UGRO Capital Limited ($511742)

Ladies and gentlemen, good day and welcome to the Q4 FY '26 Earnings Conference Call of UGRO Capital Limited, hosted by Elara Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Elara Securities. Thank you, and over to you, sir.

Thanks, Rutuja. Good evening, everyone. We have with us the senior management team of UGRO Capital. Mr. Shachindra Nath, Founder, Managing Director; Mr. Pandey, CEO; Ms. Shilpa Bhatter, CFO; Mr. Ritu Singh, Head IR; and Mr. Siddharth Rajan, Head of Strategy. Over to you, sir.

Thank you, Rahul. Good evening, everyone. I'm Siddharth Rajan, Head of Strategy and FP&A. I welcome to UGRO Capital's Q4 FY '26 and Full Year FY '26 Earnings Call. On behalf of the management team, I'm delighted to welcome all of you today. Before we proceed, I would like to draw your attention to the basis of comparison. FY '26 and Q4 FY '26 financials are on a consolidated basis, including Profectus Capital and Data Science Technologies Private Limited, whose acquisition was completed on December 8, 2025 and March 18, 2026, respectively. FY '25 and Q4 FY '25 comparatives are on a stand-alone UGRO Capital basis. All year-on-year references in today's discussion should be read with this change of scope in mind. I will now hand over to Mr. Shachindra Nath for his opening remarks. Over to you, sir.

Thank you, Siddharth. Good evening, everyone, and thank you for joining us. Before I hand over to Anuj, let me set this strategic context and long-term frame. On February 7, 2026, we communicated a structural realignment. The rationale was simple. After 3 years of building a 317-branch emerging market field network, acquiring MyShubhLife for embedded finance and acquiring Profectus Capital, the franchise was ready to stop doing all things and focus entirely on 2 verticals, where UGRO has proprietary origination, superior data and demonstrably better credit outcomes. The intermediated DSA-led book, business loan, machinery loans, prime Lab was yield dilutive, capital intensive in the wrong way and not aligned with what we are building, EM Lap embedded finance are. The decision was, therefore, clear is stop the non-focused book and concentrate every unit of capital distribution and management attention on the 2 verticals built for long-term annuity compounding. When we announced the realignment in February, we made 5 commitments, each with measurable FY '29 target and each track publicly every quarter. The first shift EM LAP and embedded finance to 85% of total AUM by '29. Second, take out INR 220 crores of annualized cost. Third, rundown prime intermediated portfolio at 50% to 20% annually. And the fourth, no incremental equity through FY '29, growth funded entirely from internal accruals. The fifth, transition to be steady state NUP led largely cash ROA of 3% to 3.5% by FY '29 with negligible contribution from co-lending and direct income. I will close my remarks with this. After once a quarter of execution, all 5 are on track. Anuj will show you the operational evidence. Shipa will show you the financial evidence. I will now hand over to Anuj, who will take you through the branch network, the productivity inflection and the competitive mode in each of the 2 focused verticals. Anuj, over to you.

Thank you, Sachin. Good evening, everyone. I'll cover the operational performance this quarter and walk through the 2 businesses that are driving our next phase. Quarter 4 FY '26 is the first full quarter of the realignment in execution. Let me give you the numbers first and then walk you through the operations detail behind them. AUM is broadly flat quarter-on-quarter. -- that is intentional. The nonfocused intermediated book is running down as planned, while the focus verticals are growing strongly. The mix of focus verticals has moved from 33% to 38% of total AUM in a single quarter, the fastest quarterly shift on record. We are on track. Net total income for quarter 4 grew 51% year-on-year and 34% quarter-on-quarter. PAT grew 26% year-on-year. Quarter 4 also carries a onetime restructuring cost of about INR 25 crores, which was the cost of executing the transition clearly. Excluding that, the underlying earnings trajectory is exactly where we said it would be. On the cost program, the consolidated OpEx base of UGRO and Profectus combined was approximately INR 750 crores last year. This will reduce to INR 490 crores plus in FY '27. The takeout spans, sales and sourcing structures, underwriting and credit layers, brands and support functions and overheads, all linked to the intermediated verticals we have already exited. The emerging market lap build-out is also complete. 317 branches across 13 states, up from 127 in FY '24. The focus is now from expansion to increasing productivity per branch. Vintage branch, which are older than 1 months are producing INR 6,800,000 per month in disbursements, approaching the management target of about INR 80,00,000 per month. Behind them, there are about 156 sub 6-month branches, which are queued as the next leg of NUT . Emerging market glass AUM was at INR 3,581 crores in quarter 4 with a G&P of 1.2%. Coming to the embedded finance business, which we do through MyShubhLife, which is structurally different. It is shorter tenure, daily AMI, average ticket size of 1 lakh, entirely digital embedded within phone pay, BharathPay and other such payment ecosystems. Credit is underwritten on merchant GMV, transaction data, not on physical proximity, which allows us to serve at scale and velocity. AUM for this business has now reached INR 2,280 crores in quarter 4, growing 27% quarter-on-quarter, 6 set growth in 15 months. GNPA is 1.7%, which is well within our underwriting expectations. Active merchant customers stand at approximately 2.5 lakhs. Yields, for this segment are around 24% to 26%. Hundreds of millions of digitally transacting merchants in India, which are the vast majority without working capital credit match to their cash flows. -- is the target segment for this business. UGRO, through MyShubhLife has the platform integration, data infrastructure and a credit capability to serve this segment at scale. Together, -- both the businesses secured annuity income compounding from the branch network and a high velocity yield from the embedded platform are complementary, not competitive. -- infrastructure is also in place. I will now hand over to Shilpa for the financial detail. Shilpa, over to you.

