Ugro Capital Ltd (NSE: UGROCAP) Q1 2026 Earnings Call dated Aug. 13, 2025
Corporate Participants:
Unidentified Speaker
Shachindra Nath — Founder and Managing Director
Anuj Pandey — Chief Executive Officer
Analysts:
Unidentified Participant
Shweta Daptardar — Analyst
Anil Tulsiram — Analyst
Amit Agarwal — Analyst
Deepak Yadav — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the UGRO Capital Q1 FY26 earnings conference call hosted by Elara Securities India Private Limited. As a reminder, all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call. Please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference has been recorded. I now hand the conference over to Ms. Shweta Dabtar Dar from Elara securities India Private Limited. Thank you. And over to you, ma’am .
Shweta Daptardar — Analyst
Thank you, Anushka. Good evening everyone. On behalf of Elara securities, we welcome you all to Q1FY26 earnings conference call of Ugro Capital Limited. From the esteemed management we have with us today. Mr. Shachitra Nath, Founder and Managing Director. Mr. Anuj Pandey, Chief Executive Officer. Ms. Shilpa Bhattair, Chief Financial Officer. Mr. Sabim Nanda, Chief Revenue Officer. Ms. Ritu Singh, Senior Economist and Head Investor Relations. We express our gratitude towards the management of Ugro Capital to provide us the opportunity to host this conference call. Without further ado, I now hand over the call to Mr. Sachindranath founder and Managing Director for his opening remarks post which we can open the floor for Q and A.
Thank you. And over to you sir.
Shachindra Nath — Founder and Managing Director
Good evening everyone. It is my pleasure to welcome you all to UGO Capitalist Q1FY26 earning call. We have been maintaining that MSME financing in this decade is the largest credit opportunity in India. And for us every quarter solidifies its base. Q1 of every quarter for lending institutions start with a slower base. However, that defies how the year would pan out for us. This quarter for us had multiple milestones. We did capital raise of around 300 crore through rights issue. We did a preferential allotment of around 900 crores. Where we saw our existing investor commit capital to us.
And we will be utilizing the funds raised through for acquisition of Perfectus Capital. Which would increase our base to approximately 15,000 crore. With a potential of improving our return on asset in FY27 with added profitability. Our Share price has not been what we would like it to be. Raising capital at low valuation is neither desirable nor acceptable to us. However, in lending between dilution versus maintaining the momentum of growth, we have preferred growth. We understand the importance of clearly outline the levers that drive our growth ROA and ROE and our endeavor would be to explain that more over period.
Ugro have been pivoting its asset engine to emerging market, small ticket, LAP and embedded finance in last two years. In this journey we have expanded our footprint from 150 location in FY24 to 309 location as of June 25th. This quarter we are presenting to you how the build out is happening. We believe on the current performance when all our branches mature we would reach monthly exit run rate of around 400 crore per month just from our emerging markets channel. Ugro would be a very different financial profile company once we reach that scale. Our other lever of ROA is our embedded merchant lending business which came to us through acquisition of MSL Tech platform and we are presenting the performance of the same as well.
This quarter we also elevated Anuj as our CEO. He has been with me since Ugro’s very inception. When we started the August the organizational design was to have a CEO for the business so that I can focus on strategic things which are investor interface, lender interface, organic and inorganic business growth opportunity and CEO can focus on core operating performance. I am very pleased that our board have recognized Anu’s talent, perseverance and knowledge about lending industry and have entrusted him with this responsibility. I now turn to Anush to take you through the quarter’s performance. Anuj?
Anuj Pandey — Chief Executive Officer
Thanks Ateel Good evening everyone. The first quarter of FY26 was all about discipline and laying the groundwork for our next leap forward. Traditionally Q1 is a softer quarter in terms of disbursements and this year has not been very different especially in this year. This quarter we have tightened our underwriting filters especially where borrowers leverage was elevated and have moderated origination volumes in those pockets. This focus on quality has meant that even with slower disbursements our growth trajectory stayed strong and our risk profile is stable. Let me walk you through this quarter highlights. Firstly on strategic action we have announced a 1400 crore all cash acquisition of profit this capital which is progressing well.
Shareholder approval is secured and change of control and allied regulatory approvals are underway. Trophectus has demonstrated stable portfolio expansion building its access under management to 3468 crores as of March 2025 with presence across seven states through a 28 branch network and over 800 member team, all while maintaining a gross NP of 1.6% and a net NP of 1.1%. Integrating profectus school finance expertise unlocks 2000 crores growth potential and strengthens our secured asset mix, accelerating our journey to become India’s largest MSME lender. This acquisition will accelerate our AEM towards our medium term goal of reaching 20,000 crores on capital raise.
