Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.
Ugro Capital Ltd (NSE: UGROCAP) Q4 2026 Earnings Call dated Apr. 21, 2026
Corporate Participants:
Siddharth Rajan — Head of Strategy
Shachindra Nath — Founder Managing Director
Anuj Pandey — Chief Executive Officer
Shilpa Bhattair — Chief Financial Officer
Rohit Arora — Individual Investor
Saurabh Kumar — Individual Investor
Rishi — Individual Investor
Analysts:
Rahul Jain — Analyst
Samir Dalal — Analyst
Amitabh Santalia — Analyst
Chetan — Analyst
Darshan Zaveri — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Q4FY26 earnings conference call of UCRO Capital Limited hosted by Alara Securities. As a reminder, all participant lines will be in 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 start and zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr.
Rahul Jain from Elara Securities. Thank you. And over to you sir.
Rahul Jain — Analyst
Thanks Rotuja. Good evening everyone. We have with us the senior management team of capital. Mr. Sachinra Nath, Founder Managing Director Ms. Ushante CEO Ms. Shilpa Bhattar, Ms. Ritu Singh, Head IR and Mr. Siddharth Rajan, Head of Strategy. Over to you sir.
Siddharth Rajan — Head of Strategy
Thank you Rahul. Good evening everyone. I am Siddharth Rajan, Head of strategy in XPNA. I welcome to Ugro Capital’s Q4FY26 and full year FY26 earnings call. On behalf of the management team, I am delighted to welcome all of you today. Before we proceed, I would like to draw your attention to the basis of comparison. FY26 and Q4 FY26 financials are on a consolidated basis including Perfectus Capital and Data Science Technologies Private Limited whose acquisition was completed on December 8, 2025 and March 18, 2026 respectively.
FY25 and Q4 FY25 comparatives are on a standalone U grow capital basis all year on year. References in today’s discussion should be read with this change of scope in mind. I will now hand over to Mr. Sachin Nanath for his opening remarks. Over to you sir.
Shachindra Nath — Founder Managing Director
Thank you Siddharth. Good evening everyone and thank you for joining us. Before I hand over to Anuj, let me set the strategic context and long term frame. On 2-7-2026 we communicated a structural realignment. The rationale was simple. After three years of building a 317 branch emerging market field network, acquiring Myshoup Life for embedded Finance and acquiring Perfectus Capital, the franchise was ready to stop doing and focus entirely on two verticals where Ugro has proprietary origination, superior data and demonstrably better credit outcomes, the intermediated DSA led book Business loan machinery loans Prime Lab was yield dilutive capital intensive in the wrong way and not aligned with what we are building EM Lab and Embedded Finance are.
The decision was therefore clear. Stop the non focus book and concentrate every unit of capital distribution and management Attention on the two vertical built for long term annuity compounding. When we announced the realignment in February, we made five commitments each with measurable FY29 target and each tracked publicly every quarter. The first shift EM lab and embedded finance to 85% of total EM by 29. Second take out 220 crore of annualized cost. Third run down prime intermediated portfolio at 50 to 20% annually and the fourth no incremental equity through FY29 growth funded entirely from internal accruals.
The fifth transition to be steady state annuity led largely cash ROA of 3 to 3.5% by FY29 with negligible contribution from CO lending and direct assignment income. I will close my remarks with this. After one full quarter of execution all five are on track. Anuj will show you the operational evidence. Shilpa will show you the financial evidence. I will now hand over to Anuj who will take you through the branch network, the productivity inflection and the competitive mode in each of the two focus verticals.
Anuj over to you. Thank you Sachin. Thank you. Good evening everyone. I’ll cover the operational performance this
Anuj Pandey — Chief Executive Officer
Quarter and walk through the 2 businesses that are driving our next phase. Quarter 4. FY26 is the first full quarter of the realignment in execution. Let me give you the numbers first and then walk you through the operational detail behind them. AEM is broadly flat quarter on quarter, that is Intenseness. The non focus intermediated book is running down as planned while the focus verticals are growing strongly. The mix of focus verticals has moved from 33% to 38% of total AUM in a single quarter, the fastest quarterly shift on record.
We are on track. Net total income for quarter four grew 51% year on year and 34% quarter on quarter pad grew 26% year on year. Quarter four also carries a one time restructuring cost of about 25 crores which was the cost of executing the transition cleanly excluding that the underlying earnings trajectory is exactly where we said it would be on the cost program. The consolidated OPEX base of Ugro and Prophetess combined was approximately 750 crores last year. This will reduce to 490 crores plus in FY27.
The takeout spans, sales and sourcing structures, underwriting and credit layers, branch and support functions and overheads all linked to the intermediated verticals they have already exited the emerging market lap built out is also complete. 317 branches across 13 states up from 127 in FY24 the focus is now from expansion to increasing productivity per branch. Vintage branches which are older than 12 months are producing 68 lakhs per month in disbursements approaching the management target of about 80 lakhs per month.
Behind them there are about 156 sub six month branches which are queued as the next leg of NUP growth. Emerging market lab AUM was at 3581 crores in quarter four with a GNP of 1.2% coming to the embedded finance business which we do through Mysoop Life which is structurally different. It is Shorter Tenor Daily AMI, average ticket size of 1 lakh entirely digital embedded within Phonepe, Bharatpay and other such payment ecosystems. Credit is underwritten on merchant GMV transaction data not on physical proximity which allows us to serve at scale and Velocity.
AUM for this business has now reached 2,280 crores in quarter four going 27% quarter on quarter 6x growth in 15 months. GNPA is 1.7% which is well within our underwriting expectations. Active merchant customers stands at approximately 2 and a half lakhs. Yields for this segment are around 24 to 26%. Hundreds of millions of digitally transacting merchants in India which are the vast majority without working capital credit matched to their cash flows is the target segment for this business. Ugro through Mysoop Life has the platform integration, data infrastructure and a credit capability to serve this segment at scale together.
Both the businesses secured annuity income compounding from the branch network and a high velocity yield from the embedded platform are complementary not competitive. Infrastructure is also in place. I will now hand over to Shilpa for the financial detail. Shilpa over to you.
Shilpa Bhattair — Chief Financial Officer
Thank you so much Anuj Good evening everyone. Please allow me to take you through the numbers in more detail. Interest income was at 415 crores in Q4 which was up 57% year on year and 26% quarter on quarter recurring. Net interest income on our balance sheet is strong as the focus verticals grow. This line expands as a share of total revenue, co lending and divide. The finance income was 155 crores up 30% year on year. This line will reduce proportionally as intermediated disbursements stop and this is purely by design as we replace it with on book interest income that accretes to net worth.
