Ujjivan Financial - Small Finance Bank

(vivek naik) #49

reports a pretty decent set of numbers.looks like a sub 20 pe stock with P/BV at 2.9 for the full year

(Yogesh Sane) #50

One of the main premise of investing in a MFI is that they fund borrowers who are just a loan away from lifting out of poverty into middle class. Do you think that is what is actually happening?

These borrowers pay interest rate of 20% or more so for them to be profitable, they have to generate ROCE of 20% just to break even. At that rate, they will beat many corporates. I don’t think MFI customers have expertise to generate that kind of returns.

These borrowers need equity funding and not debt funding to get out of poverty into middle class. MFIs are not doing equity funding as that model is not feasible.

IMO, MFI model is working because widespread use of Aadhar has enabled MFI industry to assess credit risk and extend credit at less-than-predatory rates while limiting default rates. these are just plain old lenders who found a new set of borrowers who were previously untapped by formal lending by banks and NBFCs.

(Rajesh_R) #51

Please speak to a street vendor and report back what kind of margins they make. A typical vegetable vendor makes 40 to 50% net profit on daily rotation. 25 to 30% is bare minimum for most of such small street businesses.

Next task is to find out what is the rate of interest they get the money from local loan sharks. It ranges any where from 70 to 120% per annum. So, an mfi providing door to door unsecured small ticket lending service at 19 to 24% per annum is absolutely reasonable.

(mp bajaj) #52

@Rajesh_R. absolutely correct. Minimum rate is 4 to 5 rupees per month, that also after taking initial EMI upfront

(Yogesh Sane) #53

Thanks for your analysis. Let me say that I am invested in Ujjivan but not because they are an MFI and I believe in their the socio-economic business model but because I think these are just mini-sharks who have managed to swim under the govt’s radar (especially after the AP fiasco) and with SFB license, they even got the RBI’s endorsement for their business model.

the 40-50% margin is without considering their cost of time (or salaries). If the vendor deducts what he will have to pay should he employ someone else to so the same job from his net margin, the leftover margin will be very small. The free cashflow to firm will be very low in this case.
Moreover their reinvestment opportunities are limited. I asked a banana vendor why he would not sell chikoo (another popular all-year fruit in Mumbai) as well, he said there are other sellers just a shot away and he would not be able to do good business. He didn’t say he is short on working capital to buy inventory.

Most of these borrowers borrow to tide over a short term cashflow problem due to emergencies, festive shopping, marriages etc rather than grow the business. MFI use the term business loans very loosely.

(indumouli) #54

Ujjivan got the SFB license from RBI.



Would starting of banking operations help Ujjivan in getting deposits given the rush to change the Rs. 500 and 1000 notes? Any idea if the deposit base of Bandhan Bank has increased?

(Rahul Girish Shah) #56

Major Disruption in disbursement and collection.

No growth expected or D-growth anticipated.

But with SFB visibility in next quarter , will it be able to bounce back in better way to help weaker segment rebuild their business as small time money lenders must be in deep cash crunch for next year atleast, will it be an oppurtunity for MFI/SFB to grow better in coming months…?

Risk: spiraling of default and politicians driven defaults by linking it to demonetisation…

Fellow member’s thoughts and ground reports if any are most welcome.

Discl.: invested with 7% of portfolio holding.

(nil_71) #57

Many people are commenting without any basis. Ujjivan never said they are facing issues except in UP. In the Satin call, they mentioned they are facing issues only in Western UP

(Amitayu) #58

@rahsh . Request you to go through the Ujjivan Demonetization call uploaded in RB . As per management and also feedback from the ground the collection is more than 60% till last week (surely the no. will improve in current and coming week) .As per management, ujjivan already started disbursement in other states ( except UP) for the old customers who are already more than 3 cycle (They adopted this strategy few months backs as during SFB transition they want to keep the growth rate low in MFI segment ). The collection are pretty good in western and Southern part of India and also West Bengal(close to 60%) . The collection issue is more on rural whereas Ujjivan is more urban-centric and less than 4% portfolio in UP. Once MFIs received the approval from RBI to collect the old notes , the payment collection will be more easy to them . All the loan payment are legitimate transactions and have proper KYC compliance .

(Rahul Girish Shah) #59

@amitayu @nil_71 thanks for replying.

I never mentioned UP in my comment. I mentioned Politicians since the word was used by Mr.Ghosh while giving interview on CNBC18.(where he feared politician inspired defaults in few select pockets, if ground situation doesnt improve)

when i said major disruption i meant 60-70% collection and negligible disbursement in first week and very low in second week of demonetisation.

Fully agree to point that ujjivan is urban-poor centric and hence less affected compare to rural focused MFI.

will be happy if someone can share share ground report other than what management is saying and can give a thought to “less competition from local money lenders for atleast a year”, making better prospect for MFI/SFB growth ?

(nil_71) #60

I attended Ujjivan and Satin call. net-net-Western UP is the only tough spot coming out. Satin has 30 crs exposure there. Ujjivan not sure exposure part


The are conflicting facts being served by Micro-finance guys. In the interview on BloombergTV, the independent director at Bharat Financial (large exposure to rural areas) said that the problem in UP is in the URBAN areas and an urban-centric MFI is facing these problems. Other MFI guys (large exposure to urban areas) are saying that repayment problem is concentrated in RURAL areas in UP. Every MFI reported poor collections in UP; yet, they are claiming that the problem is with the other MFIs. http://www.btvi.in/videos/watch/20109/liquidity-stress-in-mfis

These MFIs are lucky that most of them recently raised large chunks of equity. SFBs had to do it to bring their foreign ownership down to 50%. Without the cushion of this equity, there would have been a panic and these shares would have fallen even further.