As Sachin mentioned, we successfully completed 381 crores of rights issue and are in process of 911 crores of preferential issue this quarter. This capital combined has improved our capital adequacy ratios to 22.4% which also ensures we can continue expanding without compromising quality. Now on business update, our aum closed at 12,081 crores up 31% year on year. Disbursements for the quarter were 1599 crores compared to 1146 crores in Q1FY25. The sequential decline from 2,436 crores in Q4FY25 was by design and in line with our budget. Our emerging market business expanded to 286 operational branches by June with a clear path for more expansion by September 2025.
These branches are now showing improving vintage profitability validating our expansion strategy in embedded finance. We crossed the milestone of 1000 crore AUM this quarter. We disbursed 582 crores through mysublife platform with a monthly disbursal run rate of between 100 to 150 crores reinforcing our ability to embedded credit at scale with digital ecosystems. Portfolio quality stayed intact with GNPA at 2.5% and net NPA at 1.7% well within our internal estimates. Our unsecured portfolio though has witnessed some stress on account of overleveraging. As mentioned earlier, we had tightened our underwriting and have curtailed disbursements in last two quarters.
186 crores in Q1 FY26 versus peak 623 crores in quarter two FY25. Our total off book assets stood at 42% of total AUM supported by 17 co lending partners. Total debt at 7,586 crores as of June 30th and and with over 50 lenders we have a very diversified liability profile. Our long term rating is a rating watch with positive implications as assigned by India Ratings on financial Performance. Our total income grew 40% year on year to 421.8 crores. Our net total income stood at 216.5 crores, a 31% year on year growth. Our PAT came at 34.1 crores for the quarter up by 12% year on year.
Our credit cost was 47.7 crores representing a 44% year on year increase, but lower than our quarter four FY25 which was 54.3 crores ROA for our quarter one FY26. If we exclude the branch expansion impact would be at 2.3% which is in line with our internal estimates. Looking ahead, we expect disbursement momentum to pick up from quarter two as seasonal effects subside. The emerging market network is near full rollout and our embedded finance funnels continue to expand. The industry is currently facing higher stress in certain unsecured segments, but our exposure there is limited and ring fenced.
Approximately 70% of our book is secured and our underwriting filters are sharper than ever. We remain committed to building UGRO into India’s largest small financing institution. Before we end, I would like to take your attention to slide 7 and slide 8 of our investor deck which we have uploaded. This is specially inserted this time to highlight the traction which we have achieved in our focus emerging market channels. Out of the total 286 branches which we have currently 150 of them are greater than 18 months old and 136 are less than 18 months old and their traction overall from vintage perspective we have explained that in the slide so our AUM per branch for branches which have attained greater than 18 months is already touching 15.4 crores.
For less than 18 months it is currently at 3.4 crores. From business perspective the average ticket size is close to 20 lakhs for a loan with an average yield of about 17.8 to 18%. Our GMPA for vintage branches is at this point in time 2.4% well within the estimates and for newer branches at this it is 0.2%. Similarly, for credit cost for greater than 18 months the average credit cost is about 1%. For newer branches at this point in time it is 0.3%. So out of total 286 branches, 121 branches have already broken even and others in next 12 to 15 months are on the path of breaking even.
We had also given a steady state estimate of once a branch becomes vintage, what is the kind of productivity we can expect? And broadly our internal estimate says that a branch should be able to deliver 1 to 1.1 crores of disbursal per month once it becomes stabilized with a ticket size of 20 lakhs with a yield of 18%. In emerging markets, we only focus on secured business. We don’t do any unsecured business at all. The distribution of AUM and branches is also very well diversified with 48% of branches in north, 25% in west and 27% in south.
This is what I thought I should highlight and now we are open to questions.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star in one on their Touchstone telephone. If you wish to remove yourself from the question queue, you may press Star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Anil Tulsiram from Best Pulse Research Advisory. Please proceed.
Anil Tulsiram
Yeah, thanks for the opportunity. My first few questions are on embedded finance. I want to understand about the customer profile of this embedded finance product whether it is existing to credit or new to credit. Secondly, is it a monthly AMI product? Third, in case of default do we have any intra to collect the. Those are the few questions first.
Anuj Pandey
So on embedded finance the way we have built it is to get embedded in an existing payment ecosystem like a PhonePe or a Bharat Pay and through that get access of the transaction history of the so typical target segment. Here is our small retailers or medium sized retailers who use a payment ecosystem’s QR code for their daily transactions. And the way we have built our business rule engine is to read the transaction history and compile it along with the bureau and other rules, statistical rules which we have made around. Typically this is a daily repayment product and not a monthly AMI product with an average ticket size of less than 2 lakhs.
