Thank you for the appreciation. The expected GNPA per UGRO Capital's model is 3-3.5% for micro-enterprise loans. It's not really a risk because the way the company is capitalized, it can take upto 5% in GNPA. For a better understanding, read the question on pages 15 & 16 of this PDF -- https://www.bseindia.com/xml-data/corpfiling/AttachHis/170c3cde-6aa8-490a-af94-45484f8013ab.pdf
Thank you! Pls do read up on the history of UGRO Capital on their website. Very briefly --
Sachindra Nath (ex-Religare Enterprises) acquired Chokhani Securities -- a dead NBFC -- then brought in a consortium of investors, including PE firms, VCs & family offices to raise ₹950 crore ($135 million) in 2018. Thus, there is no "promoter group" here but there are investors like ADV Partners, NewQuest Capital Partners, Pagoda Advisors, Samena Capital etc. (I'm not sure which ones are still invested as it's been a few years since the first salvo)
As always a good find Shankar and appreciate your efforts. My request would be on disclosure if you have positions and avg price as it is nothing wrong and it would give the reader to take a deep look. Also you can do a revisit of your past recos to chk how well it has fared. Your BLS was a good pick and I liked their model, it will be great if you can state your avg price, thanks much.
Sorry, I won't reveal any specific details like price, date, amount etc. unless I'm obligated to. Currently, I am not SEBI registered but since I'm applying for an RA (research analyst) license so I'll work within those provisions once I receive the license
But if you must, please assume I have positions in most of the stocks I'm featuring in this newsletter. Priyam (researcher) & I use this research as a base for our own investing which is a product of us going through dozens of companies every week. For instance - of the last 7 stories, I have invested in 6 of them
Thanks for revealing that your invested in these shares. I myself am convinced as to how great these companies presented are and therefore I have also purchased 6 of the top 8 stories.
I will definitely buy your monthly or yearly subscription as and when you decide to begin it. I have come across many Youtube creators before but I believe your special among all of them. You practice what you Preach. Happy to be your subscriber.
Most welcome, Mr. Cardoza. Yes, I can understand trust-deficits (that's not a bad thing at all) but instead of trying to convince everyone (like how I often see on twitter), I'd rather use my time in researching & honing my skills.
Thank you for the vote of confidence, I'm glad to have you along in this journey 🙌
Very nice article sir. A big fan of your YT.Just a doubt, how can the borrowing cost be high given it has a CRISIL rating of A ? Also venturing into UP,MP may not always be good since the deliquency rates are higher. Also the ROE is rather disappointing with 9.75%(I expected it to be more since MSMEs is an underpenetrated market,but this is probably due to cost of borrowing).An important mark that sets five star apart is that Five star has 100% secured loans and still it is managing to grow at breakneck speed.Doubling down on micro-enterprises without increasing safety/liquidity standard seems a bit risky.Nonetheless,I have invested in this stock.Again,very nice and elaborative article.Can you please tell me how you get those insights?
1. The borrowing cost of UGRO is higher than other established players like Five Star Business. It's expected to improve for UGRO as it has raised capital (over 1000 crores) recently which improves it's financial position. Credit rating agencies have started to take notice of it
2. ROE is expected to go up. Pls remember, this is a relatively new player in the space (5 years of operations) as compared to others like Five Star which has been there for 20 years. The ROE estimate given by management is 18%
3. Yes, Five Star does 100% secured loans while UGRO is 68% currently. The strategy of both is not an exact copy. UGRO wants to be a more balanced player and has more verticals than Five Star
4. I didn't understand your comment on "Doubling down on micro-enterprises without increasing safety/liquidity standard seems a bit risky". How much of it is based on evidence and how much of it is emotion?
My researcher (Priyam) and I read a lot. We discuss, analyse documents, reports etc. We have to go through 30+ companies before arriving at one we like
Thanks for the response, sir. As you had mentioned in your article, UGRO Capital is cutting back on supply chain financing and doubling down on micro enterprises. My only concern is whether that would impact the risk of the loan book, especially since UGRO Capital's average loan ticket size is larger as compared to Five Star (according to thefixedincome.com). As Jamie Dimon said, growth should have equally balanced risk (something like that, I don't recall the exact quote; I am not saying this is not the case, just a minor concern). I did not mean to disrespect you or your researchers' work by my comment. If you feel so, I apologize. As for the evidence part, yes sir, I don't have time to rigorously analyze reports, interviews, etc. (I am in 9th grade of school and my exams are about to start! So please forgive me). I read stuff and answer based on my logic and intuition. I would love to see such content on your YT channel.
