Ugro Capital Ltd (NSE: UGROCAP) Q3 2026 Earnings Call dated Feb. 09, 2026
Corporate Participants:
Shachindra Nath — Vice Chairman and Managing Director
Anuj Pandey — Chief Risk Officer
Silpa Bhatta — CFO
Analysts:
Kishan Rohta — Analyst
Arvind Ja — Analyst
Piyush Potra — Analyst
mehul Panjwani — Analyst
Prakash Modi — Analyst
Nitin Diani — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Ugro Capitals conference call hosted by MK Global Financial Services 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 this 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 Mr. Kishan Rohta. MK Global Financial Services Ltd. Thank you. And over to you.
Kishan Rohta — Analyst
Thank you. Avirath Good evening everyone. I would like to welcome the management and thank them for this opportunity we have with us today. Mr. Sachendranath Founder and MD Mr. Anuj Pandey CEO Mr. Silpa Bhatta CFO Ms. Ritu Singh Senior Economist and Head HR Sorry Head IR I shall now hand over the call to the management for the opening remarks. Thank you. And over to you sir.
Shachindra Nath — Vice Chairman and Managing Director
Thank you. This is Shachim Renath. Good afternoon everyone and thank you for joining us for UGRO’s quarterly results. For before we move into the quarterly performance and open the floor for questions, I would like to step back and first talk about the opportunity set we are addressing. Then explain why UGRO is well positioned today and finally outline the actions we are taking to align the institution with the opportunity. India’s MSME credit market continues to remain large, is structurally under penetrated involving with the broad universe two segments stand out clearly. The first is small ticket secured lending to emerging enterprises where the credit demand is granular, cash flow are relationship led and local presence, underwriting judgments and collection disciplines are critical.
Despite being secured in nature, this segment continues to face a meaningful credit gap because it is operationally intensive and requires on ground execution. The second is embedded transaction led merchant financing where credit demand is driven by day to day business activity, velocity is high and underwriting increasingly relies on data rather than physical proximity. As digital payment and platform deepens across the MSME ecosystem, this segment is becoming structurally more relevant. Together these segments represent a significant opportunity but they reward lenders who can combine the branch led execution, data driven underwriting and disciplined balance sheet management and who can build annuity led interest income franchise rather than transaction dependent models.
Over the last few years UGRO has consciously invested in building exactly these capabilities. We have built a Pan India branch network of over 300 branches focused on emerging market lending with on ground underwriting and collection. We have developed a proprietary data analytics and underwriting framework in including Voice Core 3 which uses transactional, behavioral and bureau data to assess MSME risk and through the acquisition of myship Life we have built embedded finance and merchant lending capability with deep platform integration. These investments were made during a deliberative scale building phase during which we grew AEM from approximately 3,000 crore in FY22 to over 15,000 crore by December 2025 while maintaining stable portfolio quality and capital adequacy.
Importantly, the heavy lifting in terms of branches, platform people and infrastructure has now largely been completed. As the franchise scaled, it became clear that not all lending formats contribute equally to long term value creation. Certain portfolio, particularly those that are intermediated DSA LED and lower yielding, tend to rely more on income linked to co lending and direct assignment and are structurally sensitive to cost of funds and operating leverage. At the same time, segments such as Emerging Market, Small Ticket Lab and MX Merch Share Financing are better suited to building a predictable annuity led interest income profile with a stronger customer stickiness and clearer linkage between reported profitability and network accretion.
Accordingly, UGRO has undertaken a strategic realignment to sharpen this focus at portfolio level. We are progressively reducing exposure to low yield, high opex, prime and intermediated origination including High Ticket Lab machinery loans and certain BSA LED business loans. At the same time, we are refocusing the franchise around two core businesses, Emerging Market Secured Lab through our branch network and Embedded Merchant Financing through digital platforms. Both segments are large, under penetrated and aligned with ugro’s operating strength at income level. This realignment is intended to reduce the dependence on income linked to CO lending and direct assignment and increase the share of recurring interest income over time, thereby improving the quality and predictability of earnings at an operating level.
