Ugro Capital Limited — Q4 FY26 earnings call

Call held 21 Apr 2026

Management summary

Ugro Capital reported strong Q4 FY26 results with net total income up 51% YoY and PAT up 26% YoY, driven by a strategic shift towards higher-yielding Emerging Market LAP and Embedded Finance segments. The company is executing a structural realignment, exiting non-focus businesses and optimizing costs, with INR 220 crores of annualized savings targeted. While overall AUM was flat due to the rundown of legacy portfolios, focus verticals showed robust growth, and management expects significant ROA improvement from FY28-29.

Highlights

  • Net total income grew 51% year-on-year and 34% quarter-on-quarter.

  • PAT grew 26% year-on-year.

  • Cost of borrowings came down to 10.16%, a 45 bps year-over-year improvement.

  • Embedded finance AUM reached INR 2,280 crores, growing 27% quarter-on-quarter and 6x in 15 months.

  • Focus verticals (EM-LAP and Embedded Finance) increased from 33% to 38% of total AUM in a single quarter.

Concerns

  • Q4 FY26 financials include a one-time restructuring cost of about INR 25 crores.

  • GNPA increased from 2.2% to 2.5%, attributed to a denominator effect from non-focus book rundown.

  • Overall AUM was broadly flat quarter-on-quarter due to the strategic rundown of non-focus segments.

Key financials

  1. Net Total Income ₹628 Cr +51%YoY
  2. Interest Income ₹415 Cr +57%YoY
  3. Co-lending & Direct Assignment Income ₹155 Cr +30%YoY
  4. Fee & Commission Income ₹33 Cr
  5. Other Income ₹25 Cr
  6. PAT — +26%YoY
  7. Cost of Borrowings 10.2%
  8. Opex (excl. one-time cost) ₹180 Cr
  9. Credit Cost (annualized AUM %) 1.9%
  10. GNPA 2.5%
  11. Net NPA 1.6%
  12. Coverage Ratio 45%
  13. Stage 1 Assets 93.1%
  14. Collection Efficiency 98%
  15. Capital Adequacy Ratio 21.2%
  16. Net Worth ₹2,906 Cr
  17. Leverage 3.7×
  18. Total Debt ₹10,782 Cr
  19. Total AUM ₹15,334 Cr 0%QoQ

What they filed

Q1 FY27: revenue up 20.0%, net profit up 100.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue330 371 403 414 455 +38%461 +24%607 +51%497 +20%
Net profit36 38 41 34 43 +19%46 +21%51 +24%68 +100%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentAUMGNPA
Emerging Market LAP₹3,581 Cr1.2%
Embedded Finance₹2,280 Cr1.7%
Focus Verticals (EM-LAP & Embedded Finance)——

Capital allocation

  • Debt Gross ₹10,782 Cr Cost 10.2%
    Our debt stands at INR 10,782 crores, which is well-diversified across banks, DFIs, and the debt capital market. We will essentially not require incremental equity through FY29.
  • M&A Profectus Capital Acquisition · Integrated · Consideration ₹[object Object] (cash) · AUM ₹3,000 Cr

    Opex rationalization and buffering for built-out opex, cash generation profitability, ROE enhancement.

    Generated ~INR 150 crores of profitability on INR 1,400 crores cash, roughly 10% higher than existing ROEs. Contributed to INR 120 crores of cost savings.

    whose acquisition was completed on December 8, 2025... Profectus was also in MSME lending business with about INR 3,000 crores of AUM with a very large workforce. UGRO also had a very similar workforce catering to the same business. So, when we acquired Profectus, there was a duplicacy in opex and we had identified about INR 120-odd crores of cost which we had taken out at the time of acquisition... Also, it was an ROE enhancer because we paid roughly around INR 1,400 crores cash for a INR 1,200 crores net worth company. And on year one, on INR 1,400 crores, we are generating around INR 150-odd crores of profitability, which was roughly around 10%-odd higher than our existing ROEs.
  • M&A Data Science Technologies Private Limited Acquisition · Closed

    Offers data analytics and credit intelligence services to financial institutions.

    whose acquisition was completed on ... March 18, 2026, respectively... which offers data analytics and credit intelligence services to financial institutions.
  • Liquidity Cash ₹1,800 Cr Q4 cash balances are being deployed.
    Our Q4 cash balances, which we held off about INR 1,800 crores, are being deployed.

