by Suhani Adilabadkar
Ujjivan SFB, one of India’s leading small finance banks, commenced operations starting 1st February 2017. With a mission to transform into a mass market bank for the unserved and underserved masses, Ujjivan SFB caters to over 40 lakh active customers through 524 touchpoints (branches and asset centres) and an ATM network of 385 spread across 221 districts and 24 states in India. The bank’s gross loan book stands at Rs. 11,783 crore with a deposit base of Rs. 7,956 crore as on 30th June, 2019.
Ujjivan Financial Services, (UFSL) is the holding company of “Ujjivan Small Finance Bank”. UFSL’s complete business is undertaken by its wholly owned subsidiary, Ujjivan SFB which operates as a Scheduled Bank contributing 98% of its consolidated revenues.
Quick Takes:
- At least for Ujjivan SFB, it doesn’t feel like a slowdown. PAT rose more than 100%, the highest ever reported by the bank.
- It was a strong quarter performance, with NII rising 44% YoY, PAT growing 105% and NIM at 10.3% in Q1 FY20.
- Gross advances reported growth of 51.3% YoY and deposits jumped 109% YoY.
- Low cost funding, CASA was up 247% YoY in June quarter FY19 at a ratio of 10.4%.
- Cost to Income ratio improved from 72% in Q1 FY19 to 64% in June quarter FY20.
- Wait for the IPO listing before investing
A Strong Performance in Q1 FY20
Ujjivan SFB delivered a strong quarter in June FY20, with Net Interest Income (NII), Net Profit and Net Interest Margin (NIM) all coming out in flying colours. NII jumped 44% YoY at Rs. 352.5 crore in Q1FY20 and Net Profit or PAT growing 105% from Rs.46 cr in Q1 FY19 to Rs. 94 cr in quarter ended June FY20.
The strong bottom-line was on account of growth in gross advances, good cost control measures and profits made on the sale of priority sector lending certificates. NIM stood at 10.5% in Q1FY20, against 10.8% corresponding quarter previous year.
Gross Advances for June quarter FY20 stood at Rs. 11,783 crore, reporting growth of 51.3% YoY over Q1FY19. The deposit base covered 68% of total advances at Rs. 7,956 crore in Q1FY20, against Rs. 3803 crore in the same period last year, a jump of 109% YoY.
Asset quality continues to be strong and sturdy with GNPA & NNPA ratios at 0.8% & 0.3% in Q1 FY20 against 2.7% and 0.3% respectively the same period previous year. And lastly cost to income dipped significantly on account of increased top line and strong cost control measures reported at 64% in quarter ended June FY20. The stock currently trades at 280 levels gaining 70% from its 52-week low of Rs. 166 last year.
Strong Growth Indicators
At least for Ujjivan SFB, it doesn’t feel like a slowdown. PAT rose more than 100%, the highest ever reported by the bank. Gross Advances grew 51% YoY and the deposit base almost doubled YoY.
THe analysts community was impressed by the robust loan book growth of Ujjivan especially in the current decelerating scenario. Ujjivan’s Gross Loan book comprises of Group Loans constituting 75% of the total mix, followed by Micro Individual and Affordable Housing both contributing 8% each, MSE at 5% and Rural portfolio 2%.
Commenting on the loan book’s robust growth, Mr Samit Ghosh, MD and CEO, Ujjivan SFB said, “Majority of the growth in gross advances was driven by micro banking, which grew by 37% as against the first quarter of the previous year.
This growth was fuelled by new product launches, opening of new areas for existing branches, process improvisation, and improvement in productivity of our sales force, growth in the individual lending and increased borrower base. We continue to focus on building ourselves as a mark-market brand”.
Group Loans and Micro Individual Loans grew 33% and 36% YoY respectively, Rural banking portfolio jumped 591% YoY on a small base, Affordable housing growth was up almost 142% YoY crossing a Rs. 1000 Cr milestone in terms of gross advances and lastly MSE segment jumped 145% YoY with complete 100% secured lending norms adopted by the bank from June quarter FY20.
Apart from robust loan book growth, there are other performance indicators including lower Cost to Income ratio, strong retail deposits, higher customer acquisition and robust CASA growth. Firstly, Retail Deposits grew 357% YoY at Rs. 3429 cr constituting 43% of total deposit base against 19.7% in quarter ended June FY19. Low cost stable source of funding, CASA was up 247% YoY in June quarter FY20 at a ratio of 10.40% against 6.30% same period previous year. Moving on to customer acquisition, the bank has added 3 lakh customers during the quarter and total customer base stands at 47.2 lakh against 39.4 lakhs as on 30 June18.
And coming to the Cost to Income parameter, the Bank has initiated strong cost control measures such as renegotiating all long-term contracts, adopting robotic process automation for improving the overall productivity and process reengineering aiding to reduce Cost to Income ratio from almost 72% in Q1 FY19 to 64% in June quarter FY20. Furthermore, Ujjivan SFB aims to reduce its Cost to Income ratio to 55% in the next 3-5 years indicating strong organic profitability for the bank in the long run. And lastly new lines of business initiated by Ujjivan introducing Vehicle Finance, starting with 2-wheeler business being launched around August this year, piloting 3-wheeler business in both electric and the nonelectric segment in 40 branches across the Eastern states and the Southern states and 4-wheelers commercial segment, small commercial vehicles as well as huge passenger vehicles to be launched by the end of the year.
With robust financial parameters, the Bank is geared up for strong long term growth and also for its impending IPO of Rs. 1200 crore with the RBI deadline of Jan 2020 as per the apex Bank’s licensing norms.The street is definitely not happy though, evident from the Ujjivan Financial Services stock tanking 8% after the IPO announcement as it would result in equity dilution and holding company discount for existing shareholders. So, to invest in this dark horse, it might be better wait for the listing.