Thank you so much, Anuj. Good evening, everyone. Please allow me to take you through the numbers in more detail. Interest income was at INR 415 crores in Q4, which was up 57% year-on-year and 26% quarter-on-quarter. -- recurring net interest income on our balance sheet is strong. As the focus verticals grow, this line expands as a share of total revenue. Co-lending and direct assignment income was INR 155 crores, up 30% year-on-year. This time will reduce proportionally as intermediated disbursements stop and this is purely by design as we replace it with on book interest income that accretes to net worth. Fee and commission income for Q4 were INR 33 crores, covering essentially prepayment income on loans and certain income on loan documentation charges and service fees. Other income was INR 25 crores, comprising of insure and distribution fees on borrower covers that we take. Income from incidental debt indication, we earned when we arranged financing for MSME customers whose financial needs exceed our lending thresholds. -- and fee income earned by data science technologies, our wholly-owned subsidiary, which offers data analytics and credit intelligence services to financial institutions. Finance cost was INR 284 crores. Our cost of borrowing came down to 10.16%. This is for the fifth consecutive quarterly improvement that we have shown. This was also down 45 bps year-over-year. Each 25 bp point reduction at the current AUM scale is worth INR 35 crores to INR 40 crores annualized. OpEx was at INR 180 crores, excluding the onetime cost of INR 25 crores, which was related to the exit on the business vertical that we have done. The annualized savings program is on plan. and the balance will flow through in FY '27. Credit cost was at INR 72 crores, 1.9% of average AUM annualized and this is well within the expected range that we intend to work on. On asset quality, GNPA stands at 2.5% and net NPA at 1.6%. We had a good coverage over the GNPA assets at 45%. Our Stage 1 is at 93.1% of the overall AUM and collection efficiency stands at 98%. We moved from 2.2% to 2.5% GNPA is a denominator effect as the non-focused book runs down, it is essentially not a deterioration in the incremental portfolio. We are standing at a healthy capital adequacy of 21.2%, which is up from 20.8% which we had shown last quarter. Our net worth stands at INR 2,906 crores, a with a very healthy leverage of 3.7x. Our debt stands at INR 10,782 crores, which is well diversified across banks, DFIs and the debt capital market. we will essentially not require incremental equity through FY '29. Our liquidity is comfortable. Our Q4 cash balances, which we held of about INR 1,800 crores. are being deployed. Cost of borrowing will continue improving. Thank you for your continued trust and support. We will now be happy to take questions.

[Operator Instructions] The first question is from the line of Rohit Arora, an individual investor.

Sir, can you please explain the process of saving INR 200 crores to INR 220 crores annually.

So this INR 220 crores of cost saves was on account of 2 strategic decisions, which we took last year. The first was the acquisition of Profectus. And if you recall the objective -- one of the objectives of that acquisition was of OpEx rationalization. So Profectus was also in MSME lending business with about INR 3,000 crores of AUM with a very large workflows. UGRO also had a very similar workforce kicking to the same business. So when we acquired Profectus, there was a duplicacy in OpEx, and we had identified about INR 120-odd crores of cost, which we had taken out at the time of acquisition. Additionally, in February, we did a realignment in UGRO's own business, where we said that intermediated prime lower-yielding segments, we will stop sourcing. And all the costs attached to that, which included front-end sales and credit and other processing costs related to sourcing of that prime segment roughly came to about INR 100-odd crores. So both these put together is INR 120 crores. All of that has got actioned. Some people are, especially on manpower related, are serving notice period and the full cost impact will start coming from this quarter. But this was not an ongoing thing. This was a onetime OpEx reduction exercise.

So this quarter, we can see this impact on profit and loss treatment in Q1 FY '21 itself?

So some impact in Q1 will also start coming, while it is not a one-on-one correspondence that we have reduced INR 220 crores of OpEx. Our -- it will immediately reflect all of it in profits because it is also associated with the running down portfolio. And as we move forward, some of it will start getting reflected in terms of change in our profit profile, while our current -- lot of our current profits on account of the co-lending income which we do. This will replace some of it with the direct annuity income. But yes, some of it will start reflecting from quarter 1.

Sir, can I have 1 more question, please?

Yes.

Sir, tell me more about the customer profile, which we are targeting and which we are focusing on increasing our area of contribution?

So in emerging markets business, we are catering to customers who are micro SME, typically with turnover less than INR 3 crores, median turnover of about INR 1 crore. We do tickets -- we do only secured loans there with ticket sizes between INR 7,500,000 to INR 50 lakhs. This we do in Tier 2, Tier 3 and Tier 4 towns in India through our dedicated branches have a dedicated sales team sources these customers directly. On embedded finance, the target segment are small retailers, with turnover range between INR 15, INR 20 lakhs to a little higher. These are all retailers who are using some kind of payment ecosystem QR codes. We get embedded inside those payment ecosystem apps, and through that, we read their day transaction limits, apply our data science engine and make an eligibility. So broadly 2 segments. One where we are giving INR 7.5 lakhs to INR 50 lakhs of secured loan, the other segment of small retailer with the average ticket size is about INR 1 lakh, but we go up to 5 lakh ticket size.

The duration of these loans?

Come again.

[indiscernible] of these loans, ticket size.

So -- 1 year. The average duration is 1 year, and these are all daily payment.

The next question is from the line of Sameer Dalal from Natverlal and Sons Stockbrokers Private limited.

Yes, Mr. Shachindra Nath. I, unfortunately, wasn't there for the last con call and which is why I'm going to ask this question. I want to understand why such a big change in the strategy on 2 fronts. One, eliminating a part of the business, which contributed to 70% of your total AUM, and suddenly moving to such granule -- I mean, such small ticket loans, where the risk is a lot higher. The second, co-lending was something that you'd always specified, I remember you had done a meet with all the investors and analysts and all of that, where you said that we were one of the pioneers in the co-lending and co-lending is such a great opportunity because we can sell down these loans at a lower rate, earning a spread, without having the capital deployed, why are you taking a call or not to do that part of the business anymore when it was so lucrative and which you were so gung-ho about?