This shift is accomplished by a structural cost action. UGRO has undertaken an annualized cost rationalization of approximately 220 crores. Around 50% of this cost takeout has already been achieved with the balance currently under execution across sourcing structures, underwriting and credit layers, branch and support function and overheads. All those are linked to the intermediated DSA LED verticals. As these actions flow through, profitability increases reflect operating leverage and annuity income rather than transaction link structures. With this realignment, this translates into in practical terms a progressive change in portfolio mix rather than balance sheet led expansion as the portfolio rebalances, Emerging Market, Secured Lab and Embedded financing increases as a share of assets while the rest of the portfolio is allowed to run down in ordinary manner at approximately 15 to 20% annually.
Over time emerging Market Lab becomes the dominant segment, emerit financing forms a meaningful and growing share and other portfolio reduces as a proportion of overall assets. This mix shift is accompanied by a gradual increase in the number of active customers driven by granular nature of both businesses and achieved by sweating the existing branch and platform infrastructure rather than materially expanding the operating footprint. As the mix evolves, the portfolio moves towards a higher yield predominantly secured construct. At the same time, contribution of income linked to co lending and direct assignment reduces and the share of recurring interest income increases, improving the durability and visibility of earnings.
From a return perspective, this realignment is intended to support a sustainable improvement in profitability over time driven by operating leverage and more annuity oriented income profile. The emphasis here is on durability, visibility and capital accretion rather than near term optimization. Importantly, throughout this transition the company expects to maintain a healthy capital adequacy with growth being funded largely through internal accruals consistent with the balance sheet profile outlined in the presentation leading to a non incremental primary capital requirement. Before I close, let me summarize what this realignment represents. UBRO is moving from a phase of building its scale to a phase of building an institution focused on two large MSME segments supported by capabilities already built and executed with greater discipline on cost, capital and income quality.
This is why we are confident and genuinely committed as a management team. We believe this refocus strategy positions hugro to compound value over the long term while continuing to play a meaningful role in India’s MSME growth story. With that, I would now request ANUJ to briefly take you through our Q3 quarterly performance following which we will open the floor for questions.
Anuj Pandey — Chief Risk Officer
Thank you Sachin for clearly outlining the strategic realignment and the long term direction we are setting for Ugro. As a management team, we are genuinely excited about this next phase of growth. With the scale being largely complete, we are now focused on building out two businesses where we see strong structural demand, healthy yields and the ability to generate sustainable annuity led returns which is emerging market, small ticket lab and embedded merchant financing. But before I take everyone through the quarterly performance, I would like to clearly state that UGRO’s financial performance for this quarter and going forward should be assessed on a consolidated basis post the acquisition of Perfectus and the strategic realignment announced today, the Consolidated Financials best reflect the true scale, economics and operating profile of the business.
So unless stated otherwise, all matrices I refer would be on a consolidated basis. As of December 2025 the consolidated AUM stood at 15,454 crores representing 40% year on year growth and a 26% quarter on quarter growth. Disbursements during quarter three FY26 were 2,217 crores. With incremental sourcing increasingly directed towards our two core growth engines, we have deliberately reduced the disbursements in lower yielding segment in last quarter as the increase in AUM was largely achieved through the acquisition of Profectus itself. Emerging Market Lab disbursements during the quarter were 460 crores driven by a steady traction across now fully built out 300 plus branches span India.
Embedded finance disbursements were 1065 crores supported by repeat merchant usage and deeper platform integrations through MySoup Live platform. As of December 2025 emerging market lap and Embedded Finance together account for approximately 32% of Consolidated AUM and this share is expected to increase steadily as the portfolio mix continues to realign towards higher yielding cash generating assets. Portfolio quality remains stable at a consolidated level. Gross NPAs stood at 2.2% and net NPA at 1.4% as of December 2025. Collection efficiency improved to 99% during the quarter and stage one assets now comprise 94% of the consolidated Aum. On a consolidated basis, profit after tax for Q3FY26 was 46 crores reflecting 23% year on year growth.
