About the Company

Ujjivan Small Finance Bank Limited is a mass-market focused bank in India, catering to financially unserved and underserved segments and committed to building financial inclusion in the country.  Their Promoter, Ujjivan Financial Services Limited (UFSL) 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.  On 7, October 2015, UFSL received RBI In-Principle Approval to set up a Small Finance Bank(SFB), following which it incorporated Ujjivan Small Finance Bank Limited as a wholly-owned subsidiary. UFSL, subsequent to 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 the Bank, which commenced its operations from 1, February 2017. Ujjivan Small Finance Bank has a diversified portfolio with branches spread across 24 states and a customer base of 4.9 million as of September 30, 2019.

Q4FY21 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 735 810 -9.26% 789 -6.84% 3117 3026 3.01%
PBT 184 94 96% -380 -148.42% 10 466 -98%
PAT 137 73 88% -279 -149.10% 8 350 -97.71%

Detailed Results

  1. The company had another dismal quarter with a 9% decline in YoY revenues. The bank saw PBT and PAT rise 96% & 88% YoY respectively in Q4. These figures were high because of the increased provision made in Q4 last year.
  2. The company made disbursements of Rs 4274 Cr in the current quarter vs Rs 3254 Cr last year. March disbursements were up 2.2x YoY.
  3. The gross loan portfolio has risen to Rs 15140 Cr registering a YoY growth of 7%.
  4. The non-MicroBanking portfolio now contributes 28% to the portfolio against 23% as of last year.
  5. Secured loans now constitute 27% of all loans as compared to 22% a year ago.
  6. GNPA in Q4 was at 7.1% while NNPA was at 2.9%, after the withdrawal of the Supreme Court directive.
  7. Deposits were at Rs 13136 Cr were up 22% YoY, covering 87% of total loans.
  8. Retail deposits are now at 48% of total deposits vs 44% a year ago. CASA has improved to 21% vs 14% a year ago. Retail deposits grew 32% YoY in Q4.
  9. Net Interest Income was up 6% YoY in FY21 at Rs 1729 Cr.
  10. Net interest margin declined 330 bps to 7.9% in Q4FY21 vs 10.9% a year ago. NIM for FY21 was at 9.5% vs 10.8% a year ago.
  11. PPoP for FY21 rose 27% YoY. It fell 17% YoY in Q4.
  12. The cost to income ratio was at 67% from 65% a year ago in Q4. It was improved to 60% in FY21 vs 67% in FY20.
  13. ROA and ROE for the company were at 2.7% (vs 1.6% a year ago) and 17.3% (vs 9.3% a year ago) in Q4.
  14. The company maintained an LCR of 116%. CAR was at 26.4% with tier 1 capital at 25%.
  15. 15 Lac new customers were acquired in Q4.
  16. Collection efficiency was at 94% in March.
  17. Q4 disbursement in micro banking was up 18% YoY.
  18. The cost of deposits was at 6.6% in Q4 vs 7.8% in March 2020 & 7% in Dec 2020.
  19. Collection efficiency in MSE was at 91% in March with disbursements of Rs 276 Cr in Q4 vs Rs 136 Cr in Q3.
  20. Collection efficiency in Affordable Housing was at 96% in Q4 disbursements of Rs 324 Cr in Q4 vs Rs 209 Cr in Q3.
  21. Collection efficiency in Personal Loan was at 91% in Q4 with disbursements of Rs 44 Cr in Q4.
  22. Collection efficiency in Vehicle Loan was at 99% in Q4. with disbursements of Rs 38 Cr in Q4.
  23. Digital transactions at 57% in Q4-FY21.
  24. Digital collection was at 11% in Q4.
  25. Low Collections were only in Maharashtra at 74%, 89% in WB, 66% in Assam & 87% in Punjab in April. Low collections in Assam are due to the new MFI waiver bill and for the rest it was due to COVID-related lockdowns.
  26. No additional restructuring was done in Q4.
  27. Total provisions in FY21 were at Rs 955 Cr with PCR at 60%.
  28. The top 3 states Tamil Nadu (15.8%), Karnataka (14.4%), and West Bengal (13.3%).
  29. 78% of MFI loans were given to repeat customers in Q4.
  30. Group loans account for 59% of gross advances.
  31. The average ticket size in group loans is Rs 38463.