No, thank you. I think a lot of this we answered in the last quarter call as well. But I mean, for the benefit of those who are joining for the first time, I'll summarize it. So I say you asked 3 specific questions, and I'll answer them in that order. First and foremost, that why we decided to exit from low yielding, what you said probably your understanding of a better credit profile customers? So I'll answer that first. So you are right, UGRO was always designed and built for scale. When we started in 2018, we started with INR 1,000 crores of capital. Over a period of our 7-year or 8 years of journey, we increased our capital base to roughly around INR 3,000-odd crores. The premise was that over a period of time, the cost of borrowing would keep coming down. Cost of liability is a function of rating -- actually parentage plus rating and multiple other factors. And we didn't see the same impact on our cost of borrowing. It has remained flattish or it has come down by some basis points. Now for the lower-yielding prime BSA led customer segment, you would need a pricing advantage because otherwise, the economic value creation was not happening. We recognize this core challenge around 2.5 years back, and we were internally building the branch network to enter into small ticket lab segment. And that network we built and took all the OpEx upfront in last 3 years itself. And when that got completed, and we were confident that now we can pivot the portfolio on that as well as our merchant lending, we said that this is the time when we should make that pivot. Number two, your question with respect to the co-lending, we are still very gung-ho about co-lending. We still continue to believe that in order to improve the credit flow to deserving MSME and other segment of the market, a combination of bank and NBFC is the best combination. However, there is structural challenge, which we recognize over the last 2, 2.5 years. Co-lending definitely requires asset classes, which are lower reading asset classes. Bank by its nature actually like to have assets which are lower yielding more -- what they perceive more secured. Now whether you do that business in form of a co-lending or whether you do it on your own balance sheet, the structural margin still remain the same while you don't utilize the capital. point being that if you lend at 14%, if your credit cost is 0.25% and your OpEx is, say, 3%, and your cost of borrowing is 10.5% and if you co-lending is 9.5, you are still making only 1% margin, right? And that is not accretive to investors, shareholders, to management and so on and so forth. And linked point to that is that while the co-lending -- the income volatility on co-lending is very severe and high, which means majority of the investors and also us would like to see a proper annuity flow. So when you take the asset on the balance sheet, you have an interest income, which you calculate, while in co-lending it becomes volatile. In some quarters, it can happen. In some quarter, it does not happen. Second, the income or the profit, which comes from the co-lending does not accrete the capital adequacy network. So suppose in this quarter, if we have done INR 100 crores value of income, which has come from the co-lending. For the purpose of recognizing this income for capital adequacy would happen over a period of time when this actually gets realized, which means that this business requires more capital. Now if you keep raising more capital and keep diluting shareholders at low value, the value creation actually become disrupt. And that's why once we got ready, we said that we will -- last -- sorry, before that, the entire DSL intermediated model has now become one big and inefficiency has come in, wherein these loans are churned at a very fast pace. There are large vendors, which have cost of borrowing advantage, they take good quality customer from us and then they get transferred. So average maturity of these loans keep getting reduced over a period of time. So keeping all that in mind, and we are not saying that we'll not get in due recover ending co-lending will continue to be part of our component. But we wanted to increase the portfolio yield. We wanted to protect the dilution, and we wanted to get to a 3%, 3.5% of ROA and ROA, which largely contributed by cash generating interest income rather than the co-lending income. So this is a 2.5-year journey, which we are internal preparing. Once we got ready, then we executed it, and the results are in the first quarter itself. So if you look at our -- this quarter, disbursement of emerging market lap, it is actually tracking to what we are projecting for FY '29. Last but not least, you asked this question, which you said higher and riskier segment. Answer is, sir, both yes and no. what you presume or we presume is higher, riskier segment. This may be true when you look at purely from the lens of GNPA. This is obviously not a customer which has a turnover between INR 5 crores to INR 15 crores. This is a customer which is below INR 3 crore of data. This customer has a potential to default higher than what a prime customer would be. So suppose we have operated in the GNPA band of 2%, 2.5%. Now once we fully mature in this, this would be in a GNPA band of 3%, 3.5%. But it doesn't change the credit cost metric because 100% of these loans are secured. They are again secured against self-occupied residential property, commercial property and so on and so forth. So ultimately, even if the default rate is a little higher, the credit cost would remain in the same bag. And that's why on the credit cost adjusted basis, this is a superior business than to do a low yielding business. So it is...

That will only be for emerging market portfolio, right, Mr. Nath, that -- because the embedded market lending business would not have the security.

Of course, you're right. And just to clarify, earlier, also, we always had a 30% portfolio, which was an unsecured business loan portfolio, and we are replacing that with the embedded portfolio. it is not that we did not have an unsecured portfolio. We had it. We are only replacing the business loan with embedded merchant lending. Our view is that the embedded merchant lending credit cost is far more controlled then open market business loans, predominantly the way the product is designed. It is a INR 1 lakh of average ticket size of loan done on the basis of the payment data flow, Bureau is score and deep integration with the payment platform and get repaid on a daily basis. So the credit profile, the credit cost, all of that is, if not -- and also adjusted for the yield. Business loan was roughly around 18% to 19%. This is at 26%. So adjusted for the yield and credit cost is a superior ROE business without changing the overall risk profile of UGRO.

Okay. So the gross NPA going up to 1.7 as it's within your expected underwriting expectations, what would be a number of gross NPA that we can to see in that business. And before which there would be a cause of concern or something that would make you think about this business strategy?

This is Anuj. I'll answer this question. So when we had designed the product about 18 months back, -- and this is a 1-year loan business on an average. We had projected a 4% to 4.5% GNPA here. And after 18 months, we have seen about 6 cohorts, which have completed their life cycle. -- the GNPAs are 1.7%. So we are quite comfortable up to 4%, 4.5%. At this point in time, it is doing much better than what we had ourselves anticipated.