(pskrishnan) #62

Dear Forum Members

  1. What would be the short term impact of demonetization on Ujjivan and other MFI’s?
    a. What is the ground reality regarding MFI collections
    b. My view is that MFI’s are expending energies on collections, would someone have a different view if they are focused on both collections and lending too
    c. My view is their revenues (combination of existing and new revenues) will be impacted significantly in Q3, and marginally in Q4

  2. What would be the medium to long term impact of demonetization on Ujjivan and other MFI’s?
    a. Would MFI’s have a future given that with more borrowers getting their financial paperwork in order the current set of MFI borrowers could potentially borrow from NBFC’s and 2nd rung private sector banks at far lower rates of interest as compared to MFI’s?
    b. All banks & NBFC’s, especially the private sector banks would also be aggressively targeting the MFI borrowers segment given that all banks are flushed with funds and they need to aggressively lend and some part of MFI borrowers that are getting their papers sorted out will definitely be a target for the private sector banks
    c. On an positive note, some part of the money lender’s business will also go to MFI’s

Views from informed members will be very much appreciated


Disc: Very small investment made in Ujjivan

(nil_71) #63

Model of MFIs are not difficult to replicate but it takes years of patience and perseverance in the ground level to build that. Otherwise all PVT Banks would have started having a separate LOB for MFIs and Uday Kotak would have not bought MFIs from the market.

Even the banks are flush with funds after post-demon, pre-demon, why the banks have not tried if things are so easy. Same is applicable for NBFCs too

(Harsh04) #64

I had bought Ujjivan at IPO after going through their DRHP. i remember reading that their collections stood at nearly 99.5%. Hence, collection-wise, i donot see any problems to crop up except the cash-crunch induced by demonetisation which would go away in a few months or max 1-2 quarters.
The segment that MFI’s cater to will not default willfully unless influenced politically.

Demontisation is only a blip. The credit demand will not change with demonetisation.

MFI’s have a strong network and grassroot presence to ensure timely collections. Banks lack this infrastructure and wouldnot want to get into that too.

Discl - Invested !

(Amitayu) #65

@pskrishnan, the latest data which we have for ujjivan is for November month only.
1.a)Ujjivan recorded collection rate of 91% in November 2016 as per 05/12/2016 data. December Data yet to come and as per management things are changing quickly and will be far better at December end. Ground reality except UP, other geographies are doing well.Ujjivan have only 5% exposure in UP.
b) Ujjivan disbursed loans worth Rs 553 crore in November out of which 65% was in cash and 35% was cashless which is just about 20% less from normal disbursement. Generally ujjivan disbursed 60% cashless and 40 % cash earlier quarters but they are now disbursing higher in cash because customer is asking for more cash now as there are some restriction of withdrawing the loan from bank account also . One the reply of the question about the reasons behind higher disbursement than other MFIs Management replied _'We are one of the only MFIs who did not accept Rs. 500 and Rs. 1000 notes as soon as demonetization was announced. We only accepted legal tender, consequently whatever repayments we have collected that we are able to use for our disbursement of new loans and that gives us a very strong position in the field because most MFIs including banks like recently converted MFIs who have become banks are unable to disburse loans because they are only getting old notes. So that is creating a very positive environment for us and what we are seeing is a gradual, as the work gets around that Ujjivan is not just collecting but also disbursing loans either people are coming forward to repay more and more to us and basically keeping their businesses and their family lives churning.'
As i know disbursement is equally important with collections in MFIs because it was observed earlier that if MFIs stops disbursement then people stops coming to repay so the chain should not be broken .
c) For demonetization what could be the effect it will be clear once the quarterly data started coming. Except demonetization , due to SFB transition as per management commentary, Q4 will be effected as Ujjivan will be converted in SFB. Almost from H1 FY18 , they will return to normal growth.
d)Post demonetization, MFIs look to digitize the entire Loan Disbursement Process. The MFIs like Ujjivan,Bharat Fin are leveraging Aadhaar which is already the world’s largest bio metric database to dole out loans instantly.In the new system based on Aadhaar-enabled bio metric authentication, the members can apply for a loan instantly. The Approval/Disbursement happens on loan officer’s tablet device. The member is asked to place her finger on the bio metric device on the tab. The data is sent for verification and the response is received.After the KYC verification, the data is sent for credit bureau clearance. Once the member has been verified, she is deemed eligible for the loan. All of this happens in just about 15 seconds. If the member is eligible the Loan officer fills the loan form based on her requirement and takes her signature. He then gives her a carbon copy of the application form, collects the insurance and loan fee. This completes the instant loan disbursement process and the loan gets credited on the same day.The digital initiative is aimed a providing an abiding competitive advantage and customer delight. It will increase the ease of doing business and will help the MFI take the big tech stride towards cashless transactions.Most importantly it will reduce the cost significantly.
Obviously this will not happen immediately but within few months Ujjivan will adopted this model as it is most technically advanced it will not take much time for them.

Discl: All the input which I got from various Media Articles,TV Interviews.Invested in Ujjivan and biased.

(nil_71) #66

@Amitayu Ghosh, good inputs.Your deep interest and insight in MFIN sector gives us valuable data for analysis. Disc invested in Ujjivan

(Kumar Saurabh) #67

Adding one more point, their collections till now is mostly in cash , with recent IT investments n focus on demon , even collections share of cashless should change .Whatever I have read about Samit ghosh , he is process n technology focused guy. Both highly important for such business in current scenario Disc : Holding since ipo n accumulated during correction , 5 percent of portfolio n hence may ne biased

(Vijay Dosapati) #68

ICRA’s rating and analysis on Ujjivan :