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Ujjivan Financial Services Ltd

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About the Company

Ujjivan was registered as NBFC-MFI under Non-Banking Financial Company Micro Finance Institutions (NBFC-MFIs) directions on September 05, 2013. The Company received approval from Reserve Bank of India (RBI) to set up a Small Finance Bank.

Ujjivan is the largest MFI in the country in terms of geographical spread having our operations was spread across 24 states and union territories, and 209 districts across India.

Q2 2020 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
  Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 691.35 463.18 49.26% 635.39 8.81% 1326.75 1944.26 -31.76%
PBT 92.88 42.14 120.41% 127.03 -26.88% 219.92 112.64 95.24%
PAT 63.23 29.19 116.62% 83.03 -23.85% 146.26 75.48 93.77%

 

Detailed Results

    1. The company had a stellar quarter with more than 49% growth in YoY revenues.
    2. The profits for the company rose in line with revenues to grow more than 116% YoY while PBT growth was 120% YoY in Q2.
    3. The company made disbursements of Rs 3606 Cr in the current quarter which was up 51.3% YoY.
    4. The gross loan portfolio has risen to Rs 12864 Cr registering a YoY growth of 54.7%.
    5. Secured loans now constitute 19.4% of all loans as compared to 9% a year ago.
    6. GNPA in Q2 was at 0.9% while NNPA was at 0.3%. An additional write-off of Rs 17 Cr was taken in Q2.
    7. Deposits rose 142% YoY to reach Rs 10310 Cr covering 78.7% of total loans vs 50.4% a year ago.
    8. Retail deposits are now at 41.9% of total deposits vs 30.1% a year ago. CASA was improved to 11.9% vs 9% a year ago.
    9. Net Interest Income rose 49% YoY.
    10. Net interest margin declined slightly to 10.8% in Q2FY20 vs 11% a year ago.
    11. Cost to income ratio was reduced to 69.5% from 77.4% a year ago.
    12. The company now boasts a customer base of 4.94 million vs 4.02 million a year ago.
    13. Micro banking advances grew 38% YoY while non-micro banking advances grew 3 times YoY.
    14. The top 3 states Tamil Nadu, Karnataka, and West Bengal account for 45.9% of total advances.
    15. Group loans constitute 70% of all advances and have grown 34.4% YoY.
    16. The average ticket size in group loans is at Rs 33316.
    17. The company PCR for Q2 was at 61%.
    18. The average cost of funds remained stable at 9.3% while the average cost of borrowings+deposits was at 8.4%.
    19. The company maintained a CRAR of 18.8% in Q2.

Investor Conference Call Highlights

  1. The management has stated that 75% of the upcoming IPO of Ujjivan Small Finance Bank is to be done with institutional clients and around 10% is reserved for existing retail shareholders of the company.
  2. The company remains focused on a stable and granular CASA buildup going forward and generating new businesses from the 78 new branches added in Q2.
  3. The equity dilution in the Ujjivan Small Finance Bank IPO will be 10%.
  4. The management has stated that as soon as the IPO is completed, the company will start a dialogue with the RBI for the reverse merger.
  5. The overall amount to be raised in the IPO is Rs 1200 Cr.
  6. The other income breakup is:
    • Processing Fees: Rs 82 Cr
    • PSLC Income: Rs 46 Cr
    • Income from bad debt Write-offs: Rs 16 Cr
    • 3rd party insurance products: Rs 9 Cr
    • Misc: Rs 22 Cr
    • Total: Rs 175 Cr
  7. The company has stopped issuing unsecured loans and is now focussed on growing the secured loan business.
  8. The management does not see any conflict of interest arising from the appointment of Sachin Bansal as a director despite him being a CEO at his own MFI.
  9. The management clarifies that it is because the company is already moving up the target market ladder with loans up to Rs 2 Cr in their MSE business while Sachin Bansal’s MFI is still focussed on small unsecured microloans.
  10. The company has observed some slippages in microfinance business in Orissa which was primarily due to the Cyclone Fani.
  11. The management reaffirms its commitment to get the SMB listed by the next earnings call.
  12. The management believes that the commitment to deliver 30-35% growth in microfinance each year for the next 2-3 years is certainly doable and it is confident that the company will be able to achieve this target. The management will be able to provide any guidance for credit costs only in Q4.
  13. Most of the loans in the FIG business are too large NBFC MFIs with an average tenure of 2-3 years and a maximum ticket size of Rs 25 Cr.
  14. The management has stated that the difference in iGAAP and Ind AS profits is mainly due to 3 items. They are expected credit loss modeling, processing fees and fair valuation of ESOP of holding company shares.
  15. The customers that are unique to Ujjivan stand at 30% of the customer base.
  16. The rejection rate for MFI loans was at 18% in Q2 and it has been around 18-20% in the past few quarters. The rejection rate for new applications was at 22% while the same for repeat loans was at 14%.
  17. The management has guided that it expects to apply for a universal banking license by 2023 once the SMB’s operations are fully solidified and stable.
  18. The management has echoed the fact that many other SMBs and MFIs are saying that it has not seen any major impact in the company’s operations from the ongoing rural demand slowdown. But the management will continue to monitor it to stay ready on their feet to tackle it if the need arises.
  19. 90% of individual microfinance loans go to the company’s group loan customers.
  20. Micro borrowers account for 46% of the company’s SA portfolio.
  21. Out of the Rs 1220 Cr CASA book, only Rs 200 is from CAs while the rest is from SAs.
  22. Institutional CASA is still very small at only Rs 18 Cr.

 

Analyst’s View

Ujjivan Financial Services has been one of the top players in the MFI industry. It is the biggest company in this sector in terms of geographical reach. The company’s foray into Small Finance Banking has been good with consistent operational performance in the recent past and the latest quarter. The upcoming IPO for its small banking division should prove vital for the company. The company is doing good to move into secured lending for all of its non-microfinance products and stopping issuing any unsecured loans from this business. The management has confidently laid out its vision to become a universal bank in the future. It remains to be seen what challenges the SMB will face given the high number of credible competitors in this sector and whether the company will be able to maintain their 30-35% growth guidance in the next 2-3 years. Nonetheless, given its position as one of the industry leaders and the potential of the industry sector and the upcoming IPO, Ujjivan Financial Services is a good stock to watch out for, particularly for those investors banking on the microfinance and small banking sector in India.

 

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