Okay. And what can be -- I mean how do you do the gross NPA recognition because this is a daily payback. Now if a person doesn't pay back for a...

On the 90 days, 90 days past due, the NPA recognition exactly remains the same, but is stamped on a daily basis.

Correct. So now my question is, if you all know, you all obviously have early warning if the person has not paid for 10 days or 15 days, do you start making any provisions for it or you will not make any provisions? And can you just run us through how your provision cycling would be for these low small ticket items, which could -- which are unsecured in nature.

So in general, unsecure provision a little higher. So at the full portfolio level for a Stage 3 unsecured, we are providing around 75%. Here, depending on which stage it is. So up to 30 days, he has not paid lease in Stage 1, and we will provide about 30-odd percent. Between 30 to 90 days, we will provide about between 50% to 60%. And after 90 days, we will provide about 75% to 80%.

Okay. Now 1 last question, if I can. At the moment, you are growing your focus vertical by about, say, and you're talking of running down the defocused business at about 20% odd levels. So is it safe to assume that actual AUM growth for the next, say, 2 years would be kind of marginally here or there because 1 side of the book, which is the larger side is degrowing, whereas the smaller side is growing. So at least for the next year, there would not really be a growth in the AUM.

If I may answer this question, I think, obviously, a lot of people get focused on growth because I presume that you -- the general perception is the growth leads to incremental profitability. Even if I take your assumptions on the AUM was right, but those exemption does not to the bottom line. So to some sense, you are right. If you do the math with the way we have given the data, INR 3,500-odd crores growing at 25% CAGR. -- roughly around INR 2,000 crores, growing at 25% CAGR and INR 10,000 crores going down for FY '27, it would be flattish and then you'll start seeing a little bit of uptick on EM. But the underlying -- the bottom line is transitioning because it is replacement of a 15% new portfolio to a 17% portfolio, and that's the transition. So we -- what we have said from -- we are going from scale to bottom line. So while -- and we had the DA is off its scale, but that scale was leading to very large shareholder dilution, not value creative. And that's why we're now focused on bottom line than just share growth.

And also just to add, the running down portfolio, which is the prime portfolio, it's all very long tenure. So it is not that it will suddenly come down. It will take its own time because typically we are 10-year LAP loans. So we have estimated 15% to 20%. And it is not -- I don't think it will accelerate more than that. I'm not lining that. I'm just asking on a

I'm not lining that. I'm just asking on a general basis, about 15, 00 will be probably the ending of FY '27 also? And FY '28 may be 16%, 17%. But like Mr. Nath said, I think the profitability is what is important also -- and that if it rises, that's fine. I mean, I guess. So yes, from that time, there is...

A lot of people are listening to obviously when people think a company which has grown Historically, a 67% CAGR and now would not grow at the same rate, what's the problem. But I tried to explain that problem that sometimes you have to choose between just share growth versus the bottom line. you need both. But at this point in time, for the next 3 years, we think we have to focus on the bottom line, which is coming through this transition.

P Fair enough. But only a problem when you do that Mr. Nath. This is just my observation. I mean, not a question. But because the bottom line is not growing and if you do get some delinquencies and the NPA percentage as an overall rise is because when you're numerators rising, but your denominator is not, it kind of sends out a a signal of rising NPAs? And maybe that is also the case. We are seeing this 1.7% versus maybe 1.5%. I'm not sure exactly. But -- and that also -- and second, credit costs also seem a bit elevated. The last question I would like to end on is where do we see credit cost stabilizing given -- for the next 2 years, given we expect the loan book to be more or less flattish?

So we have estimated this on a very, very granular basis. We foresee cost to be in the zone of a little less than 2% in the zone of 2%, but not more.

[Operator Instructions] The next question is from the line of Amitabh Sonthalia from SKS Capital and Research.

Congrats on a good set of numbers and consolidation of Profectus. I just wanted to just reconfirm the final equity. I don't know if I joined late, so it may have been clarified on the call earlier, but just what would be a fully diluted equity for the sake of full clarity and the pending conversions of CCDs or what we're seeing in

Now what you are saying is -- sorry, [Foreign Languagae] only 2 lakh shares. So the only 2 lakh shares is pending conversion [Foreign Language]. Okay, only 2 lakh shares is pending conversion, somebody's request has not come. Otherwise, what you are seeing is the fully diluted shareholding. So total outstanding share should be INR 15 crores -- INR 15.29 crores, yes.

Okay. That's -- so what is reflecting in the March balance sheet is your final -- almost effectively your fully diluted equity.

Yes. Yes. 2 lakh shares to be converted, but it...

Okay. And there's no further dilution of warrants or anything from the past...

Everything is done.

All your CCDs are either matured or converted?

All CCDs are matured and converted.

Okay. Okay. So there's no noninterest-bearing bonds or the -- on your books as of now?

Nothing.

Nothing.

Okay. And what is our final -- again, it might be there in your presentation, but just for the sake of understanding. So about your net worth, your adjusted net worth. What would that be? INR 2,900 crores roughly is your -- I understand there is some amount, which is I'm forgetting the exact terminology, but there's some amount, which is -- reduces your adjusted net worth too, if you can just help me understand that. .

So Amitabh, there are 2 different things. So our net worth as of today is INR 2,906 crores, that's the net worth. -- in our last conversation, we said that for capital adequacy purposes, RBI uses a different formula. And this net worth is net of against income, which has come from the core lending which sits in the network, but RBI recognized it for the purposes of capital adequacy when the cash gets realized. So you might be referring to that. But as of today, the network guidance...

Okay. So our book net worth as far as the balance sheet is concerned, which is gross of NPAs, right, of INR 2,900 crores.

Yes.

Okay. And what is that -- so could you just explain this part again, please? The RBI, the capital adequacy purpose, what RBI recognizing what this amount -- how this amount gets realized, the differential?

