Ugro Capital Limited — Q3 FY26 earnings call

Yes, the second question first, on the account of the new wage bill impact, approximately INR 4.5 crores has been provisioned for that. So our profits would have been higher by INR 4.5 crores. On the first question, can you just repeat what you really meant because the acquisition happened on 8th of December. So the consolidated numbers which we have presented are from 8th December onwards. So what you really meant? ... It would have broadly remained the same. I think incrementally about INR 3 crores, INR 4 crores more. Because stand-alone Profectus quarterly profit numbers were approximately INR 3 crores, INR 4 crores per quarter. So that would have got added.

Clarifies the specific financial impact of the new wage bill and the limited incremental profit contribution from Profectus for the reported quarter due to partial consolidation.

Asked by Arvind Jha

This decline is actually, which Anuj also covered in his opening remarks, is because a large portion of direct assignment transaction was done at a Profectus level because at UGRO level, we are holding cash. So if you compare quarter-on-quarter, the entire income, which was roughly around INR 100 crores in previous quarter came down to INR 66 crores and the balance went into Profectus. So we always looked at it on a total consolidated basis. This decline predominantly represents the decline in the income from derecognition of direct assignment gain, which happened at Profectus level in the month of December.

Explains the significant quarter-on-quarter drop in stand-alone PAT, attributing it to the strategic decision to execute direct assignment transactions at the Profectus level due to UGRO holding significant cash, thus shifting income recognition.

Asked by Piyush Bothra

No, it would not, half of that got reflected post acquisition of Profectus, which was executed when we acquired it on 8th of December and most of this cost takeout has happened after that. As you know, any kind of cost takeout because the cost takeout comes from 3 things: people costs, infrastructure costs and technology-related contracts, all of that have normally a notice period of 3 months to 5 months, and that's why they flow into the P&L after the end of 3 to 4 months and that's why we said that some portion of that would get reflected in Q4 and majority

Clarifies that while 50% of the cost takeout is achieved, its full reflection in the P&L will be delayed due to notice periods for contracts and personnel, with the majority flowing in FY27.

Asked by Piyush Bothra

Yes, I'll just explain. So we were carrying higher liquidity in last quarter ie from October to December quarter because we were holding cash for Profectus transaction. So on account of that, the borrowings were a little higher and the finance cost is looking a little higher. So yes, on a progressive basis, next quarter, you would see some reversal. Also, Shilpa added that we also took Tier 2 sub debt last quarter, which are typically at about 150 basis points higher than our normal cost of borrowing, that also added to this. From next quarter onwards, you should see a reduction.

Provides a clear explanation for the increased finance costs, citing the holding of excess liquidity for the Profectus acquisition and the issuance of higher-cost Tier 2 sub debt, with an expectation of reversal next quarter.

Asked by Mehul Panjuani

I think, look, what is not Q4, but the next whole year. You have to remember 2 things. One, that as of effective today, our intermediated DSA-led high ticket LAP, which happens at a yield of 13.5%. The business loan and machinery segment, that disbursement volume would go down because we have just completely stopped it. Now that actually, when we used to do it, it used to go in co-lending, and that's why it used to generate a significant amount of income, which used to come as a derecognition of gain. Now obviously, that benefits the P&L, but it doesn't accrete to the balance sheet on an immediate basis. So what we would see that in next 2, 3 quarters that this cost reduction would replace that income. So we think so that our income profile would change from whatever PAT you are seeing from pure profitability, which will come in a combination of interest income going up and cost being taken out. Our view is that we will see the improvement in quality of earnings and

Management clarifies that the focus is on improving the quality and predictability of earnings over the next year, driven by higher interest income and cost reduction, rather than a short-term profit bump from transactional gains.

Asked by Mehul Panjuani

Prakashji, if you read through our strategic realignment presentation, we have given specific guidance. We have given a guidance on how much in terms of percentage our emerging market LAP plus merchant lending business would grow. That would be in the range of 20% to 25% and we have said the lower yielding portfolio would run down to the range of around 15%, which means you calculate these 2, you'll arrive at what AUM growth would come. We think so that would be on a 2-year time horizon would still be roughly around north of 20% to 25%. But more importantly, what is happening that our large portion of our AUM, which is 67% at a blended yield of 15% would shift to a large portion of our AUM, which is led by small ticket LAP. We have chosen now, to rather than only growing AUM, to grow the AUM which generates at least 200 to 250 basis points higher yield.

Management confirms a shift in AUM strategy from pure growth to quality and higher yields, with a focus on specific segments, while maintaining an overall AUM growth target of 20-25% over two years.

Asked by Prakash Modi

Yes. So in fact, we have attached an FAQ at the end of our strategic realignment presentation, and we have answered this question. So question is, earlier, UGRO guided to a 4% ROA. What is the new ROA guideline? And what's fundamentally different now? So what we are saying is that the earlier 4% ROA guidance assumed a very high contribution from co-lending and direct assignment. More than 50% to 60% of ROA contribution was coming from downselling of the assets under direct assignment or co-lending, which over 8 quarters would materially reduce and would remain less than 25% or even more as we progress further. So our view is that while the ROA target of 4% would might get shifted or it might get reduced a little bit. But because the net contribution is now cash generating annuity income, this would be more healthier ROA.

Clarifies that the previous 4% ROA target was based on a different business mix (high co-lending/direct assignment income) which is now being reduced. The new focus is on healthier, cash-generating annuity income, implying a potentially lower but more sustainable ROA.

Asked by Piyush Bothra