Fee and Commission income for Q4 was 33 crores covering essentially prepayment income on loans and certain income on loan documentation charges. And service fees. Other income was 25 crores comprising of insurance distribution fees on borrower covers that we take income from incidental debt syndication we earn when we arrange financing for MSME customers whose financial needs exceed our lending thresholds and fee income earned by Data Science Technologies, our wholly owned subsidiary which offers data analytics and credit intelligence services to to financial institutions.
Finance cost was 284 crores. Our cost of borrowings came down to 10.16%. This is for the fifth consecutive quarterly improvement that we have shown. This was also down 45 bids year over year. Each 25 bids point reduction at the current AUM scale is worth 35 to 40 crores. Annualized opex was at 180 crores excluding the one time cost of 25 crores which was related to the exit on the business vertical that we have done. The annualized savings program is on plan and the balance will flow through in FY27.
Credit cost was at 72 crores 1.9% of average AUM analyzed and this is well within the expected range that we intend to work on. On asset quality, GNPA stands at 2.5% and net NPA at 1.6%. We had a good coverage over the GNP assets at 45%. Our stage one is at 93.1% of the overall AUM and collection efficiency stands at 98%. The move from 2.2% to 2.5% GNPA is a denominator effect as the non focused books runs down. It is essentially not a deterioration in the incremental portfolio. We are standing at a healthy capital adequacy of 21.2% which is up from 20.8% which we had shown last quarter.
Our Network stands at 2,906 crores with a very healthy leverage of 3.7x. Our debt stands at 10,782 crores which is well diversified across banks, DFIS and the debt capital market. We will essentially not require incremental equity through FY29. Our liquidity is comfortable. Our Q4 cash balances which we held of about 1800 crores are being deployed. Cost of borrowing will continue improving. Thank you 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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets While asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may please press star and one to ask a question. Now. The first question is from the line of Rohit Arora, an individual investor.
Please go ahead.
Rohit Arora
Hello sir. Am I audible?
Anuj Pandey
Yes you are.
Rohit Arora
Sir, can you please explain the process of saving rupees 200 to 220 crore annually.
Anuj Pandey
So this 220crores of cost save was on account of two strategic decisions which we took last year. The first was the acquisition of Profectus. And if you recall the objective, one of the objectives of that acquisition was OPEX rationalization. So Profectus was also in MSME lending business with about 3000 crores of AUM with a very large workforce. Ugro also had a very similar workforce catering to the same business. So when we acquired Profectus there was a duplicacy in OPEX and we had identified about 120 odd crores of cost which we had taken out at the time of acquisition.
Additionally in February we did a realignment in Uber’s own business where we said that intermediated prime lower yielding segments we will stop sourcing and all the costs attached to that which included front end sales and credit and other processing costs related to sourcing of that prime segment roughly came to about 100 odd crores. So both those put together is 220 crores. All of that has got actioned. Some people are especially on manpower related are serving notice period and the full cost impact will start coming from this quarter.
Rohit Arora
But
Anuj Pandey
This was not an ongoing thing. This was a one time OPEX reduction exercise
Rohit Arora
This quarter we can see this impact in profit and loss statement in Q1FY27 itself.
Anuj Pandey
So some impact in Q1 will also start coming. While it is not a one on one correspondence that we have reduced 220 crores of opex our it will immediately reflect all of it in profits because it is also associated with the running down portfolio. And as we move forward some of it will start getting reflected in terms of change in our profit profile. While our current lot of our current profits are on account of the co lending income which we do. This will replace some of it with the direct annuity income.
But yes, some of it will start reflecting from quarter one.
Rohit Arora
Sir, can I have one more question please?
Anuj Pandey
Yes
Rohit Arora
Sir, tell me more about the customer profile which we are targeting and which we are focusing on increasing our alum contribution.
Anuj Pandey
So in emerging markets business we are catering to customers who are micro SME typically with turnover less than 3 crores. Median turnover of about 1 crore. We do only secured loans there with ticket sizes between 7 and a half lakhs to 50 lakhs. This we do in tier 2, tier 3 and tier 4 towns in India through our dedicated branches. Our dedicated sales team source sources these customers directly on embedded finance. The target segment are small retailers with turnover range between 1520 lakhs to little higher.
These are all retailers who are using some kind of payment ecosystem QR codes. We get embedded inside those payment ecosystem apps and through that we read their daily transaction limits, apply our data science engine and make an eligibility. So broadly two segments. One where we are giving 7 and a half lakhs to 50 lakhs of secured loan. The other segment of small retailer where the average ticket size is about 1 lakh. But we go up to 5 lakh ticket size.
Rohit Arora
Average duration of these loans
Anuj Pandey
Come again
Rohit Arora
Of these loans 1 lakh ticket size.
Anuj Pandey
So for the one year the average duration is one year. And these are all daily repayment.
Rohit Arora
Thank you sir.
Operator
Thank you. The next question is from the line of Samir Dalal from Natwarlal and Sun Stock Brokers Private Limited. Please go ahead.
Samir Dalal
Yeah. Hello Mr. Sachinath, I unfortunately wasn’t there for the last con call and which is why I’m going to ask this question. I want to understand why such a big change in the strategy on two fronts. One, eliminating a part of the business which contributed to 70% of your total AUM and suddenly moving to such granular. I mean such small ticket loans where the risk is lot higher. The second co lending was something that you always specified. I remember you had done a meet with all the investors and analysts and all of that where you said that you know we were one of the pioneers in the co lending and coal lending is such a great opportunity because we can sell down these loans at a lower rate earning a spread without having the capital deployed.
Why are you taking a call on not to do that part of the business anymore when it was so lucrative and which you were so gung ho about.
Shachindra Nath
Yeah, no thank you. I think a lot of this we answered in the last quarter call as well. But I would, you know for the benefit of those who are joining for the first time. I’ll summarize it. So I think you asked three specific question and I’ll answer them in that order. First and foremost that why we decided to exit from lower yielding. What you said probably your understanding of a better credit profile customer. So I’ll answer that first. So you are right. You grow was always designed and built for scale.
When we started in 2018, we started with thousand crore of capital. Over a period of our seven year or eight year of journey, we increased our capital base to roughly around 3000 odd crore. The premise was that over a period of time the cost of borrowing would keep coming down. What we saw in the marketplace or period of last two two and a half years that the cost of liability is a function of rating, actually parentage plus rating and multiple other factors. And we didn’t see the same impact on our cost of borrowing.