Anil Tulsiram
Got it. So in case of default do we do physical collection process entirely digital connections?
Anuj Pandey
So the players in the ecosystem now are also realizing that it is a very important component of their business and they have started investing in very large field forces both for distribution and collections. So in case of a default there is a call center and a field force which is there to collect. In any case the way we have designed this portfolio we keep about 10% of the loan is worth as a reserve pool for provision. So far the portfolio, this is our 11th month, the portfolio performance has been very good and the credit costs which we are seeing are about 3% Anilji.
Shachindra Nath
If I may add, the way you think about it, among the top five payment platform in India, your top four, you know, Google pay, we don’t pay partners. But between PhonePay, BharatPay, Paytm and Google Pay, there is roughly around 30 crore merchant footprint. We have. Now that 30 crore merchant footprint is not exclusive to each one of them and obviously each one of them uses each other’s payment platform as well. But the way the product is designed so one, they are, you know, our technology embeds into the payment platform. They are the, you know, first point of origination and they are also our collection agent.
The way this is, this works is the think of this that there is a shopkeeper which has a daily transaction flow of roughly around 10,000. So what we call daily Galleka collection when the machine runs the program, it looks at the daily transaction flow then it pings the bureau, look at their historical payment profile and then basis that it qualifies a customer for a certain amount of loan. But it ensures that the loan EMI should not be more than 20% of his daily collection. So if his daily collection is 10,000, the EMI should not be more than 2,000 rupees and then you collect automatically from the system from his daily transaction flow so that you know, 2,000 rupees on a daily basis come back to us.
So if the loan is for 2 lakh rupees, loan is for one year period. The average loan would pay off in six months time. And that’s why the risk associated that is much lesser. Second is that as Anu said that these products while there is of the total gross yield there is a distribution fee which goes to a phone payment, there is a collection go to them. But of the total yield we reserve around 8 to 10% of the yield as a provision coverage we are seeing around 2.5% of credit cost. But net we get around 16.5% of all the fully provided credit cost OPEX technology.
That’s why this has potential to deliver a 5% of ROA. Only thing is that you cannot make this as the only business. And that’s why it’s a percentage of the total portfolio. And that’s in my opening remark I said that our EM platform and this have a massive ROA kicker possibility.
Anil Tulsiram
Got it sir. And what is the target mix of embedded finance in next 2, 3 years?
Anuj Pandey
We would like to be around 10 to 12% of the total of the total AUM.
Anil Tulsiram
Okay, thank you sir. I’ll get back in with you. Thank you so much.
operator
Thank You. Ladies and gentlemen, a reminder to the participants. In order to ask a question you may press star and one on your touchstone telephone. Ladies and gentlemen, in order to ask a question please press star in one. We take the next question from the line of Amit Agarwal from Water Equity. Please proceed.
Amit Agarwal
Yeah, thank you. I understood your opening remarks. You mentioned that around 70% of your book is secured. So what is the average loan to value for such properties or at origination or what is the general, you know cushion you keep on such secured transactions and what are the type of properties you generally consider for lending. Thank you.
Anuj Pandey
So at a at a portfolio level our loan to value would be around 55% while for prime secured loans we go up to 80%. But at a portfolio level this would be about 55% and we do self occupied residential property, commercial property, industrial property.
Shachindra Nath
Amit, good to see you on the call. You know some of our lenders so. Joining the call is very, you know very encouraging. So you know of this collateral which I explained if you look at our slide 6 it will give you a clear picture of you know our asset mix and the type of the collateral. So in prime we to take pure physical collateral, residential, commercial, you know industrial. In micro predominantly it’s commercial plus residential in machinery it is machine and our digital alliance and you know partnership it is the first loss cover and high provision coverage ratio.
Amit Agarwal
Okay. Okay. So on the on slide 6 you are seeing that fldg from partner is also a part of the pine of.
Shachindra Nath
Kind of a collateral. Yes.
Amit Agarwal
And if I can just ask one more question because this pertains to it may affect you and you have given a separate slide on the new co lending guidelines. So do you think so one can be do you think as a positive or a negative at a general level and how much you know you see effect on your company going forward from January. So one can be industry level your comments and when the company specifically if possible. Thank you.
