Ujjivan Small Finance Bank IPO Review: Should you Invest?

Ujjivan Bank IPO has planned to raise INR 750 cr. The bank, a subsidiary of NBFC Ujjivan Financial Services, has posted continuous growth in advances and improvement in asset quality performance. This has been achieved on the back of higher provisioning and continued focus on increasing retail base. 

Investment Rationale

• The bank caters to mass-market segment of undeserved and undeserved in India, also provides small size loan products to economically poor women, individual loans to Micro and Small Enterprises (MSEs). It has huge customer base of 49.4 lakh.
• The bank has pan-India presence as it is present in 24 states with 474 Banking Outlets, 387 ATMs, two 24/7 phone banking units (in Bengaluru and Pune) and 50 additionally operated Asset Centres. Therefore it has multiple delivery channels
• The bank has digitally advanced platform that offers bill payments, SMS banking, mobile banking, RuPay Platinum debit cards, internet banking, biometric ATMs services digitally
• It has an established risk management framework
• The bank’s gross loan book stood at ₹12,864 crore and it has the deposit base of ₹10,130 crore at the end of September 2019. USFB offers (i) loans to micro banking customers, (ii) agriculture & allied loans, (iii) MSME loans, (iv) Affordable housing loans, (v) financial institutions group loans, (vi) Personal loans, and (vii) vehicle loans.

Ujjivan Small Finance Bank IPO Details

The net proceeds will be used  to augment Bank’s Tier-I capital base to meet the Bank’s future capital requirements

• Issue Open: December 2nd, 2019 – December 4th, 2019
• Issue Type: Book Built Issue IPO
• Issue Size: 208,333,333 Eq Shares of ₹10  (aggregating up to ₹750 Cr)
• Issue Price: ₹36 to ₹37 Per Equity Share
• Minimum Order Quantity: 400 Shares
• Listing At: BSE, NSE
• Listing Date: December 12th, 2019

Should you Invest?

The bank has reported a profit of ₹199 crore, that have the net interest margin of 10.9% for FY 19. The bank’s gross NPA was the lowest among the small finance banks at 0.85% of gross advances and the provision coverage ratio (PCR) was high at 72% in FY19

At the upper end of the price band, Ujjivan Small Finance Bank is valued at 2.8 times its Q2 FY20 book value (Pre-IPO) and on post dilution basis at 2.3 time of book value, which is an attractive valuation. Further, at the  price of Rs 37, USFB is available at P/BV of 2.5x FY19, which is at a significant discount to its peers. It is projected that loan book will grow by 23-25 percent CAGR over FY19-21 and deposit base is anticipated to rise by about 70% in the same period

The investors may “subscribe” to Ujjivan Bank IPO, to get good returns in medium term.