UGRO focus businesses reach 53% of AUM nine months after reset

UGRO Capital Limited shifted 53% of its Rs 15,019 crore assets under management, or AUM, into Emerging Market loan against property and GROx embedded merchant lending by September 2026, up from 32% nine months earlier. The change followed UGRO’s February 2026 decision to stop sourcing prime intermediary-led loans and run down that portfolio.

Why did UGRO reset its lending model?

UGRO reset its model because intermediary-led co-lending and direct-assignment loans produced volatile reported income and did not add to regulatory capital until cash was realised. Between FY22 and FY26, AUM grew about fivefold from roughly Rs 3,000 crore to more than Rs 15,000 crore, with prime loan against property, business and machinery loans largely sourced through intermediaries. At its peak, 45% of AUM was off balance sheet with nine banks and seven non-banking financial companies.

UGRO said it recognised its share of future interest spread on the contractual life of co-lent or assigned loans at origination. When customers repaid early or refinanced at lower rates, UGRO reversed income that had already been booked. These reversals totalled Rs 318 crore between FY22 and FY26, equal to 44% of cumulative profit before tax over that period, although management said they were not credit losses.

In February 2026, UGRO stopped sourcing prime loans through intermediaries, directed capital and employees towards Emerging Market LAP and GROx, and committed to remove about Rs 220 crore of annual costs. Management also set a target of funding growth without new equity for three years and achieving a return on assets, or ROA, of 3% to 3.5% by FY29.

How much has UGRO’s loan mix changed?

UGRO’s two focus businesses reached Rs 7,929 crore, or 53% of AUM, in September 2026, compared with 32% in December 2025. Emerging Market LAP increased to Rs 4,268 crore and GROx rose to Rs 3,661 crore, while the defocused portfolio fell to Rs 7,090 crore through repayments and foreclosures.

The defocused book declined 32% over nine months and 13% in Q2 FY27 alone, leaving it at 47% of AUM. Total AUM was broadly flat quarter on quarter because the old book ran off faster than new focused lending expanded. Management’s FY29 objective is for the two focus businesses to account for 85% of AUM.

Net disbursements were Rs 3,159 crore in Q2 FY27, up 77% year on year and 24% from Q1 FY27. Monthly disbursements exceeded Rs 1,000 crore in each month of the quarter: Rs 1,057 crore in July, Rs 1,010 crore in August and Rs 1,092 crore in September. On-book loans rose from Rs 9,519 crore in June 2026 to Rs 9,693 crore in September 2026.

How do Emerging Market LAP and GROx differ?

Emerging Market LAP is UGRO’s secured, branch-led lending business for small-business owners, while GROx provides unsecured merchant loans through payment applications. Emerging Market LAP typically has ticket sizes of Rs 17 lakh to Rs 19 lakh and loan-to-value ratios of up to 75%. GROx loans are typically below Rs 1 lakh, have about 13-month tenures and are offered through platforms including PhonePe, Paytm and BharatPe.

Emerging Market LAP AUM was Rs 4,268 crore in September, up 10% in Q2 FY27 and 42% year on year. Quarterly disbursements rose to Rs 692 crore from Rs 592 crore in Q1 FY27, while portfolio yield was about 18.4% and gross non-performing assets, or gross NPA, were 2%. The business operated through 317 branches across 13 states, with more than 1,800 sales executives and more than 500 field collection officers.

Average monthly disbursement per Emerging Market LAP branch increased to about Rs 73 lakh in Q2 FY27, from Rs 62 lakh in Q1 FY27 and Rs 48 lakh in FY26. UGRO had 107 branches older than 12 months in September, versus 81 in March, and these mature branches averaged about Rs 86 lakh of monthly disbursements. Management’s stated productivity target is Rs 80 lakh to Rs 85 lakh per branch each month over the next few months.

GROx AUM reached Rs 3,661 crore, up 22% in Q2 FY27 and from Rs 1,270 crore a year earlier. It disbursed Rs 2,253 crore during the quarter, compared with Rs 1,853 crore in Q1 FY27, and originated about Rs 750 crore or roughly 83,000 loans a month. Active borrowers rose from 1.5 lakh a year earlier to about 4.1 lakh in September, while portfolio yield was about 26% and gross NPA was 1.4%.

What has the reset changed in earnings and capital?

UGRO reported profit before tax of Rs 68.3 crore in Q2 FY27, up 12% year on year and 11% quarter on quarter, while profit after tax was Rs 50.7 crore, up 17% year on year. The company cautioned that Q2 FY27 and Q1 FY27 were consolidated figures including Profectus Capital and GROx Technologies, whereas Q2 FY26 was reported on a standalone basis.

Portfolio yield reached 18.7%, up 53 basis points from Q1 FY27 and 108 basis points year on year, as on-book lending and the focused businesses expanded. Operating expenses were Rs 127.2 crore, down 7% year on year and below Rs 205 crore in Q4 FY26. Management said the quarterly run rate was in line with its FY27 operating-cost guidance of Rs 490 crore or more.

Credit cost rose to Rs 86.9 crore from Rs 65.6 crore in Q1 FY27, representing 3.6% of average on-book loans versus 2.8% in the prior quarter. Management attributed the increase largely to seasoning in newer Emerging Market LAP and GROx portfolios. Gross NPA on total AUM was 2.7%, against 2.6% in June, while the focus businesses recorded gross NPA of 1.7%, compared with 3.9% in the shrinking defocused book.

The proposed Profectus merger would remeasure co-lending and direct-assignment income using observed behavioural repayment tenure rather than contractual tenure. Management estimated pro forma net worth of Rs 2,454 crore after deducting Rs 308 crore of Profectus goodwill and acquisition costs and Rs 266 crore for excess interest-spread remeasurement from reported net worth of Rs 3,029 crore. It said capital adequacy would increase from 18.8% standalone to about 22% on a merged pro forma basis.

Conclusion

UGRO has materially changed its portfolio mix since the February 2026 reset, with Emerging Market LAP and GROx rising from 32% to 53% of AUM as the intermediary-led book declined to 47%. The shift has coincided with a 108-basis-point rise in portfolio yield and lower operating expenses, while credit cost increased as the newer portfolios seasoned.

The National Company Law Tribunal’s final hearing on the Profectus merger was scheduled for November 20, 2026. If the scheme is sanctioned, management expects to publish merger-restated financials over the following two quarters, using behavioural loan tenure for income recognition. Progress towards the FY29 targets of 85% focused-business AUM and 3% to 3.5% ROA remains the central execution measure.