Hold Ujjivan Financial Services; target of Rs 370: Centrum

Centrum's research report on Ujjivan Financial Services

We retain Hold on Ujjivan with TP revised upwards to Rs370 (earlier Rs350). Q2FY18 earnings saw an improvement over the last quarter on the business front (disbursements up 14.8% QoQ) and asset quality side (GNPA at 4.99%, down 110bps QoQ also aided by w/offs). Transition to Small Finance Bank (SFB) model has gathered further momentum with reach now extended to 92 branches (vs. 15 in Q4’17). H2FY18 promises to be better over H1’18 on back of improved business environment and better controls. The near term earnings, however are expected to remain volatile as Ujjivan provides for portfolios overdue. We have tweaked our estimates for FY18-19E. Valuations at 2.2x FY19E ABV remain reasonable.

Outlook

Retain Hold with TP revised upwards to Rs370 (valued at 2.2x FY19E). Key risks: lower than expected new NPA accretion and or higher recoveries would mean lower provisions and thus higher profitability. Elevated GNPA / low pace of growth could impact earnings negatively.