It will be difficult for me to respond to isolated phrases. It's dangerous too because machines & companies have lots of moving parts. Think back to the thesis you wrote to me a few months back on Reliance Home Finance. You had isolated a couple of points & deduced it to be a multi-bagger -- but things didn't pan out that way.
I can understand your quandary. Let's continue our interactions once you find time to analyze reports etc. It would be a better, more fruitful discussion then. Wishing you well with your forthcoming exams
Thanks I understand my shortsightedness when I declared Reliance home finance without properly analysing the financials. Since then I have honed my skills which you can see in my blog and upcoming articles.I realized my folly and sold the stock at 20-30% profit.I am not saying it was a good buy , just that I got lucky and will not gamble on such shares again.
"I am in 9th grade of school" - is it a typo? If not, I must say I do not know any one having this much interest and knowledge of the market. How old are you Sivaganesh?
No sir that is not a typo. Thanks for the compliment sir. My interest in the stock market led me to study many finance and business concepts(mainly from books). I am currently 14 years old, will turn 15 in april.
Shankar sir, im a big fan of your YT videos and I like the way you choose content for your videos - there is some uniqueness in your videos which I found very interesting and addicted to. And as usual a very good presentation here but I have a few queries.
1) From my understanding, for mCap to grow the share price has to grow and hence the profits. Considering the PB of UGRO which is at 1 presently, it has to achieve 4X profits in the coming years assuming the PB raises to 2 (otherwise for the same PB, profits have to grow 8X). Is there any projection that such a growth will be achieved?
2) Also with almost similar AUM and Net loan disbursements, Five star business is making 500+ crores profits but UGRO is making only 1/10th of it. Is this a margin issue or is something else needs to be analysed for this? ( This may be a stupid question for some known and seasoned investors but for me I couldn't understand it and hence had the compulsion to ask it so please excuse me for this)
Hello Naven ji - thank you for your kind appreciation. I'm happy you like my work
1. I'm sorry I didn't understand this completely. The 1st part is fine i.e. market cap grows in congruence to growth in profits. But the 2nd part where you used PB ratio, the profits are completely absent as this is market cap divided by book value. I'm not sure if I'm misreading the context -- can you rephrase this & pls detail it out with numbers? (its easier to understand with data, thanks!)
2. Please allow me to restate the numbers. Five-Star's TTM PAT is ₹973 crores while UGRO's TTM PAT is ₹132 -- a little over 7x. On a TTM EPS basis (I prefer EPS over PAT) -- this is just 2.3x with Five-Star at ₹33.2 while UGRO at ₹14.1. This is interesting because while the EPS delta is 2.3 times, the market cap delta is 8.5 times.
Anyways, UGRO's plan to bridge this gap lies on the points I mentioned in the post i.e. a) 30-35% yearly AUM growth, b) 400 branches, c) ~4% ROA, d) ~18% ROE, e) Opex-to-income < 45%, f) drop of 75 bps in cost of borrowing, g) 20% of assets from micro lending etc. An investor has to be patient with such a business because business strategies can't be changed overnight without affecting other aspects of the business like capital adequacy, provisions, collection mechanism, underwriting etc. UGRO has started work in this direction but there's no telling how many quarters they will take to match up to Five-Star's market cap or if they will ever reach there
Shankar sir, actually both my points were questions towards one thing - despite having similar AUM and Net disbursal rate, why is there a difference in the PAT of the two businesses and how can UGRO catch up with Five star in future.
1) After going through your newsletter again and your comments again, I could understand something and I found some answers for questions too.
2) The difference in PAT is because of just what I suspected - the margin difference. While Five star has a margin of whopping 74% in TTM, UGRO has only a margin of 16% in TTM. And also the revenues of Five star is double that of UGRO. But I could understand that this article about that one only - how the management plans on to improve these two parameters and that is what your second point in the comment says.
3) I can understand that management strategies can take time for it to reflect on the actual numbers and one needs to be patient. I have no misunderstanding on this part 😀.
