Just like you, I’ve been holding this one for quite sometime now while others around us have done really well.
I have following concerns on the company though:
- Now, I see them focusing on the RoA metric which will definitely improve once a company raises lot of capital (as interest cost goes down) – they have started chasing 4% RoA instead of RoE metric which is a hard pill to swallow for a company that has so much of headroom to grow.
- Their disbursement growth has also been tepid since last 2 qtrs. Generally, NBFC slow down when they see issues in Asset Quality. NPA’s related concern can crop up in coming time (i hope not).
- I’m also unable to find their Q1 FY’25 concall link or transcript – if they didn’t do it just because of the poor nos (or Q4 concall was all over the place when they were bombarded with heavy dilution related questions) then it’s not a sign of good governance.
- For them to be re-rated, it’s important to have an improving RoE on a YoY basis. If RoE falls or is not upto the mark then re-rating is very difficult or process is prolonged.
- In their case, RoE is gone for toss for atleast 2 years due to heavy dilution, as a result, management is talking more about RoA than RoE.
On the positive front,
- Based on my scuttlebutt checks, I’ve been hearing a lot from MSMEs about Ugro. They have managed to penetrate to a good level.
- Headroom for growth is unlimited and they have the professional management.
- But they will be tested truly now as scaling from 10k to 20k maintaining asset quality and a RoE of atleast 15% will make them a true candidate for the re-rating.
Disc: Invested since lower levels.
let’s see how it makes us some money at all.
