Hold Ujjivan Small Finance Bank; target of Rs 30: Emkay Global Financial

Emkay Global Financial recommended hold rating on Ujjivan Small Finance Bank with a target price of Rs 30 in its research report dated November 08, 2022.

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November 11, 2022 / 22:30 IST

26 Aug, 2025 12:21

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Emkay Global Financial's research report on Ujjivan Small Finance Bank

Ujjivan SFB reported a strong PAT beat at Rs2.94bn (vs Emkay est at Rs0.98bn), mainly due to higher other income and provision reversal. Bank expects the RoA trajectory to remain sturdy in FY23 led by better growth, margins and continued moderation in LLP given the current stock of NPAs being largely covered. Overall AUM/credit growth accelerated to 44%/29% YoY, largely on strong traction in MFI, SME and housing segments. Share of MFI loans inched up to 69%, which is worrying as other banks look to diversify away from MFI. Bank has guided for ~30% growth in FY23E, with back-book stress easing and given its strong capital buffer post the recent QIP. The bank has successfully completed QIP, thus paving the way for SEBI approval; it is in the process of gaining residual regulatory/NCLT approval, to complete the merger process over the next 12 months. Factoring-in the strong growth guidance, margin and asset quality improvement, we raise our earnings estimates for FY23-25. We expect the bank’s RoA/RoE to shoot up to 3.2%/27%, and normalizing thereafter to 2.2%/19%.

Outlook

Building-in the earning upgrades and higher P/ABV at 1.2x (v/s 0.9x earlier) on Sep-24E ABV, we upgrade our TP to Rs30/share (from Rs18). However, we retain HOLD on the stock, as we believe that the bank will remain prone to asset quality shocks given its higher share of MFI portfolio and still sub-par liability profile. Management stability, too, remains a long-term issue for the bank. We retain HOLD on Ujjivan Financial Services (holdco), with a revised TP of Rs284/share (from Rs170), applying a 20% holdco discount.

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