Ujjivan Financial - Small Finance Bank

Ujjivan Financial Services Ltd
CMP:361 Marketcap: 3652
Ujjivan is one of the leading MFIs in the country with a deep pan-India presence. The business is primarily based on the joint liability group leading model to economically active women. The company also offers individual loans and the share of it has been increasing with the management focused on converting group leading customers to individual leading customers. Uijjivan is amongst the 10 companies in India to receive in-principle approval from the RBI to set up a small finance bank (SFB) on October 7, 2015.

Credit Offering:-
Type of loan Purpose Ticket-size Tenure(months) Interest rate
Business loan Provides self-employed women (fruits vendors, vegetables vendors, pretty shop owners, tailors etc) 6,000 -15000
15,000 – 30.000

30,000 12
12 or 24
24 22
Family loan Low income to finance a range of familial need, such as school expenses of children, medical care house repairs, social and religious obligations, buying consumer durables and the repayment of high-cost debt previous taken for family needs. 6,000 – 35,000 12or 24 22
Agriculture loan Loan for marginal farmers to raise capital crops buying and buying small farm equipment. 6,000 – 50,000 12 or 24 22
Emergency loan For an unforeseen medical emergency. It is disbursed within 24 hours of request. 2,000 – 5,000 6 22
Education loan The education expenses of children studying from Kindergarten to Class 12. 5,000 – 15,000 12 22
Top up loan Offers customers additional finance during the year to address their business requirements 3,000 – 6,000 9 22
Vishwas loan 5,000 – 15,000 12 22

Type of loan Purpose Ticket-size Tenure(months) Interest rate
Agriculture loan 31,000 – 80,000 4 – 12 24
Higher Education
Loan Provides loan for children’s higher educations 41,000 – 3,00,000 6 – 60 24
Home improvement loan
(unsecured) For improvements, extensions, toilets, installations, renovation etc. 51,000 – 1,50,000 12 – 36 24
Home improvement loan
(secured) Used for repairs and other structural improvements 2,00,000 – 5,00,000 24 – 84 19.75
Secured home loan Purchase residential unit properties that are new, being sold or under construction by an approved developer. 2,00,000 –
10,00,000 24 – 120 15.75
Individual business loan Needs of individual micro-entrepreneurs – our existing borrowers, who have a running business and require funds for working capital 41,000 – 1,50,000 6 – 24 24
Individual Bazaar loan Customers who have not graduated from Group Leading to individual leading in Ujjivan but who have a running business and requires funds for working capital or fixed assets 21,000 – 1,50,000 6 – 24 24
Livestock loan To purchase cattle, renovation of cattle shed and purchase feed/fodder or equipment required. 41,000 – 1,00,000 9 – 24 24
Open market livestock loan To purchase cattle 41,000 – 65,000 6 – 24 24
Pragati loan 51,000 – 1,50,000 24 – 36 23
Secured business loan Offers to small and medium enterprise owner to expand and augment their business 2,00,000 – 10,00,000 24 – 84 20

• NOTE : Loan above Rs. 15,000 have a 24-month tenure with customers having the choice of two repayment options based on their credit history , capacity and cash flow:
 80 – 20 Plan: 80% of total repayment made in the first 12 months and balance 20% in next 13-24 months
 Equal Monthly Instalment Plan: Repayment in equal instalments spread over the 24-month period this applies to both the business loan and the family loan.

Non – Credit offering:

  • The company has been in partnerships with Bajaj Alliance Life Insurance Company to insure their customers and their spouses.
  • For unfortunate event of natural or accidental death of their customer or spouse
  • The insurance amount helps the beneficiary cover the existing loan and receive the benefits of a life cover.
  • They also have partnerships with HDFC life and Kotak Life Insurance.