Shachindra Nath
So there are two part of it half glass, full half, you know empty. I think so. Well let me talk about the positive first. So one biggest positive is that now co lending all form of co lending in India have now come under regulatory umbrella. So as you know NBFT to NBFT coending was not in within any regulatory framework. So now the cold ND has been coverage has been given to do regulatory entity can do polanding and that everything has come under that umbrella. Second big positive is that RBI for the first time has allowed first loss cover to be given to the Bank.
Now some people think oh that how can that be good? I’ll tell you why it is good. So today if any state bank of India or a large NBFC is a is a co lending partner they have to take carry the risk of the of the total origination based co lending which they do now because of that they charge a certain amount, they presume certain amount of risk and they charge a risk premium and that becomes our net rate. Now we report everything on an AEM basis. We are comfortable with our credit cost. If you go to a bank and say that now if suppose in our secured business our expected credit cost is around 1% and if we gave them a 2% off or 3% of a first loss coverage they would volume would increase multiple fold.
So that is a big positive. And because of that of fldg our net cost in co lending would come down. And also it is a business without capital. So the advantage with larger player the AAA’s and parent owned entities have is entities of leverage. So you know second largest NBFC or third largest NBFC in India is levered eight times. Now we get leverage of only four times. But now this will give us the capability to actually lever us very similar without actually putting capital behind it. So I think it’s a very roe positive move. And last but not least not relevant to us that the co lending was only applicable to priority sector lending.
Now it is open for all. So actually any class of assets can be done while our assets are only priority sector. Now the challenges. So I think so we have industry as very strongly represented to the regulators. They’ve heard our voices and they have made adjustment from draft to the new guideline. My view is that From January to 2/4 there would be disruption to reset the new process. The biggest challenges would be that now we have to select our co lending partner at the point of origination itself. And I don’t think so the technology is a challenge because in most, at least in our case with most of the banks we are fully integrated both in simultaneous lending and post disbursement transfer of loan lending.
So that is not a challenge. I think that would be fine. But at the point of today when we do co lending we don’t look at which bank the loan would qualify. We disburse from our balance sheet and then bank we test which loan case would fit to which bank and it goes there and then they test it on their policy in process and then it get transferred to them. Now our distribution architecture has to change that at the point of origination, we have to choose that where this loan would get, you know, qualified and we would need the corresponding bank to also say yes.
And the loan documentation would be accordingly get triggered and bank then would still have the time to take 15 days to the loan to get transferred to them. So it is little bit of tweak from our original process, but it is not insurmountable. So on the balance of capacity of volume increase with the FLDG and the process market expanding in big way, I think so with little bit of two quarter of adjustment to the new, the overall industry volume and our volume should multiply from where we are today.
Amit Agarwal
Okay, thanks for the detail explanation. Thank you so much and all the very best.
Shachindra Nath
Thank you.
operator
Thank you. We take the next question from the line of Rishi from Lavish Ventures. Please proceed.
Unidentified Participant
Yes. Hi Ms. Nath, can you hear me?
Shachindra Nath
We can, yeah.
Unidentified Participant
Hi, good afternoon and congratulations to Mr. Anuj for his elevation as the CEO. Thank you again for coming on national television to explain the acquisition of Perfectus. I just have a quick question on, you know, the trying to understand the management’s thinking about inorganic growth. So I understand that it’s going to be a secured mix step, going to improve the portfolio mix and probably bring down the cost of borrowing. But the point that I would like to understand is it seems like a tactical solution to hit the ROA that we initially wanted to hit. So how does the management see further or future inorganic growth? Do you think you will always be open to such growth opportunities? Or is this a one time thing and you’re now just going to focus on the business as usual?
Shachindra Nath
Yes, very good question. Thanks for this. So look, we have never focused on any inorganic ever. We have always focused on organic business and that continues to be our philosophy. I don’t think so that going forward till the time, you know we are fairly valued, we would have the availability of capital to look at something while you know, everything which is there available. We obviously evaluate it, but there’s hardly any fit which we find. So my reasonable estimate is that we would not be doing more acquisition unless something very attractive comes which can improve our finances dramatically.
On your question why we did this and whether it is tactical or is a long term strategy, to be fair, it is more tactical than a long term strategy. There was a little piece of long term into embedded into that, but it was more tactical for us in our steady state basis. Our journey from our current ROI to 4% ROE has a time period and that is largely a function of our emerging Market business and their branches getting to a certain level of volume, our portfolio yield increasing because of that volume and then that hitting an roi.
When we were supposed to raise the capital because we have to supposed to maintain certain amount of capital adequacy, having raised that capital, whether to deploy that capital over a period of some time and build portfolio or whether if there is asset available which can actually improve our ROA in shorter period, we choose that it doesn’t impact our capital adequacy. Our capital remains the same because we have acquired it more or less near book value. And we felt that it improves our asset mix. It gives us a line of business which is school financing. And obviously it has multiple other things, you know, like portfolio quality, asset mix, so on, so forth.