Investor Conference Call Highlights

  1. The bank saw its highest-ever disbursement in a quarter in Q4.
  2. The bank crossed the Rs 2000 Cr mark in the affordable housing book.
  3. The rise in cost to income to 69% in Q4 was due to the reversal of interest on the non-performing portfolio of Rs 75 Cr.
  4. The management expects the momentum in the deposit building to continue and CASA to rise to 25-27% by the end of FY22.
  5. Overall collection efficiency has fallen to 89% in April.
  6. 5+% collection efficiency was seen for loans disbursed in FY21.
  7. The bank plans to add 55 new branches in FY22.
  8. The bank currently carries excess provisions of Rs. 172 crores or 1.2% of the total portfolio and has not made any new provisions for the impact of the second wave of COVID during Q4.
  9. The company reduced headcount by 200+ in Q4.
  10. Although the bank is looking for repeat business from existing customers it is not looking to go above Rs 1 lac of indebtedness per customer. It is also looking to cap first-time loans to below Rs 40,000.
  11. While the business has improved significantly in Q4FY21, the management states that the resurgence of COVID-19 cases across geographies and regional lockdowns are likely to hamper near-term performance.
  12. But the management does not expect disbursement to be affected as severely as at the start of the pandemic.
  13. It also states that Q1FY22 disbursement may be at similar levels as Q2FY21.
  14. The management has guided for a credit growth of 20-22% in FY22.
  15. The bank is looking to reduce dependence on MFI loans by expanding on MSE & affordable housing segments. It is doing this primarily to build a more secured loan book. It expects MFI share to fall to below 60% of sales by the end of FY23.
  16. The corresponding shift towards secured loans will also put pressure on NIMs.
  17. Opex fell 6% YoY in Q4 mainly due to lower employee costs. The management expects branch level efficiency to improve resulting in almost 3% improvement in cost to income by the end of FY22.
  18. The bulk of the slippages in Q4 were from the MSE loan book. The management states that is expected to restructure Rs 100 Cr of loans but only Rs 13 Cr were restructured while the rest was taken as NPA.
  19. The Assam portfolio now accounts for ~2.3% of the total loan book. Due to the uncertain situation in the state regarding the MFI industry, Ujjivan has not added any new customers in the last 15 months.
  20. The main role of fintech partners is profiling, social media promotion & identifying locations.

Analyst’s View

Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest and most diversified company in this sector in terms of geographical reach. The company has had a down quarter with a 9% revenue decline and pre-provision profit decline of 17% YoY. But it also saw its highest-ever disbursements in a quarter which shows that growth is coming back. The bank continues to see uncertainties in Assam. 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, but they have gone down due to the 2nd wave of COVID. It remains to be seen how the situation in Assam pans out and how will the bank cope with the disruption caused by the 2nd wave of COVID-19 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 less than 2 times book value.

 


 

Q3FY21 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 789 781 1.02% 818 -3.55% 2382 2216 7.49%
PBT -380 113 -436% 132 -387.88% -174 373 -146.65%
PAT -279 90 -410% 96 -390.63% -128 277 -146.21%

Detailed Results

  1. The company had a dismal quarter with a 1% growth in YoY revenues. The bank saw PBT and PAT losses of Rs 380 Cr and Rs 279 Cr respectively in Q3. These figures were subdued because of the increased provision made of Rs 583 Cr in Q3 vs Rs 30.5 Cr last year.
  2. The company made disbursements of Rs 2184 Cr in the current quarter vs Rs 3403 Cr last year. December disbursements were up 8% YoY.
  3. The gross loan portfolio has risen to Rs 13638 Cr registering a YoY growth of 8%.
  4. The non-MicroBanking portfolio now contributes 27% to the portfolio against 22% as of last year.
  5. Secured loans now constitute 25% of all loans as compared to 21% a year ago.
  6. GNPA in Q3 was at 1% while NNPA was at 0.05%, in line with the interim order of Hon. Supreme Court. Without this order, GNPA would be at 4.8% and NNPA would be at 2.05%.
  7. Deposits were at Rs 11617 Cr were up 9% YoY, covering 85% of total loans.
  8. Retail deposits are now at 48% of total deposits vs 43% a year ago. CASA has improved to 18% vs 12% a year ago. Retail deposits grew 20% YoY in Q3.
  9. Net Interest Income was flat YoY at Rs 432 Cr.
  10. Net interest margin declined 120 bps to 9.7% in Q3FY21 vs 10.9% a year ago.
  11. PPoP rose 42% YoY.
  12. The cost to income ratio was reduced to 62% from 71% a year ago.
  13. ROA and ROE for the company were at (5.8)% (vs 2.1% a year ago) and (34.7)% (vs 14% a year ago) in Q3.
  14. The company maintained an LCR of 179%. CAR was at 27% with tier 1 capital at 26%.
  15. The number of customers was at 56.6 lakh. 1.7 Lac new customers were acquired in Q3.
  16. Collection efficiency was at 94% in Dec. 99.5+% collection for loans disbursed in 9M-FY21.
  17. Q3 disbursement in micro banking was at Rs 892 Cr which is above pre-COVID levels.
  18. The cost of deposits was at 7% in Q3 vs 7.3% in Sep.
  19. Gold loan pilot is working well in 5 branches and has seen disbursement of 36 loans of Rs 18 Lacs.
  20. Collection efficiency in MSE was at 90% in Q3. with disbursements of Rs 136 Cr in Q3 vs Rs 92 Cr in Q2.
  21. Collection efficiency in Affordable Housing was at 94% in Q3 with disbursements of Rs 209 Cr in Q3 vs Rs 116 Cr in Q2.
  22. Collection efficiency in Personal Loan was at 89% in Q3 with disbursements of Rs 30 Cr in Q3.
  23. Collection efficiency in Vehicle Loan was at 97% in Q3. with disbursements of Rs 21 Cr in Q3.
  24. Digital transactions at 59% in Q3-FY21.
  25. Digital collection was at 13% in Q3.
  26. Low Collections were only in Maharashtra at 87%, 92% in WB, 72% in Assam & 88% in Punjab in Jan. Low collections in Assam are due to the new MFI waiver bill.
  27. 7 lac accounts amounting to Rs 852 Cr portfolio restructured – 8.5% of MicroBanking portfolio as of Dec’20. Rs 536 Cr (2.2 lac accounts) saw Tenor elongation and Rs 316 Cr (1.5 lac accounts) saw moratorium restructuring.
  28. Total provisions in 9M were at Rs 1029 Cr.
  29. The top 3 states Tamil Nadu (16.4%), Karnataka (14.4%), and West Bengal (13.8%) account for 44.6% of total advances.
  30. 90% of MFI loans were given to repeat customers in Q3.
  31. Group loans account for 61.2% of gross advances.
  32. The average ticket size in group loans is Rs 39279.

