Equity dilution is very normal for a high growth small financial companies. Without a significant equity raise they cannot raise debt and hence cannot lend.
Equity can only be raised by equity dilution. When Ugro reaches a sustainable 17-18% ROE, the need of equity raise will decreases drastically. Ugro foresee to reach that ROE level in the next 2-3 yrs.
As an example Bajaj finance raised equity via dilution continuously between 2012 to 2019, and later the speed got decreased drastically.
However, I do agree with you that the dilution really hurt the EPS growth. The problem is we are in the high interest rate environment wherein NBFC sector is not at all performing, this is visible in the share price of most of the NBFCs. As a result, more dilution is need to raise the equity. Having said that, with good financial performance the market will realize the potential of this company and reward by appreciating the stock price, as a result the next equity raise (after 10quarters) will be at the higher stock price and will leads to less dilution.
When all the managements’ materialize and operating leverage kicks in the PAT will increase drastically and will negate the ill effect on EPS growth. For example the PAT increased by 200% from fy23 to fy24, whereas the EPS grew by 128% in the same period.
Summary: Raising capital via equity dilution is the nature of the business and not capital mismanagement or anything else. Management is using capital very efficiently and this is clear from their strategies, rest their future results need to be checked diligently.
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