It has remained flattish, it has come down by some basis point. Now for the lower yielding prime DSA led customer segment you need a pricing advantage because otherwise the economic value creation was not happening. We recognize this core challenge around two and a half years back and we were internally building the branch network to enter into small ticket lab segment. And that network we built and took all the OPEX upfront in last three years itself. And when that got completed and we were confident that now we can pivot the portfolio on that as well as on merchant lending, we said that this is the time when we should make that pivot number two.
Your question with respect to the coal ending, we are still very gungo about coal lending. We still continue to believe that in order to improve the credit flow to deserving MSME and other segment of the market, a combination of bank and NBFC is the best combination. However, there is structural challenge which we recognize over last two two and a half years. Co lending definitely requires asset classes which are lower ending asset classes. Bank by nature actually like to have assets which are lower yielding what they perceive more secure.
Now whether you do that business in form of a co lending or whether you do it on your own balance sheet, the structural margin still remains the same while you don’t utilize the capital. Point being that if you lend at 14%, if your credit cost is 0.25% and your opex is say 3% and your cost of borrowing is 10.5 and if your co lending rate is 9.5, you are still making only 1% margin, right? And that is not accretive to investors, shareholders, to management and so on, so forth. And linked point to that is that while the CO lending, the income volatility on co lending is very severe and high, which means majority of the investors and also us would like to see a proper annuity flow.
So when you take the asset on the balance sheet, you have an interest income which you calculate. And while in co lending it becomes Volatile in some quarters it can happen in some quarter it does not happen. Second, the income or the profit which comes from the CO lending does not accrete the capital adequacy network. So suppose in this quarter if we have done a hundred crore value of income which has come from the CO lending for the purpose of recognizing this income for capital adequacy would happen over a period of time when this actually get realized which means that this business requires more capital.
Now you know if you keep raising more capital and keep diluting shareholders at low value, you know the value creation actually become distraught. And that’s why once we got ready we said that we will carry. And last sorry before that the entire DSL and intermediated model has now become one big and inefficiency has come in wherein these loans are churned at a very fast pace. There are large lender which have cost of borrowing advantage. They take good quality customer from us and then they get transferred.
So average maturity of these loans keep getting reduced over a period of time. So keeping all of that in mind, we are not saying that we will not get do CO lending. CO lending will continue to be part of our component. But we wanted to increase the portfolio yield, we wanted to protect the dilution and we wanted to get to NC 3.5% of ROI and an ROI which largely contributed by cash generating interest income rather than the CO lending income. So you know, so this is a two and a half year of journey which we are internally preparing.
Once we got ready then we executed it and the results are in first quarter itself. So if you look at our this quarter disbursement on emerging market lap, you know it is actually tracking to what we are projecting for FY20. Last but not least you asked this question which you said higher and riskier segment answer is both yes and no. What you presume or we presume is higher riskier segment. This may be true when you look at purely from the lens of gnpa. This is obviously not a customer which has a turnover between 5 crore to 15 crore.
This is a customer which is below 3 crore of turnover. This customer has a potential to default higher than what a prime customer would be. So suppose we have operated in the GNP band of two 2.5%. Now once we fully mature in this, this would be in a GNP band of 3.3.5%. But it doesn’t change the credit cost metric because 100% of these loans are secured, they are again secured against self occupied residential property, commercial property and so on. So forth. So ultimately, even if the default rate is little higher, the credit cost would remain in the same bag.
And that’s why on the credit cost adjusted basis, this is a superior business than to do a low yielding business. So it is that will only be for the emerging market
Samir Dalal
Portfolio, right? Mr. Nath, that because the embedded market lending business would not have the security.
Shachindra Nath
Of course, you’re right. And just to clarify earlier also we always had a 30% portfolio which was an unsecured business loan portfolio and we are replacing that with the embedded portfolio. So it is not that we did not had an unsecured portfolio. We had it. We are only replacing the business loan with embedded merchant lending. Our view is that the embedded merchant lending credit cost is far more controlled than open market business loan. Predominantly the way the product is designed. It is a one lakh rupees of average ticket size of loan done on the basis of the payment data flow bureau score and deeply in deep integration with the payment platform and get repaid on a daily basis.
So the credit profile, the credit cost, all of that is if not and also adjusted for the yield business loan was roughly around 18 and 19%. This is at 26%. So adjusted for the yield and credit cost, this is a superior ROA business without changing the overall risk profile of hue growth.
Samir Dalal
Okay, so the gross NPA going up to 1.7 says it’s within your expected underwriting expectation. Underwriting expectations. What would be a number of gross NPAs that we can expect to see in that business and before which there would be a cause of concern or something that would make you think about this business strategy?
Anuj Pandey
Hi, this is Anuj. I’ll answer this question. So when we had designed the product about 18 months back and this is a one year tenure loan business on average, we had projected a four to four and a half percent GNPA here. And after 18 months we have seen about six cohorts which have completed their lifestyle life cycle. The GNP is at 1.7, so we are quite comfortable up to four, four and a half percent at this point in time. It is doing much better than what we had ourselves anticipated.
Samir Dalal
Okay, and what can we, I mean how do you do the credit gross NPA recognition? Because this is a daily payback. Now if a person doesn’t pay back for a week, a month on
Anuj Pandey
The, on the 90 days, 90 days past due, the. The NPA recognition exactly remains the same but is stamped on a daily basis.
Samir Dalal
Correct. So now my question is if you all know, you all obviously have early warning, if the person is not paid for 10 days or 15 days, do you start making any provisions for it or you will not make any provisions. And can you just run us through how your provision cycling would be for these low small ticket items which could, which are unsecured in nature.
Anuj Pandey
So in general unsecured we provision a little higher. So at the full portfolio level for a stage three unsecured, we are providing about 75% here depending on which stage it is. So up to, up to 30 days he has not paid, he’s in stage one and we will provide about 30 odd percent. Between 30 to 90 days we will provide about between 50 to 60% and after 90 days we will provide about 75 to 80%.
Samir Dalal
Okay, now one last question if I can. You know at the moment you are growing your focus vertical by about say 17, 18% and you’re talking of running down the focus business at about 20% odd levels. So is it safe to assume that actual AUM growth for the next say two years would be zero kind of, you know, marginally here or there? Because one side of the book, which is the larger side is de growing whereas the smaller side is growing. So at least for the next year there would not really be a growth in the aum.