Investor Conference Call Highlights

  1. The management maintains that Ujjivan will stay cautious in expanding the customer base in microbanking as only 10% of group loans were to new customers.
  2. The bank has tied up with PayNearby, which has almost 800,000 outlets.
  3. The management is bullish on the affordable housing business for FY22.
  4. In MSE, Ujjivan has tied up with a fintech firm for supply chain finance.
  5. The bank disbursed INR 55 crores under the ECLGS scheme.
  6. The bank has tied up with many fintech firms for workflow digitization which has resulted in the reduction of turnaround time and freeing up of bandwidth at the back office for handling more volume.
  7. Ujjivan has INR 364 crores of an outstanding book as of December in Assam and it is not planning to grow that book at all right now until things improve.
  8. The book coverage of total provisions is at 8% as of Dec 2020. On the microbanking book, the coverage would be 9.3%.
  9. Under tenor elongation, the bank has reduced the borrower’s EMI after assessing the cash flows and elongated the tenor by a maximum of 24 months from the original date of maturity. The interest for the unpaid period has been capitalized. Customers who have availed the moratorium for 1 or more months were restructured by way of tenor extension by the number of EMIs unpaid. There is no change in the EMI in that case.
  10. The bank is seeing a collection efficiency of 73% in the restructured book in Jan.
  11. The cost of funds has come down for Ujjivan as it was able to replace a lot of high-cost deposits at a significantly lower rate.
  12. Ujjivan has enabled all of its branches to cross-sell all asset products.
  13. The turnaround time for various processes on the onboarding side through these fintech engagements has helped Ujjivan reduce the turnaround time for various activities by almost 70% to 90%.
  14. In robotic process automation, Ujjivan has identified 100 plus processes, which are going to be automated. It has already completed 13 such processes.
  15. The management doesn’t expect to take any more provisions in Q4 as it believes that it has sufficiently front ended all of the expected requirement.
  16. The management believes that the restructuring was necessary to provide much needed relief to the customers in question and it has not resulted in any loss in credit discipline as the bank is seeing 73% collection efficiency in restructured accounts already.
  17. The situation in Assam has been one of systematic deterioration in collections as both the ruling party and opposition have come up with the MFI waiver narrative and thus Ujjivan is maintaining a very cautious stance here with no fresh disbursements until any resolution is done here.
  18. The bank has capitalized Rs 575 Cr of interest. The drop in interest income from this is about Rs 11 Cr in Dec and Rs 42 Cr in the last 4 months.
  19. The field officers in MFI doing collections were at 8000+ at the latest.
  20. The yield on the MFI book has gone down due to Rs 575 Cr of loans not yielding any interest currently.
  21. Ujjivan has divided the digital strategy into 3 parts which are:
    1. Digitizing the business processes with a focus on improving turnaround time and employee productivity.
    2. Investing in digital solutions, which will further improve the customer experience, including some that we are using for customer engagement through messaging and notifications.
    3. Partnering with fintech firms for its API banking framework where Ujjivan has released 90+ APIs of its 150 total.

