Elara Capital Bullish on Ugro Capital, Sets ₹226 Target with 54% Upside
Small-cap stock Ugro Capital has faced considerable market pressure over the past two years, but a strategic pivot toward enhancing profitability is now reshaping expert sentiment. In a significant development, brokerage firm Elara Capital has initiated coverage on the stock with a strong buy rating, establishing a target price of ₹226 per share.
Given Ugro Capital's previous closing price of ₹147.15 on the Bombay Stock Exchange (BSE), Elara's target implies a substantial 54% upside potential for investors. This optimistic outlook marks a notable shift in the narrative surrounding the MSME-focused lender.
Technology Platform and Growth Trajectory Driving Confidence
Elara Capital analysts highlighted Ugro Capital's distinctive position in the market, stating, "UGRO Capital sets itself apart with a best-in-class technology platform, which has driven an impressive asset under management (AUM) compound annual growth rate (CAGR) of 69% over the past five years. The stock is currently trading at a sub-book valuation of 0.8 times the projected price to adjusted book value for FY27. We believe that shifting gears from aggressive growth to sustainable profitability should boost cash return on assets and trigger a significant multiple re-rating."
The brokerage identified three key catalysts poised to unlock Ugro Capital's value and enhance its return on assets (RoA):
- Liability Repricing and Debt Optimization: Actively trimming high-cost debt and repricing liabilities to improve funding efficiency.
- Cost Optimization and Productivity Gains: Implementing measures to streamline operations and enhance productivity across the organization.
- Portfolio Pivot to Higher-Yielding Assets: Leveraging previous investments in branch networks and technology infrastructure, along with strategic acquisitions, to focus on more profitable lending segments.
Elara Capital projects that these initiatives will help Ugro Capital's RoA recover from 2.1% in FY26 to a healthier 3.4% by FY28.
Strategic Recalibration: From Growth to Profitability Focus
UGRO Capital, a private-equity-backed MSME lender, has publicly announced it is recalibrating its business strategy to prioritize profitability following a period of rapid loan book expansion over the last five years. Financial experts believe this increased emphasis on profitability metrics could significantly improve the company's return ratios and balance-sheet efficiency, potentially unlocking substantial value and driving a market re-rating.
The company's asset under management demonstrated remarkable growth, expanding at a 69% CAGR between FY20 and FY25. This expansion was supported by a sophisticated technology-led lending platform and a diversified MSME borrower base encompassing enterprises with turnovers ranging from ₹20 lakh to ₹15 crore.
UGRO Capital operates across India through a multi-channel distribution approach that includes branch-led operations, strategic ecosystem partnerships, and embedded finance solutions via payment platforms.
Front-Loaded Investments Paving Way for Improved Returns
With most of its branch network and technology investments now front-loaded, the lender has indicated it is shifting its strategic focus toward improving return on assets. Management expects RoA to improve from approximately 2.1% in FY26 to 3.4% by FY28, driven by several key factors:
- Reduced Funding Costs: Through liability repricing and optimization of the debt portfolio.
- Operating Leverage: Achieving productivity gains from established infrastructure.
- Higher-Yielding Asset Focus: Strategic reallocation toward more profitable lending segments.
UGRO Capital is actively rationalizing its loan portfolio by reducing exposure to lower-yield segments such as select machinery loans and microfinance-linked assets. Simultaneously, the company is increasing its focus on embedded finance solutions and cash-flow-linked lending products that offer higher collection frequency and improved returns.
Disclaimer: This financial analysis is presented for educational purposes only. The views and investment recommendations expressed herein are those of individual analysts or brokerage firms and do not represent financial advice. Investors are strongly advised to consult with certified financial experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary significantly.