On a standalone basis, profit after tax for the quarter was 6 crores compared to 43 crores in previous quarter. This quarter on quarter movement is primarily attributable to the execution of direct assignment transactions at the prospective level during the quarter driven by more favorable execution economics and the seasoning of assets held at the subsidiary. Additionally, during the last quarter you UGRO was holding significant cash of approximately 1,140 crores and any further sale of asset would have increased the negative carry on cash held on balance sheet at UGRO level. Accordingly, the related income and gains were recognized at Profectus and are reflected in the consolidated result.
This does not represent any deterioration in underlying business performance or a structural change in UGRO’s operating model. For analytical purposes, standalone numbers should be read only in conjunction with the Consolidated Financials. As the portfolio mix continues to shift towards Emerging Market Lab and Embedded Finance, our dependence on co lending and other transaction linked income is reducing structurally. In parallel we we are realigning the portfolio away from intermediary LED origination and unlocking operating and cost synergies post the Profectus acquisition which is expected to support a progressive improvement in bottom line performance over the coming quarters. The cost synergies from the Profectus acquisition are expected to begin reflecting meaningfully from Quarter 4 FY26 following the completion of acquisition in December 25.
On the liability side, we continue to diversify our funding mix by strengthening our off book strategy in a calibrated manner. On a consolidated basis, off book aum stands at 36% largely reflecting the predominantly on book nature of Profector’s portfolio. This is aligned with our long term objective of moderating reliance on co lending and direct assignment in order to improve the durability and sustainability of return on assets. Our cost of borrowing improved to 10.24% during the quarter compared to 10.37% last quarter supported by easing macro conditions including the reduction in repo rates. To summarize, this quarter marks UGRO’s transition from a model that relies more on intermediated sourcing with lower cash roas to an annuity led direct higher yielding MSME lending franchise anchored around emerging market lending and embedded finance.
With scale now firmly in place, the next phase of our journey is focused on improving earnings quality, increasing the share of recurring interest income and reducing dependence on transaction linked income thereby enabling sustained network compounding and long term stakeholder value creation. We remain deeply committed to our mission of bridging India’s MSME credit gap, leveraging data and technology and a disciplined risk management to build a sustainable and respected institution for our target customers segment. Thank you all for your continued trust and support. We will now be happy to take 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 and one on the Touchton telephone. If you wish to remove yourself from the question queue, you may press chart and two participants are requested to use handsets while asking a question. Ladies and gentlemen will wait for a moment while the question queue assembles. The first question on the line of Arvind Ja from Capital Land, please go ahead.
Arvind Ja
Yeah, hi. Thanks. My question is what would our profit have been on a consolidated basis if we are using the full year Profectus earnings to consolidate into our numbers and secondly if we take out the impact of labor code, what would that number be so pro forma for these two adjustments? What would the normalized profit have been for this quarter.
Anuj Pandey
Yes. The second question first. On the account of the new wage bill impact, approximately four and a half crores has been provisioned for that. So our profits would have been higher by four and a half crores. On the first question, can you just repeat what you really meant? Because the acquisition happened on 8th of December. So the consolidated numbers which we have presented are from 8th December onwards. So what we really meant on a.
Arvind Ja
Normalized quarterly basis, what would that number happen? So what my question is, what if you add the October 1st to December 7th numbers as well, some profactors into these numbers into you know, these quarterly earnings.
Anuj Pandey
It would have broadly remained the same, I think incrementally about 3,4 crores more. Because. Because standalone Perfectus quarterly profit numbers were approximately 3,4 crores per quarter. So that would have got added.
