Ujjivan Financial - Small Finance Bank

(RamanTiwari) #110

We lower our PAT estimates by 27/25.5% for FY18/19E, owing to an assumption of lower AUM,spreads and higher credit costs. Ujjivan is a structural story of lending opportunities to the underserved segments in the urban, semi-urban and rural markets, though current challenges remain. The SFB rollout which started in Feb-17 will see the addition of more branches.We continue to be cautious, owing to sector headwinds and bank roll-out related challenges. We maintain a NEUTRAL with a lower TP of Rs 384 (2.2x FY19E ABV).

(ishandutta2007) #111

please paste the content. I dont have subscription

(Ankur) #112

Content : https://pastebin.com/BJzU7ec3


A question needs to be asked to him, does the bank/MFI maintain a risk department? Why fund activities which are cash intensive. Seen many reports which suggests high cash intensive sectors are mostly alive due to tax arbitrage a good word for stealing. If not demonetisation they would have been knocked out during implementation of GST. DeMo has served a lasting punch and GST implementation will clean up the floor. Mr. Ghosh should find himself lucky that IPO was done on time.

Disc: No holding

(Gurjot) #114

Recent market thrashing sort of made me sit up and take notice about Ujjivan’s prospects for FY18.

Discounting demonetization - management had made it pretty clear that transition to SFB would lead to a spike in operating expenses or cost-to-income ratios. So as expected, Q4 Cost to Income came in higher but probably much higher than people expected at 76% - although this number may probably be a one-off because of excess liquidity kept by management in the form of SLR, CRR and other demonetization led factors.

In the concall, this is what Sudha Suresh said “We expect the impact of higher operating cost and credit cost to be relevant for this FY 2017-2018 and based on that we are looking at a cost-to-income ratio, which we have seen a sample of in the Q4, we expect more or less cost-to-income ratio around 70% for the next financial year.”

They’ve also guided for a loan book growth of around 20-25% for FY18. Now this got me thinking - what does this mean for FY18?

With the recent sharp correction in price and the FY18 guidance - I thought is this offering me a good opportunity to further accumulate? So I came up with some projections for FY18 based on management guidance - sharing it below

Now I’m not sure what a 20-25% loan book growth would exactly mean for income growth but assuming anywhere between 20-40% income growth at a 70% cost to income - the profitability numbers for FY18 would look extremely ordinary - purely cuz of the drag down effect of high cost to income.

So instead of accumulating more at current price - these projections now got me contemplating exiting the current position and re-entering at more attractive levels or post FY18.

(Gaurav Agarwal) #115

You have build-in a very low provisioning for NPA. As per management the provisioning could be as high as 3% of 6000cr loan book which is 180cr. Therefore the company may even slip into red in FY18.

(Jay Badiyani) #116

Could you please share the excel for this

(Amit Sethia) #117

The finance cost is expected to go down. Has that been considered in these calculations

(Gurjot) #118

This is what they said in the concall - “Customers who have not paid a single EMI during November and December is only 41000 accounts, which amounts to an overdue of Rs.70 Crores.”

And they already provided provisioning for around 54 crores in Q3.

What you’re saying is also correct - Samit Ghosh said in a separate interview that about 180 crore portfolio is at risk and much of that may have to be written off.

Overall will have to wait and see how this plays out - overall write offs could be a little higher than my estimates in best case and a lot higher in worst case - but company will still remain profitable in my view.

Link to the sheet - “https://docs.google.com/spreadsheets/d/1mfX10uGX9mqsnhICj1mppX2mNcR63vImmP05hXewges

Correct - with cheaper source of funds the finance cost should come down. But if the management has guided for cost to income % at 70 - then either the finance cost will remain the same or Operating Expenses will be much higher in FY18 than FY17.

Cost to Income % = Operating Expenses / (Net Interest Income + Other Income) *100

  • Net Interest Income = Interest on loans - Finance Cost
  • Other Income = Total Income from Operations - Interest on loans + Other Income in P&L
  • Operating Expense = Employee Benefit Expense + Administrative and other expenses + Depreciation and Amortization

Basically what I’m saying is for Ujjivan to show any meaningful earnings growth in FY18 - one of the 2 below has to be true -

  1. Income growth more than 55-60%
  2. Operating Expenses i.e. Cost to Income much less than 70% - so management guidance to be incorrect

Now upto us to figure out if either of above will happen.

(Amit Sethia) #119

As per them the cost to income ratio is expected to b high during first 2 quarters, correct me if am wrong.

(Amit Mehta) #120

These are my projections for Ujjivan based on management guidance of cost to income ratio, provisioning requirements and portfolio growth.

(vinoths) #121

Is current market price (<Rs. 300) good bet for long-term (5 to 7 years)? I think it is diversified across states well, better risk profile, good management and Small Banking Finance transition etc.

Will it standout from other peers (Satin, Bharat Financials etc.) and PSU/Private Banks in long-term view?

(hamed) #122

the key to this business is risk mitigation…in india they will not have dearth of customers for this segment…

(Amit) #123

I know Maha exposure is 13.8% of ujjivan books. Do we have any info on how much of the 13.8 is given to farmers.

(Gaurav Agarwal) #124

An old interview by Samit Ghosh saying the company does not give farm or agricultural loan.

(Amit) #125

Ujjivan will test your long term investment thesis…If you say long term and sell on bad quarter results due to external factors out of play then you are not a long term investor. Kehte ho long term investor aur ek do quarter mein hit wicket ho jate ho.

Do you homework and continue to hold. I expect next quarter results to be bad too but the NPA situation and collection efficiency should normalize post next quarter.

(Kumar Saurabh) #126

Ujjivan SFB is ramping up hiring in Bangaloe, Tamilnadu, Maharastra, Gujarat, Delhi

Also, a group of approx 90 mgmt graduates from institutes like BHU etc. underwent training as a part of management trainee development program under 3 batches



(Amit) #127

I heard gaurang shah asked by Nigel D’Souza to choose the best mfi business…he said between equitas and ujjivan he will go with ujjivan bcoz ujjivan has payment bank license. I was not sure if ujjivan has a payment bank license…I consider it as sfb…can anyone confirm if they have payment bank license ?

(Amit) #128

Nirmal bang report on ujjivan…target cut to 370…next 2 quarters of pain left due to provisioning…

CMP : 297
Upside: 25%

Ujjivan Financial Services -Management Meet Update-12 June 2017.pdf (437.6 KB)


Collection Efficiency Stands At 92% Currently: Ujjivan