One way to look at is that, you know, we were rated India rating A plus. When any acquisition happen ratings goes into a watch India rating. When they looked at the numbers, the watch, you know, from a stable outlook, we became positive outlook. What does it mean? Is that what the acquisition probably from a rating perspective perspective is a positive because they saw that our financials number portfolio quality would solidify. One of the biggest input to our ROA journey which is less in our control is our cost of borrowing. Our cost of borrowing VISA vis our peer set has remained elevated.
It’s roughly around 150 to 200 basis point more than most of our peers set. Larger peer set obviously is much higher. But even if you look at A plus and AA minus rated entity, our cost of borrowing is definitely high. It has remained high because we have been a very high growth company. Which means on a month, on month our borrowing profile, we borrow a lot. And when you borrow a lot, obviously you have to pay a price for that. So this acquisition also helps us in that because we have achieved our numbers purely from an AUM perspective profitability perspective.
Now we have an advantage of to play how much more organic disbursement we can do. So we will play of growth versus bottom line and reducing our cost of borrowing. So on these three spectrum, I think this qualifies well. And that’s why we did this.
Unidentified Participant
Okay, thanks for that explanation. I mean, because I mean to me personally I was thinking that such kind of an acquisition would be done by companies who are desperately, you know, trying to meet the street estimates. And given that we are not valued anywhere close to our actual worth is, I thought why do it? To satisfy actually nobody who’s you know, watching us so closely to either bring the price down or up based on the acquisition. And to be frank, I would share the same comment that you mentioned as well.
Shachindra Nath
Sorry, sorry to intervene with you. Obviously it’s very close to my heart. So look beyond a point of time. You know it’s, you know how the street looks at it and whatever price is, is under our limited control. Right. What our job is, what we are interested is that what we think. How do we build? We explain it well to people. Sometimes people accept it, sometimes don’t accept it. We are confident that what we are building would get value. But in what period of time we don’t control whatever action we take. We take it purely fundamentally of whether it is good for business or not.
One of the ways the street would value us over a long period of time is when we improve our operating metrics. Right. So the constraining factors are. Constraining factor. We don’t have a parent and that’s why we don’t have the same cost of borrowing which you know, large parent owned NBFTs have. We have a cap on leverage because that’s the way the lending market works. Within that constraining. Two constraining factors. We have to improve our portfolio yield. We have to control our credit cost and we have to demonstrate consistent growth. And you know we felt that Fictus acquisition fit on those criteria and that’s why we did that.
Unidentified Participant
Thanks again. One final question if I may. I mean could you just talk very briefly about the exits of Mr. Amit and Kishore if you would.
Shachindra Nath
Yeah, of course. Why not? Look, UBRO is a growing organization and you know, over a period of time, you know I always go back in the history. If you look at the evolution even banks like SDFC bank and ICCI bank in a growing organization people definitely come, commit themselves to build certain units, you know, certain things which they are interested with. And you know when there is, they see that their role is over and they are getting a better opportunity of what fits to their profile. Obviously they will choose that we as management, as a company actually feel that it is, it is important that people come here, stay for a reasonable period of time if possible stay for, for life over here.
But if they get the opportunity then they should choose those opportunities and go for that. What is important for the company that we should have talent embedded which can step up and fill those vacancies without destruction to that business. Amit from here if you look at we are really thankful to him. When he joined you grow we were roughly around 1500 crore of asset organization and we delivered almost 12,000 odd crores. But he Felt that his skill set and you know, because we, you know he came from a background wherein large scale intermediated distribution business was his core skill set.
And he felt that an opportunity of similar size, similar place with a much larger scale for his residual professional career is, you know is in interest. And we said that. But what he has put up here and what kind of talent he has built organization will continue to do well. So it is in both interests. On cfo again it’s a personal choice. Obviously a CFO role in UGRO is a difficult role. If you look at the banking, financial services industry, majority of the easy lending from mainline banks is to entities which either have a parent or have a vintage.
And sometimes UBRO has a very deep diversified lending base. So you have to not only interact with the global dfi, you have to interact with private sector bank, public sector bank, you know, public market. So it’s a hard job. And sometimes people make personal choices that for the same time and impact where they can deliver more. But there also we had very capable succession. Pre plan Shilpa was already appointed as a deputy cfo. When Kishore shown his desire to go to other organization she was already immediately elevated as a CFO position.