Shachindra Nath
And just to clarify, as you will remember that we had looked at pro factors with the cost acquisition or cost takeout when we acquired prospectus from the portfolio because they were exactly in the similar nature of business. We had taken out roughly around 120plus crore of the cost. So intimately that would flow starting from Q4 to the entire FY27. Prior to that prospective on a standalone basis, you know, had a marginal profitability of around analyzed profitability of around 3540 odd crores.
Arvind Ja
Got it. Okay, that’s all. Thanks.
operator
Thank you. The next question is from the line of Piyush Potra from GMO Payment Gateway India Private Limited. Please go ahead.
Piyush Potra
Yeah, hello, I’m Piyush Potra. So I have two questions. First of all on a. So I understand you said that the numbers have to be looked at on a consolidated basis but still on standalone basis. The last quarter had a profitability of over 40 crores which is now 5 crores. So there must be of course labor code is one, there must be some other costs, one time cost or some merger related costs which have been there. So I want to know more about that like how what was the impact. And the second one is.
Anuj Pandey
Can I take that first off before you answer the second question? Please?
Piyush Potra
Yeah, please go ahead.
Anuj Pandey
Yeah. So Pramod, I would recommend you as well as other listener on the call and investor broadly. We have just made an exchange clarification because during the day we realized that people compared the standalone to standalone and not on a consolidated basis. So if you look at, we have said on a standalone basis our profit after tax as of December 31st was 6 crores comparing to 43 crores in previous quarters. So this Is a quarter on quarter decline of 36 crores. This is your question why that is this decline is actually which Anuj also covered in his opening remarks is because a large portion of direct assignment transaction was done at a prospectus level.
Because at level we are holding cash. So if you compare quarter on quarter the entire income which was roughly around 100 crore in previous quarter came down to 66 crore and the balance came went into Perfectus. So we always looked at it on a total consolidated basis which declined predominantly represent the decline in the income from the recognition of direct assignment gain which happened at prospectus level in the month of December.
Piyush Potra
Okay, sure. So I’ll have a look at that data again.
Anuj Pandey
In last quarter we have roughly around 100 crore income from what we call gains from deadmission of financial instrument. In this quarter it is 66 crore. Because the volume of the direct assignment was undertaken not at a UGRO level in terms of the volume but was taken at Perfectus level. So the difference only represent that. And why we did that because ugro was already holding a very large amount of cash roughly around 1200 odd crore. And we never wanted to increase that cash. When you sell the portfolio, cash goes and that’s why we sold the portfolios from Perfector.
So that gain went into Perfector and on a consolidated basis. That’s why our path remaining the same.
operator
Okay, got it. All right, so the second question. So Mr. Sachinra, you said that 220 crores of expenses reduction is what you you guys are planning.
Shachindra Nath
Yeah, we have exhibit that.
Piyush Potra
Yeah. And out of that almost half is done. So that should have been reflecting in the numbers.
Shachindra Nath
No it would not. So half of that got reflected post acquisition of protectors which was executed. We acquired it on 8th of December. And most of this cost takeout has happened after that. As you know, any kind of cost takeout because this cost takeout comes from three things. People cost, infrastructure cost and technology related contracts. All of that have normally the notice period of three months to five months. And that’s why they flow into the penal after the end of three to four months. And that’s why we said that some portion of that would get reflected in Q4 and majority of our cost kick out.
And the cost takeout which has been done at prospectus level would slow in FY27 completely.
Piyush Potra
Okay, thank you.
operator
Thank you. Participants who wish to ask questions may press char in one at this time. The next question is from the line of mehul Panjwani from 40 cents. Please go ahead.
mehul Panjwani
Hello sir, thank you so much for the opportunity. I’m looking at the standalone results. There has been a jump in the finance cost from the last year December quarter. So can you share a light on this one?
Shachindra Nath
Can you take that or Anuj if Shilpa is outside.