Guidance & targets

AUM Mix

  • Focus Verticals (EM-LAP & Embedded Finance) Share of Total AUM AUM Mix · FY29 · High confidence 85%
    The first, shift EM-LAP and embedded finance to 85% of total AUM by FY29.

    — Shachindra Nath

  • Unsecured Loans (Embedded Finance) Share of Total Portfolio AUM Mix · Ongoing · High confidence Not beyond 30%-35%
    Our broad philosophy is that unsecured loans, whether they are unsecured business loans or embedded finance, should not go beyond 30%-35% of the total portfolio.

    — Anuj Pandey

Cost Optimization

  • Annualized Cost Savings Cost Optimization · FY27 · High confidence INR 220 crores
    Second, take out INR 220 crores of annualized costs.

    — Shachindra Nath

Portfolio Rundown

  • Prime Intermediated Portfolio Rundown Rate Portfolio Rundown · Annually · High confidence 15% to 20% annually
    Third run down Prime Intermediated portfolio at 15% to 20% annually.

    — Shachindra Nath

Equity Funding

  • Incremental Equity Requirement Equity Funding · FY29 · High confidence No incremental equity
    The fourth no incremental equity through FY29, growth funded entirely from internal accruals.

    — Shachindra Nath

Profitability

  • Cash ROA Profitability · FY29 · High confidence 3% to 3.5%
    The fifth transition to be steady-state annuity-led, largely cash ROA of 3% to 3.5% by FY29, with negligible contribution from co-lending and direct assignment income.

    — Shachindra Nath

  • Bottom-line ROA (FY27) Profitability · FY27 · Medium confidence Marginally better than FY26
    our assumption would be that purely the bottom-line ROA performance would be marginally better and then it would step up in year 28-29 quite significantly.

    — Shachindra Nath

  • Bottom-line ROA (FY28-29) Profitability · FY28-FY29 · High confidence 3% to 3.5%
    FY28, FY29 we think the business would fully mature at 3%, 3.5%, which is the top-tier ROA performance for most of the lending institutions in India.

    — Shachindra Nath

Asset Quality

  • Embedded Finance GNPA Asset Quality · Long-term (after lifecycle completion) · Medium confidence 4% to 4.5%
    We had projected a 4% to 4.5% GNPA here. And after 18 months, we have seen about six cohorts which have completed their lifecycle. The GNPAs are 1.7%. So, we are quite comfortable up to 4% - 4.5%.

    — Anuj Pandey

Credit Cost

  • Credit Cost (annualized AUM %) Credit Cost · Ongoing · Medium confidence Less than 2%, in the zone of 2%
    We foresee credit cost to be in the zone of little less than two, in the zone of 2%, but not more.

    — Anuj Pandey

Branch Productivity

  • Vintage Branch Disbursements Branch Productivity · Ongoing · High confidence INR 80 lakhs per month
    Vintage branches, which are older than 12 months, are producing INR 68 lakhs per month in disbursements, approaching the management target of about INR 80 lakhs per month.

    — Anuj Pandey

AUM Growth

  • Focus Verticals (EM-LAP & Embedded Finance) CAGR AUM Growth · Ongoing · High confidence 25%
    growth rate in our Emerging Market LAP business and embedded merchant lending business, because both of them would grow in the range of 25-odd percent.

    — Shachindra Nath

What to watch in Q1 FY27

Focus Verticals AUM Share

Next quarter
Current 38% of total AUM
Target Continued increase towards 85% by FY29

Why it matters

This metric is core to the strategic realignment and indicates progress towards the targeted portfolio mix and future profitability.

The mix of focus verticals has moved from 33% to 38% of total AUM in a single quarter, the fastest quarterly shift on record. We are on track.