Tally the concept. RBI's, what is the capital adequacy in the RBI panels? Capital adequacy is a buffer, which protect lender of the financial institution against the future credit class. So the principle being that the lenders should -- their money should be repaid and if there are losses through credit, shareholders should absorb it. And that's why RBI provided a framework of capital adequacy. -- for banks, it is lower, and that's why they are much levered. And for NBFC, it is combined 15%. You can take it in the form of Tier 1 capital and Tier 2 capture. Now given that this is a buffer for future credit losses, RBI takes a more conservative view and says that the net worth for the purpose of capital adequacy should be a liquid network. So that's why things like goodwill, intangible assets are taken out from your total network. In our case, also the income taken from the coal lending because you take the NPV value of the differential interest as a part of the income, but it gets realized over the life of the loan. So as and when it gets realized, it keeps getting added back to the network. So this is the difference in the gap.

Okay. And what would that difference be as on March 31.

It's very difficult to -- so the simple simple is down, you should think of this way. Our debt-to-equity ratio is roughly around 3.7x. And our capital adequacy is around 20%, right? 21.2%. So theoretically, which means that on a capital adequacy basis, we are a 5x level. But on a net toward basis, we have 4 levers. So that's the difference.

The next question is from the line of Chetan from [indiscernible] India Fund.

Congrats on the good set of numbers. I wanted to ask about the embedded finance business. Is the -- are the risk weights on the embedded finance business higher than the previous business that we are structuring away from? And do our NPAs overall, do they include repurchased assets? And how do we resolve repurchase assets that we have gotten in the last 5 years? .

Anuj?

Yes. So the embedded finance risk weight is same as any known as far as regulation is concerned, because all these are MSME loans. -- whether they are secured or unsecured, which is 100%. And our -- on the repossessed assets, yes, we have been repossessing assets and have very good experience on them for last 3, 4 years. Typically, for assets greater than 20 lakh ticket size, we use a and the typical time line of resolution in our portfolio is between 12 to 15 months post the NPA. So it typically takes about 3 months to get the order and then about 3 to 6 months for a successful auction. While our own experience also is that once a definitive court order is obtained in about 40% to 50% cases, customer comes on the table and settles.

Yes. And so on unsealed, when you actually have to typically recover these assets, what is the recovery rate net of cost?

So, so far in our experience, we have -- there's only time value of money because the time which it takes for recovery, but we have not lost anything. We have got our principles back. Actually, internally, we -- yes, go ahead.

What do you spend as a percentage of those assets then?

The -- separately, that cost would be closer to 1%.

The next question is from the line of Adarsh A, an individual investor.

I had a couple of questions. First is to Mr. Nath. Given that for the last 2 to 2.5 years, we were planning to move to a high-yielding book, what was the rationale now to acquire Profectus, who really, I think, as much similar comp -- ROA is up 1% for it. And today, we have after acquisition, we are now running down part of the book and laying up people. So first question is like why make the acquisition and our impact was always to move towards a higher yield.

Yes. Can I answer that first? .

Yes, sure. [indiscernible] ask other questions or just hold up?

So we'll come back to that. So the reason why we could transition to this is because -- one of the reasons was because of Profectus. As you remember that we said that we have been building the branch network. This branch network got matured to around 300-odd but the real profitability flow from this branch network would happen over a period of next 2 years. What Profectus has helped us is exactly what when we ratio -- so obviously, we had this in mind that we have to rationalize. So basically, we acquired a full company in the portfolio. Profectus had a total cost base of around INR 10-odd crores -- and we have taken out a majority of that cost. So now on that portfolio, there is a cash generation profitability coming, which is buffering for the OpEx, which we have built out. So that is -- and exactly that we replicated for UGRO as well. So it is about doing 3 things. one, adding the portfolio, which we were confident of improving our secured bid and reducing credit costs or managing credit costs third extracting profitability which substitute for the future growth, which will come from emerging market and also substituting our core lending income from real cash profitability. So combination of all of that is -- was the tactical reason why we acquired Profectus. Also, it was an ROE enhancer because we paid roughly around INR 1,400 crores cash for a INR 1,200 crores net worth company and on year 1, on INR 1,400 crores, we are inventing around INR 150-odd crore of profitability, which was roughly around 10-odd percent higher than our existing ROEs.

Understood. The other question is slightly on the bookkeeping side. If I were to remember correctly on the terms of the warrants and the CCD. The CCD had a part of us being repaid, I think around 12.5% and 12.5% back when the warrants don't get converted. Has that payment been done? And how is it flowing through the P&L?

Yes. Those payments towards the interest component of the CCDs have been done in December itself. -- and they have been adjusted from the capital reserves. .

Understood. So those payments are only done. And even the warrants which are not conveyed that is also flowing through, I'm assuming by now.

Yes.

Yes.

The last question is, if I remember correctly, the employees and promoters together have around 8.6 million, right, of ESOPs, which are therefore vesting. What are the broad terms of this? Is it a fixed price? What price is it? Given that there's been a huge variation in the price of the last 1 year?

So in this time, in Slide #20, we have segregated. So I'm defined as promoter, which means that in ineligible for any kind of -- so my ownership, which is through my company's my family has gradually increased because it was -- I think it was 1.98%. I increased it on the year of March. -- and that's why it touched 2%. And employees have a pool of around -- now the 3.3% is time vested. So I think -- but obviously, you're right. the cost of -- or the grant price is much higher. I think the base of that for 2 different tranches. One is INR 200 another 1 is around 130 yes.

SP1 Understood. Understood. What is the split, which is 100% like is it majority 200 or 130? Or is it...

I think it should be half off. .

The next question is from the line of Rishi, an Individual Investor.

Congratulations on I set up good numbers. I mean I have a question regarding the perspective. I mean I think you partially answered that for the previous caller. But I wanted to know the school financing that Profectus is doing? Is that part of what's been stopped? Or is that still continuing? And if so, is that a third vertical?

