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Please refer to important disclosures at the end of this report
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Ujjivan Small Finance Bank (USFB) is a mass market focused SFB in India,
catering to unserved and underserved population segments of the country. USFB
is well diversified with presence across 24 states and union territories and is
catering to over 4.94 million customers as on September 30, 2019. USFB is
involved in (i) loans to micro banking customers, (ii) agriculture & allied loans, (iii)
MSE loans, (iv) Affordable housing loans, (v) financial institutions group loans, (vi)
Personal loans, and (vii) vehicle loans.
Healthy AUM growth with calibrated geographic diversification: USFB’s AUM
grew at impressive CAGR of 32% over FY2017-19. In 2017, when USFB started
operation as SFB, its majority portfolio (97.5%) was concentrated towards micro
finance. However, as of Q2FY2020 it contributes 79.2% and other major
contributors are Affordable housing (9.4%) and SME (6.5%). Since Feb 2017,
USFB has added 100 branches, Tamilnadu formed 16.5% of advances and the
top two states (Tamilnadu+ Kerela) contribute 32% of advances, which is among
the lowest. To leverage existing client base and network further it has extended
loans to the two wheeler and electric three wheelers.
Asset quality improvement continues: Post demonetisation USFB’s GNPA rose to
6.23%, however management has been able to reduce it to 0.9% in Q2FY2020.
Bank has been maintaining one of the highest provision coverage ratios (67%),
which is a positive. However, there is some issue in few areas of Assam, but
USFB’s exposure to Assam is 3.7% and AUM in concerned area is minuscule.
Improving liability profile: Within 3 years of operation, USFB has been able to
improve funding mix towards deposit and CASA ratio of 12%. In FY2017, out of
total borrowing, only 3% was sourced through term deposit and reached to 76%
in Q2FY2020. However, it has only garnered 41% of deposits from retail. To
mobilize retail deposits, USFB is offering higher term deposit rate.
Outlook & Valuation: At the upper end of the price band, USFB is valued at 2.8x
its Q2FY2020 book value (Pre-IPO) and on post dilution basis at 2.3x of BV,
which we believe is attractive considering similar businesses are trading at higher
valuations. Moreover, experienced management, Pan-India presence, and pristine
asset quality provides comfort. We recommend a Subscribe to the issue.
Key Financials
FY17
FY18
FY19
H1FY20
108
861
1,106
740
700
29
0
7
199
187
1.5
10.8
10.7
11.0
0.0
0.0
1.3
1.2
-
-
28
30
3.4
3.4
3.1
2.8
0.0
0.1
1.7
1.7
0.0
0.4
11.5
17.5
Source: Company, RHP, Angel Research; Note: Valuation ratios based at upper end of the price
band.
SUBSCRIBE
Issue Open: Dec 02, 2019
Issue Close: Dec 04, 2019
QIBs 75% of issue
Non-Institutional 15% of issue
Retail 10% of issue
Promoters
83.3%
Others
16.7%
Fresh issue: `750cr
Issue Details
Face Value: `10
Present Eq. Paid up Capital: `1,640cr
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: `1,728cr
Issue size (amount): *`730cr -**750 cr
Price Band: `36-37
Lot Size: 400 shares and in multiple
thereafter
Post-issue implied mkt. cap: *`6,222cr -
**`6,394cr
Promoters holding Pre-Issue: 94.4%
Promoters holding Post-Issue: 83.3%
*Calculated on lower price band
** Calculated on upper price band
Book Building
Jaikishan J Parmar
+022 39357600, Extn: 6810
Research Analyst
[email protected]
Ujjivan Small Finance Bank
IPO Note | Small Fin Bank
Nov 29, 2019
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Comp Background
USFB, a wholly owned subsidiary of Ujjivan Financial Services (UFSL), was
incorporated in July 2016, but started its operations on Feb 01, 2017 after its
promoter company UFSL transferred its business to USFB. By this time, UFSB also
received receipt of the license to operate as a small finance bank. It operates as a
scheduled commercial bank under the RBI norms.
UFSL was operating as an NBFC since 2005, and hence, USFB gets an upper edge
of having an experienced promoter in its field. The bank’s business is primarily
based on the joint liability group-lending model for providing collateral-free, small
ticket-size loans to economically active poor women. It also offers individual loans
to Micro and Small Enterprises (MSEs) and insurance. USFB follows a diversified
operation model with presence across 24 states. This enables the bank to reduce
credit risk in its loan portfolio. Apart from this, the bank adopted an integrated
approach to lending, which combined a customer touch point similar to
microfinance, with the technology infrastructure similar to that of a retail bank. This
makes it more competitive in customer service in its industry.
