U GRO Capital NCD issue review - (Apply)

•    This is the maiden debt offer from U GRO with a lucrative scheme.
•    ACUITE A - Positive rating with a higher coupon rate makes this an attractive offer.
•    Novel way of redemption too augurs well from an investors point of view.
•    Investors may consider investing in this offer for regular returns for 27 months.

ABOUT COMPANY:
U GRO Capital Ltd. (erstwhile known as Chokhani Securities Ltd.) is a non-deposit taking systemically important NBFC registered with the RBI and the equity shares are listed on NSE and BSE. Its mission is to provide access to financing to the underserved MSME sector, which is critical to Indian economic growth and employment creation, and yet suffers from a chronic lack of affordable, efficient and sustainable credit availability. 

MSMEs represent the most important organic method by which the country impoverished can come out of the so-called 'Poverty Trap'. Despite the challenges faced during the pandemic year, the Company has done well. Post-change in management and control of the Company, it shifted to focus on lending business. U GRO identified core sectors of MSMEs in India coupled with a data-centric, technology-enabled approach for business growth. It shortlisted 8 sectors after careful filtration of 180+ sectors in an 18-month process involving the extensive study of macro and microeconomic parameters. The eight shortlisted sectors include Healthcare, Education, Chemicals, Food Processing/FMCG, Hospitality, Electrical Equipment and Components, Auto Components and Light Engineering. The company added a ninth sector - Micro Enterprises, to our list of sectors in FY2020-21.

Currently, the company operates from overall 3 branches which include 9 prime and 25 macro branches. As of June 30, 2021, it's AUM (Asset Under Management) stood at Rs. 1375 cr. As of June 30, 2021, U GRO's overall borrowings stood at Rs. 791.48 cr. As of the same date, it had 392 employees. 

ISSUE DETAILS: 
The company is coming out with its maiden debt offer worth Rs. 50 cr. The company will be issuing 500000 rated, secured, redeemable, non-convertible debentures having a face value of Rs. 1000 each. The issue opens for subscription on November 08, 2021, and will close on or before November 22, 2021. Minimum application is to be made for 10 NCDS (i.e. Rs. 10000) and in multiples of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE and NSE. The company will be spending Rs. 1.27 cr. for this NCD issue process. 

From the net proceeds, the company will use at least 75% for the purpose of onward lending and financing the business of the company and the balance for general corporate purposes. 

The issue is solely lead managed by Sundae Capital Advisors Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. IDBI Trusteeship Services Ltd. will be the Debenture Trustee.

The company is offering a 10.3% coupon rate with a monthly payout option. The tenure of this offer is 27 months with the redemption of one-third of the face value at an interval of every nine months. Thus it has only one option for all categories. 

The company has not reserved or allocated any portion from this issue for any specific category. Allotment will be done on a FIRST COME - FIRST SERVED basis. 

This debt offering is rated ACUITE A/Positive by Acuite Ratings and Research Ltd. This rating signifies a very strong degree of safety regarding timely servicing of financial obligations and carry the lowest credit risk. However, as per the rating agency, this rating is subject to revision or withdrawal at any time and holds the right to do the same on the basis of emerged factors. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three years, the company has posted a total income/net profit of Rs. 43.94 cr. / Rs. 3.95 cr. (FY19), Rs. 105.44 cr. / Rs. 19.52 cr. (FY20) and Rs. 153.34 cr. / Rs. 28.73 cr. (FY21). Growth in the bottom line is due to deferred tax adjustments. Pre-tax profits of the company for all these years stood at Rs. 1.55 cr., Rs. 3.32 cr. and Rs. 12.13 cr. respectively. 

For the first quarter of FY22 ended on June 30, 2021, the company has earned a net profit of Rs. 1.70 cr. on a total income of Rs. 51.28 cr. On March 31, 2021, it's current paid-up equity capital of Rs. 70.53 cr. is supported by free reserves of Rs. 881.91 cr. and had a higher net NPA of 1.75% (against 0.54% for FY20). Its current debt-equity ratio of 0.83 will rise to 0.89 post this issue.