Unidentified Participant
Thank you Sanath. If I may, can I just ask one final question and I’ll jump back into the queue. So if the warrant that are possibly going to expire out of the money can I confirm that the actual given that they are the same for the CCD buyers as well, can I confirmed that the price for them is the 185 plus the 62 that they had prepaid 18 months back. So overall they are doing it at 247 minus the 12% that has been related.
Shachindra Nath
Sorry. So I couldn’t understand the question. But I tell you what this. So the warrants were issued at price of 264. Right. And all the investors had paid 25% of that as their initial contribution. Now the warrants are deep out of money. When the company needed capital we had a choice to go and raise the capital either from new investors or raise the capital from the same set of people who had put money through the warrants. Now we felt because obviously when you need the capital given the public market is not very widely open, if you go to private investors, the time it would take for private investor to put capital can sometimes be very elongated.
And that’s why we felt that this good choice would be to go to existing investors who have put money on the warrants and request them that whether they can put capital on the current traded price. The way we structured it, we said that you come at 185 rupees, which was that time the SEBI preferential pricing formula. We paid a coupon which was 12.5% upfront coupon and we link the second coupon to the exercise of the warrant. So if for some reason share price in the intervening period moves and the same investor want to exercise the warrant, then they don’t get it.
They get only 12.5%. So that’s why the effective price for them becomes 162 rupees. So from a company perspective, what we said, that given that if we were to forfeit the 25% and if we are to pay 25% at a balance sheet level, it is a zero impact on us and the share new, these investors are getting new shares at 185 which otherwise any other investor would have got in order to be fair to the balanced public shareholder. And you know, because there was a dilution happening at a lower base, we calculated the total dilution that was an extra 4% dilution between 265 and 185.
And that’s why we did a right issue of the matching 4% which came out to be 400 crore. We took the effective price of 162 which was was 185 minus 12.5% and made a right offering at 162. And that’s why off that some of the existing investor IFU which is Denmark government committed 150 on the road, some of the other investors put money in the right. And also contrary to our expectation, we saw quite a bit of public participation. And that’s why right went to up to 380 odd crores. We could have done a smaller REIT issue but.
But we did matching right issue to the dilution. So There was a 4% extra dilution happening between 265 to 185 and we made the size of the right issue exactly there. So it was very well debated both at our board level and as our external advice. And that’s why to be fair to every public shareholder, this is what we did.
Unidentified Participant
So my question was basically the 162 plus the 62 that they’ve already paid. So their effective cost is 224. If they don’t exercise the warrant, they lose the 25%.
Shachindra Nath
Yes, that’s your right.
Unidentified Participant
Okay, because this was not clear in a lot of public forums. There was a lot of noise around why it was 162 and I was trying to explain to them that it is actually 224. Thank you very much.
Shachindra Nath
Yeah, thank you.
operator
Thank you. We take the next question from the line of Deepak Yadav and individual investor. Please proceed.
Deepak Yadav
Yeah, hello. Hi, can you hear me, sir?
Shachindra Nath
Yes.
Deepak Yadav
Yeah. Okay. So I want to know where the net yield going to be stabilized. So I think they are increasing since last one year or so. And so where do you see the net yield going to be stabilized or going to go by the end of financial year 26. And also what are the intervention you are doing to decrease the cost of borrowing? I heard somewhere that you mentioned on the national TV or the last earning call that you would decrease the AUM growth, like organic AUM growth so that you need to take less of credit or loan.
And this would motivate the lenders to give you less money at less cost. And also at last I would like to understand where do you see the AUM and ROA number at the end of this financial year? Thank you.
Anuj Pandey
So our net yield increase is a function of the increased contribution of our emerging market business and embedded finance business. So our emerging market business at end of March 25 was about 22% contribution to the overall portfolio and we want to take it to around 35% by end of the year. So while we are not increasing yields in the segments which are already running, we are just increasing the contribution of segment where yields are higher and hence because we don’t want to take unnecessary adverse credit selection risk in prime segments. So we foresee the yields to go up by 0.25 to 0.5% in the coming year.
So that was number one. While the ROA trajectory in the longer run, and we have talked about that earlier as well, is that at a steady state we want to reach 4% ROA levels with profectus acquisition and operational leverage which we are getting because of that. Added to that, our cost of borrowing advantage which we foresee should start happening owing to both the macroeconomic factor and our scale and size increasing and a little bit on OPEX to AUM coming down with our emerging market branches having more vintage playing out, we foresee in next six to eight quarters to reach where we want to be in the interim for about a year.
So it would increase on a steady state level each quarter about 0.2 to 0.3%. That is what the estimate is on the.