So the school -- Rishi, this is Anuj. The school financing -- this was primarily a prime DSA source book at an average yield of about 13%. So while we don't want to get into that segment, but it's a product and there's a lot of insights as an institution. So what we are doing is we are expanding that product in our top 50 emerging market locations. So we will start doing schools, but off a smaller size at a relatively higher interest rates. So we'll continue this program, but with a little different perspective and policy. So the target schools would be from size perspective smaller and in Tier 2, Tier 3 and Tier 4 towns. -- with an average yield of about 16%, 17%. Rishi, on top of that, what Anussaid, I just want to make sure that listeners of this call and otherwise, -- so we have a big network now, 38 locations is spread across 13 odd cities, serving a set of self-employed small business customer. The potential of the network is immense.

And in order to improve the productivity, we have to funnel more lending product to the network. But what we want to ensure first is to get to a minimum level of productivity and maturity for our core product, which is loan against property. -- and then gradually see what are the adjacence in opportunities, and we'll talk about that once in a few quarters. But obviously, there is an underlying strategy, thought and execution rigor of adding more things in this network once the network for its core product matures.

Understood. And also regarding the recent series and that we have done. I saw that most of the rates were around 300 basis points more than the software, which is roughly around 7% like I think we recently did a $20 million. What's stopping us? Or is there a RBI mandate on how much we can borrow in this because the -- I mean, the amount is definitely much cheaper than what our cost of going is?

So there is no stopping from regulation on the amount that can be borrowed per se. But of course, it's also availability, which matters. So you will see that in the coming quarters, the company will be looking for more such ECBs. For 2 reasons. One is to reduce the cost as well as to better our ALM profiling. -- given the longer tenor profile these loans comes with. And just to make it amply clear all the ECBs that we take are completely hedged for currency and interest rates. So the rate that cost to us is completely landing in INR. So w

So what he is seeing and what landed cost would be different, right?

That will be different. So you are seeing USD pricing at a sprint. That adds to us in an upper optimation of about 9.5% to 10%. And currently, Rishi, the hedge cost...

And currently, the hedge cost count has gone up. So that's why we are holding on to more ECV. But generally, on ECB, I think there are 2 types of market for general understanding. One is commercial ECB lenders, which are big banks, trading, hedge funds, global trading books. -- they are normally lenders for AAA and AA where they can just do ECBs then hold it on balance sheet and then distribute and mature it. Most of the ECB lenders to us are DFI lenders, who are lending to us because of the impact, which we create on the market through MSME financing and others. And there is not too much of the landed cost difference between our domestic term borrowing and ECB that we get the tenor advantage. Most of our DFI ECBs are for much longer tenors. That's why we also prefer that. As our ratings will improve, we will also start attracting commercial industry in ECB as well.

The next question is from the line of Darshil Jhaveri from Crown Capital.

Firstly, congratulations on a great set of results. I just wanted to ask, if I understand it correctly. So our primary business that we were having the prime interment, we are going to run it down but currently, it is the more significant portion of the AUM. And our emerging market and embedded finance, which are the lower are going to increase right now. So for FY '27, will we have the similar profitability? Because how would that work? I'm assuming it will be a higher profitability than what we had in FY '26. So I just wanted to understand what would you -- how would we quantify like the current year, will we have like similar AUM but much higher profitability, how would -- what would be our ROA target for FY '27, sir?

Yes. So there are 2 things. One, FY '27 is a transition year. In the year of transition, there are 3 things which we are unerring to First, obviously, making sure that our emerging market network and our merchant lending network, especially the emerging market LAP network start maturing to good productivity, which is what we are targeting. -- from current base to roughly around 60, 70 lakh pieces per branch basically. That's point one. Second, we are looking to transition and benefit from the cost saves and transition our co-lending income, which is currently 25% of our total income to gradually bring it down and bring most of our ROEs as income generated from cash interest income. So our expectation in the combination of the 2 is that -- and that's why we have purposefully not given any guidance on an ROA for a year-on-year basis. And all of our guidance is on a 2-year basis. Our still assumption would be that purely the bottom line, our ROE performance would be marginally better and then it would step up in 28, 29, quite significantly. Okay. Fair enough. So basically, FY '27 w

Okay. Fair enough. So basically, FY '27 will be kind of a transitional year and FY '28 where the big leap will come in because the emerging market will be more settled and been able to have a bigger network effect, right? So just wanted to know, like, so for us like when you'll, what are the items that we could also be keenly looking at because because you're not like in the day to day the business. So what part of it should be focused on what are the key performance metrics that you are also looking at, sir.

So in my opening speed itself, I said, I think there are 5 things which we track and which you should also track. First is the portfolio yield shift how much of -- so for example, our December 2025, the emerging market and merchant lending was 33% of our total portfolio improved to 38%. And by FY '29 has to be -- this is the first thing which we track, you should also track whether we are in that direction or not. I think so the cost and the realization, we have already completed or we can't track it, except that people make this mistake wherein they think that this INR 220 crores of cost utilization is all coming from the P&L and should get added. It's not the case. When we say INR 220 crores of cost realization, it is a bad cost of what was in perfect and what was in no -- on consolidation, what was in prefecture is not visible to you. So the combined INR 750 crores of cost is going down to INR 90-odd crores. So the tracking number is that we should not breach total cost of around INR 490 crores or INR 500-odd crores because we have said very clearly that our OpEx journey is over. So no more incremental OpEx majority of things are -- that's why there is a compounding effect. Third is rundown of portfolios, which we have said 15% to 20-odd percent, whether it is more than that or less than that. If it's too much more than that, which means that EM would shrunk very fast and income would drop. If it stays, it's better. Third is that we have said we don't need any equity, and then that is true. And fifth is the transition to -- so transition to RA, we have said used the term quality of earnings. So you should see that whether our -- out of our total income with 25% is co-lending NDA, I think so in this year, it would remain high, but next year onwards, it will start tapering down. So whether ROAs are increasing and whether the contribution in total income of DAs colending is going down. if you track this -- if we track these 5 things and remain near to that, then we will achieve our objective. And you should also track us then question us on that.

