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U Gro Capital Sept 22 NCD issue review (May apply)

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•    This is the 3rd debt offer from UGCL since November 2021.
•    It has posted inconsistency in its net margins.
•    For this debt offer company has given the mandate to two merchant bankers.
•    For this issue it has changed debenture trustee as well added a rating agency.
•    Considering lucrative coupon rates and A rating, investors may consider parking of funds.

U Gro Capital Ltd. (UGCL) - erstwhile known as Chokhani Securities Ltd. - is a non-deposit-taking systemically important NBFC registered with the RBI and its equity shares are listed on NSE and BSE. The company's 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. 

UGCL has shortlisted 8 sectors after careful filtration of 180+ sectors in an 18-month process involving extensive study by market experts of macro and microeconomic parameters. Its 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 the list of sectors in FY2020-21.

U GRO's Business Model hinges on marrying the traditional branch-based lending approach with modern FinTech-based Lending. It is an amalgamation of multiple business models and brings in expertise through the effective use of technology. It brings in the sector, geographical and product specialization and combines with new-age technology platforms.

UGCL had a network of 96 branches as of June 30, 2022, comprising 20 Prime and 76 Micro Branches. Sourcing of Prime Business is done through intermediaries whereas sourcing for Micro branches is carried out through feet on the street model. Through these branches, U GRO caters to the entire spectrum of MSME borrowers. As of June 30, 2022, it employed 1,277 employees.

To part finance its needs for the purpose of onward lending and financing its business (at least 75% of the net issue collections) and general corporate purposes (up to 25% of the net issue collections), UGCL is coming out with its 3rd debt offer of Rated, Secured, Senior, Transferable, Redeemable Non-Convertible Debentures (NCDs) of Rs. 1000 each at par to mobilize Rs. 50 cr. The company has a green shoe option to retain oversubscription to the tune of Rs. 50 cr. and thus the overall size of this issue is Rs. 100 cr. The issue opens for subscription on September 05, 2022, and will close on or before September 22, 2022. The minimum application to be made is 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. UGCL is spending Rs. 3.31 cr. for this debt issue. 

This issue is jointly lead managed by Sundae Capital Advisors Pvt. Ltd., and Tipsons Consultancy Services Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. IDBI Trusteeship Services Ltd. is the Debenture Trustee to the issue. Thus, the company has once again changed its lead managers pack and also the debenture trustee. 

The issue is rated ACUITE A+/Stable by Acuite Ratings and Research Ltd., and CRISIL/A- (A minus) by CRISIL Ltd. The rating is not a recommendation to buy, sell or hold securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating agency has a right to suspend or withdraw the rating at any time on the basis of factors such as new information. 

This debt offer has tenors of 18 months, 27 months, and 36 months. It offers coupon rates ranging from 10.15% to 10.50% with Monthly or Quarterly payments of interests as per the series selected by the investors. There are no Put and Call options for this debt issue. No portion of this Issue has been reserved. Allotment will be done on a "First come - First Served" basis.

For the last three fiscals, it has posted total income/net profits of Rs. 105.16 cr. / Rs. 19.52 cr. (FY20) and Rs.153.34 cr. / Rs. 28.73 cr. (FY21), and Rs. 313.42 cr. / Rs. 14.55 cr. Though it marked growth in its total income, its net profit nose-dived and that raises concern. 

However, as per unaudited results filed with BSE, for Q1 of FY23 it has earned a net profit of Rs. 7.34 cr. on a total income of Rs. 123.80 cr. Thus it has posted inconsistency in its net margins.

For the last three fiscals, its net NPAs stood at 0.54% (FY20), 1.75% (FY21), and 1.70% (FY22). Its debt-equity ratio of 1.86 as of March 31, 2022, will rise to 1.97 post this debt offering.

Conclusion / Investment Strategy

Off late we are witnessing this company tapping the debt market quite often. Its financial data is having inconsistency in its net margins. However, considering its ratings and lucrative coupon rates, risk seeker/cash surplus investors may consider a moderate investment.

Review By Dilip Davda on September 2, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

The Ugro Capital NCD Sep 2022 Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered NCD Analysts tells you if Ugro Capital NCD Sep 2022 worth investing. The Ugro Capital NCD Sep 2022 Note sets the NCD expectations in systematic way which tells you if Ugro Capital NCD Sep 2022 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Ugro Capital NCD Sep 2022 by providing NCD recommendations i.e. subscribe, avoid and neutral.