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Ujjivan SFB IPO review (Subscribe for Long Term)

Review By Dilip Davda on Nov 27, 2019

•    USFB is the second-largest SFB in India.
•    It has shown growth in its business for the last three fiscals.
•    Issue pricing appears reasonable against listed peers.
•    Pre-IPO placement worth Rs. 299.19 cr. done at Rs. 35 per share in Nov. 19.
•    UFSL shareholder quota offered at a discount of Rs. 2 per share against IPO pricing of Rs. 37(upper band).

ABOUT COMPANY:
Ujjivan Small Finance Bank (USFB) is a mass-market focused SFB in India, catering to unserved and underserved segments and committed to building financial inclusion in the country. It's Promoter, UFSL (Ujjivan Financial Services Ltd.) commenced operations as an NBFC in 2005 with the mission to provide a full range of financial services to the 'economically active poor' who were not adequately served by financial institutions. UFSL's erstwhile business was primarily based on the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active poor women. UFSL also offered individual loans to Micro and Small Enterprises ("MSEs") and adopted an integrated approach to lending, which combined a customer touchpoint similar to microfinance, with the technology infrastructure and related back-end support functions similar to that of a retail bank. On October 7, 2015, UFSL received RBI In-Principle Approval to establish an SFB (Small Finance Bank), following which it incorporated Ujjivan Small Finance Bank Limited as a wholly-owned subsidiary. UFSL, after obtaining RBI Final Approval on November 11, 2016, to establish and carry on business as an SFB, transferred its business undertaking comprising of its lending and financing business to USFB, which commenced its operations from February 1, 2017. The bank is included in the second schedule to the Reserve Bank of India Act, 1934 as a scheduled bank on July 3, 2017. In the short period that it has been operational as an SFB, it is among the leading SFBs in India in terms of deposits, advances, branch count and geographical spread, as of March 31, 2019.

As of September 30, 2019, USFB served 4.94 million customers and operated from 552 Banking Outlets that included 141 Banking Outlets in Unbanked Rural Centres ("URCs") (of which seven were business correspondent centres) and additionally operated four Asset Centres. In Fiscal 2019 alone, we operationalized 287 Banking Outlets. As of September 30, 2019, it had a network of 441 ATMs (including 18 ACRs), two 24/7 phone banking units based in Bengaluru and Pune that service customers in 11 languages, and a mobile banking application that is accessible in five languages as well as internet banking facility for individual and corporate customers.
 
USFB's portfolio of products and services includes various asset and liability products and services. Its asset products comprise: (i) loans to micro banking customers that include group loans and individual loans, (ii) agriculture and allied loans, (iii) MSE loans, (iv) affordable housing loans, (v) financial institutions group loans, (vi) personal loans, and (vii) vehicle loans. On the liability side, it offers savings accounts, current accounts and a variety of deposit accounts.  USFB also provides non-credit offerings comprising ATM-cum-debit cards, Aadhaar enrolment services; distribute third-party insurance products and point of sales ("POS") terminals.


ISSUE DETAILS/CAPITAL HISTORY:
As RBI stipulated 31.01.2020 as the cutoff date for the listing of USFB's equity, it is coming with the maiden issue.  For augmenting Bank's Tier - 1 capital base to meet its future capital requirements and general corpus fund needs, USFB is coming out with an IPO of approx. 202702703 equity shares of Rs. 10 each (based on the upper price band) via book building route to mobilize Rs. 750 cr. It has fixed a price band of Rs. 36 - Rs.37 per share. The issue opens for subscription on 02.12.19 and will close on 04.02.19. Minimum application is to be made for 400 shares and in multiples thereon, thereafter.  USFB has reserved 10% of the issue i.e. Rs. 75 cr. worth shares for the eligible shareholders of the promoter group company UFSL who were holding those shares as on 22.11.19. It is offering a discount of Rs. 2 per share to its parent company public shareholders (i.e. issuing shares at Rs. 35 per share). From the residual issue size of Rs. 675 cr. it has allocated 75% for QIBs, 15% for HNIs and 10% for Retail investors. The issue constitutes 11.73% of the post issue paid-up capital of USFB.

The original issue size was planned for Rs. 1150 cr. but as USFB has already mobilized Rs. 299.19 cr. while issuing 85483667 shares at Rs. 35 in November 2019 (as pre-IPO placements), the net issue size stands Rs. 750 cr. (including UFSL shareholders quota). Initial equity was issued at par. The average cost of acquisition of shares by the promoters is Rs. 10 per share. Post issue its current paid-up equity capital of Rs. 1525.52 cr. will stand enhanced to Rs. 1728.22 cr.

