Research report on Ujjivan Small Finance Bank

Ujjivan small finance bank has reported strong earnings of FY 2022-23, with increase of 49% in net profits over past FY. This report contains detailed research on Ujjivan small finance bank, covering its key fundamentals and technicals.

About Company-

Ujjivan small finance bank is a small finance bank operating in over 24 states with 450+ branches across India. It caters various banking facilities and financial products to their customers such as deposits (both savings and term), loans (personal, microfinance,  auto, home etc.), Insurance and much more. The bank was formed in February of 2016 with the opportunity of expanding Ujjivan financial services’ range of loan products. 

Management 

Ujjivan’s management team includes industry specialists which are well experienced in the field. Most of the team served upper positions in well renowned finance companies around the world.

Mr. Ittira Davis serves as the Managing Director & CEO of the bank with over 40 years of international banking experience in India, Middle East, and Europe. He played a crucial role in the transition of Ujjivan into a Small Finance Bank and has been associated with the organisation since 2015. He holds a degree from the Indian Institute of Management, Ahmedabad.

Carol Furtado, the Chief Business Officer of Ujjivan Small Finance Bank, holds over 26 years of experience in Retail Banking and NBFC sectors, excelling in Business, Credit, and People functions. She played a pivotal role in establishing Ujjivan's reputation as a great place to work and has been recognized for her professional commitment by the Financial Women's Association. Carol is a postgraduate from Mount Carmel Institute of Management, Bangalore, and has participated in strategic leadership programs conducted by Indian Institute of Management, Ahmedabad, and Harvard Business School, Boston.

Martin Pampilly, the Chief Operating Officer of Ujjivan Small Finance Bank, brings 25+ years of experience in Retail Banking operations, Micro-finance Operations, and process implementation. He is recognized for his innovative use of technology to enhance customer experiences. His journey includes roles at ANZ Grindlays Bank, Bank Muscat, Centurion Bank of Punjab, and Centillion Solutions & Services. Martin joined Ujjivan in 2009 and played a crucial role in establishing and leading the Operations division of the bank. He holds a degree in Computer Science from St. Joseph's College of Arts & Sciences, Bangalore.

Industry Outlook

In 2014, RBI created a specialised segment of banking known as “small finance banks” . The main motive of this is to increase financial inclusion in India and help banking services to reach all remote corners of India. Small finance banks can provide basic banking activities such as deposits and lending, further it could provide additional services such as International banking, insurance, specialised loans etc.

Today, market capitalization of listed small finance banks stood at 72000 Cr, In which AU small finance bank is most prominent. Most of the banks are now shifting focus to digital banking rather than traditional banking, with Equitas bank partnering with Niyo for banking facilities and AU Bank providing digital savings accounts with virtual KYC. 

Overall, from the past 7 years, small finance banks have helped lakhs of people to be included in the financial sector. Their specialised products played a vital role in fostering entrepreneurship, supporting small-scale industries, and empowering marginalised sections of society.

Financials of Ujjivan small finance bank

In FY 2023, the company earned a total income of Rs. 4754 Cr, an increase of over 49% over previous year. The operating profit stated at around Rs. 1467 Cr, Increase of over 366% over previous year. OPM (Operating profit margin) also stated at 30% with negative at previous year. The net profit came at around 1100 Cr against loss of 415 crore previous year. 

Balance sheet of the company increased by 41% to Rs. 33,317 Cr, Highest in the small finance bank sector. Deposits increased to over Rs. 25,538 Crores, increase of over 40 % YoY. Again highest in industry. Net NPA stood at just 0.04% compared to 0.6% in previous year. 

Talking about Ratios, Return on equity stood at 27.43%, increase of over 43.35% YoY, return of asset reported as 3.3%. cash flow margin reported as 22.29%.

For valuations, Price to earnings stood at 7.52, Price to book value as 1.96, which makes the bank moderately valued.

