Is UGROCAP the next big MSME lending bet? Rs 400cr rights issue may signal what’s coming

UGRO Capital Limited (NSE: UGROCAP | BSE: 511742), a listed non-banking financial company (NBFC) known for its data-driven MSME lending strategy, announced on May 31, 2025, that its Securities Allotment and Transfer Committee has formally approved the terms of a ₹400 crore rights issue. The offering is priced at ₹162 per fully paid equity share and comes in the wake of a previously cleared ₹915 crore capital raise through compulsorily convertible debentures (CCDs), signaling UGRO’s two-pronged approach to funding growth and preserving capital adequacy.

Under the approved structure, eligible shareholders recorded as of June 5, 2025, will receive 50 rights shares for every 189 shares held. The rights issue will open for subscription from June 13 to June 20, with an extension clause of up to 30 days.

The full subscription of the rights issue would increase UGRO Capital’s total outstanding shares from 9.31 crore to 11.78 crore, without diluting existing shareholder value, thanks to the proportionate offer and consistent pricing in line with the CCD issue.

What Does This Mean for Public Shareholders?

The rights issue is strategically aligned with the preferential CCD allotment pricing to provide existing shareholders an equitable chance to retain their ownership proportion. Priced at ₹162—a roughly 9% discount to the May 30 NSE closing of ₹178.12—the offer is financially attractive for retail and institutional investors.

Sentiment among large investors appears optimistic. Commitments exceeding ₹250 crore have already been confirmed, including ₹150 crore from IFU (Investment Fund for Developing Countries, Denmark), and ₹34 crore from UGRO’s promoters and employees. This broad-based backing indicates strong institutional and insider confidence in UGRO’s strategic trajectory.

How Has UGRO’s Financial Performance Shaped This Capital Move?

Over the past three fiscal years, UGRO Capital has grown its Assets Under Management (AUM) nearly four-fold—from ₹2,970 crore in FY22 to ₹12,003 crore in FY25. During this period, profit before tax rose sharply from ₹84 crore in FY23 to ₹203 crore in FY25, driven by scale, portfolio quality, and data-led credit evaluation systems.

The company also reported a diluted EPS of ₹15.7 and a book value per share of ₹219.6 for FY25. These metrics place the rights issue price at a price-to-book ratio of around 0.74x and a forward P/E of ~10.3x—levels that could be considered attractive within the NBFC peer set.

Return on assets stood at 2.9%, while ROE reached 9.4% in FY25. The GNPA and NNPA ratios were reported at 2.3% and 1.6%, respectively—competitive figures given the MSME sector’s traditionally higher credit risk profile.

What Role Does DataTech Play in UGRO’s MSME Lending Model?

UGRO Capital has emerged as a frontrunner in digitized credit delivery for MSMEs, building its ecosystem around proprietary platforms like GRO Score (an AI/ML-driven credit scoring model), GRO Xstream (a co-lending platform), and GRO Chain (a supply chain financing solution). These platforms not only enable real-time risk profiling but also allow the company to partner with 17 financial institutions for co-lending and co-origination—resulting in 42% of AUM being off-balance sheet.

By ‘uberizing’ the MSME financing value chain, UGRO has created a scalable architecture that addresses the core problem of financial access for underserved small businesses. Its forward-looking platform model is positioning it to grow organically while limiting portfolio risk.

Why Is Institutional Sentiment Holding Up for UGROCAP Stock?

On May 30, UGRO Capital stock closed at ₹178.12, gaining 1.36% intraday and registering a VWAP of ₹176.70. This uptick occurred in a session where traded volumes crossed 1.04 lakh shares and the market cap stood at ₹1,659.79 crore. The current adjusted P/E ratio of 11.51 and annualised volatility of 47.95% indicate relatively stable mid-cap behavior.

Notably, the ₹162 rights issue pricing is consistent with the CCD conversion price of ₹185, reinforcing transparency and fairness. Market observers view this favorably, particularly as major backers such as Samena Capital and Aregence have reaffirmed their confidence in UGRO by participating in the CCD allotment.

Retail interest may also rise as the stock continues to recover from its 52-week low of ₹145.25 (April 7, 2025), with room to test previous highs of ₹300 (July 1, 2024), depending on execution strength and earnings consistency.

How Does This Fundraising Align with UGRO’s Medium-Term Growth Guidance?

UGRO’s capital augmentation strategy is built around a clear operational roadmap. The company has committed to expanding its branch network from 212 to 400, increasing productivity across sourcing verticals, and maintaining low credit costs.

Segment-wise, UGRO is focusing on expanding Prime Secured loans (₹299 crore disbursed in Q4 FY25), Emerging Market loans (₹669 crore), Equipment Finance (₹287 crore), and Embedded Finance (₹638 crore). Management expects to maintain or improve segment yields, with Equipment Finance yielding 26% and Emerging Market loans projected to increase 30–40 bps.

Credit costs are expected to remain manageable: 0.8% for Prime, 1.0% for Emerging Markets, and sub-2% for other verticals. This positions the company to achieve sustainable growth without compromising on asset quality.

What Are the Risks and Considerations for Investors?

While UGRO Capital’s fundamentals remain robust, execution risk exists as the company scales operations. Branch expansion, while necessary for market penetration, may pressure short-term ROE. Additionally, sector-wide pricing pressure in Prime lending could narrow spreads. Credit costs may rise in the Emerging and Equipment segments, although currently anticipated within manageable ranges.

Another factor to watch is the pending warrant tranche of ₹755 crore due by December 2025, which could dilute equity unless UGRO maintains price performance above ₹264—the warrant conversion threshold.

Despite these risks, the rights issue helps solidify UGRO’s balance sheet, offers liquidity flexibility, and supports future co-lending partnerships that reduce on-book stress. This makes the stock an interesting case for both value investors and growth-focused portfolios.

What’s the Outlook for UGROCAP Going Forward?

The next 3–6 months will be pivotal. The rights issue window from June 13 to June 20 is expected to draw strong participation. Beyond that, analysts anticipate that successful execution of UGRO’s FY26 guidance, coupled with completion of warrant conversions, could help the company test higher valuation multiples.

The company’s growth model, built on a scalable data-led lending infrastructure, aligns with India’s digital financial inclusion agenda. If UGRO can maintain credit discipline while expanding reach, it could emerge as a breakout NBFC in the MSME space—especially as the regulatory climate remains accommodative and investor appetite for digital-first lenders grows.