Risks & concerns

  • GNPA increase due to portfolio shift

    medium

    GNPA increased from 2.2% to 2.5%, but management attributes this to a denominator effect from the rundown of the non-focus book, not incremental portfolio deterioration.

    Both downplayed

  • Flat AUM growth during transition

    medium

    Overall AUM is broadly flat QoQ as the company runs down lower-yielding portfolios, which could be perceived negatively by growth-focused investors.

    Analyst acknowledged

  • Competition in high-yield segments

    medium

    Analyst raised concern about increasing competition in the high-yielding EM-LAP and embedded finance segments potentially lowering yields, though management believes their network provides a moat.

    Analyst acknowledged

  • FY27 as a transition year for profitability

    medium

    Significant bottom-line ROA improvement is expected only from FY28-29, with FY27 being a transition year focused on maturing networks and cost realization.

    Management acknowledged

Q&A highlights

7 direct
Cost Savings Explanation (INR 220 crores) Direct
So, this INR 220 crores of cost save was on account of two strategic decisions which we took last year. The first was the acquisition of Profectus... about INR 120-odd crores of cost which we had taken out... Additionally, in February, we did a realignment in UGRO's own business where we said that intermediated prime lower-yielding segments, we will stop sourcing... roughly came to about INR 100-odd crores.

Clarified the sources and nature (one-time exercise) of the significant cost savings target, crucial for future profitability.

Asked by Rohit Arora

Customer Profile and Risk for New Segments Direct
in emerging markets business, we are catering to customers who are micro-SME, typically with turnover less than INR 3 crores... On embedded finance, the target segment are small retailers with turnover range between INR 15 lakhs, INR 20 lakhs to a little higher... average ticket size is about INR 1 lakh.

Provided granular detail on the target customer segments for EM-LAP and Embedded Finance, addressing concerns about perceived higher risk.

Asked by Rohit Arora

Rationale for Strategy Shift (Exiting 70% AUM, Moving to Granular) Direct
The premise was that over a period of time, the cost of borrowings would keep coming down... we didn't see the same impact on our cost of borrowings... for the lower-yielding prime DSA-led customer segment, you need a pricing advantage because otherwise the economic value creation was not happening... we wanted to increase the portfolio yield, we wanted to protect the dilution. And we wanted to get to a 3% to 3.5% of ROA.

Addressed a critical analyst challenge regarding the fundamental shift in business strategy, explaining the drivers behind prioritizing ROA and value creation over sheer AUM growth.

Asked by Sameer Dalal

Embedded Finance Security and Risk Direct
Our view is that the embedded merchant lending credit cost is far more controlled than open market business loan, predominantly the way the product is designed. It is a INR1 lakh average ticket size of loan done on the basis of the payment data flow, GRO Score and deep integration with the payment platform, and gets repaid on a daily basis.

Clarified the risk mitigation strategies for the unsecured embedded finance segment, which was perceived as higher risk by the analyst.

Asked by Sameer Dalal

AUM Growth and Profitability Trade-off Direct
I think obviously a lot of people get focused on growth because I presume that the general perception is the growth leads to incremental profitability... what we realized that between choice of scale versus the bottom line, this scale was not delivering the resultant bottom line to us because these were verticals who are low-yielding.

Explained the company's strategic choice to prioritize bottom-line profitability and value creation over AUM growth, which is a key change in investor perception.

Asked by Sameer Dalal

Rationale for Profectus Acquisition given Strategy Shift Direct
The reason why we could transition to this is because one of the reasons was because of Profectus... What Profectus helped us is exactly what when we rationalized... we acquired a full company and the portfolio. Profectus had a total cost base of around INR180-odd crores. And we have taken out majority of that cost.

Addressed the apparent contradiction of acquiring a low-ROA company while shifting to high-yield, explaining Profectus's role in enabling the transition and cost rationalization.

Asked by Adarsh J

ECB Cost of Funds and Borrowing Strategy Partial
So, there is no stopping from regulation on the amount that can be borrowed per se. But of course, it's also availability which matters... all the ECBs that we take are completely hedged for currency and interest rates. So, the rate that falls to us is completely landed in INR... in an approximation of about 9.5% to 10%.