Shachindra Nath
I think you mentioned about, you know, how we will bring down the liability cost and you might have heard it is A choice between growth of AUM versus liability. So let me clarify what we believe is that within our peer set and I’m not comparing to entities whose cost of borrowing is, you know, predominantly basis their parentage. I’m talking about the entity which are similar to our profile, which is similar to our rating band and our cost of borrowing is little elevated to them. It is purely a function of our growth rate. I don’t think so that I have come across an entity which in last four years have grown from roughly around 2,000 odd crore to straight 12,000 odd crore.
So in lending when your net monthly borrowing is very high then obviously your flexibility to negotiate cost of borrowing is very very limited. We have reached to a level of maturity wherein for us improving our cost of borrowing is paramount. And that’s why I say if it were to be the case that we have to make a choice between growth versus input to our business is cost of borrowing. We will choose cost of borrowing and if required we will reduce the growth rate. It doesn’t mean that we will not grow at the pace what we are growing.
Fortunately we have added 3000 crore of AEM every year in last three years. Now with Profectus we actually added that 3000 crore AEM with the acquisition itself. That’s why we have more flexibility to focus on our emerging market business. Improve the portfolio yield by including the funnel. Perfect. Our embedded financing business. Maintain the volume in our prime and machine segment. And we think that with the overall improvement of profile our cost of borrowing would improve from where we are.
Deepak Yadav
Yeah, thank you sir, thank you for the answer. Thank you.
operator
All right, thank you. We take the next question from the line of Anil Tulsiram from West Pulse Research Advisory. Please proceed.
Anil Tulsiram
Yeah sir, my question is on the energy market business. So I’m just trying to understand the ticket sizes and interest rate. If I see our peers, they are lending 10 to 12 lakhs at 16 to 17% and our average ticket size is 20 lakhs. But we are lending at 18%. So what sort of. Sorry, who do you do?
Shachindra Nath
Can you define what. What when say peer. What do you mean by that?
Anil Tulsiram
See I Look at the SBFC finance, their ticket size is around 10 to a lakh but their average interest rate is around 16%.
Shachindra Nath
Yeah, so I think so on S purely on SBFC you are comparing this, there are two points the computer comparing that they combine with their gold loan business. So you should. We do. We are not in gold loan at all. So you should segregate us our portfolio versus their portfolio on micro lab perspective the market. So among the listed peers majority of the player which are focused on microleb and also unlisted player largely are below 7 below average ticket size of 4 and 5 lakh rupees yield is also little higher. The SBFC might be and I don’t have the access.
I don’t remember their numbers so well. I presume it’s the blended it will be little lower is because of the total combination of gold plus micro lab so leave that aside. Majority of player in the south which is now similar size where ticket average ticket size is 4 lakh rupees but the portfolio would be now used to be around 24% now coming down to 22 odd percent. We have maintained that when it comes to emerging market lab our expertise and capability is not to go into that lower ticket side. We in last two years have also maintained that smaller ticket lap is adjacencies to microfinance and in bad cycles the total credit cost can get elevated significantly.
Ugro as a company has expertise to do, you know prime lap all the way up to 3 crores average ticket size of 80 lakh. We have capability to do machinery business. We have a data analytics plus technology platform. So when we graduated to emerging market lab we decided to do only up to 7.5 lakh rupees. But our competitive advantage vis a vis any other player that we can also do larger ticket loans in tier 2 tier 3 towns. So when we do our EM platform or EM channel we can do secured loan up to 1 crore in a tier 2 town where you know average is now coming to 20 lakh rupees.
So at the 20 lakh I think so we, we are being able to maintain a better yield than some of our players. So most of the micro lab players are their blended portfolio yield would be around 22 to 23%. Ours is because it’s 20 lakhs is what it is coming today. Anuj, you want to add something?
Anuj Pandey
No, this is fair. So I mean and this has been a process. When we started we focused Only up to 50 lakhs in our emerging market branches. But we also realized that there is a small pocket of larger ticket size customers there and we had already developed that expertise in our prime segment so we have transitioned that expertise in our micro and that’s why our overall ticket size is increasing a little bit. But we don’t mind it because at a portfolio level it gives a lot of stability.
Anil Tulsiram
Got it. And coming to the CO there is a new Wording something called blended rate which NBFC and banks have to follow. And there was a note by ICRA at the time of the draft guideline. It said that this blended rate will reduce the interest rates which ultimately nbsp are able to charge and the resultant roe. So can you explain this? No.
Shachindra Nath
So sorry, what is the note on ikra? Sorry, what is the question?
