Ujjivan Small Finance Bank surges 5% as brokerages say ‘buy’ the stock post Q4 results

Gross loan book came in at Rs 24,085 crore, up 33 percent YoY and 10 percent QoQ. The lender saw collection efficiency of around 100 percent in March 2023. Deposits rose 40 percent YoY to Rs 25,538 crore as of March 2023.

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Shares of Ujjivan Small Finance Bank (USFB) surged 5 percent on May 12 as investors cheered the lender’s growth in loan book, better asset quality, and strong collection efficiency.

At 11:15 am, the stock was quoting at Rs 30.77, up Rs 1.52, or 5.20 percent.

Disbursements stood at Rs 6,001 crore for Q4 FY23 and Rs 20,037 crore for FY23. Gross loan book came in at Rs 24,085, crore up 33 percent YoY and 10 percent QoQ. The lender saw collection efficiency of around 100 percent in March 2023.

Deposits rose 40 percent YoY to Rs 25,538 crore as of March 2023. Net profit came in at Rs 309.5 crore as compared to Rs 126.5 crore posted a year ago. Sequentially, gross NPA improved to 2.88 percent from 3.64 percent.

While advances growth in FY23 has been primarily driven by the MFI segment, USFB expects the non-MFI segments – Housing, Wheels, and Gold portfolios – to pick up the growth momentum FY24 onwards, thereby reducing the share of MFI loans in the overall portfolio to 68 percent by FY24 as compared to 72 percent in FY23.

The management expects credit growth to remain buoyant at over 25 percent in FY24. Over the medium-to-long term, USFB continues to target a balanced portfolio mix of 50:50 between secured and unsecured products.

USFB has sustained its improving trajectory in profitability, backed by its revised business strategy post the management change in September 2021, as reflected in it delivering 3.9 percent Return on Asset (RoA) and 30 percent Return on Equity (RoE) during Q4 of FY23, highlighted ICICI Securities.

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With sustained improvement in core operating performance and visibility on credit cost normalisation, the domestic brokerage firm has maintained its ‘buy’ rating on the stock with a higher target price of Rs 40 from Rs 35 earlier.

Axis Securities said, with asset quality challenges now behind, the focus will now shift to sustaining growth momentum and improving efficiency. As secured non-MFI segments begin to contribute meaningfully to overall portfolio growth, NIM pressures will be visible, it believes. However, factoring in slower-than-expected margin contraction and healthy growth, the brokerage firm has raised its NII and Earnings estimates by 6-8 percent each over FY24-25 and believes USFB remains well-placed to deliver an RoA and RoE of over 2.5 percent and 22 percent, respectively, over the same period. The brokerage firm recommends ‘buying’ the stock with a Rs 37-target.

Even JM Financial Institutional Securities believes the stock will deliver on return metrics on the back of benign credit environment, lower credit costs, and granular liability franchise. It has maintained its ‘buy’ call with a target price of Rs 38.