Silpa Bhatta
Yeah sure. Hi Mehul, thanks for the question. So largely if you have followed us we had raised some sub debt as well in the last quarter, last quarter plus one month August onward we raised some sub debt of around 400 crores. That has come at about 150 200bps higher than our normal borrowing. So there is some uptick in the cost for that. Secondly you know there has also been as Mr. Nath was mentioning and Anuj also was mentioning that we’ve been carrying excess liquidity in hand which has almost on an average you know exceeded around 1600 crores you know over the last four months time December onwards.
So therefore there has been you know uptick in the finance cost as well.
mehul Panjwani
So do we. I mean I was listening to the prior response to the prior question. So from Q1FY27 will there be some reversal in the. In the numbers. I mean, I mean I did not understand the response to the last question. So maybe if you can put it in easier words.
Shachindra Nath
Sorry. Yeah I’ll just try explain. So we were carrying higher liquidity in the. In last quarter from October to December quarter because we were holding cash for perfect this transaction. So so on account of that the the bond borrowings are a little higher and the finance cost is looking a little higher. So yes on a progressive basis next quarter you would see some reversal. Also Shilpa added that we also took tier 2 sub debt last quarter which are typically at about 150 basis point higher than our normal cost of borrowing. So that also added to the this.
So from next quarter onwards you should see a reduction.
mehul Panjwani
So will there be a subsequent bump up in profits from Q1 FY27? Hello.
Shachindra Nath
Come again.
mehul Panjwani
Yeah. So will there be a bump up in profits in Q1 FY27?
Shachindra Nath
So I can take that. So I think look what is not just quarter four but the next one year you have to remember two things. One that as of effective today our intermediated DSA led high ticket lap which average, you know it happens at a yield of 13.5% the business loan and machinery segment that disruption volume would go down because we have just completely stopped it now that actually when we used to do it it used to go in co lending and that’s why it used to Generate a significant amount of income which used to come as a debit admission of gain.
Now obviously that benefits the PNL but it doesn’t accrete to the balance sheet on an immediate basis. So what we would see that in next 2, 3/4 that this cost reduction would replace that income. So we think so that our income profile would change from whatever pat you are seeing from more profitability which will come in a combination of interest income going up and cost being taken out. So our view is that we’ll see the improvement in quality of earnings. And obviously the quarterly incomes would stay in line what we are today. So while they will remain more or less same for at least for the next quarter is our assumption.
But the quality of that would change dramatically. It would not be contributed from co lending income. Rather it would be contributed by more interest income and cost takeout which is being executed now.
mehul Panjwani
Right. So can we expect some better numbers in FY27?
Shachindra Nath
Yes, we definitely. So there are three things which we are saying and that we have clearly articulated. One, we think that our ROEs would improve from where they are today. But more importantly the quality of ROI would improve dramatically. Wherein the contribution of income which is coming currently from co lending and direct assignment. Predominantly co lending is very transaction led. Whenever we do co lending in a month the spread income NPV value get recognized in our balance sheet. That would convert to more interest led income. So one on an absolute basis reported to reported. We expect roas to improve from where they are.
But more so the ROA contribution from annuity led spread income would dramatically improve over next four quarters and then eight quarters. And that’s why I said that company for next two and a half years does not require any further capital because it’s retained earning coming from what profitability is fueling the growth.
mehul Panjwani
Okay, thank you so much.
operator
Thank you. Before we take the next question we would like to remind participants that you may press char and one to ask a question. The next question is from the line of Prakash Modi from Real and Sons. Please go ahead.
Prakash Modi
Hi, good evening. So now my two part question. One was that we were targeting the em of.
Shachindra Nath
Sorry Prakanji, can you speak little louder, we can’t hear you.
Prakash Modi
I was saying that earlier we were planning to have 20,000 in the beginning of the year and then that we also reward IT to around 16,000 crore which I guess almost we have reached to that. So are you revising the annual AUM target upside?