Shachindra Nath
If I may answer this question, I think obviously a lot of people get focused on growth because I presume that, you know, the general perception is that growth leads to incremental profitability. Even if I take your assumptions on the AUM as right. But those assumptions does not translate back, you know, to the bottom line. So to some sense you are right. If you do the math with the way we have given the data, 3500 odd crore growing at 25% CAGR roughly around 2000 crore growing at 25% CAGr and 10,000 crore going down for FY27 it would be a flattish and then you will start seeing little bit of uptick on aem.
But the underlying the bottom line is transitioning because it is replacement of a 15% yield portfolio to SA 17% portfolio portfolio. And that’s the transition. So we what we have said from we are going from scale to bottom line. So while and we had our DNA is of its scale but that scale was leading to, you know, very large shareholder dilution, not value creative. And that’s why we are now focused on bottom line than just sheer growth.
Anuj Pandey
And also just to add the running down portfolio, which is a prime portfolio is all very long tenure. So it is not that it will suddenly Come down, it will take its own time because typically these are 10 year LAP loans. So we have estimated 15 to 20% and it will not. I don’t think it will exhibit more than that.
Samir Dalal
I’m not denying that. I’m just asking on a general basis. About 15,000 will be probably the ending of FY27 also. And FY28 may be 1617. But like Mr. Nath said, I think the profitability is what is important also. And that if it rises, that’s fine. I mean, I guess so, yeah, from that angle it’s fine.
Shachindra Nath
A lot of people are listening. So obviously when people think a company which has grown historically at 67% CAGR and now would not grow at the same rate, what’s the problem? But I tried explaining that problem, that sometimes you have to choose between just sheer growth versus versus the bottom line. You need both. But at this point in time for next year, we think we have to focus on the bottom line which is coming through this transition.
Samir Dalal
Fair enough, but only problem when you do that. No, Mr. Nath, this is just my observation. I mean not a question, but because the bottom line is not growing and if you do face some delinquencies and npa, the NPA percentage as an overall rises because when your numerator is rising but your denominator is not, it kind of sends out a, you know, a signal of rising NPAs. And maybe that is also the case. We are seeing this 1.7 versus maybe 1.5. I’m not sure exactly, but. And that also. And second, credit costs also seem a bit elevated.
So the last question I would like to end on is where do we see credit cost stabilizing given for the next two years, given we expect our loan book to be more or less flattish.
Anuj Pandey
So we have estimated this on a very, very granular basis. We foresee credit costs to be in the zone of little less than 2. In the zone of 2% but not more.
Samir Dalal
Fair enough. Those are valid points and we’ll keep a track on them. Thank you very much for the time and the answers.
Anuj Pandey
Thank you.
Operator
Thank you. Ladies and gentlemen, in order to ensure that management is able to address questions from all participants, we would request you to please limit your questions to two per participant. The next question is from the line of Amitabh Santalia from SK’s Capital and Research. Please go ahead.
Amitabh Santalia
Hello. Am I audible?
Shachindra Nath
You are Amitabh. Please go ahead. Yeah.
Amitabh Santalia
Hi. Hi Sachin. Congrats on a good set of numbers and consolidation of prospectus. I just Wanted to just reconfirm the. The final equity. I don’t know if I joined late. So it may have been clarified on the call earlier. But just what will be our fully diluted equity? For the sake of full clarity, any pending conversions of CCDs or what we’re seeing in
Shachindra Nath
Now. What you are saying is. Sorry. Only 2 lakh shares. So there are only 2 lakh shares is pending conversion. Only 2 lakh shares pending conversion. Somebody’s request has not come. Otherwise what you know, what you are seeing is a fully diluted shareholding. So total outstanding share should be 15 crores. 15.29 crores. Yeah.
Amitabh Santalia
Okay. That’s. So what. What is reflecting in the March balance sheet is your final almost. You know, effectively your fully diluted equity.
Shachindra Nath
Yes. Yes. 2 lakh shares to be converted. But it’s
Amitabh Santalia
Okay. And there’s no further dilution of warrants or any. Anything from the past. No. Everything.
Shachindra Nath
Everything is done. Everything. And
Amitabh Santalia
All your CCDs are either matured or converted.
Shachindra Nath
All CCDs are matured and converted.
Amitabh Santalia
Okay. So there’s no non interest bearing bonds or on your books as of now?
Saurabh Kumar
Nothing. Nothing.
Amitabh Santalia
Okay. And what is our final Again? It might be there in your presentation. But just for the sake of understanding. So about the. Your net worth. Your adjusted net worth. What would that be? 2,900 crores. Roughly. Is your. I understand there’s some amount which is. I’m forgetting the exact terminology. But there’s some amount which is. Reduces your adjusted net worth too. If you can just help me understand that. No, no, no.
Shachindra Nath
So Mitab, there are two different things. So our net worth as of today is 2,906 crores. That’s the net worth. I think the last. In our last conversation we said that for capital adequacy purposes RBI uses a different formula. And this net worth is, you know, net off against you know, income which has come from the co lending which sits in the network. But RBI recognized it for the purposes of capital adequacy. When the cash get real. So you might be referring to that. But as of today, the net worth.
Amitabh Santalia
Okay. So our book net worth as far as the balance sheet is concerned which is gross net gross of NPAs, right. Of 2900 crores.
Anuj Pandey
Yes.
Amitabh Santalia
Okay. And. And what is that? So could you just explain this part again please? The rbi. The capital adequacy purpose. What RBI recognizing what this amount. How this amount gets realized. The differential.
Shachindra Nath
I’ll tell you the concept. Rbi. What is it? What is. What is the capital ADEQUACY in the RBI balance. A capital adequacy is a buffer which protect lender of their financial institution against the future credit clause. So the principle being that the lenders should their money should be repaid and if there are losses through credit, shareholders should absorb it. And that’s why RBI provide a framework of capital adequacy. For banks it is lower and that’s why they are much levered. And for NBFC it is combined 15%.
You can take it in the form of tier one capital and tier two capital. Now given that this is a buffer for future credit losses, RBI take more conservative view and says that the network for the purpose of capital adequacy should be a leak net worth. So that’s why things like goodwill intangible assets are taken out from your total net worth. In our case also the income taken from the co lending because you take the NPV value of the differential interest as a part of the income. But it get realized over the life of the loan.
So as and when it gets realized it keep getting added back to the network. So this is the difference and the gap.
Amitabh Santalia
Okay, and what would that difference be? As on March 31st
Shachindra Nath
It’s very difficult to. You know. So the way to simple. In simplest term you should think of this way. Our debt to equity ratio is roughly around 3.3.7x and our capital adequacy is around 20%. Right,
Samir Dalal
21.2%.
Shachindra Nath
So theoretically you know, which means that on a capital adequacy basis we are a five time lever. But on a network basis we are four times leverage. So that’s the difference.