Anil Tulsiram
No. So see earlier there was no compulsion by the RBI that the rate which nbsp charge has to be blended rate of banks and nbsp and BFC decide their own rate. But now the interest rate which nbsp charged to the customer has to be blended rate of the bank and nbsp so following this blended methodology will reduce the interest rate which NBSP will be able to charge to the customer for the same product compared to the earlier guidelines.
Shachindra Nath
Not seen it. Is it an ICRA comment saying that NBSCs won’t be able to charge this thing?
Anil Tulsiram
Yeah, I can forward you there earlier note actually no, no of course I.
Shachindra Nath
Will go and search it. So sir, you know first the blended rate concept was in the 20 November 2020 circular as well the challenge of the problem was that because loan was first originated by buy nbsp at its rate and that’s why that became the rate and the co lending partner used to give it a fixed rate and you know the differential used to come to nbfc. But what rate NBFC charged at the first point of disbursement was the blended rate itself, right? Only thing what was not disclosed or known to the customer that at what rate a bank has lend and at what rate the NBSC has lend.
Right? Now think of a new scenario wherein RBI said that you have to disclose to customer that what is the rate at which bank is coming and what is the rate at which the NBSC is coming. Now if suppose there is a loan which need to be charged 15% why it is charged 15%? Because NBSC now will have everything. The entire cost of origination is nbsp’s cost. Entire cost of collection is the NBSC. Now the credit cost is also NBFC’s cost. So when NBFC will price its portion of the loan it has to also, you know factor in its total cost and bank has to factor its cost.
So bank would have actually no cost other than to disburse. So accordingly the blended rate the NBFC portion would go higher and bank portion would come lower and that would become the blended rate. Some transmission would surely happen I don’t think so. This would shrink the margin of the nbfc. But the pricing which bank would give would be lower than what it is giving today. And some transmission would keep going to the to the customer which is also RBI intent. RBI intent is that the lower cost of bank lending should get transferred to the customer.
We see how that transition happens. We don’t sees that that would shrink the margin for NBSC in a very significant manner. Some of it is evolving plays. We’ll see how it plays out and you know, probably by next quarter. We are also studying, you know there are, you know, consultation which are happening with RBI as well. We’ll get more clarity around it.
Anil Tulsiram
And the last question is on the collection infra for the emerging markets. So over the last 12 to 18 months has emerged in the various segments. So have you changed our collection infrastructure, enhanced it or anything that you have done to strengthen our collection infrastructure?
Anuj Pandey
So yes and it is part of our design itself. So each of our emerging market branch is a templated branch where there are five to six front end sales resources, one credit resource, one operations resource and one branch head. And after a certain AEM, approximately 2 crores we also have a collection resource. So today out of the 300 branches which we already have, we have close to 300 people on the ground exclusively focusing on collection. So as our emerging market branches have expanded, so is the collection infrastructure.
Anil Tulsiram
Got it. And one last question is on the collection infra for your embedded finance. See in China the Ant Financial has its own collection agent. What I understood after reading the prospectus. But in India these payment gateways which you spoke about cold pay, these people are not maintaining any collection agent while they are engaging in the loan. So how do you see this risk?
Anuj Pandey
No, they are actually they have started investing a lot on their own collection infrastructure. Because unless the portfolio which gets sourced through that ecosystem, unless there is a collection intensity and the portfolio performance, the business will not scale. And most of the partners, large partners now understand that and are now investing in that.
Anil Tulsiram
And so this embedded finance is only for business purpose that it is not a personal loan for the consumption.
Shachindra Nath
No, we don’t do buy now, pay later. We don’t do pl. Ugro is a hundred percent business loan company. We only give loan to Aadhaar registered MSME customer.
Anil Tulsiram
Got it sir. Thank you for. Thank you and all the work. Thanks a lot for all the good answers.
operator
Thank you. Due to time constraints we will take that as the last question and would now like to hand the conference over to the management for closing comments.
Shachindra Nath
Yeah thank you. Thank you very much. If you have any further questions you know please be in touch with ritu. We’ll be more than happy to plane our continuous endeavor have been is to deliver consistent growth consistent performance but you know we continue to believe that certain pockets of the market would show some amount of stress. We have been anticipating that and we have pivoted you know some of our asset engine accordingly as a proactive measures. That’s why we think so that we are in much better state than many of other competitive players and we’ll continue to focus on building what we are what we are tasked at and continue to explain you in detail what we are trying to do.
Thanks all for you know putting your time to listen to us. All the very best.
operator
Thank you on behalf of Ilara Securities India Private Limited that concludes this conference. Thank you for joining us and you may now disconnect your lines.