Shachindra Nath
So Prakashi, if you read through our strategic realignment presentation we have given Two strategies, specific guidance. We have given a guidance on how much in terms of percentage our emerging market laps plus merchant lending business would grow. That is we have stayed in the range of 20 to 25%. And we have said the lower yielding portfolio would run down to the range of around 15%. Which means you calculate these two, you will arrive at what area growth would come. We think that would be on a two year time horizon would still be roughly around north of 20 to 25%.
But more importantly what is happening that our AEM from a large portion of our AEM which is 67% at a blended yield of 15% would shift to large portion of our AUM which is left by small ticket lab to 67%. So it is the. So we have chosen now to rather only grow AEM to grow the AEM which generates at least 200 to 250 basis point higher yield. So on one side we have once we did realignment we stopped all the DSA net business that AEM would gradually run down. And given our branch network of 300 branches is now fully built this quarter we almost 600 odd crore that would continue to grow.
So it is more shift of the AUM and more cash generating profitability which we are focusing to build. So that one our roas improve, they improve from more cash income. And third, we don’t drive any further capital.
Prakash Modi
My second question was as you are. Shifting to nap income and having a larger share over there eventually. So any specific product development, although any specific product that we have developed which would help us build the competition syntax.
Shachindra Nath
Aren’t you already that.
Prakash Modi
Hello.
Shachindra Nath
Okay. Hi. So look all of our three branches. You know I was actually requesting Anush to take it up. I’m actually not in Bombay office, I’m my Gulga office. But by the time he comes back on the call. So look all of our 300 branches only focus on what we call small ticket loan against property only for small micro businesses. We have been in this journey of building this vertical for last two and a half years. We started to 25 location in 2020 or 75 location in 2022. And from there we have grown to 300 locations this segment of the market.
And there are two listed company which are also in similar businesses. One, it is a very small ticket size. We have given comparison in our presentation as well. Another which does very similar to our ticket size. This segment of the market requires three things. Very deep physical footprint, very high quality of on ground credit underwriting. We have the advantage of our growth score which Takes the bureau data and the banking data. While this data is very thin at that segment and understanding the nuances of collateral and cash flow and underwriting that. So it takes roughly for most of the company it takes around five, six years to get there.
We have been building this over a period of three years and now we believe that even that journey is complete. We have both market access, we have distribution capability and underwriting inflection capability. There is no reason for us to continue doing lower yielding businesses because at our cost of borrowing those businesses doesn’t generate positive P and L which adds to our network. And that’s why we take this call and close those vertical and are now only focused on emerging market lab. Second is our vertical which is our merchant lending vertical. As you remember that around one year back we acquired a small fintech called Myship Life which embeds into India’s largest payment platform which has total merchant onboarded capacity of more than 10 crore merchants.
We combine our data analytics capability with that and there we do small ticket completely digital average ticket size of 1 lakh daily AMI product which reduces the risk and have high velocity to do lending through that vertical. So combination of two, one is that an average yield of around 25% which is a merchant lending business and emerging market lap and an average going Forward yield of 17.5% would incrementally increase the total yield on portfolio progressively by at least 200 basis points. So we have presumed that even if our cost of borrowing reduction happens to the tune of around 75 basis point over next eight quarters then also the NIM margin and the ROE improvement will be very very significant and it will take us very close to some of the other traded tiers of ours.
operator
Thank you. The next question is from the line of Nitin Diani from Royal Sundaram General Insurance Co. Ltd.
Nitin Diani
Yeah, so my question is on other income like I can see there is a significant jump in other income from quarter. And another question on the impairment. So is there a reversal of impairment from the professor book? Thank you.
Silpa Bhatta
I’ll take the impairment question first. So there has been some realignment, you know of the ECL policy as well. Visor is you group and we have done the consolidation of the financial statements between Perfectus and you group and accordingly there has been some change in the ECL numbers as well according to that. Secondly there have been some resolutions also which we have seen at the book level on prospectus which has which are one on account of sale of assets which we have done through DA transactions that also has helped us some relief in the ECL provisions and therefore you see that there has been a reversal in the ECL at the prospectus entity level.
