Experts turn bullish on small-cap stock Ugro Capital, see scope for a multiple re‑rating

Small-cap stock Ugro Capital has seen significant pressure over the last two years. However, the company's focus on improving profitability seems to have influenced experts' views about the stock.

Brokerage firm Elara Capital has initiated coverage on the stock with a buy rating, setting a target price of ₹226. Given the stock's previous close of ₹147.15 on the BSE, Elara's target price implies a 54% upside potential in the stock.

"UGRO Capital sets itself apart with a best-in-class tech platform, driving a strong AUM CAGR of 69% over the past five years. The stock is trading at sub‑book 0.8 times FY27E P/ABV. We believe shifting gears to profitability over growth should boost cash RoA and trigger a multiple re-rating," said Elara Capital.

"Three catalysts are set to unlock UGRO ’s value and lift RoA: (a) liability repricing and trimming high-cost debt, (b) cost optimisation with focus on productivity gains, and (c) pivot to high-yielding assets leveraging of upfront branch ‑and tech spend and strategic acquisitions. We anticipate RoA to recover from 2.1% in FY26 to 3.4% by FY28E," said Elara.

Focus shifting to improving profitability

UGRO Capital, a private-equity-backed MSME lender, said it is recalibrating its strategy to prioritise profitability after recording a sharp expansion in its loan book over the past five years. Experts believe the company's increased focus on profitability may improve return metrics and balance-sheet efficiency, unlocking value and potentially driving a re-rating.

According to the company, its asset under management (AUM) grew at a CAGR of 69% between FY20 and FY25, supported by a technology-led lending platform and a diversified MSME borrower base spanning enterprises with turnovers ranging from ₹20 lakh to ₹15 crore. UGRO operates across India through a mix of branch-led distribution, ecosystem partnerships and embedded finance via payment platforms.

With most branch and technology investments now front-loaded, the lender said it is shifting focus to return on assets (RoA), which it expects to improve from around 2.1% in FY26 to 3.4% by FY28. The improvement is expected to be driven by lower funding costs, operating leverage from productivity gains, and a pivot towards higher-yielding assets.

UGRO said it is rationalising its portfolio by trimming exposure to lower-yield segments such as select machinery loans and microfinance-linked assets, while increasing focus on embedded finance and cash-flow-linked lending with higher collection frequency.

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