About the company:
Executive Summary
Ujjivan Small Finance Bank is set to open
on 2nd Dec 2019, with a price band of Rs 36-37. This IPO will raise
Rs 750 crore through a fresh issue, of which 10% will be reserved for holding
company’s shareholders. This article will give you an overview of this small
finance bank. We at SAMCO Research recommend this IPO is
a SUBSCRIBE from a listing gains perspective
only.
Corporate Profile
Ujjivan Small Finance Bank, promoted by
Ujjivan Financial Services Ltd focuses on the mass market and caters to unserved
and an underserved segment of India. It provides small loans and financial
services to those who are not adequately served by the financial institutions.
It heavily relies on technology to reduce its costs and improve efficiency. It
is spread across 24 states and unions with a wide customer base of 4.9 Million.
Business and Financial Highlights
Looking at the
Bank’s key ratios, Cost to Income ratio has been constantly decreasing and now
currently stands at 66.95% which is a good sign. Its Net interest margins have
been stable at around 10.64% and have not seen any significant expansion. Casa
ratio at 11.87% is poor when compared to its peers which lead to higher cost of
funds
The bank’s deposit/AUM ratio has improved
to 78% on strong TD growth but the CASA profile remains abysmally low at 12%
(9% of AUM) vs. peers range of 20-35% (12-25% of AUM), mainly due to its
early-stage flawed liability strategy focusing on MFI customers for liability.
The bank
still carries portfolio concentration risk with MFI being 79% of loans, which
has its own set of credit risk and cycles. The bank has gradually diversified
into other products (SME, Housing, etc.) and recently into crop/allied loans
for small/marginal farmers.
Key risks for
the company
Promoter
is required to reduce its shareholding in the Bank to 40% of our paid-up Equity
Share capital within a period of five years from the date of commencement of
our business operations and thereafter required to reduce its shareholding in
our Bank to 30% and 26% of our paid-up Equity Share capital within a period of
10 years and 12 years, respectively, from the date of commencement of our
business operations
In
the organized sector, Ujjivan small finance bank’s competitors have a better
brand recognition, greater business experience, more diversified operations,
greater customer and depositor base, larger Banking Outlets network and better
access to, and lower costs of funding
The
bank’s operations are spread out in all four zones of the country, a large
number of our Banking Outlets are located in the southern and eastern states of
India, particularly, Karnataka, Tamil Nadu and West Bengal
Highly
dependent on Micro Banking business which accounted for 79% of its total Gross
advance
Highlights from Analyst Meet
The
reason for IPO listing is because of Regulatory requirements
Reservation
of 10% for shareholders of holding company is to protect their interests.
Promoter dilution post IPO will be around 15-16%
In
the vehicle loan segment, the bank is focusing on two-wheeler and electric 3
wheelers only. They have tied up with EV players and they further look to grow
this segment.
Overall
experience in the troubled district is less than 1% of the total portfolio
The Company has been awarded #6 rank in Great place
to work. They are the only BFSI in the top 6 companies
94.6%
of the disbursements are cashless
Source: RHP and Analyst Meet
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