On the matter of the other income which you see in UGRO financial statements there. There has been a one time other income which has accrued to UGRO with respect to an arrangement which we had with. And that income has come in in the December quarter.
Nitin Diani
Okay, thank you.
operator
Thank you. The next question is from the line of Piyush Bhatra from GMO Payment Gateway India Private Limited. Please go ahead.
Piyush Potra
Yeah, hi. Apologies for banging in again. Basically two questions. First is two quarters back. Oh sorry, not two quarters back. Last year you gave a projection of 4% ROA. I understand that you are working on high yield ticket loans, high loans to achieve that. So do you have any idea by when you would be able to achieve that 4% ROA targets?
Shachindra Nath
Yeah. So in fact we have attached an FAQ at the end of our strategic realignment presentation and we have answered this question. So question is earlier you guided to a 4% ROA. What is the new ROA guideline and what’s the fundamentally different now? So what we are saying is that the earlier 4% ROA guidance assumed a very high contribution from co lending and direct assignment. More than 50 to 60% of that ROA contribution was coming from downselling of the asset under direct assignment or co lending which over eight quarters would materially reduce and would remain less than 25% or even more as we progress further.
So our view is that while the ROI target of 4% might get shifted by roughly or it might get reduced little bit, but because the net contribution is now cash generating annuity income, this would be more healthier ROA. Purposefully we are not pinpointing a number of ROAs. But you know, if you look at our presentation and if you do this little bit of math you should be able to calculate. So I would sincerely recommend that you go to slide. I’ll just. If you go to slide 13 you would be able to calculate the projected ROI on your own because it’s in a transitionary phase wherein we are closing our low yielding business and gradually increasing the productivity.
We don’t want to pinpoint exact ROA number but more or less the guidance is there. But we have said that if you look at the roas of some of our peer set who are in MSME small ticket lab businesses and their roas, their roas are also is a function of a very high equity base. If you combine their Leverage peer to ours. Our ROA would be in line with them.
Piyush Potra
Okay, thank you. So one final question. So you said that the future growth will be happening from the internal accrual and so the previously or the off book portion was roughly 45% which I think post this merger it has come down to 35% ish. So do you also like foresee to go back to those levels? Because that would be more capital conserving sort of a growth strategy.
Shachindra Nath
Actually not actually direct assignment and co lending both especially the co lending while you onboard assets and you earn on the income which comes from daily commission. But actually it is not very capital accretive in the shorter run. The reason is that from an RBI regulation perspective all of the gain which comes through co lending and direct assignment that gain till the time it gets fully realized is not added for capital adequacy network. So that’s why in last three years we had to raise capital at a very very short interval. Because the gain which is sitting on our balance sheet which will get realized over a period of next three to four years was not getting utilized for purpose of capital adequacy.
And that’s why you needed more capital now going because we have taken out 220 crore of cost and our incremental build is happening on balance sheet. Predominantly all of our profitability is coming from realized gain which is the interest income minus expense, interest cost minus opex. And that’s why it is adding to capital adequacy network and that is fueling the growth not the fresh capital rates.
Piyush Potra
Okay, thank you.
operator
Thank you. The next question is from the line of Ashish Gupta, an individual investor. Please go ahead. Mr. Ashish, your line has been unmuted. Please go ahead with your question.
Shachindra Nath
We can go on. Next question. I don’t think it is there.
operator
As there are no further questions from the participants I now hand the conference over to the management for closing comments.
Shachindra Nath
Thank you everyone for attending the call and listening to us patiently. We genuinely believe that the actions we have undertaken are difficult but actually puts Yougro in a very strong balance sheet led growth phase. Most of our growth is coming from our internal accrual. We will be able to shift the ease on the portfolio maintaining the credit quality and we are very excited as a management team to go on this path going forward. Thank you for your patience and thanks for all the support.
operator
Thank you on behalf of Global Financial Services Ltd. That concludes this conference. Thank you for joining us and you may now disconnect your line.