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This is the 12th post in our quarterly result update series for Q3FY21.

In this post, we’re sharing the latest updates of the stocks from our watchlist. Please don’t treat this as a buy recommendation. We find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in the future. The purpose of this post is to bring clarity to our understanding of the businesses we are tracking.  We make our notes on the quarterly results and conference calls. Putting it up here makes it easier for us to refer them at a future date.

You can see the earlier updates here.

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Please click on the read more button for more details on each stock.


AU Small Finance Bank

AU made good progress in the quarter in almost all operational metrics and has seen a good rise in disbursements in Q3. The bank has also seen collections improving steadily and reach near pre-covid levels. The bank remains committed to its goal to build a granular customer led by digital and this is reflected in its efforts like the super app and the upcoming launch of its credit card and the adoption of video banking. The management is confident that the bank has enough provisions and capital for expansion for the next 3-5 quarters. It remains to be seen whether Au will be able to maintain its robust growth momentum and how will the company’s digital journey pan out. Nonetheless, given the company’s good performance record, its robust customer engagement, and its prudent management of its AUM, AU Small Finance Bank remains a good small finance stock to watch out for.

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Bandhan Bank

Bandhan had a very good quarter with good YoY growth in deposits and loans and >50% growth in PPoP. The company has taken out provisions of Rs 1000 Cr in Q3 due to the ongoing situation in Assam regarding the rumoured MFI loan waiver. This may prove to be a dampener in the company’s collections in Assam which is a big market for the company with >15% of the MFI loan book. The company is seeing good traction in mortgage and commercial lending businesses and the savings deposit franchise. It remains to be seen how the Assam story plays out in the medium term and whether things will come back to normalcy as fast as reported by the management. Nonetheless, given its consistent growth momentum in recent years and its rapidly expanding customer set, Bandhan Bank remains an interesting company to keep track of the microfinance and small finance banking industry in India.

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CreditAccess Grameen

CAGL delivered a mixed Q3 performance which saw robust GLP, revenue and disbursement growth but profits remained subdued due to high provisioning. The company rising collection efficiency even in the stressed region of Maharashtra. The company’s acquisition of Madura Microfinance is expected to be done in the next 3-4 months in terms of both the process and legal. It remains to be seen whether the company will be able to come back to its pre-covid growth rate of 30-40% CAGR given the possible integration issues with MMFL and the ongoing COVID-19 pandemic. Nonetheless, given its strong market position and exemplary operating and risk management practices, Credit Access Grameen remains one of the must-watch stocks in the Microfinance sector for any interested investor.

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Ujjivan Small Finance Bank

Ujjivan has had a mixed quarter with flat revenue growth but good pre-provision profit growth of above 40% YoY. The bank saw operating losses in Q3 due to high provisioning of Rs 538 Cr. These provisions were taken mainly due to the ongoing situation in Assam regarding the proposed MFI waiver. Ujjivan has seen encouraging results in its digital initiatives and the smaller loan segments like affordable housing and MSE. The company has also seen a good bounce back in collections. It has also done restructuring of Rs 852 Cr of MFI loans where it has already seen an encouraging collection efficiency of 73%. It remains to be seen how the situation in Assam pans out and how will Ujjivan get back to the growth track in order to not get left behind in the intensifying MFI race in India. Nonetheless, given the bank’s industry position, its wide geographical reach, and its rising digital transactions, Ujjivan Small Finance Bank is a pivotal Small Finance Bank stock to watch for, particularly given its current valuation of close to 2 times book value.

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