Ujjivan Small Finance Bank Ltd IPO (Ujjivan Bank IPO) Detail

About the company:

Executive Summary

Ujjivan Small Finance Bank is set to open on 2^nd 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