Broker’s call: Ujjivan SFB (Add)

Target: ₹57

CMP: ₹45.85

Ujjivan Small Finance Bank hosted an analyst meet recently to showcase its asset verticals, liabilities and technology functions. With Mr Sanjeev Nautiyal expected to take charge as MD & CEO in July 2024, management reiterated its focus on loan mix diversification, improving deposit franchise and enhancing productivity. Management also highlighted higher delinquencies in select pockets in a few states, resulting in a review of FY2025 guidance.

We have revised our estimates, but retain ADD rating with a FV of ₹57 (₹62 earlier), valuing the bank at about 1.5X June 2026 book and around 8X earnings for medium-term RoEs of 18-19 per cent. Credit bureau data show signs of over-lending in microfinance in select states (Exhibit 6), but the magnitude seems limited as of now.

Delinquencies for marginal borrowers can rise if lenders withdraw liquidity simultaneously, and, hence, we will cautiously assess the situation on the ground in the next few months. However, in our view, the eventual impact on credit costs might be limited unless there is a trigger for widespread delinquencies (macro deterioration or geopolitical event).

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