 How do they retain their customers?
o Suppose a woman entrepreneur receives loan of say RS. 10,000 for 6 months.
o Then the regularly pays off so the Ujjivan Financial ltd would increase the credibility of that woman and would provide the loan up toRS. 20,000.
o This is how they would retain their customers.
• Technology driven operating model:
o The digitized front end, consisting of android phones for group loans and tablets for individual loans enables the company to analyse the company information, financial position and credit bureau details of potential customers in real time.
o The paperless process of application and documents at branches has enabled efficient document management resulting in low turnaround time
o An automated backend, supported by a robust core banking system and document management system, has improved efficiencies and minimize turnaround times.
o Over the years the use of technology has improved work place engagement and governance, increases the accessibility of products to the customers and enabled Ujjivan to rapidly scale up operations in a secured and efficient manner.
• Robust risk management framework:
o The company has implement credit management models such as decentralised loan, sanctioning and stringent credit history check which have enabled it to maintain a stable portfolio quality
o The effective risk management is reflected in the portfolio quality indicators such as robust repayment rates stable portfolio at risk (PAR) and low rates of GNPA and NNPA
o They have an active portfolio management insures that no single state contributes more than 20% of the Gross AUM.
• Transmission to Small finance bank:
o They have received the SFB in-principle license on October 07, 2015
o They would float as a wholly owned subsidiary, which will the proposed SFB, and transfer the existing business to it. They would follow the procedure as follows:
 In the first stage, company will implement regulatory structure, redesign product, implement advance technology and train human resources.
 Then they will focus on consolidation to operationalize primary and secondary channels for banking.
 Company plans to ramp up geographic expansion and pursue new customers segment and product.
• Risk factors:
o Inability to scale up business:
 Post conversion to SFB, if Ujjivan is unable to scale its business than return ratios may remain suppressed as it will have to invest more in building technology and branch expansion.
o Microfinance loans unsecured; susceptible to credit risks:
 Economically weaker sections, customers are at times unable to or may not provide accurate information about them. Further, in case of emergencies like death or major illness, microfinance customers may find it difficult to pay EMIs on time. These factors may lead to increased levels of NPAs.
o Cost of funds may not decline as much as envisaged:
 Ujjivan will need to diversity its funding mix and fund its growth by raising deposits. Any inability to build up its CASA franchise in a highly competitive environment will limit reduction in it cost of fund.
• Borrowing Outstanding
Particulars Mar-15 %Mix Mar-16 %Mix
Term loan & CC 2,774 87% 3,760 81%
Sub Debt 50 2% 50 1%
NCD 298 9% 528 11%
Securitization (off B/S) 55 2% 324 7%
Total 3,177 4,662

Share holding pattern:

Foreign Investors 48.68%
Mutual Funds 9.63%
Bodies corporate 26.77%
Banks/NBFC/Trusts 0.43%
Resident individuals/HUF 11.61%
Employees & Directors 1.40%
Others 1.49%

  • Business Performance:
    Particulars 2016 2015 Growth (%)
    Gross AUM 53,886.04 32,741.37 64.58%
    Net AUM / On Book 50,643.88 32,186.91 57.34%
    Disbursement 66,192.35 43,284.19 52.93%
    MSE Portfolio 6,728.96 3,425.20 96.45%
    Housing Portfolio 206.99 3.20 NA

  • Valuation:
    o P & L A/c:

    Mar-16 Mar-15 Mar-14
    SALES 10,276 6,119 3,577
    SALES% 67.93% 71.06% -
    EBITDA 7,288 4136 2401
    EBITDA% 76.20% 72.26% -
    NET PROFIT 1,772 758 524
    NETPROFIT MARGIN 17.24% 12.38% 14.64%
    NET PROGIT GROWTH 133.77% 198.42% -
    EPS 20.2 11.2 8.9

• Standalone Quarterly Result
Mar 16 Mar 15
Net Sale 294.05 188.17
EBITDA 204.34 128.68
PAT 54.91 27.22
EPS 5.43 3.16
• Yearly Numbers
Mar 16 Mar 15
Total Income 102,761.06 61,188.01
EBITDA 30528.54 14230.27
Net Profit 17,721.88 7,578.88
EPS 20.12 11.24

Disc- not invested


A Business and Valuation comparison for Ujjivan, Equitas, Satin, Capital Trust, Arman would be invaluable

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Following is the presentation which I prepared for one of our Investors meet. Here I compared Satin, Equitas & Ujjivan. This was about a month old (before Ujjivan listing).

