A WHOLLY OWNED SUBSIDIARY OF CANARA BANK Stock update UJJIVAN FINANCIAL SERVICES LTD CMP : 373 (26.02.2018,BSE) PRICE TARGET : 425 STOCK DETAILS Industry BFSI Market Cap(Rs Bn) 45.04 52 Week High/Low 465/285 Face Value (Rs) 10 Number of Shares (Cr.) 12.06 About the Company Incorporated in 2005, Ujjivan Financial Services Ltd (UFSL) is a largest Indian microfinance services NBFC in terms of geographical spread, primarily based on the joint liability group lending model for providing collateral free small ticket-size loans to economically active poor. UFSL loan products include agricultural, education, livestock loans, home improvement, MSE and home purchase. In addition to loan products they also provide non-credit offerings comprising of life insurance products in partnership with insurance providers such as Bajaj Allianz Life Insurance, Kotak Mahindra Life Insurance and HDFC Life Insurance Company Ltd. Ujjivan Financial operations are spread across 22 states and 2 union territories and 209 districts across India. UFSL serve over 3.71 million active borrowers through 421 branches and 10,881 employees. Ujjivan received the small finance bank (SFB) license from the Reserve Bank of India on 11th November 2016 and commenced its banking operations in February 2017. SFBs are permitted to collect low cost deposits to cater the credit requirements of the underserved. STOCK PERFORMANCE (%) Stock BSE 500 1 Month (5.44) (4.90) 3 Months (10.10) 0.80 6 Months 18.67 7.70 1 Year (13.92) 21.30 SHARE HOLDING PATTERN Q3FY18 RESULT UPDATE Ujjivan Financial Services Ltd. (UFSL) is back on track after demonetization initial hiccups. The collection efficiency improved to 99.70% for all the new business given after Jan 17 till now. This has cleared the clamors surrounded on the micro finance institutions after structural reforms such as demonetization and GST to systematize the informal unorganized economy. Being the prominent unorganized and underserved financers, the NBFCs and also Small Finance Banks have faced difficult times due to mounting NPAs and increased provisions accordingly. UFSL management prudent decisions made early recognition of NPAs and higher provisions in the first 2 quarters of FY18. However subsequent dedicated recovery teams along with write offs of bad loans brought the Gross NPA to 4.24 in Q3FY18 from peak of 6.16% in Q1FY18. The Net NPA also brought down to 1.04% levels in Q3FY18 from peak of 2.30% in Q1FY18. The financial institution total write offs in this year moved to Rs.132 crores including 34 crores during this quarter. This has helped UFSL to improve the Provision coverage ratio to 76.30%. The full-fledged SFB branch conversion is also on track. Total 121 branches got converted to full-fledged SFBs. UFSL planning to convert total 188 by year end. The conversion of branches had increased the cost-to-income substantially to 69.05% in Q3FY18 from 49.33% in Q3FY17. But these all are one time measures and helpful in attracting larger cliental base with improved low cost deposits. Over all UFSL is back on track and going ahead we are expecting good traction in both advances and deposit.
Performance for Q3FY18 Steady growth of Loan book: UFSL Net Loan book increased to Rs.6926.66 core with 14.57% YoY and 8.83% QoQ growth. The robust growth in MSE and Affordable housing has contributed significantly to the overall loan book. The MSE and Affordable Housing business share of total portfolio increased to 5.5% in Q3FY18 from 4.3% in previous quarter. Being a small finance bank, Overdraft kind of new facilities were made available to MSE borrowers, which were not available to NBFCs. Disbursement steadily increased to Rs.2134.32 crores in Q3FY18 with 28.35% YoY growth. Moreover, the cashless disbursement percentage increased to 64.51% in Q3FY18 from 30.83% in Q3FY17. This is the positive sign to address hitherto operational mismanagements of unorganized borrowers. Asset quality improvement: UFSL asset quality improved significantly in this quarter as guided by the management. The GNPA and NNPA reduced to 4.24% and 1.04% in Q3FY18 against 4.99% and 1.38% in Q2FY18. Total R.131.71 crore write off have been made in this year, which resulted in improving Provision Coverage Ratio to 76.30% from 73.40% IN Q2FY18. The dedicated collection team to focus on 90 days plus bucket of overdue loans had given positive result in containing the bad debts. The management claims that newly formed recovery verticals have made 34% of recoveries in this quarter. Thus, resulted in reducing PAR>90 days loans to 5.4% in Q3FY18 from 6.7% in Q2FY18. Stellar growth in low cost Deposits and decline in cost of Funds: UFSL deposits had surged to 2437 crores in Q3FY18 with 80.60% QoQ growth. UFSL largely benefited by Small Finance Bank transformation with reduced average cost of funds to 9.3% in Q3FY18 from 10.4% in FY17. Deposits constitute 36% of Advances in Q3FY18 against 22% in Q2FY18 and Deposits contribute 35% to total funding in Q3-FY18, an increase from 20% in Q2-FY18. UFSL had made prepayment of Rs.2255 crores high cost legacy loans including 950 crores in this fiscal year. Average cost of funds raised during Q3FY18 was 7%, which was much lower than total average cost of funds. Hence, UFSL Net Interest Margin improved to 11.08% in Q3FY18 from 10.20% in Q2FY18. UFSL is commanding A1+ rating from CRISIL, ICRA, and A+ (Stable) from CARE.
