Ujjivan Small Finance Bank: Should investors buy, sell or hold after the bumper listing?

Most experts are now advising investors to hold the stock for longer term on the back of good fundamentals. Though some suggest investors can do partial profit booking and hold the rest for longer term.

"Ujjivan SFB's fundamentals look decent given its sustained growth in advances, improving asset quality, sound capital position and strong diversified geographic footprint. Investors may hold the stock for long term," Narendra Solanki, Head Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares & Stock Brokers said.

Mona Khetan, banking analyst, Reliance Securities also advised holding the stock. Meanwhile, Rudra Shares and Stock Brokers recommend holding the stock till Rs 85 and thereafter start profit booking.

"Considering the expected listing premium, we assume rationales would be discounted and hence recommend investors to book partial profits on listing around Rs 62-65 and hold on rest of the allotment for healthy return on investment in short to medium term basis even after listing," Prashanth Tapse, AVP Research at Mehta Equities told Moneycontrol.

What should be buying price?

Investors should wait till the stock settles around Rs 50-55 levels (a 35-49 percent premium over issue price) because and then continue buying if the counter hits lower levels.

"In our view, fair value for buying the stock should be anywhere between Rs 50-55 per share," Mona Khetan said.

Prashanth Tapse also agreed with Mona and said, "Buying at the listing premium would trigger lower margin of safety for the buyer on listing day. Hence, we advise investors to wait and watch the counter and if in case stock is available during intraday volatility somewhere in the range of Rs 50-55 on listing day then we advise to buy for short to medium term.

Astha Jain, Senior Research Analyst at Hem Securities also feels one can buy the stock around Rs 50-55 per share as she has a positive outlook on the bank.

"The company is customer-centric organization with multiple delivery channels. Also bank's pan-India presence along with strong asset quality as gross non-performing assets (NPA) being the lowest and has second highest provision coverage ratio among the small finance banks in India, as of March 31, 2019 depicts strength in fundamentals of bank," she said.

Outlook

"USFB's healthy growth prospects and increased share of fee-based revenue streams should continue to aid its return ratios, even as rising share of non-MFI loans impacts its NIM. Its high share of MFI loans has been a positive for its asset quality in the current environment where we have seen rise in stress in most other segments," Mona Khetan said.

Narendra Solanki also believes Ujjivan SFB should continue with its growth trajectory in the near to mid-term.

Prashanth Tapse also said, going forward, overall outlook remained optimistic on Ujjivan SFB’s scope of business growth with well managed asset quality and higher provisioning resulting to higher return ratios comforting investors.

He expects healthy return on investment on medium term basis with a target of Rs 80 for 12 months holding period.

Rudra Shares and Stock Brokers believes that USFB is a portfolio stock having strong corporate governance, expansion plans and balanced growth in advances & deposits.

As per brokerage's estimates, the book value for FY21 will be Rs 19.94 and at P/BV of 5-6x (considering bull run), it translates to a one-year price target of Rs 100-120.

Mona Khetan feels the recent appointment of Nitin Chugh (ex-HDFC Bank Digital Banking Head) should aid the bank's liability and non-MFI asset profile.

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