Fair, fair enough, sir. And the last question, sorry. It's on Slide 4 of our investor presentation, I would definitely recommend that you look through that. For sure. I'll look at it, sir. And just wanted to understand because like the segments that we are trying to go aggressively are very high yielding. So is there a possibility that right now, maybe we have a somewhat of a force mover advantage or it's our niche. But in this lucrative deals, there will be higher competition and that can maybe lower the yield that we are assuming. I understand that we already assumed lower portfolio mix. But is there a chance that it might be even more significantly lower? Because looking at the yields more competition will come and there might be somewhat of a price war or to get a good customer, how would you look at it?

So yes, you're right, this is Anuj. In any case, in any business, especially in lending, this kind of assumption would be broadly right. as things progress, the cost as the overall yields will face a downward pressure. More so in prime intermediated segment, we're not only the customer, but the intermediary was also playing a part. In our chosen emerging market segment, while this is also true, the market is very, very well spread out and very large. And second, the core differentiation in emerging markets today is the branch distribution network. So if you see and if you compare us with other larger players, we would be in the top quartile as far as number of branches are concerned. That is the reason why we invested in opening 200 new branches in the last 2 years and have now reached a tipping point of about 318 branches. So it possible slowly and surely, the rates should come down as market eases up. But that, I think, has been adequately factored in our 3-year plan.

The next question is from the line of Sourabh Kumar, an individual investor.

So actually, currently, what I'm seeing since last 2 quarters that we either AUM is not going or degrowing. So when can we expect like some growth, like at least -- because earlier 2 years back or 3 years back, it was told that, okay, we were going continuously for 5 years, 30 plus. And like -- and then now it is like degrowing. So when can we -- we can expect like the curve to come back to the growth page?

Yes, you're absolutely right. I think so that -- and is this in sales because of rated by the size of the motivated by the total capability management and the kind of deployment of data and the end technology we did and be very confident we were limited by the fact we can build a pen. -- as I said a few other people at revise that each sale versus the bottom line -- this is about delivery that resulted in bottom line to us because these were partial or in -- the editors were still highly controlled by interties and portfolio was insured. And structurally, these verticals require any superior cost of volume, which was not coming to us because that legacy side have navigated to certain set of -- and that's why deliberately, we've built an infrastructure in the last 2 and half year. to go market early and now transitioning the portfolio. So that's our next 3-year journey. -- like growth by all growth improvement in bottom line profitability. -- as existing or a potential shareholder, your value creation needs directly into the bottom line and sustainability of that. in other growth was a lot delivery incremented button right. So after we would deliver first incremental bottom line, make it healthier. -- shareholders. And by that time, the infrastructure will be ready and then the normal growth excite again. So what you so I think should is the growth rate of our core portfolio, which we will grow. So what we should track is growth rate in our emerging market business and very much in every business because both of them will grow in the range of 22-odd percent. And that's not that lower growth, that's a very high growth rate. Why the aggregate growth is looking package is because of lowering net alerted portfolio is being running down. Hope, I answer it in some way.

I have 1 additional question. So now we already have 20-odd assets. So will the OpEx come down coming quarters -- so we are not doing any new investment. So OpEx as a percentage of AUM as the ALM keeps g

so we are not doing any new investment. So OpEx as a percentage of AUM as the ALM keeps going up, will keep coming from -- so its OpEx next year as a percentage of in would come down. Okay. And so we have a perspective -- so how many branches are of as we have or and how many are we still running down -- s

Okay. And so we have a perspective -- so how many branches are of as we have or and how many are we still running down -- o as present in about 28 locations. And we know branches also present in those 28 locations. So in all those locations, we are continuing with only one branch. Some of them are the original branch where we have caters 6 months, which are very good. And in sum, we have vacated Perfectus branches where the grow branches be better.

So normally for the public is also part of like running the business in.

That's right.

Yes. So just for a there must be some notice and other things -- so let's assume 3 months of notice. There are 6 months or notice. So we can expect like means 10% of the 10% of the or the selling business to come down by after 2 quarters. So some o

So some of that [indiscernible] got action and some of them is [indiscernible] that impact will start coming in. So I think go back to [indiscernible] would reflect you at Slide #13 of presentation. We have taken a onetime rate of INR 35.4 crores. So all of the future exit costs have been taken upfront in this quarter. So this is part of the -- we have to pay if we are giving some reopened. Hopefully, we have to pay a -- but we have provisioned it in this quarter itself. So there could be some savings right from this.

Yes, of course. So that is why -- so the other question, we were answering the total OpEx of the last year more than other -- and more things now like into is successfully done. So gestate? -- last year got our outlook updated recently about 2 quarters back. So they are as outlook permits. Our interest estimate is that to our plan for this year. There is a very high chance of the rating upgrade next year. On the lighter to say it's like this is also at like investors, right? So you do all the hard work, but investor okay, we will see the results and then will later. Similarly also is the rating agency are they continue to come back and say, well, let us wait for the final result to come a few quarters and then content.

The next question is from the line of Mehul Panguna from [indiscernible].

Sir, currently, what percentage of our book is LAP versus non-LAP? And how do the GNPA yield and the credit cost compare across both these segments?

So our total secured portfolio, which I'm including machinery loans also because they behave similarly, is about 67% of the total portfolio. And the GNPA there are in the range of about 1.5%. Our emerging -- our embedded finance portfolio is about 20 yes, about INR 280 crores, which is about 15-odd percent of the total portfolio. Here, the NPAs are about 1.7%. And there are certain products which we had discontinued last year. which included supply chain finance, we used to do a really liberal collateral product within LAP which used to call Safi and some unsecured loans. That all put together is about 3.2% GNPA. If you refer to our Slide 16 in the investor deck, we have actually segregated our emerging market life, Eminent finance and other products with GNPAs.

