Ujjivan Small Finance Bank (USFB) is a mass market focused SFB in India, catering to unserved and underserved population segments of the country. USFB is well diversified with presence across 24 states and union territories and is catering to over 4.94 million customers as on September 30, 2019. USFB is involved in (i) loans to micro banking customers, (ii) agriculture & allied loans, (iii) MSE loans, (iv) Affordable housing loans, (v) financial institutions group loans, (vi) Personal loans, and (vii) vehicle loans.
Healthy AUM growth with calibrated geographic diversification: USFB's AUM grew at impressive CAGR of 32% over FY2017-19. In 2017, when USFB started operation as SFB, its majority portfolio (97.5%) was concentrated towards micro finance. However, as of Q2FY2020 it contributes 79.2% and other major contributors are Affordable housing (9.4%) and SME (6.5%). Since Feb 2017, USFB has added 100 branches, Tamilnadu formed 16.5% of advances and the top two states (Tamilnadu+ Kerela) contribute 32% of advances, which is among the lowest. To leverage existing client base and network further it has extended loans to the two wheeler and electric three wheelers.
Asset quality improvement continues: Post demonetisation USFB's GNPA rose to 6.23%, however management has been able to reduce it to 0.9% in Q2FY2020. Bank has been maintaining one of the highest provision coverage ratios (67%), which is a positive. However, there is some issue in few areas of Assam, but USFB's exposure to Assam is 3.7% and AUM in concerned area is minuscule.
Improving liability profile: Within 3 years of operation, USFB has been able to improve funding mix towards deposit and CASA ratio of 12%. In FY2017, out of total borrowing, only 3% was sourced through term deposit and reached to 76% in Q2FY2020. However, it has only garnered 41% of deposits from retail. To mobilize retail deposits, USFB is offering higher term deposit rate.
Outlook & Valuation: At the upper end of the price band, USFB is valued at 2.8x its Q2FY2020 book value (Pre-IPO) and on post dilution basis at 2.3x of BV, which we believe is attractive considering similar businesses are trading at higher valuations. Moreover, experienced management, Pan-India presence, and pristine asset quality provides comfort. We recommend a Subscribe to the issue.