4) However I noticed one more thing - the number of outstanding shares of Five star is significantly higher than that of UGRO. Five star has a rough outstanding shares of 29.22 crores (mCap 18937 crores / current price of ₹648) while UGRO has an approx outstanding shares of 9.30 crores only (mCap 2148 crores / current price of ₹231). Does this provide any advantage to anyone - either Five star or UGRO??
1. Please click on the plus sign you see around "Public" and total the 5 entities there that have over 1% shareholding -- your fears will vanish
2. Do read up on the history of UGRO Capital on their website. Very briefly, Sachindra Nath (ex-Religare Enterprises) acquired Chokhani Securities -- a dead NBFC -- then brought in a consortium of investors, including PE firms, VCs & family offices to raise ₹950 crore ($135 million) in 2018. Thus, there is no "promoter group" here but there are investors like ADV Partners, NewQuest Capital Partners, Pagoda Advisors, Samena Capital etc. (I'm not sure which ones are still there)
Hi Shankar Sir, when we screen stocks, majority of the times Promoter holding becomes part of the filter to further filter out companies with lower promoter holding or promoters who have plegded their holding. But I oftem wonder, there must be a logical reason to as to why shares were pledges or promoter holding is low. In this case as you said data is available on website, but for future in depth reading, where can one figure out the reason behing low Promoter holding ot pledgeing of promoter shares ?
Hello Mrinal ji - the essence of checking promoter holding is to see if the promoter has his/her skin in the game. But this isn't a straight-through analysis and there are many different factors of note here. E.g.
1. The promoter group might not be reducing the number of shares but it might be a case where a preferential allotment is done towards non-promoters. This is what happened in the case of Hariom Pipes
2. There might be a change in major ownership and maybe the new owners have not been classified into promoter group yet. In this case, it will show that the promoter stake has gone from 60% to 30% but actually a new promoter group (strategic investor) has come in as what happened with Hella Infra in Shalimar Paints
3. In some cases, the promoter is not the operator of the business and the person managing the business is a professional. Here too the promoter stake will be low like what we see with UGRO Capital
4. With re: pledging, promoters are also businessman and they have a right to monetize their assets much like how you and me can use our property or shares or mutual funds to take a loan against it. In my view when a promoter pledges some of his/her shares, it OK -- upto 20% is fine. Only if it goes high, say 50% or more, then it can be an issue as it means the promoter might even sell these shares in the future. Again from my newsletter, I point to Aster DM where the promoters pledged large portion of their shares but when one thinks deeply, the pledge was mainly to pay for a GCC holding company where the Moopens were taking significant stakes. So we know where the money was going
In this context, it's important to read through the structure, motivations, corporate announcement, shareholding pattern etc. in conjunction to the % of promoter holding
Very neatly explained Mr Shankar. One thing which is hitting me though is the promoter holding. I am of the opinion that a promoter who has skin makes efforts to make the company great. In this case, does promoter holding not matter?
Hi Shankar. Quick question. Why is their a difference in book value per share shown in screener and book value per share calculation in all the research reports you attached at the end. Emkay mentions fy25e at 173.5. Systematix mentions fy25e at 165. Choice mentions fy25e at 159.55. Shouldn't fy25e be higher than 211? Is there any warranty money, preferential share money, qip money, ccd money which the company already received but is yet to be allot those shares? What should be the book value as on today?
Hello Akshay ji. Apologies, I'm not aware of the assumptions/methodology used by different brokerage houses to compute book value. You'll have to contact them separately for this
It looks story wise its built up well stock, the big question is timely execution implementation, and we should look for better prospects in a similar sector
Shankar ji, I see their sales and profit growth for last 3, 5, and 10 years which is remarkable (data from screener.in) but stock price CAGR has never caught up the business performance. Net NPA has always been in the range of 1-1.3%. What could be the reason for stock underperformance against business growth on every timeframe including TTM?
With re: 10Y - the lending operations started in 2019 only (just 5 years back) so 10Y evaluation can be ignored. Until 2018, the company was called Chokani Securities with almost zero sales & profits. Even when it comes to 5Y or 3Y, please note you are looking at a five/six year old company since start of operations. I don't think that's a clever use of statistics when it is based on -- a) low initial base and b) very few years of operations. That way one can use the same argument for Indigo Airlines whose 3Y sales CAGR is 68%, 3Y profit CAGR is 47% but 3Y stock price CAGR is only 20%. Let the numbers not fool us.