Key Management Personnel
Samit Kumar Ghosh is the Managing Director and Chief Executive Officer of USFB.
He holds a bachelor’s degree in arts with honors in economics from Jadavpur
University and a master of business administration degree from the University of
Pennsylvania. He has worked with First National City Bank, Standard Chartered
Bank, HDFC Bank, Citibank, and the Bank Muscat Al Ahli Al Omani. He was the
president of Microfinance Institutions Network and the chairman of Association of
Karnataka Microfinance Institutions.
Nitin Chugh is the President of USFB. Joined as a President with effect from August
17, 2019 and will assume office of MD &CEO from December 01, 2019
Experience across multiple associations including, HDFC Bank Ltd, Standard
Chartered Bank, HCL Ltd. and Modi Xerox Ltd.
Sanjay Kao is the Chief Business Officer of Bank. He is a post graduate diploma in
management from the Indian Institute of Management, Calcutta. He was
previously employed with Lipton India Limited, Dunia Finance LLC, Citibank, N.A.
and ABN AMRO Bank, N.V. He was appointed as the Chief Business Officer of the
Bank with effect from February 12, 2018.
Upma Goel is the Chief Financial Officer of Bank. She is a chartered accountant
from the Institute of Chartered Accountants of India. She was previously employed
with L&T Finance Holdings Limited, Ujjivan Financial Services Limited and Escorts
Securities Limited. She joined the Bank as the Chief Financial Officer with effect
from February 01, 2017.
Sachin Bansal, co-founder of Flipkart, is an Independent Director of USFB. He
holds a bachelor of technology degree in computer science and engineering from
the Indian Institute of Technology, Delhi.
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Issue details
This IPO is purely on fresh issue and the issue is worth `750cr. Of this, issue worth
`75cr is reserved for UFSL (promoter) shareholders.
Primary reason for listing is to comply with RBI guidelines on Small Finance Bank.
When the SFB licenses were issued, the Reserve Bank of India had put in the
condition that the SFBs, after three years of operation, with a capital of `500cr or
above would have to list at the end of the third year or by the end of the third year.
Exhibit 1: Pre and post-IPO shareholding pattern
Particular
No of shares
(Pre-issue)
%
No of shares
(Post-issue)
%
Promoter
1,44,00,36,800
94.4
1,44,00,36,800
83.3
Investor/Public
8,54,83,667
5.6
28,81,86,370
16.8
1,52,55,20,467
100
1,72,82,23,170
100
Source: RHP Note: Calculated on upper price band
Note :
UFSL Shareholder Discount: ₹ 2/- per equity shares.
UFSL Shareholders Reservation portion: Equity shares aggregating up to ` 75cr
(Eligible UFSL Shareholders: Individuals and HUFs who are the public equity
shareholders of UFSL, the Promoter, (excluding such persons who are not eligible
to invest in the Issue under applicable laws) as on the date of the Red Herring
Prospectus i.e.22nd Nov’2019).
Objects of the offer
The net proceeds of the Fresh Issue are proposed to be utilized for
augmenting capital base and general corporate purposes.
To achieve the benefits of listing the Equity Shares on the Exchanges and to
carry out offer for sale of equity shares
Risk
USFB’s nearly 79% loan book comprises of micro banking, Therefore, there is
a greater risk of loan loss if any natural, social, political or regulatory
disruption happens.
RBI regulations in SFB industry are stringent vs. that of NBFCs. To ensure
compliance, the bank might have to limit its revenue.
The holding company will have to gradually reduce its stake in the SFB, as per
RBI guidelines.
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Exhibit 2: Relative Comparison
Particular
AUM
Mcap
MCAP
/AUM
P/BV
TTM
PE
CASA
Yield
COF
NIM
ROE
GNPA
NPA
PCR
Ujjivan SFB
12,864
6,394
0.50
2.3
22
12
19.9
8.4
10.6
20
0.9
0.3
67
AU SFB
27,876
24,106
0.86
7.1
42
15
14.7
7.9
5.3
18
2.0
1.1
45
Equitas
13,269
3,614
0.27
1.5
17
22
18.6
8.5
8.3
8
2.9
1.6
45
Credit Access
7,905
11,476
1.45
4.5
31
-
19.5
10.3
12.1
16
0.5
-
100
Bandhan Bank
64,186
93,472
1.46
6.7
24
33
14.2
7.2
8.2
28
1.8
0.6
68
Valuation done at upper IPO price band, Post Issue valuation
`
750 fresh issue has been considered for Net worth.
