Buy Ujjivan Small Finance Bank; target of Rs 60: ICICI Securities

ICICI Securities is bullish on Ujjivan Small Finance Bank has recommended buy rating on the stock with a target price of Rs 60 in its research report dated July 25, 2024.

Broker Research

July 31, 2024 / 15:05 IST

Buy

live

bselive
nselive

Volume

Todays L/H

ICICI Securitie's research report on Ujjivan Small Finance Bank

Business growth was calibrated with 1% QoQ / 18% YoY growth, while deposit growth was relatively better at 3% QoQ / 22% YoY. Growth moderation was seen in microfinance group (60% of the portfolio) which was down 2% QoQ / up 6% YoY. Also, disbursements were lower 21% QoQ and flat YoY. Ujjivan expects normalcy to return in loan growth in H2. On margins front, yield compressed 20bps QoQ while cost of funds inched up 30bps QoQ resulting in overall 10bps margin decline QoQ to 9.3% and flat NII QoQ. Nevertheless, with some part of the MFI book yet to be repriced in the next 2-3 quarters, NIM is likely to sustain at 9% going ahead. Opex was lower 3% QoQ as Ujjivan added nil branches and headcount addition was also limited to 316 vs past four quarters’ average of 1,174. Normalisation in credit cost to 1.5% impacted overall profitability which was lower 9% QoQ and 7% YoY. Overall, RoA stood at 2.9% and RoE was 20.9%.

Outlook

Ujjivan Small Finance Bank’s (Ujjivan) PAT remained flat INR3bn from last seven quarters and the same resulted in RoE falling to 21% from 35% in Q2FY23. Gradual normalisation of credit cost at 1.5% in Q1FY25 vs provision writeback until FY23 and 0.4% / 0.7% / 0.9% / 1.1% during FY24 quarters led to normalisation of RoA to 2.9% by Q1 from 4.6% in Q2FY23. While delinquencies have increased during Q1 as reflected in PAR 0 portfolio increasing to 4.2% vs 3.5% QoQ, GNPL ratio rising to 2.5% vs 2.2% QoQ and PCR falling to 84% vs 87% QoQ, management highlighted collections still remained strong at 98% in Jun’24. As a result, it maintained FY25 credit cost guidance at 1.7%. Considering its strong RoE at >20% (FY25 guidance at 20%), we upgrade Ujjivan to BUY with an unchanged TP of INR 60, valuing the stock at 1.5x Sep’25E BVPS.

For all recommendations report, click here