Ugro Capital, a non-banking finance company catering to small and medium businesses, has raised fresh capital of Rs 1,322 crore from a mix of new and existing investors and family offices through compulsory convertible debentures and warrants.
Samena Capital led the round injecting Rs 500 crore, while hedge fund Aregence, along with family offices, also committed capital, the company said in a filing with the stock exchanges Thursday.
Ugro’s founder, board members and management collectively contributed Rs 16.25 crore as a part of the round. InCred Capital was the investment banker for the deal.
In a simultaneous development, the company said it acquired fintech lending startup MyShubhLife (MSL) for Rs 45 crore in a stock-and-cash deal.
Ugro Capital reported a profit after tax of Rs 119.3 crore for fiscal 2024, a 200% increase from Rs 39.8 crore in FY23. Total income surged 58% to Rs 1,081.7 crore from Rs 683 crore.
SML Acquisition
The deal with MSL enables Ugro Capital to enter the tech-enabled embedded finance market. The non-bank lender will initially pay Rs 28 crore to acquire 76% of MSL, while the remaining Rs 17 crore will be paid later to secure full ownership of the company.
The deal marks a major cut in the valuation of MSL. The startup was previously valued at Rs 240 crore and had raised Rs 147 crore from investors like Omidyar Network India, Gojo and Saama Capital IV. The platform is integrated with the likes of Pine Labs, Fino, Airtel Payments Bank, Mobikwik, Spice Money and EasyPay for merchant financing.
With MSL now operating as a subsidiary of Ugro Capital, the company aims to onboard 200,000 new retailers within the next three years, projecting incremental assets under management of Rs 1,500 crore. It expects to post a profit after tax of Rs 100 crore during the same period.
As per the licensing rules of the Reserve Bank of India, there cannot be two NBFC licences within one group entity, hence MSL will surrender its permit.
“Short-term credit is very difficult to do when you go to the open market, because you don’t know the cash flow of the customer. That is why, one big way to do this is embedded financing. We have been thinking about how to get to the embedded financing market and it gives us the ability to transition to a granular target segment,” Shachindra Nath, founder and managing director of Ugro Capital told ET in an interaction.
This development comes at a time when there is some degree of consolidation playing out in the Indian fintech lending ecosystem. In 2020, InCred had acquired consumer lending startup Qbera in a similar deal. Overall, the digital lending sector, which had faced major challenges during the pandemic, is showing some signs of recovery, with players like Indifi and Lendingkart turning profitable over the last two financial years.
“In next two years, Ugro Capital will be the largest MSME financing company in the country and it is now entering embedded financing through this unique acquisition, that has the potential to do a disbursement of almost Rs 8,000 to 10,000 crore,” Nath added.
“In a lending business, the book size is the most important thing because if you want to create a substantial size, you will require a very large balance sheet. What this partnership does for us is that since we have the tech, and the underwriting model, we now get access to Ugro’s balance sheet,” said Monish Anand, founder and CEO of MSL.