And sir, what is the credit cost for these 2 segments? .

The credit cost in embedded finance is almost very similar to the GNPA. So about 70%, 80% of GLS about 1.5%, 1.6% currently. -- as the vintage goes up, it will go slightly up and then stabilize. On secured loans, actually, the credit costs are a percentage of GNPA. So about 30% of GNPA roughly gets translated into credit cost.

Okay. And sir, how do you see this mix in the percentage of secured versus embedded finance evolving over the next 2 to 3 years?

So we will continue -- I mean, overall, our broad philosophy is that unsecured loans, whether they are unsecured business loans or embedded finance should not go beyond 30%, 35% of the total portfolio. So we'll continue to maintain the same mix.

And sir, what was the mix before we change the strategy? You mentioned that because we were not getting good results on the bottom line.

We have changed the strategy. So what was the mix before that between secured and unsecured mix was very similar. Within secured, there was a very large chunk of intermediated prime lab, which was at 13%, 13.5%. So only that portion we are reducing, and we are compensating that with emerging market lap. So the product category remains same, only the yield profile goes up.

Okay. Sir, can you please elaborate a bit on -- because I am new to the company, and these are all a little bit quite a techy thing for me. What is the difference between intermediate and emerging?

SP1 intermediated business is the DSA led business which we used to do in the top 25 metro towns in the country. So here, the sourcing happens via Okay. And the target segment was a customer with turnover between INR 3 crores to INR 15 crores. So relatively larger customers at a relatively lower yields. In emerging markets, we have set up 318 branches in Tier 2, Tier 3, Tier 4 towns in the country. Each branch consists of to direct sales team, 1 credit person, 1 branch at, 1 operation had on collection head, and they go and source -- these micro SME customer directly. So this is the difference. .

Sir, so can we expect a huge jump in our cost because we have expanded to these many branches, plus we have hired people for these benches. So no, you don't -- you shouldn't -- because we have already incurred that cost in the last 2 years. S.

So all the cost investment in expanding these branches and hiring people is already over. So no new incremental OpEx. Right. But still, there'll be a continuous cost for the salaried employees, right? That's right. So that cost will continue, but that cost is

Right. But still, there'll be a continuous cost for the salaried employees, right? That's right. So that cost will continue, but that cost is part of the OpEx, which has been taken. And as the AUM build to these branches goes up, to OEM will keep coming down. Right. So sir, when we have sorry, last question. So when we add -- let's go back 2 years back, did we anticipate that we will move into this kind of branch-led strategy.

Yes, and that's why we opened all these branches, so -- so building a 318 branch network. Most of our peers that have taken roughly around 8 to 10 years to get there. We have out there in a period of 3 and 3 years. And that accelerated strategy was because we wanted to make this change at an appropriate time. We were hoping that our custom bond trajectory would go down if that would have happened, then we would have continued all of the verticals. But since that was not happening in order to improve the bottom line performance. First, we build the OpEx in infrastructure, and then we've taken out the cost. Clearly, on the OpEx side, so if you look at our Slide -- if you look at our FY '26 costs, employee costs and other cost is roughly around INR 300 plus 85 INR 500 85-odd crore, right? And this does the pre-consolidation cost of rectal because consolidation happened only on eighth of December. If you that cost base also, this was INR 700 crores. And this, we have just guided that would be around INR 90-odd crores. So that's what the -- so the business would operate the portfolio of emerging market and embedded finance will continue to grow while the OpEx would remain flattish. So 3 core things. AUM on the front end would look like flattish, but under the portfolio would shift, lower ellingportfolio would run down, higher-yielding portfolio would go up and that increase of higher-yielding portfolio, which is increased in the portfolio yield is not resulting out of incremental OpEx. And that's why there is an operating leverage opportunity.

Right. Sir, since you have spelled out the 5 trackers opening remarks, how many quarters do we expect to see a significant jump in the bottom line?

So I think is, we said that the year of transition is FY '27. On FY '27, you should track us on these pillars and whether we are making incremental improvement or not. -- the real bottom line jump. So we have given a guidance of 2% to 3%, 3.5%. Is in the transition year, we'll be in the range, but we'll try to achieve what incremental improvement over FY '26, '27, '28 would be first jump and we think the business would fully mature at 3.5%, which is a top-tier ROE performance or most of the lending institution in India. I appreciate a lot your elaborate answers and all the best, sir.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments.

Thank you. I want to close with a context of macro factors affecting global economy and its impact on UGRO. We get a lot of questions on that as well. The global environment is genuinely uncertain geopolitical tension, trade policy shift, risk appetite, recalibrating, India is not fully insulated. And yet, I'm more confident in UGRO's trajectory today than at any point in our history. The business we have chosen small ticket secured loan against property in Tier 2 and beyond regions of Bharat and merchant financing embedded in payment flows are not driven by the global macro. They are driven by whether a small business owner in Rajasthan or Telangana can access formal credit. That demand is structural, durable and largely independent of what happens in Washington. The credit gap is INR 30 lakh crores. Our AUM is only INR 15,334 crores. We do not need new capital. We do not need rates to fall. We need branches to a cure, and they will. We need our merchant portfolio to deepen and it will. For the first time since UGRO's start. This company is now generating capital, not consuming it. Every rupee of operating profit creates to the network and fund the next year of growth without asking shareholders for a single additional rupee. The management team's focus is singular, improve operating metrics every quarter, reduce cost, increase yields, deliver on the 5 commitments we have made in February. 2 businesses, 2 large markets, 1 focused institution. Thank you, everyone, for attending the call and listening to us patiently and thanks for all the support. If you have any further questions, you may get in touch with Siddhart and Ritu or our IR team at [email protected]. We would be very happy to answer and clarify. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of Elara Securities, that concludes the conference. Thank you for joining us, and you may now disconnect lines.