Amitabh Santalia
Okay, got it. Okay, thanks so much. That helps me understand better.
Operator
Thank you. The next question is from the line of Chetan from Bihan India Fund. Please go ahead.
Chetan
Hello. Hi Mr. Nath. Congrats on the good set of numbers. I wanted to ask about the embedded finance business. Are the risk weights on the embedded finance business higher than the previous business that we are structuring away from? And do our NPAs overall, do they include repossessed assets? And how do we resolve repossessed assets that we have gotten in the last five years?
Anuj Pandey
Yeah, so the embedded finance risk weight is same as any other loan as far as regulation is concerned. Because all these are MSME loans whether they are secured or unsecured, which is 100%. And our on the repossessed assets? Yes, we have been repossessing assets now and have very good experience on them for last 3, 4 years. Typically for assets greater than 20 lakh ticket size. We use Surface and the typical timeline of resolution in our portfolio is between 12 to 15 months post the NPA. So it typically takes about three months to get the Sartec order and then about three to six months for a successful auction.
While our own experience also is that once a definitive court order is obtained in about 40 to 50% cases, customer comes on the table and settles.
Chetan
Yes. And so on the unsettled when you actually have to physically recover these assets, what is the recovery rate net of cost?
Anuj Pandey
So so far in our experience we have there is only time value of money because the time which it takes for recovery. But we have not lost anything. We have got our principles back
Chetan
Internally
Anuj Pandey
Wealth
Chetan
Do you spend on it as a percentage of those assets. Then
Anuj Pandey
The separately that cost would be closer to 1%.
Chetan
Okay, great.
Anuj Pandey
Yeah,
Chetan
Thank you very much.
Anuj Pandey
Thank you.
Operator
Thank you. The next question is from the line of Adarshe, an individual investor. Please go ahead.
Rahul Jain
Hi. Thank you for the opportunity. I had a couple of questions. First is Mr. Nath, given that for the last two two and a half years we were planning to move to a high yielding book. What was the rational now to acquire prospectus whose yield is I think is much similar or compare. I think the ROA is sub 1% for it. And today we have after acquisition we are now running down part of the book and laying up people. So first question is like why make the acquisition when our intent was always to move towards a higher yield.
Shachindra Nath
Yeah, can I answer that first?
Rahul Jain
Yeah, sure. I have two other questions.
Shachindra Nath
No problem, we’ll come back to that. So the reason why we could transition to this is because one of the reasons was because of Profectus. As you would, as you would remember that we said that we have been building the branch network. This branch network got matured to around 300 odd. But the real profitability flow from this branch network would happen over a period of next two years. What Profectus helped us is exactly what when we rationed. So obviously we had this in mind that we have to rationalize.
So basically we acquired a full company. And the portfolio Profectus had a total cost base of around 200180 odd crore. And we have taken out majority of that cost. So now on that portfolio there is a cash generation profitability coming which is buffering for the OPEX which we have built out. So that is and exactly that we replicated for you grow as well. So it is about doing three things. One, adding the portfolio which we were confident of improving our secured Bid and reducing credit cost or managing credit cost.
Third, extracting profitability which substitute for the future growth which will come from emerging market and also substituting our co lending income from real cash profitability. So a combination, all of that was the tactical reason why we acquired profectors. Also it was an ROE enhancer because we paid roughly around 1400 crore cash for a 1200 crore net worth company. And on, you know, year one, on 1400 crore we are generating around 150 odd crore of profitability which was roughly around 10 odd percent higher than our existing ROEs.
Rahul Jain
Understood. The other question is slightly on the bookkeeping side. If I were to remember correctly in the terms of the warrants and the ccd, the CCD had a part of interest being repaired I think around 12.5 and 12.5% back when the warrants don’t get converted. Has that payment been done and how is it flowing through the PNL?
Shilpa Bhattair
Yes, those payments towards the interest component of the CCDs have been done in December itself and they have been adjusted from the capital reserves.
Rahul Jain
Understood. So those payments are already done and even the warrants which are not converted, that is also flown through I’m assuming by now. Yes. Yeah. The last question is if I remember correctly, the employees and promoters together have around 8.6 million. Right. Of ESOPs which are there for vesting. What are the broad terms of this? Is it a fixed price? What price is it? Given that there’s been huge variation in the price of the last one year.
Shachindra Nath
So in this, this year, this time in slide number 20 we have segregated. So I am defined as promoter which means that I’m ineligible for any kind of esop. My ownership which is through my company, my family has graduated. Little bit increased because it was, I think it was 1.98%. I increased it on 30th of March and that’s why it touched 2% and employees have a pool of round
Saurabh Kumar
3.3%. 3.3%.
Shachindra Nath
Now the 3.3% is time wasted so I think so. But obviously you’re right. The cost of or the grant price is much higher. I think. So the base of that for two different tranches, one is 200 and other one is around 130. Yeah.
Rahul Jain
Understood. Understood. What is the split which is 100 and is it majority 200 or 130 or is it.
Shachindra Nath
I think it should be half up half of.
Rahul Jain
Okay, that’s helpful. Thank you so much. All the best.
Shachindra Nath
Thank you.
Operator
Thank you. The next question is from the line of Rishi and individual investor, please go ahead.
Rishi
Hi, am I audible?
Shachindra Nath
You are. Thank you.
Rishi
Yes. Hi Mr. Nath, congratulations on a set of good numbers. I have a question regarding the Perfectus. I mean I think you partially answered that for the previous caller but wanted to know the school financing that Perfectus is doing, is that part of what’s being stopped or is that still continuing and if so is that a third vertical?
Anuj Pandey
So the school finance. Hi Rishi, this is Anuj. The school financing book of Profectives was Primarily a prime DSA source book at an average yield of about 13%. So while we don’t want to get into that segment but in a product and a lot of insights as an institution so what we are doing is we are expanding that products in our top 50 emerging market locations. So we will start doing schools but office smaller size at a relatively higher interest rates. So we will continue this program but with a little different perspective and policy.
So the target schools would be from size perspective smaller and in tier 2, tier 3 and tier 4 towns with an average yields of about 16 17%. Rishi, on top of that what
Shachindra Nath
Anu said, I just want to make sure that listeners of this call and otherwise, you know we have a big network now 318 location is spread across 13 odd cities serving a set of self employed small business customer. The potential of the network is immense and you know in order to improve the productivity we have to funnel more lending product to this network. But what we want to ensure first is to get to a minimum level of productivity and maturity for our core product which is loan against property and then gradually see what are the adjacency opportunities and we’ll talk about that once, you know, few quarters.