In my opinion, the build-out phase of UGRO Capital is done now (underwriting set, tech is done, branches are opening, product lines experiments is cover, blueprint is ready) and the real evaluation starts now. The stock price being depressed until now can be understood with the numbers I've presented -- the ROA at 2% is low, cost-to-income at 53% is high, spread of 5% is moderate etc. My thesis here presents what I think can be the next 5 years. What gives me warmth is the fact that there is already a company (Five Star Business Finance) which in 22 years, has already reached a market cap of 20,000 crores - 10 times of UGRO. I'm projecting UGRO to reach that milestone in 10 years or less. 10X in 10years is a 26% CAGR
One more thing -- "Sales" in lending is not a linear line with earnings or the stock price. If one has the money, it's easy to lend but other variables like yield, collection, NPA etc. are equally important. That's why I featured multiple variables in my post and not just the AUM growth
Thank you. I'm working on a paid community setup that'll feature regular updates to all companies I'll be covering in my newsletter. This will take me another 3 months to setup and I think it's an important feature to have as companies are changing markers & quarterly evaluation is a must. By Jan/Feb 2025, I think I'll have 20+ companies to track there plus there's a lot more I'll be adding to the community setup
As I don't have this available now, yes -- I'll be doing an update on the last 7 companies I've featured in my newsletter. I'll publish that email sometime this week, maybe on Sunday.
Very Neat and well explained article sir!!
Thank you!
Hi Sankar Bhai, yet an another insightful analysis. It helps us to make informed decision. Looking forward to your mails, always.
Thank you Dharma ji, glad you found it useful
Hi Shankar,
Great piece as always. Been a silent reader thus far but just writing to say keep up the good work. It’s a joy to read your articles.
Look forward to the paying for a subscription!
Thank you Rushil ji for your vote of confidence. I'm really glad you like my work 🙌
micro-enterprise loan share from 11% to 35% over the next six quarters. So Yield will be increase but Assest quality Risk is there .
By the way big fan of your YT videos and Newsletter sir.
Thank you for the appreciation. The expected GNPA per UGRO Capital's model is 3-3.5% for micro-enterprise loans. It's not really a risk because the way the company is capitalized, it can take upto 5% in GNPA. For a better understanding, read the question on pages 15 & 16 of this PDF -- https://www.bseindia.com/xml-data/corpfiling/AttachHis/170c3cde-6aa8-490a-af94-45484f8013ab.pdf
Informative one. Appreciate your efforts for this knowledge share.
Just a query. The promoter holding is very low almost at 2% and currently supported by FII holding.
Would be great to hear your opinion on the same.
Thank you! Pls do read up on the history of UGRO Capital on their website. Very briefly --
Sachindra Nath (ex-Religare Enterprises) acquired Chokhani Securities -- a dead NBFC -- then brought in a consortium of investors, including PE firms, VCs & family offices to raise ₹950 crore ($135 million) in 2018. Thus, there is no "promoter group" here but there are investors like ADV Partners, NewQuest Capital Partners, Pagoda Advisors, Samena Capital etc. (I'm not sure which ones are still invested as it's been a few years since the first salvo)
As always a good find Shankar and appreciate your efforts. My request would be on disclosure if you have positions and avg price as it is nothing wrong and it would give the reader to take a deep look. Also you can do a revisit of your past recos to chk how well it has fared. Your BLS was a good pick and I liked their model, it will be great if you can state your avg price, thanks much.
Thank you.
Sorry, I won't reveal any specific details like price, date, amount etc. unless I'm obligated to. Currently, I am not SEBI registered but since I'm applying for an RA (research analyst) license so I'll work within those provisions once I receive the license
But if you must, please assume I have positions in most of the stocks I'm featuring in this newsletter. Priyam (researcher) & I use this research as a base for our own investing which is a product of us going through dozens of companies every week. For instance - of the last 7 stories, I have invested in 6 of them
Thanks for revealing that your invested in these shares. I myself am convinced as to how great these companies presented are and therefore I have also purchased 6 of the top 8 stories.
I will definitely buy your monthly or yearly subscription as and when you decide to begin it. I have come across many Youtube creators before but I believe your special among all of them. You practice what you Preach. Happy to be your subscriber.
