Downgrade Ujjivan Financial to Reduce, Equitas remains preferred idea: Kotak

JSW Holdings | Cash flow from operation in FY18: Rs 66 crore, FY19: Rs 89 crore and in FY20: Rs 103 crore. In the past 3-year, the stock price has risen 40 percent to Rs 2450 on August 25, 2020.

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26 Aug, 2025 12:21

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Kotak Institutional Equities has downgraded Ujjivan Financial to reduce from add earlier but Equitas Holdings remained its preferred idea as it find more upside for Equitas compared to Ujjivan.

Kotak said the data in Q2FY18 showed further momentum in all key metrics. Disbursements grew 18 percent QoQ while assets under management (AUMs) grew 11 percent QoQ. Net addition of clients has been positive at 5 percent QoQ.

Banks dominate the business with a share of 35 percent and including small finance banks (SFBs) this would increase by another 25 percentage points to around 60 percent.

NBFCs aligned to micro finance institutions (MFINs) have a share of 32 percent. Growth was the strongest for MFIN-based MFIs in the current quarter followed by SFBs. These entities have started to expand their footprints as well as increase employee headcount, Kotak said.

The research house further said MFIN data shows that the PAR 30 (portfolio at risk with dues over 30 days) loan portfolio has fallen by 450 bps from the previous quarter and 540 bps from peak levels in March 2017. The data suggests that there is an actual decline in the PAR portfolio. Incremental risk from a stress recognition standpoint is low as the PAR 30 and PAR 90 has converged.

"Higher write-offs, as we have seen in various MFIs is probably one of the reasons which can explain a decline in the PAR 180 portfolio."

Kotak said one of the only key worrying factors is the steady rise in the average ticket size at the time of disbursement which is resulting in gradual increase in the average tickets on loans over a period in time.

The average ticket size on disbursement is approximately Rs 22,000 as compared to the average ticket size of loans outstanding at approximately Rs 15,400.

Given the nature of these unsecured loans and that these customers are getting greater access to other formal channels of financing, especially asset-based financing, Kotak sees a gradual increase in risk.

The research house said one of the challenges of relying on MFIN data is that the set that is being tracked is becoming a small subset.

SFBs have stopped giving granular data and have started to diversify their product portfolios outside MFIs to the same population segment.

Banks, on the other hand, have been building a portfolio through BCs (business correspondents) or through their own channels. Disclosures from banks have been the weakest amongst all and their share continues to increase.

Recent announcements and completed deals of IndusInd Bank and IDFC do suggest that they are quite committed to building this business. However, it is going to be quite challenging to identify any early warning signals in this business, it said.