Hope this helps compare all three companies.

Satin_Equitas_Ujjivan_VP.pptx (1.3 MB)


nice and informative presentation :slight_smile:

Very nice presentation. One query from my side is that once the conversion to a SFB is complete for Ujjivan and Equitas will there be a cap on lending rates by RBI…or they are free to price the loans as they wish…because besides the opex/capex of being a SFB if lending rates are regulated and with access to retail liabilities, then NIMs could down substantially.

As per management, once they become SFB there will not be a restriction on spread between borrowing and lending rates. I think they mentioned this in the concall

Thanks for sharing the presentation!

Just a comment on the low promoter holding (<1%) risk for Ujjivan - it is a professionally managed company with no identifiable promoter group. So it should actually be 0%.

Also sharing some other key risks listed on their website as Ujjivan transforms from a NBFC - MFI to a Small Finance Bank.

Likely Challenges

  • Cost of deposit mobilization could be very high at around 3.5- 4% at ticket size of around Rs. 3000 per depositor. Ability to scale up and increase depositors per branch will be key to reduce cost of mobilization to 1.5- 3%.
  • Negative carry on CRR and SLR is likely to bring down the Net interest margins.
  • Access to deposits will improve the funding and liquidity only after a period of time.
  • Loss of control over long term may deter some banking aspirants
  • Small finance banks could be making losses/ very less returns and lower ROA in the initial years owing to
    Cost of deposit mobilization
    Upgradation of systems/ investment in CBS/IT and implementation
    Significant increase in HR costs, Recruitment and training & in Establishment costs
    Standardization of processes to achieve scalability
    Introduction of new products
    Capital Infusion and bridging the funding gap during the initial years of bank operations

Disclosure - Invested from 230 levels (now 5% of portfolio)

Recently all the three Micro finance companies are making NEW LIFE TIME HIGHS in BSE/NSE, this phenomena started just from the date of listing of Equitas Holdings Ltd.It looks like the listing of Equitas has ignited the whole sector and has given a new sector of ‘MICRO- FINANCE SECTOR’. The leader SKS also made 52 Week High since new listings.
All the three Companies including SKS have submitted Invester Presentations
Corporate presentation made by Ujjivan Finacial Sevice Ltd on 26-5-16:-
Corporate presentation made by Equitas Holdings Ltd on 8-5-16:-
Corporate presentation made by Satin Creditcare Network Ltd on 30-5-16:-