But obviously there is an underlying strategy, thought and execution rigor of adding more things in this network once the network for its core product matures.
Rishi
Understood, thanks. And also regarding the recent series that we have done, I saw that most of the rates were around 300 basis points more than the software which is roughly around 7%. I think we recently did a 20 million. What’s stopping us? Or is there RBA mandate on how much we can borrow in this? Because the. I mean the amount is definitely much cheaper than what our cost of borrowing is.
Shilpa Bhattair
So there is no, there is no stopping from regulation on the amount that can be borrowed per se. But of course it’s also availability which matters. So you will see that in the coming quarters the company will be looking to for more such ECB’s for two reasons. One is to reduce the cost as well as to better our ALM profiling given the longer tenure of profile these loans come with. And just to make it amply clear, all the ECB’s that we take are completely hedged for currency and interest rates. So the rate that falls to us is completely landed in inr.
Shachindra Nath
So what he’s seeing and what landed cost would be different. Right, that
Shilpa Bhattair
Would be different. So you are seeing USD pricing as a SOFA plus a spread that lands to us, you know, in an approximation of about 9.5 to 10%.
Shachindra Nath
And currently Rishi, the hedge cost has got. Yeah, and currently the hedge cost has gone up. So that’s why we are holding on to more ecb. But generally on ecb I think so there are two types of market for general understanding. One is commercial ECB lenders which are big banks trading hedge funds, global trading books. They are normally lenders for AAA and AA wherein they can just do ECBs then hold it on balance sheet and then distribute and mature it. Most of the ECB lenders to us are DFI lenders who are lending to us because of the impact which we create on the market through MSME financing and others.
And there is not too much of the landed cost difference between our domestic term borrowing and ecb. Other than that we get the tenor advantage. Most of our DFI ECBs are for much longer tenors. That’s why we also prefer that as our ratings will improve we will also start attracting commercial vendors in ECB as well.
Rishi
Yeah, understood. Thank you very much.
Operator
Thank you. The next question is from the line of Darshan Zaveri from Crown Capital. Please go ahead.
Darshan Zaveri
Hello. Please go ahead. Good evening team. Thank you so much for taking my question. Firstly, congratulations on a great set of results. So just wanted to ask if I understand it correctly, so our primary business that we were having, the prime intermediary, we are going to run it down so that. But currently it is the most significant portion of the AUM and our emerging market and embedded finance which are the lower portion are going to increase right Now. So for FY27 will we have the similar profitability?
Because how would that work? I’m assuming it will be higher profitability than what we had in FY26. So just wanted to understand what would you. How would we quantify like the. For in the current year? Will we have like similar AUM but much higher profitability? How would we. What would be our ROA target for you know, FY27? Sir?
Shachindra Nath
Yeah. So there are two things. One, FY27 is a transition year. In the year of transition there are three things which we are endeavoring to do. First obviously you know, making sure that our emerging market network and our merchant lending network, especially the emerging market Lab network start maturing to you know, good productivity which is what we are targeting from current base to roughly around 60, 70 lakh per branch. Basically that’s point one. Second, we are looking to transition and benefit from the cost save and transition our co lending income which is currently 25% of our total income to gradually bring it down and bring most of our roas as income generated from cash interest income.
So our expectation in the combination of the two is that, and that’s why we have purposefully not given any guidance on an ROA for a year or year basis. And all of our guidance is on two year basis. Our still our assumption would be that purely the bottom line ROI performance would be marginally better and then it would step up in year 2829 quite significantly.
Darshan Zaveri
Oh okay, fair enough. So basically FY27 will be kind of a transitional year and FY28 where the big leap will come in because our, you know, the emerging market will be more settled and we’ll be able to, you know, have a bigger network effect. Right. So, so just wanted to know like, so for us like when you, you know, when you will announce results, what are the items that you know we should also be keenly looking at because as, because you’re not like in the day to day business. So what part of it should we, you know, focus on?
What are the key performance matrixes that you are also looking at? So,
Shachindra Nath
So in my opening speech itself I said I think there are five things which you know, which we track and which you should also track. First is you know, the portfolio yield shift, you know, how much. Also for example our December 2025, the emerging market and merchant lending was 33% of our total portfolio improved to 38% and by a firm it has to be 85%. This is the first thing which we track. You should also track whether we are in that direction or not. I think. So the cost realization we have already completed.
So you, you can’t track it except that you know, people make this mistake wherein they think that you know, this 220 crore of cost realization is all coming from the PNL and should get added. It’s not the case when we say 220 crore of cost realization it is a base cost of what was in place and what was in Ugro. Now on consolidation what was in professors is not visible to you. So the combined 750 crore of cost is going down to 4, 490 odd crore. So the tracking number is that, that we should not breach total cost of around 490 or 500 odd crore because we have said very clearly that our OPEX journey is over.
So no more incremental opex. Majority of the things are, you know, that’s why there is a compounding effect. Third is run down of portfolios which we have said 15 to 20 odd percent. Whether it is more than that or less than that. If it is too much more than that, which means that would shrunk very fast and income would drop. If it is stays, it’s better. Third is that we have said we don’t need any equity and then that is true. And fifth is that transition to, to roa. So transition to roa. We have said use the term quality of earning.
So you should see that whether our out of our total income with 25% is CO lending NDA. I think so in this year it would remain high but in next year onward it will start tapering down. So whether roas are increasing and whether the contribution in total income of DA co lending is going down. If you track these, if we track these five things and you know, remain near to that then we will achieve our objective and you should also track us and question us on that.
Darshan Zaveri
Fair, Fair enough sir. And the last question,
Shachindra Nath
Sorry, it’s on slide 4 of our investor presentation. I would definitely recommend that you look through that.
Darshan Zaveri
Yeah, for sure. So I’ll look at it sir. And I just wanted to understand because like the segments that we are, you know, go out, you know, trying to go to aggressively are very high yielding. So is there a possibility that right now maybe we have a somewhat of a first mover advantage or it’s our niche. But seeing this lucrative yield, there’ll be higher competition and that can, you know, maybe lower the yield that we are assuming. I understand that we already assume lower Yield in our FY29 portfolio mix but is there a chance that it might be, you know, even more significantly lower?
Because looking at the yields more competition will come and there might be somewhat of a price war or to get the good customer. How would you look at it, sir?
Anuj Pandey
So yeah, you’re right. This is anuj in any case, in any business, especially in lending, this kind of assumption would be broadly right. As things progress, the cost as the, the overall yields will face a downward pressure. More so in prime intermediated segment where not Only the customer but the intermediary was also playing a part in our chosen emerging market segment. While this is also true, the market is very very well spread out and very large. And second the core differentiation in emerging market today is the branch distribution network.
