Choice Equity Broking has come out with its report on Ujjivan Small Finance Bank. The research firm has recommended to "Subscribe'' the IPO in its research report as on November 29, 2019
Choice Equity Broking's IPO report on Ujjivan Small Finance Bank
UFSL, subsequent to obtaining RBI’s approval for carry on business as SFB in Nov’2016, transferred its entire business to USFB and started banking operations in Feb’2017. • With 552 banking outlets, 441 ATMs and 16,776 employees, USFB provides products and services to 4.9 mn customers across 24 states and UTs. • Since holding company UFSL was the established micro financier serving unserved and underserved regions, 79% of the advances book compromises micro and small ticket loans. Avg. ticket size range from Rs2,000 to Rs200,000 per a/c with the maturity of up to 2 years. Micro loans provides yield ~22-24% thus helping the bank to maintain NIM over 10%. Surprisingly, these are unsecured loans, delinquency remained under control because of the cautious lending approach adopted by the bank. Micro loan book grew by a CAGR of 23% during FY17-FY19 which is moderate compared to over 40% growth for some micro financiers. USFB considers parameters like over-indebtedness and multiple borrowing before disbursing credit to customers. USFB maintained lowest GNPA (0.85% in H1FY20) among the SFBs and with NNPA at 0.33%, PCR stood at 61.2%.
Valuation and Outlook
With the diversified loan book across regions, healthy NIM, focus to expand quality loan book, stable assets quality with high PCR, USFB is the well managed SFB. Annualized ROE/RoA expanded to 19.4% and 2.5% in FY20. At the higher price band of Rs37, the issue is available at P/ABV of 2.5x which looks reasonable considering the fundamentals of the company. Listed peer AU Small Finance Bank is currently trading at P/ABV of 8.2x. Considering all these parameters, we assign “Subscribe” rating to the issue.
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