Disclosure - Invested from 250 levels in Ujjivan


Some Conference Notes from Ujjivan Con Call

  1. Right now , in micro finance business , ticket size have already reached Rs 23000 to Rs 24000. So in coming years there will be marginal increase in ticket size in MFI Business. However there is scope of increase on the ticket size for unsecured individual loan (which increase NIM but could add NPA) as well as secured Individual loan (like home loan).
    2.Cost to Income ratio has come down from 60% to 51%. But during transition to the bank , Management expect cost to income ratio will significantly increase. It could be range between 60 to 63% . But over the period once the volume grow , the cost to income ratio will come down in coming years.Target is set to 45%.
    3.Managment guided 30% growth which is conservative number , could fluctuate between 30 and upwards.
  2. Regarding strategy to grow SFB, Focus will be largely on underserved and unserved segment of customer(where they are working more than 10 years).Their first strategy would be to first convert all existing customer to liability customer . Then move to micro and small entrepreneurs , blue collar salaried workers, migrant workers, tenant and laboures in rural area
  3. Opex for next two years: There are three major costs in SFB transition:
    a) IT implementation :Spending Rs 300 crore over the period for next 5 years. This is cost of implementing new software and solutions as as running it over a period of five years.
    b)second cost will be infrastructure development . All the branch need to upgrade in bank(Rs 12-15 lakh per branch) . A lot of cost require for the same . management will do the same in phased manner.c)Human Resources: Require to hire staff , branch managers who can manage complexity of bank branch, serve the new segment of customers. Few will be also internally promoted
    6.How the SFB transition cost will affect the net profit ? As per management there will be a reasonable amount of growth which will result in some kind of steady state profit.So management expect the dent will not be anything significant. In span of one or two year , once the transition completed the profit growth will return to upward trajectory.
    7.Current cost of borrowing is 12.5 (average) and yield is 22.4 to 22.5.From now onwards they will be able to borrow much lower cost due to diversifying the mix of sourcing. Apart from the traditional term lending from other banks, they are looking at obtaining lower cost funding by raising CPs. They also have NCDs and Sub-Debt. When they will start the bank they expect that the rates across interbank , money market , short term funding will give us leverage 150 to 200 bps.So the cost of funding in near future must come down(11-11.5%)
    8.Current Group Lending micro finance rate is 22%. housing loan is 15.75% and MSE lending is 20%There are other MFIs which are lending at lesser than 20% but Ujjivan is not seeing any significant competition / switching customer because the low ticket size loan converted in mothly emi/fortnightly emi which is hardly not more than few rupees.Also the strong customer relation matters on this.
  4. ROA will be marginally affected though cost to income ratio touches 62-63%. Because cost of
    funds going to dip in next few months/qaurter. So some balancing acti will be there. Most importantly when ujjivan will become SFB , the 10% margin cap will not be appliable for them which will help to generate bettter NIM,NII.
    10.Right now the housing sector contributes 21 crore and MSV is Rs 700 cr. For housing sector they are expecting 800 cr in next three years and same type of growth in MSV
  5. Credit Cost, Managing the Risk: Risk mainly in operational Nature: Manmade and Natural Calamity .If the portfolio diversify/well spread geographically then the chances of things going wrong is one/two place which does not affect much in overall portfolio. As per the regulatory instruction 1% provision has been made(for MSV it is 2%)
    12.How funding will be done to do the investment rquired for the CRR(4%) and SLR (21-22%)?Through securitization(Not convinced with the reply).As per Sudha Suresh, the cost of fund will come down to 11%.Hence the gain from interest spread between funds will be invested in CLR,SLR.
    Discl; Invested @230

MFI Valuation.xls (9.5 KB) Hi I have done a comparative analysis on the MFI Space.

Disclosure : Invested in SKS, Ujjivan and Satin

Ujjivan PE is incorrect.Current outstanding share is 11.82 cr .So EPS will be adjusted to 15 (PAT 177/11.82) from 20 post IPO equity dilution. Hence Ujjivan Current PE is 25.

The P/E and MarketCap/Pat ratio should be the same. You just multiply P/E bu No of shares outstanding to get MarketCap/Pat so do not understand why the divergence. Plus there is no need to look at the same ratio twice. Not that it matters too much. But just my 2 cents.

Hence Ujjivan Current PE is 25.

I feel it might be current trailing PE.

Ujjivan ranked No.3 in Best Places to Work in India 2016

Having worked in one of India’s largest private banks I never thought financial institutions could be ranked so high on best places to work.

For a rapidly growling company, to be consistently ranked amongst the best places to work is truly commendable - kudos to the management!


Ujjivan AR released


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Ujjivan Financial June Quarter Net Doubles To Rs 71 Crore

Summary of Q1FY17 Financial Performance:

  • Net Profit at `71.37 crore; a jump of 102.51% over Q1-FY16 and 29.96% over Q4-FY16
  • Total Income at `329.32 crore, an increase of 50.46% over Q1-FY16 and 10.52% over
  • Cost to Income ratio at 45.60% from 54.27% in Q1-FY16 and 48.77% Q4-FY16
  • Operating Expense ratio decreased to 7.22% from 7.98% in Q1-FY16 and 7.34% in Q4-
  • EPS at `6.39; RoAA at 4.85% and RoAE at 20.27%
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Q1FY17 Investor presentation:


Disc: Invested.

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A Religare Institutional Research Report on MFI sector. Highly informative and a must read for someone new and interested in MFI sector, also contains a few insights on Ujjivan as well before it was listed.


Disc.: Not Invested.

The cap on foreign shareholding is 49%, but now it is 54.2% in Ujjivan. What now? A directive by the regulator for no more purchase of shares by foreigners? Foreign shareholding is still at 48.5% in Equitas.