Bank has opened 54 new branches in FY and currently operates 629 branches in 24 states and a total of 17000+ work in this company. They added 1.2 Million customers in FY. The CASA ratio for banks stood at 26.4%. 

Over the past years, the company has invested a lot in increasing reach in several states, diversifying their product mix, robusting their digital infrastructure with recently launching their mobile application, Advertisements and publicity to increase reach of bank.

For the company, deposits increased by 39.6%, stood at Rs. 25538 Cr, reserves and surplus reported as 2003 Cr which is 140% increase in FY. Cash advances increased by 30% at Rs. 21289 Cr. 

However, For bank, free cash flow stood at 934 Cr, a decrease of over 62%. The bank reported a negative working capital of Rs. 539 Cr for the year. This suggests that banks have increased their current liabilities over the year. 

Shareholding pattern

Promoter has decreased stake in bank by 9.65% with 73.67% holdings, with reasons of compliance of promoter shareholding caps . Public shareholding stood at 15.36%, a decrease of 0.49%. From the past year, institutions have increased stake over the company, with DIIs increasing stake of 4.85% with current holding of 7.08% and FIIs increasing stake by 3.71 %. With current holding of 3.89%. 

Future prospects of Ujjivan small finance bank

Ujjivan bank has reported strong financials in this Financial year, with increase in branch network and shifting more focus on elevating customer satisfaction. The bank could relatively perform much better in future in providing better services. 

Moreover it has also started offering more financial products, like insurances, where they insured 54 Lakh + lives. Also it is one of the banks in India which provides highest rates of interest in both saving and term deposits. Many people are seen shifting their money from other banks to Ujjivan to enjoy higher rates of interest. Also bank deposits are insured by DICGC up to 5 lakh, which adds more trust on deposits to people.

The bank has a strong presence in providing microfinance services to backward sections of the society in rural, urban and semi urban India. 

The company is relatively new in the banking sector, and has seen many ups and downs in previous years. The increase in deposits are much phenomenal, the NPA is the lowest In Industry, and diversification of operations to many areas, the company could perform well in future, if these rates sustain in future

Technicals and buying levels

Over the past 3 months, the stock has performed an outrageous rally, with an increase of 85.5% in stock price levels from Rs. 22.9 to Rs. 42.5. On a weekly level, the stock is in uptrend and at current prices facing a critical resistance of Rs. 44.6. If the price breaks the levels with higher volumes, the stock could reach levels of Rs. 52 and Rs. 62.5 in near future. 

However RSI levels of the stock stood at 80, meaning the stock is in an overbought region and there could be selling in stock. 

The next support levels for stock are at levels of Rs. 38.7 and Rs. 33.8. If the stock corrects from the current levels, investors could increase their holdings at these levels. New investors could also make fresh entries according to their risk appetite and goals.

There is a very large increase in volumes of stock from the past 3 months, suggesting that there is strong demand for stock. This could be due to the strong results reported by the company and adjustment to intrinsic value of stock, as stock has seen a downtrend of almost 3 years. However at the same time, the whole stock market has performed very well and is reaching new highs in recent days.

Risks

Most of the bank’s borrowers have modest credit profiles and always have an increased risk of defaulting. Also banks have vulnerable asset quality. These two points suggest that banks could see an increase in NPA during adverse financial conditions. For financial instruments issued by the bank, CRISIL rated it as A1+, which suggests adequate safety to meet its financial obligations, but is less when compared to PSU banks or other established private banks. 

The higher rates of interest for deposits can increase a bank's funding costs, if the bank cannot generate sufficient returns on its assets or loans to cover the higher interest expense. It can decrease the bank's net interest margin and impact its profitability.

While bank operates in microfinance sector, majority of the loans are unsecured and are given to people with little to no credit history, which can impact bank’s portfolio during adverse conditions as seen during pandemic times, where the bank reported net loss of 415 Cr during FY 2021-22

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