Most welcome, Mr. Cardoza. Yes, I can understand trust-deficits (that's not a bad thing at all) but instead of trying to convince everyone (like how I often see on twitter), I'd rather use my time in researching & honing my skills.
Thank you for the vote of confidence, I'm glad to have you along in this journey 🙌
Very nice article sir. A big fan of your YT.Just a doubt, how can the borrowing cost be high given it has a CRISIL rating of A ? Also venturing into UP,MP may not always be good since the deliquency rates are higher. Also the ROE is rather disappointing with 9.75%(I expected it to be more since MSMEs is an underpenetrated market,but this is probably due to cost of borrowing).An important mark that sets five star apart is that Five star has 100% secured loans and still it is managing to grow at breakneck speed.Doubling down on micro-enterprises without increasing safety/liquidity standard seems a bit risky.Nonetheless,I have invested in this stock.Again,very nice and elaborative article.Can you please tell me how you get those insights?
Thanks
1. The borrowing cost of UGRO is higher than other established players like Five Star Business. It's expected to improve for UGRO as it has raised capital (over 1000 crores) recently which improves it's financial position. Credit rating agencies have started to take notice of it
2. ROE is expected to go up. Pls remember, this is a relatively new player in the space (5 years of operations) as compared to others like Five Star which has been there for 20 years. The ROE estimate given by management is 18%
3. Yes, Five Star does 100% secured loans while UGRO is 68% currently. The strategy of both is not an exact copy. UGRO wants to be a more balanced player and has more verticals than Five Star
4. I didn't understand your comment on "Doubling down on micro-enterprises without increasing safety/liquidity standard seems a bit risky". How much of it is based on evidence and how much of it is emotion?
My researcher (Priyam) and I read a lot. We discuss, analyse documents, reports etc. We have to go through 30+ companies before arriving at one we like
Hope this helps
Thanks for the response, sir. As you had mentioned in your article, UGRO Capital is cutting back on supply chain financing and doubling down on micro enterprises. My only concern is whether that would impact the risk of the loan book, especially since UGRO Capital's average loan ticket size is larger as compared to Five Star (according to thefixedincome.com). As Jamie Dimon said, growth should have equally balanced risk (something like that, I don't recall the exact quote; I am not saying this is not the case, just a minor concern). I did not mean to disrespect you or your researchers' work by my comment. If you feel so, I apologize. As for the evidence part, yes sir, I don't have time to rigorously analyze reports, interviews, etc. (I am in 9th grade of school and my exams are about to start! So please forgive me). I read stuff and answer based on my logic and intuition. I would love to see such content on your YT channel.
Hello Sivaganesh,
It will be difficult for me to respond to isolated phrases. It's dangerous too because machines & companies have lots of moving parts. Think back to the thesis you wrote to me a few months back on Reliance Home Finance. You had isolated a couple of points & deduced it to be a multi-bagger -- but things didn't pan out that way.
I can understand your quandary. Let's continue our interactions once you find time to analyze reports etc. It would be a better, more fruitful discussion then. Wishing you well with your forthcoming exams
Thanks I understand my shortsightedness when I declared Reliance home finance without properly analysing the financials. Since then I have honed my skills which you can see in my blog and upcoming articles.I realized my folly and sold the stock at 20-30% profit.I am not saying it was a good buy , just that I got lucky and will not gamble on such shares again.
"I am in 9th grade of school" - is it a typo? If not, I must say I do not know any one having this much interest and knowledge of the market. How old are you Sivaganesh?
No sir that is not a typo. Thanks for the compliment sir. My interest in the stock market led me to study many finance and business concepts(mainly from books). I am currently 14 years old, will turn 15 in april.
Shankar sir, im a big fan of your YT videos and I like the way you choose content for your videos - there is some uniqueness in your videos which I found very interesting and addicted to. And as usual a very good presentation here but I have a few queries.
1) From my understanding, for mCap to grow the share price has to grow and hence the profits. Considering the PB of UGRO which is at 1 presently, it has to achieve 4X profits in the coming years assuming the PB raises to 2 (otherwise for the same PB, profits have to grow 8X). Is there any projection that such a growth will be achieved?
