Detailed Narrative
Q1 FY26 Financial Performance Highlights
Ugro Capital reported a strong Q1 FY26 with Assets Under Management (AUM) growing 31% year-on-year to ₹12,081 crores. Total income increased 40% YoY to ₹421.8 crores, while net total income rose 31% YoY to ₹216.5 crores. The company achieved a Profit After Tax (PAT) of ₹34.1 crores, marking a 12% YoY growth. Credit costs for the quarter stood at ₹47.7 crores, a 44% YoY increase but lower than the ₹54.3 crores reported in Q4 FY25.
Strategic Capital Infusion and Profectus Capital Acquisition
The company successfully raised ₹1,292 crores in capital, comprising a ₹381 crore rights issue and a ₹911 crore preferential allotment, which significantly improved its Capital Adequacy Ratio to 22.4%. This capital infusion supports future growth. Furthermore, the ₹1,400 crore all-cash acquisition of Profectus Capital is progressing well, with shareholder and regulatory approvals underway. This acquisition is expected to add ₹3,468 crores to AUM (as of March 2025) and is projected to increase the company's overall AUM to approximately ₹15,000 crores, enhancing ROA by FY27.
Asset Quality and Underwriting Discipline
Ugro Capital maintained stable asset quality with a Gross NPA of 2.5% and a Net NPA of 1.7%. Management noted some stress in the unsecured portfolio due to over-leveraging in the industry. In response, the company proactively tightened its underwriting filters and curtailed unsecured disbursements, which were ₹186 crores in Q1 FY26, down from a peak of ₹623 crores in Q2 FY25. Approximately 70% of the company's book remains secured, and underwriting filters are sharper than ever.
Growth in Emerging Markets and Embedded Finance
The emerging market business expanded its footprint to 286 operational branches by June 2025, with 150 branches being over 18 months old and showing improving vintage profitability. This segment's contribution to the overall portfolio is targeted to reach 35% by the end of FY26, up from 22% in March 2025. The embedded finance business crossed ₹1,000 crores in AUM this quarter, characterized by daily repayment products with an average ticket size under ₹2 lakhs, and is projected to contribute 10-12% of total AUM in the next 2-3 years.
Impact of New Co-lending Guidelines
Management discussed the new RBI co-lending guidelines, acknowledging both positive aspects like regulatory clarity and the allowance of first-loss cover for banks, and potential short-term disruption for two quarters to reset processes. While the blended rate methodology may lead to some transmission of lower costs to customers, management believes it will not significantly shrink NBFC margins, but rather optimize pricing and benefit customers, aligning with RBI's intent.
ROA Improvement and Cost of Borrowing Strategy
Ugro Capital aims to achieve a 4% ROA in the medium term, driven by the maturing of its emerging market branches, increasing portfolio yield, and a focus on reducing its elevated cost of borrowing. Management stated that if a trade-off between growth and cost of borrowing arises, they would prioritize reducing the cost of borrowing, even if it means moderating the growth rate. This strategic focus is expected to improve the company's financial profile over time⏳.
Robust Collection Infrastructure
The company highlighted its robust and localized collection infrastructure, particularly for its emerging market branches. Each branch, once its AUM reaches approximately ₹2 crores, includes dedicated collection resources. For the embedded finance segment, the payment platform partners are also investing in collection infrastructure, contributing to a low credit cost of about 3% observed in this portfolio over its 11-month history.