Why Elara Capital Sees Over 60% Upside in UGRO Capital Shares

Mumbai-based brokerage Elara Capital earlier this week initiated coverage on tech-based MSME lender UGRO Capital with a ‘buy’ rating and a target price of ₹226, implying about 66.45% upside from the company’s current share price. The brokerage claims that the TPG NewQuest and Clearsky Investment Holdings-backed NBFC sets itself apart from peers with a “best-in-class tech platform, driving a strong AUM CAGR of 69% over the past five years.”

According to the brokerage firm, UGRO is one of the cheapest stocks in its peer group, trading at around 0.8x FY27 estimated book value, while peers trade at 2–3x. In comparison, rated peers such as Bajaj Finance (4.5x), Shriram Finance (3.4x), Aadhar Housing (2.3x), CreditAccess (2.4x), Aptus (2.2x), Aavas (2.1x), Home First (2.4x) and India Shelter (2.2x) trade in the 2–4.5x range. Despite its return of assets (RoA) expected to improve to 2.9–3.4%, broadly comparable to several peers, UGRO continues to trade at a steep discount.

On Wednesday, the company’s shares were trading marginally higher by 0.4% at ₹135.78. Year to date, UGRO Capital’s share price has declined 25.57%.

What Does UGRO Capital Do?

Set up in 2018, UGRO Capital offers a diversified range of products, including secured and unsecured business loans, supply-chain finance, machinery loans, micro-enterprise lending and embedded finance. Its underwriting is powered by the proprietary AI/ML-based GroScore platform, which uses bureau, banking and GST data for cash flow-based credit assessment. With a multi-channel distribution model and strong institutional backing, UGRO has scaled to over ₹12,000 crore in AUM while maintaining a focus on asset quality and sustainable growth.

The company operates across prime and emerging MSME segments (turnover ₹20 lakh–₹15 crore) and has built a pan-India presence through branches, ecosystem partnerships and payment platforms. This has helped the firm grow assets at a 69% CAGR over the past five years.

Growth is expected to moderate to around 10%, supported by new branches, acquisitions such as Profectus and MSL and a higher share of better-yielding loans, according to the brokerage.

The company is now shifting its focus from rapid expansion to improving profitability. Management aims to boost returns by reducing high-cost debt, lowering operating expenses through better productivity, and increasing exposure to higher-yield assets. As a result, RoA is expected to improve from 2.1% in FY26 to 3.4% by FY28, with margins strengthening and earnings growing at a healthy pace, the brokerage noted.

UGRO Capital reported a 23% year-on-year rise in net profit to ₹46.3 crore for the quarter ended December 31, 2025, driven by strong loan growth and stable asset quality. Assets under management grew 40% YoY to ₹15,454 crore, while total income increased 32% to ₹506.4 crore. Net disbursements rose 6% YoY to ₹2,217 crore during the quarter and 7% to ₹5,605 crore for the nine-month period, with nine-month profit reaching ₹123.7 crore. Asset quality remained steady, with gross NPAs at 2.2%, net NPAs at 1.4%, and a provision coverage ratio of 45%.

Over the last five years, the NBFC’s asset quality has remained relatively stable, with NPAs below 2.5%. The company has reduced exposure to riskier segments and expects NPAs to stabilise at around 2.7% by FY28E. With improving profitability, lower funding costs and better operating leverage, UGRO appears positioned for a re-rating. Key risks to the stock include tight liquidity conditions and funding cost pressures, according to Elara Capital analysts.