Outlook & Valuation
At the upper end of the price band, USFB is valued at 2.8x its Q2FY2020 book
value (Pre-IPO) and on post dilution basis at 2.3x of BV, which we believe is
attractive considering similar businesses are trading at higher valuations.
Moreover, experienced management, Pan-India presence, and pristine asset
quality provides comfort. We recommend a Subscribe to the issue.
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Income Statement
Y/E March (` cr)
FY17
FY18
FY19
H1FY20
Net Interest Income
108
861
1,106
740
- YoY Growth (%)
700
29
Other Income
7
111
206
175
- YoY Growth (%)
1,524
85
Operating Income
115
972
1,312
916
- YoY Growth (%)
749
35
Operating Expenses
109
653
1,003
613
- YoY Growth (%)
498
54
Pre - Provision Profit
5.3
320
309
303
- YoY Growth (%)
5,901
(3)
Prov. & Cont.
4.4
311
41
44
- YoY Growth (%)
6,907
(87)
Profit Before Tax
0.9
9
268
259
- YoY Growth (%)
893
2,934
Prov. for Taxation
1
2
69
72
- as a % of PBT
92
22
26
28
PAT
0.0
7
199
187
- YoY Growth (%)
19,509
2,803
Exhibit 3: Balance Sheet
Y/E March (` cr)
FY17
FY18
FY19
H1FY20
Equity
1,640
1,640
1,640
1,640
Reserve & Surplus
0
7
180
400
Net worth
1,640
1,647
1,820
2,040
Deposits
206
3,773
7,379
10,130
- Growth (%)
1,728
96
Borrowings
6,291
3,853
4,166
3,470
Other Liab. & Prov.
298
201
377
468
Total Liabilities
8,436
9,473
13,742
16,108
Cash Balances
261
250
446
487
Bank Balances
502
245
648
222
Investments
1,447
1,232
1,527
2,018
Advances
5,861
7,336
10,552
12,780
- Growth (%)
25
44
Fixed Assets
140
198
284
296
Other Assets
226
211
284
304
Total Assets
8,436
9,473
13,742
16,108
- Growth (%)
12
45
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Exhibit 4: Key Ratio
Ratio analysis (Standalone)
FY17
FY18
FY19
H1FY20
Y/E March
Profitability ratios (%)
NIMs
1.47
10.85
10.72
11.02
Cost to Income Ratio
95
67
76
67
RoA
0.0
0.1
1.7
1.7
RoE
0.0
0.4
11.5
17.5
B/S ratios (%)
CASA Ratio
1.6
3.7
10.6
11.9
Credit/Deposit Ratio
2,840
194
143
126
CAR
21
23
19
19
Tier I
20
22
18
18
Asset Quality (%)
Gross NPAs
0.3
3.7
0.9
0.9
Net NPAs
-
0.7
0.3
0.3
Provision Coverage
100.0
81.1
66.7
66.7
Provision Coverage (With tech W/O)
89.0
81.9
71.9
61.6
Loan Loss Prov. /Avg. Assets
0.1
4.7
0.5
0.4
Per Share Data (`)
EPS
0.0
0.0
1.3
1.2
ABVPS (70% cover.)
10.8
10.8
11.9
13.4
Valuation Ratios
PER (x)
-
-
28.3
30.2
P/ABVPS (x)
3.4
3.4
3.1
2.8
Post issue
PER (x)
17.1
P/ABVPS (x)
2.3
DuPont Analysis
NII
1.3
9.6
9.5
9.2
(-) Prov. Exp.
0.1
3.5
0.3
0.5
Adj. NII
1.2
6.1
9.2
8.7
Other Inc.
0.1
1.2
1.8
2.2
Total Income
1.3
7.4
11.0
10.8
Opex
1.3
7.3
8.6
7.6
PBT
0.0
0.1
2.3
3.2
Taxes
0.0
0.0
0.6
0.9
RoA
0.0
0.1
1.7
2.3
Leverage
5.1
5.4
6.7
7.9
RoE
0.0
0.4
11.5
18.3
Valuation done at upper IPO price band, Post Issue valuation
`
750 fresh issue has been considered
for Net worth and PE calculation on annualized PAT.
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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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