Ujjivan Small Finance Bank Limited

Started in 2017, Ujjivan Small Finance Bank Limited (USFB) offers small finance to underserved & unserved segments in India. The bank aims to work for the financial inclusion of the country. USFB Bank is promoted by Ujjivan Financial Services Limited (UFSL) which is an NBFC providing financial services to the economically active poor, who are not served by the Financial Institutions. UFSL offers small size loan products to economically poor women, individual loans to Micro and Small Enterprises (MSEs). It follows the integrated lending approach where the company considers technology infrastructure and back-end support functioning before lending. USFB has a wide presence across 24 states and union territories in India. As on 30 June 2019, it has 4.72 million customers, 474 Banking Outlets, 387 ATMs, two 24/7 phone banking units (in Bengaluru and Pune) and 50 additionally operated Asset Centres. Customers can use USFB mobile banking application in 5 languages. The bank has a diversified portfolio offering savings, current & deposit accounts, Aadhaar enrolment services, ATM-cum-debit cards, point of sales terminals, and distributing 3rd party insurance products. USFB is focussed on digital platform and provides bill payments, SMS banking, mobile banking, RuPay Platinum debit cards, internet banking, biometric ATMs services digitally. The bank also allows registering savings account on UPI based mobile applications. It has an automated tablet-based loan origination system, digitalised credit processing and automated receipt collection system to reduce the turn around time of customers. As per financial performance, USFB has posted total income/net profits of Rs. 1593.36 cr. / Rs. 6.86 cr. (FY18) and Rs. 2037.58 cr. / Rs. 199.22 cr. For upto Q2 of FY20, company has posted profit of Rs 187.11 Cr on total revenue of Rs 1434.86 Cr. So company has shown good performance. USFB has posted an average EPS of Rs. 0.62 and average RoNW of 4.88% for last three fiscals. Issue is priced at a P/BV of 2.67 as per NAV of 13.84 on 30.09.19. As per FY19 earnings, P/E is around 32. If we attribute latest earnings of FY20 on fully diluted equity post issue, then asking price is at a P/E of around 17. USFB has gross and net NPAs on gross advances and net advances as of September 30, 2019 respectively 0.85% and 0.33% respectively. As per RHP, industry average P/E ratio is 29.64 and listed peers comparison shown in above table. So issue looks fully priced when we compare with FY19 earnings, but as per current year earnings, IPO is fairly priced. On BRLM's front, for IIFL Holdings Limited, JM Financial Consultants Private Limited and Kotak Mahindra Capital Company Limited, have handled around 49 IPOs in last three fiscals, and from last 10 IPOs, 4 opened below issue price and remaining opened above issue price on the day of listing. As of now, from last 10 IPOs, three are trading below issue price and remaining seven above issue price. ( As on 28.11.2019 ) As per financials, results are good, RoNW is 4.88% for last three fiscals and issue looks fairly priced with respect to current earnings. Performance of BRLMs are good. So we give SUBSCRIBE rating to this IPO and one may hold for long term investment also.

• 1 Ujjivan Financial Services Limited