Provided insights into the company's ECB borrowing strategy, including hedging practices and the effective landed cost, which is crucial for understanding funding costs.

Asked by Rishi

FY27 as a Transition Year for Profitability Direct
So, there are two things. One, FY27 is a transition year... our assumption would be that purely the bottom-line ROA performance would be marginally better and then it would step up in year 28-29 quite significantly.

Set clear expectations for profitability trajectory, indicating FY27 will be a period of consolidation before a significant ROA improvement in subsequent years.

Asked by Darshil Jhaveri

3 min read 7 chapters

Detailed narrative

Strategic Realignment and Portfolio Shift

Ugro Capital has completed a structural realignment, exiting intermediated, DSA-led business (Business Loans, Machinery Loans, Prime LAP) to focus on Emerging Market LAP and Embedded Finance. This shift aims to achieve a 3-3.5% cash ROA by FY29, moving away from yield-dilutive and capital-intensive segments. The focus verticals (EM-LAP and Embedded Finance) have already increased from 33% to 38% of total AUM in Q4 FY26, with a target of 85% by FY29. The decision was driven by flat cost of borrowings and the need for higher value creation.

Q4 FY26 Financial Performance Overview

For Q4 FY26, Ugro Capital reported a 51% YoY and 34% QoQ growth in net total income, with PAT growing 26% YoY. Interest income was INR 415 crores, up 57% YoY and 26% QoQ. The cost of borrowings improved to 10.16%, down 45 bps YoY. A one-time restructuring cost of INR 25 crores was incurred in Q4 related to the transition, but management stated the underlying earnings trajectory is on track.

Asset Quality and Capital Position

GNPA increased from 2.2% to 2.5% in Q4 FY26, which management attributed to a 'denominator effect' from the rundown of the non-focus book, rather than incremental portfolio deterioration. Net NPA stood at 1.6%, with a coverage ratio of 45%. Capital adequacy remains healthy at 21.2%, up from 20.8% last quarter, with a net worth of INR 2,906 crores and leverage of 3.7x. The company does not anticipate needing incremental equity through FY29.

Cost Optimization and Efficiency Gains

The company is on track to achieve INR 220 crores of annualized cost savings, reducing the consolidated opex base from approximately INR 750 crores to INR 490 crores plus in FY27. These savings stem from rationalizing operations post-Profectus acquisition (INR 120 crores) and exiting non-focus segments (INR 100 crores). The full impact of these savings is expected to flow through in FY27, with some reflection starting from Q1 FY27.

Emerging Market LAP Performance

The Emerging Market LAP segment, supported by a 317-branch network across 13 states, recorded an AUM of INR 3,581 crores in Q4 FY26 with a GNPA of 1.2%. The focus has shifted from expansion to increasing productivity per branch. Vintage branches (older than 12 months) are currently producing INR 68 lakhs per month in disbursements, nearing the management target of INR 80 lakhs per month. This segment is projected to grow at a 25% CAGR.

Embedded Finance Growth and Business Model

The embedded finance business, facilitated by MyShubhLife, achieved an AUM of INR 2,280 crores in Q4 FY26, demonstrating 27% QoQ growth and a 6x increase over 15 months. This segment targets digitally transacting small retailers with an average ticket size of INR 1 lakh, offering yields of 24-26%. Its GNPA stood at 1.7%, well within the expected range of 4-4.5%. The company aims to cap unsecured loans, including embedded finance, at 30-35% of the total portfolio.

Outlook and Future Profitability Trajectory

Management characterizes FY27 as a transition year, expecting bottom-line ROA to be 'marginally better' than FY26. A significant 'leap' in profitability is anticipated in FY28-29, with a target of 3% to 3.5% ROA. This improvement will be driven by the maturing of the new branch networks, the full realization of cost savings, and the shift towards higher-yielding, annuity-led on-book interest income, reducing reliance on co-lending income.

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