Ujjivan Small Finance Bank IPO: Analysts expect 50% listing premium on Dec 12

Prashanth Tapse, AVP Research at Mehta Equities also believes Ujjivan would list around Rs 60+ levels, which translates to 62 percent premium over the upper end of the IPO price Rs 37.

"Premium listing seems to be justified as the issue was well priced with attractive valuation when compared to other listed small bank peers which are trading higher compared to the price-to-book value, leaving something on the table to the IPO investors. Better asset quality and experienced management with pan-India presence provided comforts to investors to rush-in subscription," he said.

Rudra Shares and Stock Brokers said the listing should be around Rs 64-68. "Considering the upper price band of Rs 37, the estimated P/BV ratio for FY20 translates to only 2.18x which is quite lower than the industry average. Thus, we expect the listing premium to be around Rs 27-31," it reasoned.

If the listing takes place as per analysts expectations, then the market cap of Ujjivan Bank would increase to around Rs 10,000-11,000 crore from current Rs 6,394 crore. It would be much higher than its parent company Ujjivan Financial Services' market cap of Rs 4,300 crore.

Ujjivan Small Finance Bank extends loans to micro banking customers, and deals in agriculture & allied loans, MSE loans, affordable housing loans, financial institution group loans, personal loans, and vehicle loans.

Among the leading small finance banks in India, Ujjivan has maintained strong asset quality with lowest gross non-performing assets (GNPA) levels at 0.85 percent and higher provisioning at 72 percent during September quarter 2019.

Having a strong management team, it has the most diversified portfolio spread across 24 states & union territories. Its gross advances almost doubled from Rs 6,384 crore in FY17 to Rs 12,864 crore at the end of September 2019.

Apart from having a strong presence in the country’s microfinance sector; the bank has started focusing on the retail loan segment. The CASA to total deposit ratio for the bank also improved to 11.87 percent in the September quarter.

Geojit Securities said the ability of SFBs to take deposits gave them an edge of having a lower cost of funds compared to that of NBFCs and MFIs. The loan book of SFBs is expected to grow by 23-25 percent CAGR over FY19-21 and deposit base is expected to increase by around 70 percent in the same period, according to the brokerage.

The experience of UFSL as an erstwhile microfinance institution, coupled with the ability to address mass-market customers will further aid USFB to be among the leading SFBs in India, it said,

The bank appointed new MD Nitin Chugh on December 1, 2019 who took over from retiring MD - Samit Ghosh. Chugh has previously served as the head of Digital Banking at HDFC Bank and will be instrumental to build a sustainable franchise especially in liabilities from leveraging technology, while also streamlining compliance and operations.

Ujjivan is a play on the MFI growth story. The bank's IPO was mainly to comply with RBI norms to list within 3 years of receiving a banking license. Ujjivan Financial Services diluted its stake in the bank from 94.4 percent to 80 percent post IPO.

The promoter stake in the bank has to reduce down further to 40 percent in the next 2 years time which shall be a hangover in the near-term, said LKP Securities.