Small-cap non-banking finance stock UGRO Capital rose on Tuesday, September 1, extending its gains to the seventh straight session. UGRO Capital shares during this period have gained 8% even as the benchmark BSE Sensex has lost 1.5% during the same period.
Part of the BSE Smallcap index, having a market capitalisation of a little over ₹2,000 crore, UGRO Capital’s share price opened the session at ₹177.55 in trade today and rose to the day’s high of ₹181.25 today.
The small-cap NBFC stock has fared decently over the last six-month period, even as its longer-term performance remains weak. UGRO Capital stock has jumped 20% in six months but lost 22% in a year’s time.
It’s in the 10-year period that UGRO Capital has emerged as a multibagger stock, surging 973%, according to the BSE data.
What do UGRO Capital’s P/E and ROE ratios signal?
The latest BSE data, UGRO Capital has a price to earnings (P/E) ratio of 15.20 times, which is considered decent for an NBFC stock. A P/E ratio for NBFC stocks in the 10-15 times range is considered decent, while in the 15-25 times range is considered strong.
UGRO Capital’s P/E is lower than the industry leader, Bajaj Finance, which has a P/E of 34 times. Compared to its peer group, i.e. other NBFCs trading in the market cap range of ₹2000 crore, UGRO Capital has a higher P/E ratio.
The P/E ratio is one of the most commonly used metrics by investors to make investment decisions. It reflects how much investors are willing to pay per rupee of a company’s earnings.
A higher P/E ratio often indicates that the stock may be expensive, and that investors are willing to pay a higher price for the stock as they see the scope of future growth. Meanwhile, a low P/E ratio can indicate the stock is undervalued or has lower growth prospects.
P/E ratios for NBFC stocks tend to be lower than consumer or tech stocks due to credit risks.
NBFCs operate on thin margins, so a high ROE indicates efficient use of shareholder capital to generate profits. UGRO Capital has an ROE of 6.95%, which is largely similar to or better than its peers.
“UGRO Capital’s valuation reflects its solid growth outlook without slipping into overvaluation. The company has been scaling rapidly, with AUM rising over 30% year-on-year, supported by a strong co-lending platform and sectoral focus on MSMEs. The market seems to be pricing UGRO as a growth story in execution mode, rewarding its momentum but still leaving headroom for re-rating as returns strengthen. Compared with larger NBFC peers, the multiple remains modest, highlighting investor confidence grounded in fundamentals rather than exuberance,” said Harshal Dasani, Business Head at INVAsset PMS.
As the newly added network of branches reaches maturity, operating leverage kicks in, and credit costs stabilise, ROE has scope to move into the low-teens, he added.
“Together, the P/E and ROE indicate a lender in transition-valued at a fair multiple for its growth trajectory, yet with profitability still catching up. Sustained execution and integration of new acquisitions will be the key to unlocking a higher valuation cycle,” according to Dasani.
UGRO Capital Q1 earnings
In the latest quarter earnings report card (April-June), UGRO Capital posted a 12% year-on-year (YoY) rise in profit after tax (PAT) to ₹34.1 crore from ₹30.4 crore in the same period a year ago. Meanwhile, its assets under management (AUM) jumped 31% YoY to ₹12.081 crore.
The net income in the quarter stood at ₹216 crore, up 31% YoY.