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
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 🙌
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)
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)
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.
As always, great write-up! This one looks particularly interesting.
I wanted to ask if you're tracking (or plan to track) India Shelter Finance Corporation. It's an affordable housing finance company that also offers loans against property. The company has been growing its AUM at around 35%, with ROE numbers also inching up. The management is also quite experienced (the chairman is Ex-MD of Gruh Finance). The affordable housing sector has strong tailwinds as well, with projected growth at around 20% CAGR.
Everything looks good to me. However, the gross NPA has slightly increased over the last two quarters. The management mentioned that there have been some collection challenges in MP, where a few senior employees left the company and haven’t been replaced yet. But the company is optimistic that this situation will improve within the next 1-2 quarters.
Inki valuations bhi kaafi reasonable hain compared to its peers like Home First Finance, Aavas, Aptus Value Housing, etc. Abhi I think inka P/B 2.7 ke aaspaas hai.
If you're tracking this, I would appreciate your valuable input.
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??
Thanks Shankar Ji,Since Indian urban class is in down turn and rural is just picking up and economy is not so resilient and MFI Stress are increasing and many Nbfcs and banks are facing issues,what are the chances of UGRO to with stand the tail winds ? Thanks
How the CDMO Space looks for you,Any thoughts on China +1 opportunity I see Divis,Syngene, Biocon and Piramal Pharma placed well, request you to please cover this space possible..Thanks
The stock seems to be in a down trend if we see the last 1 week, 1 momth, 6 months, YTD or even 1 year. Any idea if the AUM is increasing, why the downtrend?
it is not stock specific as it is industry specific as all NBFC are in downs. Remember RBI said there is stress in loans leading to NPA and asked big wigs to tighten up new loans, irony is this time defaulters are individuals. RBI report came few months back, MF went into cash all now playing out in the market.
Great insights Shankar sir. I was looking into URGO and Five Star Buisness a few months ago. Due to recent profit bookings and the coincident market correction, Five Star Buisness is available at an attractive valuation. Doesn't it make a better proposition to get Five Star?
I will note that in the recent Five Star concall they decreased their earning guidance.
Thank you. This note was on recognizing the gap between UGRO & Five Star -- and acceding to the law of nature i.e. competition will catch-up. i.e. UGRO will catchup to Five Star eventually and hopefully make the investor 840% return over the next 5-6 years.
Reviewing the industry-leader, Five Star will need a different pair of eyes/analysis though. From a valuation basis, the PB ratio is often used in evaluating these operations. I reckon Five Star will be at a premium.
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
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 🙌
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)
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)
What about risk to Asset quality in Micro lending?
What do you mean? Can you elaborate with numbers pls?
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.
Hi Shankar Ji!
As always, great write-up! This one looks particularly interesting.
I wanted to ask if you're tracking (or plan to track) India Shelter Finance Corporation. It's an affordable housing finance company that also offers loans against property. The company has been growing its AUM at around 35%, with ROE numbers also inching up. The management is also quite experienced (the chairman is Ex-MD of Gruh Finance). The affordable housing sector has strong tailwinds as well, with projected growth at around 20% CAGR.
Everything looks good to me. However, the gross NPA has slightly increased over the last two quarters. The management mentioned that there have been some collection challenges in MP, where a few senior employees left the company and haven’t been replaced yet. But the company is optimistic that this situation will improve within the next 1-2 quarters.
Inki valuations bhi kaafi reasonable hain compared to its peers like Home First Finance, Aavas, Aptus Value Housing, etc. Abhi I think inka P/B 2.7 ke aaspaas hai.
If you're tracking this, I would appreciate your valuable input.
Thanks so much!
Apologies, I'm not tracking this company
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??
Thanks Shankar Ji,Since Indian urban class is in down turn and rural is just picking up and economy is not so resilient and MFI Stress are increasing and many Nbfcs and banks are facing issues,what are the chances of UGRO to with stand the tail winds ? Thanks
Sorry, I haven't come across anything that gives an inkling of this
How the CDMO Space looks for you,Any thoughts on China +1 opportunity I see Divis,Syngene, Biocon and Piramal Pharma placed well, request you to please cover this space possible..Thanks
Thanks for the suggestion
The stock seems to be in a down trend if we see the last 1 week, 1 momth, 6 months, YTD or even 1 year. Any idea if the AUM is increasing, why the downtrend?
Sorry, I have no idea. Let me know if you find one.
Thank you for sharing the knowledge and keep up the good work. Big fan of your YT Videos..
Most welcome. Thank you for the kind appreciation
it is not stock specific as it is industry specific as all NBFC are in downs. Remember RBI said there is stress in loans leading to NPA and asked big wigs to tighten up new loans, irony is this time defaulters are individuals. RBI report came few months back, MF went into cash all now playing out in the market.
Great insights Shankar sir. I was looking into URGO and Five Star Buisness a few months ago. Due to recent profit bookings and the coincident market correction, Five Star Buisness is available at an attractive valuation. Doesn't it make a better proposition to get Five Star?
I will note that in the recent Five Star concall they decreased their earning guidance.
Thank you. This note was on recognizing the gap between UGRO & Five Star -- and acceding to the law of nature i.e. competition will catch-up. i.e. UGRO will catchup to Five Star eventually and hopefully make the investor 840% return over the next 5-6 years.
Reviewing the industry-leader, Five Star will need a different pair of eyes/analysis though. From a valuation basis, the PB ratio is often used in evaluating these operations. I reckon Five Star will be at a premium.
NBFCs and Financials are really difficult to undersrand for common man... :(
You have any thoughts on JM financial?
1. It's difficult for everyone. This edition was a stop-start for me & took me 2 weeks to put together. I must have quit so many times
2. No thoughts on JM Financials, haven't analysed it. It's in the queue though
Waiting for JM Financial!!!