Buy Ujjivan Financial Services; target of Rs 470: Axis Direct

Axis Direct's research report on Ujjivan Financial Services

PAT declined 65% YoY in Q4FY17, higher than our estimate, due to lower provisions. Headline GNPAs (0.3%) hide the underlying weakness in the asset quality (GNPAs of 3.7% without RBI dispensation and 0-day PAR at 9.9%). Improvement in cumulative collection efficiency (96.7%) is slow but steady (drought in some southern states, demonetization and influence of local groups).

Outlook

We prefer Ujjivan amongst SFBs given its better risk management practices (predictive avoidance of stressed areas like Vidarbha, Sagar etc.), stronger client relationships, undeterred focus on financial inclusion and robust capital position (ability to grow even after some haircuts). We cut earnings for FY17-19 by 27% to factor in potential write-offs and cautious growth and, value Ujjivan at 2.7x FY19E P/ABV of Rs 172 to arrive at a TP of Rs 470. At CMP, Ujjivan trades at 2.5x/2.2x FY18/19E P/ABV.