Borrowing Profile (Rs. in Cr.) Q3FY18 Q2FY18 Term Loans from Banks/NBFC 1,740 2,670 Refinance Facility 1695 1,440 Securitization / IBPC (Off Balance Sheet) 169 305 Non-Convertible Debentures 600 625 Short term borrowings 400 385 Deposits 2436 1349 Total Outstanding Amount 7041 6774 Adequate Capital requirements: UFSL is having adequate capital cusion with 22.05% in Q3FY18. RBI recent directives exempted Small Finance Banks from capital charge on market and operational risk weights. This will help in reducing risk weighted capital for SFBs and provide more leverage to advances. As per RBI guidelines SFBs should maintain 15% CAR with 7.5% Tier-1. Profitability back on Track: Improving asset quality and reduction of provisions brought down credit cost from 5.7% in Q2FY18 to 1.7% in Q3FY18, which resulted in bringing Net Profit to Rs.29.32 crores from loss of Rs.11.95 crores in Q2FY18. The ROA and ROE turned to be positive 1.35% and 6.99% respectively in Q3FY18 from -0.56% and -2.86% in Q2FY18. However the cost to income ratio had increased to 69.05% in Q3FY18 marginally high from 68.82% in Q2FY18 due to branch conversion and other expansion overheads. Going ahead the management is expecting good traction from the revamped branches as the full fledged branches are expected to attract new customer base with low cost CASA and deposits. SIL and ICRA.
Key Financial Data Profit and Loss Statement (Rs. Cr.) Q3FY18 Q3FY17 YoY % Q2FY18 QoQ% 9MFY18 9MFY17 YoY % Revenue from operations 358.06 362.18 (1.14) 339.27 5.54 1020.73 1034.84 (1.36) Other income 26.07 9.14 185.26 38.75 (32.73) 100.06 22.79 339.1 Total Income 384.13 371.32 3.45 378.03 1.61 1120.79 1057.63 5.97 Finance costs 141.35 133.19 6.13 152.97 (7.59) 451.58 381.03 18.52 Employee expenses 93.22 70.72 31.82 89.53 4.13 270.68 195.07 38.76 Provisions and write offs 28.69 54.75 (47.59) 88.19 (67.46) 276.1 67.95 (306.35) Total Expenses 337.47 304.92 10.67 396.04 (14.79) 1206.81 770.49 56.63 Profit before Tax(PBT) 46.66 66.39 (29.73) -18.02 358.94 (86.02) 287.13 (129.96) Tax Expenses 17.34 22.45 (22.78) -6.07 385.78 (28.45) 98.81 (128.79) Profit after Tax 29.32 43.94 (33.28) -11.95 345.31 (57.58) 188.32 (130.57) KEY RATIOS GNPA 294.3 15.12 1846 323.29 (8.09) - - - GNPA % 4.24 0.25 399 bps 4.99 75 bps - - - NNPA % 1.04 0.05 99 bps 1.38 34 bps - - - ROA 1.35 2.53 118 bps (0.56) 191 bps (0.88) 3.88 476 bps ROE 6.99 10.28 329 bps (2.86) 885 bps (4.45) 17.14 2159 bps Balance Sheet (Rs. Cr.) Q3FY18 Q3FY17 YoY % Q2FY18 QoQ % Share capital 120.61 118.84 1.48 119.74 0.72 Reserves and surplus 1573 1614.02 (2.54) 1540.25 2.13 Borrowings 4435.41 5150.69 (13.89) 5119.73 (13.37) Deposits 2335.43 - - 1247.53 87.2 Provisions 292.46 168.52 73.55 298.81 (2.13) Other Liabilities 161.51 171.42 (5.78) 154.12 4.8 Total 8918.41 7223.49 23.46 8480.17 5.17 Cash and cash equivalent 433.04 830.21 (47.84) 349.1 24.05 Advances 6926.66 6102.11 13.51 6364.39 8.83 Investments 0.1 0.1-0.1 - Fixed & tangible assets 183.91 107.25 71.48 171.93 6.96 Other assets 1374.7 183.82 647.84 1594.65 (13.79) Total 8918.41 7223.49 23.46 8480.17 5.17
Valuation Considering the past performance, present economic conditions, prudential corporate governance measures and the management guidance; we expect the company to post a reasonable top line growth rate of ~22% in FY19E. The company currently trades at ~2.40 P/B and forward P/B works out to 2.19 P/B for FY19E; We continue to maintain our positive outlook on the stock. Investors may buy the stock on dips and accumulate for a price target of Rs.425. Particulars (Rs. in Cr.) FY16 FY17 FY18E FY19E Total Income 1027.61 1397.62 1396.69 1703.96 Net Interest Income 507.50 687.41 814.36 1001.66 Net Profit 177.22 207.67 (22.39) 153.60 Gross NPA (%) 0.28 0.30 3.82 3.56 Net NPA (%) 0.04 0.03 0.94 0.76 Book value per share (Rs.) 118.37 147.03 148.53 169.78 EPS 16.20 17.76 (1.86) 12.74 ROA% 3.65 2.92 (0.28) 1.56 ROE% 18.32 14.07 (0.69) 7.96 P/E 19.80 19.90-29.27 P/B 2.90 2.40 2.40 2.19 (Source: Company Presentation, Ace Equity)
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