Got it. The mgmt said it might take another 1 or 2 quarters.
Is it possible that company can decide to not go for the reverse merger and can cancel it? Or is it confirmed?
Since both the mgmt. are same this not a normal merger between 2 different set of promoters/ SHs running different business. This is a simple reverse merger with holdco. Mgmt. teams deliberate before taking such actions. There is no reason to cancel the merger.
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Hindu Interview by CEO Summary
Net NPA in Q3 From 0 ā 0.16 per cent
Industry high growth for two years + two festival months in Q3.
Collections began to slacken a little bit
Punjab situation and TN floods ā thereās a more bit of stress to come
60:40 mix unsecured vs secured is taking time.
last year we put together a changed model; introduced this year.
We have done that with MSME and housing;
gold is relatively new.
Model ā FY25 and will begin to push the secured portfolio at a faster rate wrt FY24.
We have 16 area offices which will work like hubs and spokes.
Where - business, credit, legal, and operations teams work to get TAT (turnaround time) reduces.
Better credit monitoring.
In FY25, should see 66:33 as a split unsecured vs secured loans.
New product launches ?
Coming out in a new avatar with our secured products.
For MSME: product focus wrt working capital against long-term
Working with a couple of fintechs.
Reintroducing vehicle loans, (few pockets initially - do it well then go deep).
Focus next 2-3 yrs on our digital offering.
Would you look at acquisitions to boost your secured book?
If the secured (book) growth is not keeping pace with the targets, we will,
if secured products start firing , we may be able to delay the process.
At what stage are we in the reverse merger?
final approval from NCLT - 2-3 months.
Your universal bank aspirations?
For next three years, we will continue to be a small finance bank.
be the best small finance bank. THen weāll find favor with the RBI for the next level.
roadmap ā eventually a universal bank
There are talks of rate cuts now?
SFBs, private banks/ nationalized banks will have higher rates, irrespective of the repo rate.
For SFBs, the premium is there to stay, (weād like to reduce that gap).
Smaller private banks are overtaking us + have reached our deposit rates.
Itās no longer a level playing field.
It depends on each oneās books and requirements.
youāre 70-years age. What after Dec 2024?
extension (for me) is out of question.
The NRC (nomination and remuneration committee) has started finding a successor.
Person is able to fall in line with the requirements and is āfit and properā , we can have external person.
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Attractive valuation at <2 PB with good 30% ROE, BVPS will double in 3 yearsā¦ entered over last 2 days, average buying price 48
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May I know your thesis for buying Ujjivan SFB instead of Ujjivan Financial Services? I ask coz thereās still a 10% arbitrage on buying UFS.
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Havenāt followed this merger news so closely and itās been pushed anyways for past few months. Moreover, recent underperformance of SFB vs FS has narrowed this arbitrage anyways.
My thesis is to play on SFB, but agree with you, it could be better through Ujjivan Finance, but doesnāt change the overall thesis at this valuation of both companiesā¦
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Stock is taking bitting almost every day. Has anything changed fundamentally to growth and asset quality? If not, then I will hold the stock as valuation appears reasonable. Appreciate views and thoughts.
No issues fundamentally. Selling or holding is upto you
IDFC limited got approval from NCLT today for reverse merger while Ujjivan which filed application months ahead is still awaiting NCLT approval. While approving benches are different, Ujjivan has clearly lagged in getting this cleared in timely manner
Disclosure : Invested in both Ujjivan and IDFC
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As per my understanding, Idfc and idfc bank have got approval to hold shareholders meeting which is on 17th May. Post the shareholder approval, they will have to file final application with Nclt.
In case of Ujjivan, the above process is all done and the final order is reserved. So all thatās pending is getting the final judgement order from Nclt. Though I agree Nclt has been slow in case of Ujjivan reverse merger
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Does it mean that if the approval comes thru, the sfb stock will fly? Valuation is very cheap and the management has guided for a record Q4.
On the other hand, is there any development that the smarter ones know and which is reflecting in the price?
Difficult to say. If you check what happened to Equitas post-merger, IIRC there was a single day of -10% drop as all the arbitrageurs were seeking an exit when they received the bankās shares.
In Ujjivanās case, the arbitrageurs who got in early in UFSL were probably in a loss, and might have already exited UFSL. The arbitrage has reduced to mid-single digits which not juicy enough anyways for either fresh entry or to continue holding. So many of them could have exited already trying to avoid a month of not having shares to sell post-merger and avoiding the exit rush post-merger.
The above is just speculation on my part, no one can confirm this.
Now coming to fundamentals, I have already shared projections for Q4 and FY25. Fundamentals should support the price in FY25. Whether it will fly or crawl I do not know. The long-term story is intact, lots of things need to go right in the medium and long term for incremental shareholder value creation. These ups and downs are normal part of long term wealth creation journey, it happens in all stocks. Those who stick through may or may not get rewarded in every share. Such is investing.
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It is in Order Reserved status from last 1 months.
Coming to the valuation.
Current Reserves and surplus should is around ~4950 cr and the Market Cap is 8700 Cr. So, trading at ~1.75x P/B. And probably trading at 1.4X FY25 P/B.
This seems decently valued.
One important thing to not is that, the bank didnāt have to creating provisons during last few quarters as they had already provided more than required during Covid times. But going forward the bank will ho back to normal provisons and the profits wonāt be growing as fast.
At peak it was trading close to 3x P/B. It may reach that peak valuation of the whole banking sector does well. If not, we canāt expect Ujjivan to trade at 3x P/B while HDFCBANK, Axis, ICICI IDFC trades at 1.5x to 2.5x P/B
Just sharing my opinion. Not a reco. No position in any banks at the moment
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Yes you are correct. Cannot expect higher valuation unless their fundamentals are exceptional (highly unlikely in a commodity lending industry).
Yes credit costs were abnormally low for the entire industry in FY24. If credit costs remain within 1.5% in FY25 then we can expect 1250 to 1500 cr of PAT. If higher credit costs materialize then PAT could degrow. Usually they have better credit costs than industry in normal times due to better CEs.
They guided to reduced collections team expenses as well, but didnāt materialize in FY24. Outsourced collections team is still strong.
They are also in CAPEX mode with new branch additions so OPEX will weigh on PAT. Alas, to the market only growth numbers matter, this is an opportunity for LT investors, recognizing opportunity in LT when market focuses on ST.
Current fall from 60 is just marketās anxiety towards loan waivers which reoccurs every election cycle. Once elections are over, the market will dust off the risk (which has nil probability of materializing anyway). Entire MF sector has seen such fall. Ujjivan may have had additional fall due to some arbitrageurs exiting as the arbitrage was down to low single digits.
Some uncertainty due to CEO change requirement also remains, they should focus on announcing an internal (my opinion) candidate soon (mid-year). That should give some relief to the marketās anxiety. In the meantime as BVPS keeps rising, there should be support to the price.
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Key Business Highlights for the Quarter and Year ended Mar 31, 2024.
Business Highlights for the Quarter and Year ended Mar 31, 2024
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Should one buy Ujjiivan Financial Services as proxy play for Ujjivan SFB?
UFS closed at 557 on NSE today. As the swap ratio is 116 shares of Ujjivan SFB for every 10 shares of Ujjivan FS. So 5570 spent on Ujjivan FS will get you 116 shares of Ujjivan SFB. That makes it roughly 48 rupees per share, as against current market price that is 55.9 per share. I certainly see this as an opportunity. Am I missing something? Please share you views. I have not studied Ujjivan stocks deeply, as some of the members here might have.
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Yes, if you have decided to buy SFB, then FS is a better pick
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