UGRO Capital Stock: Elara Sees 66% Upside by 2026

Introduction to Elara Capital's Coverage

Elara Capital has initiated coverage on UGRO Capital, a technology-focused lending platform, with a 'Buy' recommendation. The brokerage has set a price target of ₹226 per share, suggesting a significant potential upside of 66% from its closing price of ₹136 on February 9, 2026. This bullish outlook is anchored in the company's robust technology infrastructure, impressive historical growth, and a strategic pivot towards enhancing profitability, which is expected to drive a re-rating of its valuation.

The Bullish Thesis for UGRO Capital

Elara Capital's optimism stems from a combination of factors that position UGRO Capital for sustained performance. The brokerage highlights the company's scalable, technology-led model for MSME financing, which has proven resilient. Furthermore, a deliberate shift in corporate strategy from aggressive growth to a focus on profitability is anticipated to improve key financial metrics like Return on Assets (RoA) and unlock significant shareholder value. The valuation is based on 1.2 times its projected FY27 book value.

A Technology-Driven MSME Financier

UGRO Capital operates as a DataTech lending platform, addressing the credit gap for Micro, Small, and Medium Enterprises (MSMEs). Its model serves a diverse client base with annual turnovers ranging from ₹2 million to ₹150 million, creating a balanced risk and yield profile. The company has built a wide distribution network across India, utilizing branch-led sourcing, ecosystem partnerships, and payment platforms to cater to varied credit needs. This strategy fueled a remarkable 69% compound annual growth rate (CAGR) in Assets Under Management (AUM) between FY20 and FY25. While this rapid expansion is expected to moderate to around 10% in the near term, the growth was supported by substantial investments, including the addition of 300 branches and strategic acquisitions that added ₹47 billion to its AUM.

Strategic Pivot Towards Profitability

The company is now shifting its focus from high-speed growth to improving profitability and operational efficiency. This move is a response to challenges such as elevated funding costs and high operating expenses. Elara Capital anticipates that this strategic pivot will lead to several positive outcomes. Funding costs are projected to decline by approximately 60 basis points as UGRO reduces high-cost debt. Simultaneously, yields are expected to improve as the company increases its focus on higher-yielding segments like emerging and embedded finance. This strategic realignment is also projected to enhance net interest margins by 240 basis points to 8.7%.

Prudent Lending and Asset Quality

Despite concerns often associated with MSME lending, UGRO Capital has maintained strong asset quality. Its responsible lending framework, powered by a data- and technology-driven credit assessment model, has kept gross Non-Performing Assets (NPAs) below 2.5% over the last five years. The company has also actively streamlined its portfolio by reducing exposure to riskier segments. Looking ahead, Elara Capital forecasts that gross NPAs will stabilize at approximately 2.7%, with credit costs remaining steady at 1.7% by FY28, underscoring the effectiveness of its risk management practices.

Financial Projections and Valuation Outlook

Elara Capital projects a strong financial trajectory for UGRO Capital, driven by efficiency gains and strategic shifts. The brokerage expects the company's earnings per share (EPS) to grow at a 40% CAGR, leading to a substantial recovery in Return on Assets (RoA) from 2.1% in FY26 to 3.4% between FY25 and FY28. Despite its strong fundamentals and growth history, the stock currently trades at a discount, valued at 0.8 times its FY27 estimated price-to-adjusted book value. Elara believes that the upfront investments in technology and infrastructure are now poised to deliver returns, which should trigger a positive re-rating of its valuation multiples.

Identified Investment Risks

While the outlook is positive, Elara Capital has also identified potential risks that investors should consider. The primary risks include challenges in accessing funding and managing the cost of funds, particularly during periods of tight liquidity in the broader market. These factors could impact the company's lending capacity and profitability if not managed effectively.

Conclusion

Elara Capital's 'Buy' rating on UGRO Capital is based on a comprehensive analysis of its strategic direction and operational strengths. The company's shift towards a profitability-focused model, supported by a best-in-class technology platform and prudent risk management, is expected to drive a significant improvement in financial returns. This, in turn, provides a strong basis for the projected 66% upside and a potential valuation re-rating as the market recognizes the franchise's long-term value.