2) Also with almost similar AUM and Net loan disbursements, Five star business is making 500+ crores profits but UGRO is making only 1/10th of it. Is this a margin issue or is something else needs to be analysed for this? ( This may be a stupid question for some known and seasoned investors but for me I couldn't understand it and hence had the compulsion to ask it so please excuse me for this)
Hello Naven ji - thank you for your kind appreciation. I'm happy you like my work
1. I'm sorry I didn't understand this completely. The 1st part is fine i.e. market cap grows in congruence to growth in profits. But the 2nd part where you used PB ratio, the profits are completely absent as this is market cap divided by book value. I'm not sure if I'm misreading the context -- can you rephrase this & pls detail it out with numbers? (its easier to understand with data, thanks!)
2. Please allow me to restate the numbers. Five-Star's TTM PAT is ₹973 crores while UGRO's TTM PAT is ₹132 -- a little over 7x. On a TTM EPS basis (I prefer EPS over PAT) -- this is just 2.3x with Five-Star at ₹33.2 while UGRO at ₹14.1. This is interesting because while the EPS delta is 2.3 times, the market cap delta is 8.5 times.
Anyways, UGRO's plan to bridge this gap lies on the points I mentioned in the post i.e. a) 30-35% yearly AUM growth, b) 400 branches, c) ~4% ROA, d) ~18% ROE, e) Opex-to-income < 45%, f) drop of 75 bps in cost of borrowing, g) 20% of assets from micro lending etc. An investor has to be patient with such a business because business strategies can't be changed overnight without affecting other aspects of the business like capital adequacy, provisions, collection mechanism, underwriting etc. UGRO has started work in this direction but there's no telling how many quarters they will take to match up to Five-Star's market cap or if they will ever reach there
Shankar sir, actually both my points were questions towards one thing - despite having similar AUM and Net disbursal rate, why is there a difference in the PAT of the two businesses and how can UGRO catch up with Five star in future.
1) After going through your newsletter again and your comments again, I could understand something and I found some answers for questions too.
2) The difference in PAT is because of just what I suspected - the margin difference. While Five star has a margin of whopping 74% in TTM, UGRO has only a margin of 16% in TTM. And also the revenues of Five star is double that of UGRO. But I could understand that this article about that one only - how the management plans on to improve these two parameters and that is what your second point in the comment says.
3) I can understand that management strategies can take time for it to reflect on the actual numbers and one needs to be patient. I have no misunderstanding on this part 😀.
4) However I noticed one more thing - the number of outstanding shares of Five star is significantly higher than that of UGRO. Five star has a rough outstanding shares of 29.22 crores (mCap 18937 crores / current price of ₹648) while UGRO has an approx outstanding shares of 9.30 crores only (mCap 2148 crores / current price of ₹231). Does this provide any advantage to anyone - either Five star or UGRO??
Good insights Shankar… little confused on the Shareholding Pattern here… only 2 % promoter, 20% FII & 70+% Public was scary at a glance
Thanks.
1. Please click on the plus sign you see around "Public" and total the 5 entities there that have over 1% shareholding -- your fears will vanish
2. Do read up on the history of UGRO Capital on their website. Very briefly, Sachindra Nath (ex-Religare Enterprises) acquired Chokhani Securities -- a dead NBFC -- then brought in a consortium of investors, including PE firms, VCs & family offices to raise ₹950 crore ($135 million) in 2018. Thus, there is no "promoter group" here but there are investors like ADV Partners, NewQuest Capital Partners, Pagoda Advisors, Samena Capital etc. (I'm not sure which ones are still there)
Hi Shankar Sir, when we screen stocks, majority of the times Promoter holding becomes part of the filter to further filter out companies with lower promoter holding or promoters who have plegded their holding. But I oftem wonder, there must be a logical reason to as to why shares were pledges or promoter holding is low. In this case as you said data is available on website, but for future in depth reading, where can one figure out the reason behing low Promoter holding ot pledgeing of promoter shares ?
Hello Mrinal ji - the essence of checking promoter holding is to see if the promoter has his/her skin in the game. But this isn't a straight-through analysis and there are many different factors of note here. E.g.