So if you see and if you compare us with other larger players we would be in the top quartile as far as number of branches are concerned. That is the reason why we invested in opening 200 new branches in last two years and have now reached a tipping point of about 318 branches. So it is possible slowly and surely the rates should come down as market eases up. But that I think has been adequately factored in our three year plan.
Darshan Zaveri
Okay. Okay, fair enough. Yeah, that’s it from my side. Thank you so much.
Operator
Thank you. Next question is from the line of Saurabh Kumar, an individual investor. Please go ahead.
Chetan
Hello. Am I audible?
Saurabh Kumar
You are
Chetan
Yeah. So actually currently what I am seeing since last few quarters that we like either AUM is not growing or decoying. So when can we expect like some growth like at least 10 because earlier two years back or three years back it was told that okay, we will be going continuously for five years, 30 plus and then like. And then now it is like de growing. So when can we. We can expect like the curve to come back to the growth. Paul?
Shachindra Nath
Yes, you’re absolutely right. I think so. That our aspiration has always been to build and business of size and scale. Because obviously we were motivated by the size of the opportunity in front of us. We were motivated by the core capability of the management and the kind of deployment of data analytics and technology. We did and we were very confident that we. We were motivated by the fact that we can build a very large franchise. Having said that, over a period of last 23 years as I said in answer to a few other people, what we realized that between choice of scale versus the bottom line this scale was not delivering the resulting bottom line to us because these were verticals for low yielding.
These verticals were highly controlled by intermediaries and the portfolio was getting churned. And structurally these verticals require a very superior cost of borrowing which was not coming to us because that liability size have gravitated to certain set of NBSCs. And that’s why deliberately we built an infrastructure in last two and a half years, took all of the OPEX early and now transitioning the portfolio. So that’s our next three years of journey while the growth. Why all of you, all of us like growth because growth means improvement.
In bottom line profitability, as an existing or a potential shareholder, your value creation is directly linked to the bottom line and sustainability of that. But in our case, growth was not delivering incremental bottom line. So now we would deliver first incremental bottom line, make it healthier, will not dilute shareholders and by that time the infrastructure would be ready and then it will get to a normal growth rate cycle again. So what you are see. So I think what you should track is the growth rate of our core portfolio which will grow.
So what you should track is growth rate in our emerging market lab business and emergency business because both of them would grow in the range of 25 odd percent. And that’s not a, you know, lower growth, that’s a very high growth rate. Why the aggregate growth is looking flattish is because a lower yielding, less value accretive portfolio is being is automatically running down. I hope I’ve answered, you know, in some way.
Chetan
Yeah, yeah, thank you, thank you for the answer. I have one additional question. So now like we already have 300 odd plus branches. So will the OPEX come down significantly in the coming quarters?
Anuj Pandey
So we are not doing any new investment. So OPEX as a percentage of AUM as the AUM keeps going up will keep coming down. So yes, OPEX next year as a percentage of AUM would come down.
Chetan
Okay. And so we have acquired Prospectus. So how many branches of prospectus we are we gonna keep keep running or and how many are we leveling down?
Anuj Pandey
So Profectus was present in about 28 locations. And we Ugro branches are also present in those 28 locations. So in all those locations we are continuing with only one branch. Some of them are the original Profectus branch where we have vacated our premises with the prospectus ones which were, which were very good. And in some we have vacated Prospectus branches where the Ugro branches were better.
Chetan
So normally for these obviously this is also part of like running the business, right?
Anuj Pandey
That’s right.
Chetan
Yeah. So, so if so just just for the assumption there is must be some notice period and other things. So let’s assume three months of notice period or six months of notice period. So we can Expect like these 28 branch means 10% of the 10% of the OPEX or the running the business should come down by after two quarters.
Anuj Pandey
So some of that has already got actioned and some of them will get action. Yes. So you are right. The impact will start coming in.
Shachindra Nath
So I think so go back to go back. I think so. We would request you to look at slide number 13 of our presentation. We have taken a one time hit of 25.4 crores. So all of the future exit cost has been taken up front in this quarter.
Chetan
Yeah. So the notice. So this, this is the part of the. We have to pay if we are giving somebody notice period. Obviously we have to pay. Right. It’s like upfront cost but we have provision in
Shachindra Nath
This quarter itself.
Chetan
Yeah. So I’m talking about savings. So there should be some savings as well right from this.
Anuj Pandey
Yeah, of course. So that is why. So for other questions we were answering the total opex of combined profactors plus UGRO last year was about 750 crores.
Chetan
Next
Anuj Pandey
Year the total opex of the combined entity would be in the range of 490 to 500 crores. So there would be a 200 crore save.
Chetan
Okay. Okay. So we can expect that in Q2 at least coming like starting. Start showing some, some form of or. Yes, Q2. Yes.
Anuj Pandey
Yes. I’m
Chetan
Not expecting Q1 because yeah, there are other challenges but yeah and one more thing. So now the like integration is successfully done so can we expect any credit update because it wasn’t. Yeah.
Anuj Pandey
So we actually last year got our outlook updated recently about 2/4 back. So we are a plus outlook positive. Our internal assessment is that if we stick to our plan for this year there is a very high chance of a credit rating upgrade next year.
Shachindra Nath
On the lighter note I would say it’s like you know rating agencies also act like investors. Right. So you do all the hard work but investors say okay we’ll see the result and then we will action. Similarly also if the rating agency you do all the hard work they continue to come back and say let us see wait for the final result to come in few quarters and then they will do it. So when you will act, they will act. Actually while you know they are all interlinked.
Chetan
Yeah sure. Yeah. Thank you. And yeah like so the results are good and congratulations for that and thank you.
Saurabh Kumar
Thank you.
Operator
Thank you. The next question is from the line of mehul Panzunia from 40 cents. Please go ahead.
Saurabh Kumar
Hello sir. Thank you so much for the opportunity. Sir. Currently what is what percentage of our book is lap versus non lab and how do the gnta yields and the credit cost compare across both these segments?
Anuj Pandey
So our total secured portfolio which I’m including machinery loans also because they behave similarly is about 67% of the total portfolio. And the GNPAs there are in the range of about 1 and a half percent. Our emerging our embedded finance portfolio portfolio is about 20. Yeah about 20 to 80 crores which is about 15 odd percent of the total portfolio. Here the GNP is about 1.7%. And there are certain products which we had discontinued last year which included supply chain finance. We used to do a relatively liberal collateral product within LAP which we used to call Sathi and some unsecured loans that all put together is about 3.2% GNPA.
