level (Shilpa Bhatter).
Key Takeaway
UGRO Capital has completed its transition from a high-growth, scale-focused entity to an institutionalized lender prioritizing earnings quality and capital conservation. The quarter was marked by the strategic acquisition of Profectus and a subsequent realignment to exit low-yield, DSA-intermediated business in favor of high-yield Emerging Market LAP and Digital Merchant Financing. While AUM grew 40% YoY to ₹15,454 crores, the company focused on a ₹220 crore cost-rationalization exercise and a shift toward annuity-led interest income to improve the durability of ROAs. Management expects the higher portfolio yields and reduced operating costs to fuel future growth entirely through internal accruals, eliminating the need for primary capital raises for the next 2-2.5 years. The company remains focused on sweating existing infrastructure to drive a 20-25% growth in core segments while allowing legacy books to run down.
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