1. The promoter group might not be reducing the number of shares but it might be a case where a preferential allotment is done towards non-promoters. This is what happened in the case of Hariom Pipes
2. There might be a change in major ownership and maybe the new owners have not been classified into promoter group yet. In this case, it will show that the promoter stake has gone from 60% to 30% but actually a new promoter group (strategic investor) has come in as what happened with Hella Infra in Shalimar Paints
3. In some cases, the promoter is not the operator of the business and the person managing the business is a professional. Here too the promoter stake will be low like what we see with UGRO Capital
4. With re: pledging, promoters are also businessman and they have a right to monetize their assets much like how you and me can use our property or shares or mutual funds to take a loan against it. In my view when a promoter pledges some of his/her shares, it OK -- upto 20% is fine. Only if it goes high, say 50% or more, then it can be an issue as it means the promoter might even sell these shares in the future. Again from my newsletter, I point to Aster DM where the promoters pledged large portion of their shares but when one thinks deeply, the pledge was mainly to pay for a GCC holding company where the Moopens were taking significant stakes. So we know where the money was going
In this context, it's important to read through the structure, motivations, corporate announcement, shareholding pattern etc. in conjunction to the % of promoter holding
What about risk to Asset quality in Micro lending?
What do you mean? Can you elaborate with numbers pls?
Very neatly explained Mr Shankar. One thing which is hitting me though is the promoter holding. I am of the opinion that a promoter who has skin makes efforts to make the company great. In this case, does promoter holding not matter?
Thanks. The point on promoter holding has been asked & answered in other comments, pls have a look there
Hi Shankar. Quick question. Why is their a difference in book value per share shown in screener and book value per share calculation in all the research reports you attached at the end. Emkay mentions fy25e at 173.5. Systematix mentions fy25e at 165. Choice mentions fy25e at 159.55. Shouldn't fy25e be higher than 211? Is there any warranty money, preferential share money, qip money, ccd money which the company already received but is yet to be allot those shares? What should be the book value as on today?
Hello Akshay ji. Apologies, I'm not aware of the assumptions/methodology used by different brokerage houses to compute book value. You'll have to contact them separately for this
It looks story wise its built up well stock, the big question is timely execution implementation, and we should look for better prospects in a similar sector
Shankar, but promoter holding is negligible is this a good sign??
I explained this in another comment. Pls check the one by Shyam
Shankar ji, I see their sales and profit growth for last 3, 5, and 10 years which is remarkable (data from screener.in) but stock price CAGR has never caught up the business performance. Net NPA has always been in the range of 1-1.3%. What could be the reason for stock underperformance against business growth on every timeframe including TTM?
With re: 10Y - the lending operations started in 2019 only (just 5 years back) so 10Y evaluation can be ignored. Until 2018, the company was called Chokani Securities with almost zero sales & profits. Even when it comes to 5Y or 3Y, please note you are looking at a five/six year old company since start of operations. I don't think that's a clever use of statistics when it is based on -- a) low initial base and b) very few years of operations. That way one can use the same argument for Indigo Airlines whose 3Y sales CAGR is 68%, 3Y profit CAGR is 47% but 3Y stock price CAGR is only 20%. Let the numbers not fool us.
In my opinion, the build-out phase of UGRO Capital is done now (underwriting set, tech is done, branches are opening, product lines experiments is cover, blueprint is ready) and the real evaluation starts now. The stock price being depressed until now can be understood with the numbers I've presented -- the ROA at 2% is low, cost-to-income at 53% is high, spread of 5% is moderate etc. My thesis here presents what I think can be the next 5 years. What gives me warmth is the fact that there is already a company (Five Star Business Finance) which in 22 years, has already reached a market cap of 20,000 crores - 10 times of UGRO. I'm projecting UGRO to reach that milestone in 10 years or less. 10X in 10years is a 26% CAGR
One more thing -- "Sales" in lending is not a linear line with earnings or the stock price. If one has the money, it's easy to lend but other variables like yield, collection, NPA etc. are equally important. That's why I featured multiple variables in my post and not just the AUM growth
Hope this clarifies.
Thanks for explanation. Much appreciated.
Hey shankar great article. Could you provide a quarterly update on the companies mentioned previously like zaggle,bls international, Raymond etc
Thank you. I'm working on a paid community setup that'll feature regular updates to all companies I'll be covering in my newsletter. This will take me another 3 months to setup and I think it's an important feature to have as companies are changing markers & quarterly evaluation is a must. By Jan/Feb 2025, I think I'll have 20+ companies to track there plus there's a lot more I'll be adding to the community setup
As I don't have this available now, yes -- I'll be doing an update on the last 7 companies I've featured in my newsletter. I'll publish that email sometime this week, maybe on Sunday.