BRLM's to this issue are Kotak Mahindra Capital Co. Ltd., IIFL Securities Ltd., and JM Financial Ltd., while Karvy Fintech Pvt.  Ltd. is the registrar to the issue.  

FINANCIAL PERFORMANCE:
USFB has grown sustainably. It's Gross Advances (including securitization/ IBPC) have grown from Rs. 6383.98 cr. as of March 31, 2017, to Rs. 11048.59 cr. as of March 31, 2019, and were Rs. 12863.65 cr. as of September 30, 2019. Its deposits have increased from Rs. 206.41 cr. as of March 31, 2017, to Rs. 737.94 cr. as of March 31, 2019, and were Rs. 1012.98 cr. as of September 30, 2019. As of September 30, 2019, USFB's percentage of gross NPAs to gross advances was 0.85% while the percentage of net NPAs to Net Advances was 0.33%. Its profit after tax as restated for Fiscal 2018 and 2019 was Rs. 6.86 cr. and Rs. 199.22 cr., respectively while for the six months ended September 30, 2019, its profit after tax as restated was Rs. 187.11 cr. Further, its long term bank facilities have been rated CARE A+; Stable by CARE Ratings Limited and certificate of deposits have been rated CRISIL A1+ by CRISIL Limited.

For the last three fiscals, USFV has posted an average EPS of Rs. 0.62 and an average RoNW of 4.88%. The issue is priced at a P/BV of 2.67 based on its NAV of Rs. 13.84 as of 30.09.19. Based on FY19 earnings the issue is at a P/E of around 32.17, but if we annualize FY20 H1 earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 17 against the industry average of 29.64. Thus issue appears reasonably priced.

COMPARISION WITH LISTED PEERS:
As per offer documents, USFB has shown AU SFB, Equitas Holdings, Bandhan Bank, CreditAccess, RBL and DCB as its listed peers that are currently trading at a P/Es of around 42.18, 383.2,32.26,30.06,19.95 and 15.32 respectively (as on 27.11.19). However, they are strictly not comparable.

MERCHANT BANKER'S TRACK RECORDS:
Three BRLMs associated with the issue have handled 34 public issues in the past three years out of which 10 closed below the issue price on listing date. 


Conclusion / Investment Strategy

This is the second BFSI segment main board IPO in a row in last fortnight. Grey market has seen overwhelming activities for this IPO too and hence listing gainers/short term investors will respond to this issue as well. Based on financial parameters and compare with listed peers, USFB's reasonably priced IPO may be considered for long term investment.

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Nov 27, 2019

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Ujjivan Bank IPO FAQs

  1. 1. Why Ujjivan Bank IPO?

    The initial public offer (IPO) of Ujjivan Small Finance Bank Ltd offers an early investment opportunity in Ujjivan Small Finance Bank Ltd. A stock market investor can buy Ujjivan Bank IPO shares by applying in IPO before Ujjivan Small Finance Bank Ltd shares get listed at the stock exchanges. An investor could invest in Ujjivan Bank IPO for short term listing gain or a long term.

  2. 3. Ujjivan Bank IPO what should investors do?

    Ujjivan Bank IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Ujjivan Bank IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is Ujjivan Bank IPO good?

    Our recommendation for Ujjivan Bank IPO is to subscribe for long term.

  4. 5. Is Ujjivan Bank IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Ujjivan Bank IPO.

  5. 6. When will Ujjivan Bank IPO allotment status?

    The Ujjivan Bank IPO allotment status will be available on or around Dec 9, 2019. The allotted shares will be credited in demat account by Dec 11, 2019. Visit Ujjivan Bank IPO allotment status to check.

  6. 7. When will Ujjivan Bank IPO list?

    The Ujjivan Bank IPO list date is not yet available. The Ujjivan Bank IPO is planned to list on Dec 12, 2019, at BSE, NSE.
More Ujjivan Bank IPO Views / Analysis / Recommendations ...

The Ujjivan Bank IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Ujjivan Bank IPO worth investing. The Ujjivan Bank IPO Note sets the IPO expectations in systematic way which tells you if Ujjivan Bank IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Ujjivan Bank IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.


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