Acuite upgrades credit rating on Ugro Capital NCDs, PP-MLD and bank loan facilities; Stock soars 6%

25 Feb 2022 , 11:00 AM

Ugro Capital Limited has received a copy of re-affirmation and upgradation of rating from Acuite Ratings and Research Limited on February24, 2022.

Acuité has upgraded the long-term rating to ‘Acuite A+’ from ‘Acuite A’ on the Rs157.85 crore proposed non-convertible debentures of Ugro Capital Limited. The outlook is revised to ‘Stable’ from ‘Positive’. Acuité has upgraded the long-term rating to ‘Acuite A+’ from ‘Acuite A’ on the Rs1100 crore bank loan facilities of Ugro Capital Limited.

The outlook is revised to ‘Stable’ from ‘Positive’.

The credit rating agency has upgraded the long-term rating to ‘Acuite A+’ from ‘Acuite A’ on the Rs450 crore non-convertible debentures of Ugro. The outlook is revised to ‘Stable’ from ‘Positive’. Acuité has upgraded the short-term rating to ‘Acuite A1+’ from ‘Acuite A1’ on the Rs180 crore Commercial Paper Programme of Ugro.

The company stock wa sin demand on Friday amid bullish markets. At around 11.05 am, Ugro Capital Limited was trading at Rs180 per piece up Rs10.15or 5.98% on the BSE. 

Acuité has reaffirmed the short-term rating to ‘Acuite A1+’ from ‘Acuite A1’ on the Rs45 crore proposed Commercial Paper Programme of Ugro. It has upgraded its long-term rating to ‘Acuite PP-MLD A+’ (Principal Protected Market Linked Debentures) from ‘Acuite PP-MLD A’ on the Rs25 crore principal protected market linked debentures of the company. The outlook is revised to ‘Stable’ from ‘Positive’.

The credit rating agency has reaffirmed the long-term rating of ‘Acuite PP-MLD AA+(CE)’ on the Rs139.70 crore principal protected market linked debentures of the company. The outlook is ‘Stable’.

Rating Rationale of the Issuer
The upgrade in rating takes into consideration sustained and calibrated growth in AUM with diversified (product and geography) asset mix and continued focus to expand across all channels viz. branch-led, ecosystem and partnership & alliances, demonstrated resource raising ability with granular liability franchise to cushion finance cost and support; the NIM and profitability, though modest, are expected to improve, augmented by business growth.

The rating continues to takes into account the governance framework of UGRO wherein the majority of the Board comprises of Independent Directors and nominee directors (three Private Equity Investors) coupled with an experienced management team. The rating also factors in the high capitalization levels and low gearing levels. The capital adequacy ratio stood at 36% as on December 31, 2021 and 65% as on March 31, 2021 (March 31, 2020: 88%) coupled with moderate gearing of 1.84 times as on December 31, 2021 and 0.80 times as on March 31, 2021 (March 31, 2020: 0.28 times).

The company has demonstrated its ability to raise funds of Rs705.40 crore by way of Term Loans, Non-Convertible Debentures, Commercial Paper in FY21 from a diversified base of 50 lenders including large Public and Private Sectors Banks as of December’2021. The company has also diversified its borrowing profile by way of direct assignment transactions of ~Rs14 crore in FY21. The rating also derives comfort from the business model which is based on technology adoption at each and every stage, right from initial screening of the borrower to monitoring of the exposures at the post disbursal stage.

The rating is constrained by high operating costs at ~69% of UGRO’s total income (i.e. net interest income and other operating income) during 9MFY22, though improvement from ~71% during FY2021, as UGRO continues to invest into its distribution channel to diversify its asset profile within MSME from 1 Lac loan to 5 Crores loan segment. This has in return led to subdued Return on Average Assets (RoAA) of 0.52% (annualized) as on December 31, 2021 compared to 1.98% as on March 31, 2021.

Though the company has registered significant growth in outstanding portfolio to Rs2,589 crore as on December 31, 2021 from Rs1,317 crore as on March 31, 2021, its ability to sustain this growth momentum while containing its asset quality given the likelihood of resurgence of the COVID19 and its consequent impact on the recovery of the MSME focused NBFCs like UGRO will be key monitorable.

Rating rationale for the ACUITE PP-MLD AA+(CE) rated principal protected market linked debentures:
The rating takes into account the comfort of dual recourse to the investors. The debt servicing to the investors is supported by regular cash flows of UGRO and the presence of a cover pool to support the servicing of the NCDs in the event of non-payment by UGRO.