If you refer to our slide 16 in the Investor deck we have actually segregated our emerging market life Emirate finance and other products with gp.
Saurabh Kumar
What is the trade cost for these two segments?
Anuj Pandey
The credit cost in embedded finance is almost very similar to the GNPA. So about 70, 80% of GNO about 1.5, 1.6%. Currently as the vintage goes up it will go go slightly up and then stabilize on secured loans. Actually the credit costs are a percentage of GMPA. So about 30% of GNPA roughly gets translated into credit cost.
Saurabh Kumar
Okay. And sir, how do you see this mix in the percentage of secured versus embedded finance evolving over the next two to three years?
Anuj Pandey
So we will continue, I mean overall our broad philosophy is that unsecured loans, whether they are unsecured business loans or embedded finance should not go beyond 30 35% of the total portfolio. So we will continue to maintain the same mix.
Saurabh Kumar
And sir, what was the mix before we change the strategy? You mentioned that you know, because we were not getting good results on the bottom line we have changed the strategies. What was the mix before that between secured and secured? The
Anuj Pandey
Secured unsecured mix was very very similar. Within secured there was a very large chunk of intermediated prime LAP which was at 13, 13 and a half percent. So that only that portion we are reducing and we are compensating that with emerging market lap. So the product category remains same, only the yield profile goes up.
Saurabh Kumar
Okay sir, can you please elaborate a bit on because you know I am new to the company and these are all little bit quite techy thing for me. What is the difference between intermediate and emerging?
Anuj Pandey
So intermediated business is the DSA led business which we used to do in the top 25 metro towns in the country. So here the sourcing happens via DSAs.
Samir Dalal
Okay.
Anuj Pandey
And the target segment was a customer with turnover between 3 crores to 15 crore. So relatively larger customers at a relatively lower yields. In emerging market we have set up 318 branches in tier 2, tier 3, tier 4 towns in the country. Each branch consists of five to six direct sales team, one credit person one branch head, one operations head, one collection head and they go and source this micro SME customer directly. So this is the difference.
Saurabh Kumar
Can we expect a huge jump in our cost because we have expanded to these many branches plus we have hired people for these branches.
Anuj Pandey
So. No, you don’t, you shouldn’t because we have already incurred that cost in last two years. So all the cost investment in expanding these branches and hiring people is already over. So no new incremental OpEx.
Saurabh Kumar
Right, but, but still there’ll be a continuous cost for the salaried employees, right?
Anuj Pandey
That’s right. So that that cost will continue but that, that cost is already part of the OPEX which has been taken. And as the AUM built through these branches goes up, OPEX to OEM will keep coming down.
Saurabh Kumar
Right. So sir, when we, when we have. Sorry, last question. So when we. Yeah, when we had, you know, let’s look, go back two years back. Did we anticipate that we will move into this kind of branch led strategy?
Shachindra Nath
Yes. And that’s why we opened all these branches. So we have been building it, building a 318 branch network. Most of our peers that have taken roughly around eight to 10 years to get there. We have got there in period of three and three years. And that accelerated strategy was because we wanted to make, make this change at an appropriate time. We were hoping that our cost of borrowing trajectory would go down. If that would have happened then we would have continued all of the verticals. But since that was not happening, in order to improve the bottom line performance first we built the OPEX and infrastructure and then we taken out the cost purely on the OPEX sense.
So if you look at our slide 13, if you look at our FY26 cost, employee cost in other cost is roughly around 300 plus 285. 585 odd crore. Right. And this does not include the pre consolidation cost of professors because consolidation happened only on 8th of December if you take that cost base. Also this was 700 crore and this we are just guided. That would be around 490 odd crores. So that is what the. You know. So the business would operate. The portfolio of emerging market and embedded finance will continue to grow while the OPEX would remain flattish.
So three core things AUM on the, on the front end would look like flattish but underpinning portfolio would shift. Lower yielding portfolio would run down. Higher yielding portfolio would go up. And that increase of higher yielding portfolio which is increase in the, you know, portfolio yield is not resulting out of Incremental opex. And that’s why there is an operating leverage opportunity.
Saurabh Kumar
Right Sir. Since you spelled out the five trackers in your opening remarks, how many quarters do we expect to see a significant jump in the, you know, bottom line?
Shachindra Nath
So I think sister, we said that the year of transition is FY27. On FY till FY27 you should track us on the these pillars and whether we are making incremental improvement or not the real bottom line jump. So we have given a guidance of 2 to 3 3.5%. I mean in the transition year we’ll be in the range but we’ll try to achieve what you know, incremental improvement over FY26, 2728 would be, you know, first jump and 2829 we think the business would focus fully mature at 3.3.5% which is the top tier ROE performance for most of the lending institution in India.
Saurabh Kumar
Right sir. I appreciate a lot your elaborate answers and all the best sir.
Shachindra Nath
Thank you.
Operator
Thank you ladies and gentlemen. That was the last question for today. I now hand the conference over to management for closing comments.
Shachindra Nath
Thank you. I want to close with a context on macro factors affecting global economy and its impacts on on you grow. We get a lot of question on that as well. The global environment is genuinely uncertain. Geopolitical tension, trade policy shift, risk appetite, recalibrating. India is not fully insulated and yet I’m more confident in new growth trajectory today than at any point in our history. The business we have chosen small ticket secured loan against property in tier 2 and beyond. Regions of Bharat and merchant financing embedded in payment flows are not driven by the global macro.
They are driven by whether a small business owner in Rajasthan or Telangana can access formal credit. That demand is structural, durable and largely independent of what happens in Washington or Basel. The credit gap is 30 lakh crores. Our AEM is only 15,334 crores. We do not need new capital, we do not need rates to fall. We need branches to mature and they will. We need our merchant portfolio to deepen and it will. For the first time since Ugro’s start this company is now generating capital, not consuming it.
Every rupee of operating profit to the network and funds the next year of growth without us asking shareholders for a single additional rupee. The management team’s focus is singular. Improve operating metrics every quarter, reduce cost, increase Yield, deliver on the 5 commitment we have made in February. Two businesses, two large market one focus institutions. Thank you everyone for attending the call and listening to us patiently and thanks for all the support. If you have any further question, you may get in touch with Siddharth and Ritu or our IR team at investor relationsugrowcapital.com we will be very happy to answer and clarify.
Thank you very much.
Operator
Thank you. Ladies and gentlemen, on behalf of Alara securities, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.