YES Securities' research report on Ujjivan Small Finance Bank
Ujjivan SFB delivered a 7%/30% beat on our PPOP/PAT expectations driven by a) higher NII, b) measured increase in opex (normalization of collection-related costs), c) higher other income (strong core fee growth + sustained elevated bad debts recovery) and d) NIL credit cost (continued robust collections and NPL recoveries). Management expects a similar operating (earnings) performance in Q4 FY23, and 25% loan growth and 1% credit cost in FY24. With collections-related costs normalizing, the bank hopes to limit the likely increase in cost/income ratio next year owing to lower bad debts recovery and some pressure on NIM. As the granular deposits inflow remains strong, Ujjivan SFB doesn’t see any imminent need to raise deposits pricing. We raise our earnings estimates by 35%/20% for FY23/24 on much stronger-thanexpected operational delivery in Q3 FY23 and encouraging medium-term commentary on asset quality, growth, loans/deposits pricing flexibility and cost metric.
Outlook
While FY23 will be an exceptionally profitable year due to lower-than-usual credit cost and higher-than-usual bad debts recovery, we estimate the bank to deliver 18-20% RoE even under normalized circumstances. Expect stock to re-rate further; we maintain BUY with revised 12m PT of Rs45. Valuation is quite attractive at 5.7x P/E and 1.1x P/ABV on FY24 estimates.
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