Analyst’s View

Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest and most diversified company in this sector in terms of geographical reach. The company 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.


Q2FY21 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 818 729 12.21% 775 5.55% 1593 1435 11.01%
PBT 132 117 12.82% 74 78.38% 206 259 -20.46%
PAT 96 93 3.23% 55 74.55% 151 187 -19.25%

Detailed Results

  1. The company had a modest quarter with a 12% growth in YoY revenues. The profits for the company rose 3% YoY in Q2. These figures were subdued because of the increased provision made of Rs 100 Cr in Q2 vs Rs 25 Cr last year.
  2. The company made disbursements of Rs 474 Cr in the current quarter vs Rs 2959 Cr last year.
  3. The gross loan portfolio has risen to Rs 13890 Cr registering a YoY growth of 8%.
  4. The non-MicroBanking portfolio now contributes 24% to the portfolio against 21% as of last year.
  5. Secured loans now constitute 23% of all loans as compared to 19% a year ago.
  6. GNPA in Q1 was at 1% while NNPA was at 0%, in line with the interim order of Hon. Supreme Court. Without this order, GNPA would be at 1.2% and NNPA would be at 0.3%.
  7. Deposits were at Rs 10743 Cr covering 77% of total loans.
  8. Retail deposits are now at 49% of total deposits vs 42% a year ago. CASA has improved to 16% vs 12% a year ago.
  9. Net Interest Income rose 21% YoY at Rs 470 Cr.
  10. Net interest margin declined slightly to 10.2% in Q2FY21 vs 10.8% a year ago.
  11. The cost to income ratio was reduced to 56.6% from 69.5% a year ago.
  12. ROA and ROE for the company were at 2% (vs 2.4% a year ago) and 11.6% (vs 18.9% a year ago) in Q2.
  13. The company maintained an LCR of 177%. CAR was at 31% with tier 1 capital at 30%.
  14. The number of customers was at 55.3 lakh.
  15. Collection efficiency was at 88% for Oct.
  16. Pre-Provision Operating Profit was at Rs 232 Cr which is a YoY growth of 33%.
  17. Q2 disbursement was at Rs 1458 Cr which is around half of the pre-COVID levels.
  18. 1 lakh new deposit accounts opened during H1-FY21; of which around 3 lakh accounts were new-to-bank.
  19. Digital SA/ TD acquired ~39,000 customers in H1-FY21.
  20. The cost of deposits was at 7.4% in Q2 vs 7.9% in March.
  21. New product launches in Q2 were:
    1. Gold Loan product targeting MFI customers.
    2. PMSvanidhiLoan (Street vendor program).
    3. Pre-approved loans for Microbankingcustomers; scaled to 9% of clients
  22. Collection efficiency in MSE was at 86% in Oct. with disbursements of Rs 92 Cr in Q2.
  23. Collection efficiency in Affordable Housing was at 93% in Oct. with disbursements of Rs 116 Cr in Q2.
  24. Collection efficiency in Personal Loan was at 88% in Oct. with disbursements of Rs 12 Cr in Q2.
  25. Collection efficiency in Vehicle Loan was at 91% in Oct. with disbursements of Rs 6 Cr in Q2.
  26. Digital transactions at 56% in Q2-FY21.
  27. Digital collection at 28% vs 1% at the start of FY21.
  28. Low Collections were only in Maharashtra at 79%, 78% in WB, 74% in Assam & 83% in Punjab in Oct.
  29. Total provisions in Q2 were at Rs 470 Cr.
  30. The top 3 states Tamil Nadu (16.2%), Karnataka (14.5%), and West Bengal (14%) account for 44.7% of total advances.
  31. 95% of MFI loans were given to repeat customers in Q2.
  32. Group loans account for 64% of gross advances.
  33. The average ticket size in group loans is Rs 40293.

Investor Conference Call Highlights

  1. 91% of our borrowers have started paying back after the moratorium got over.
  2. The 4 states with lower than 85% collections were mainly due to localized issues at the respective states.
  3. The company has activated all of its banking branches for personal loans and vehicle loans.
  4. The company is focusing on trying to reduce its cost of the model by trying to bring in new key customers.
  5. The company will be focused on keeping credit costs lower than the industry average according to management.
  6. The lower collections are not due to intentional non-repayment but due to delay or disruption in collections at the ground level.
  7. The company is maintaining a 2.2% provision on the micro banking book and 3.8% overall.
  8. There hasn’t been any big change in credit discipline since the rise of digital collections.
  9. The collections in WB have been impacted mainly due to restrictions in mobility and extended intermittent lockdowns in the state.
  10. The bank is maintaining a cautious underwriting stance and is not going aggressive in any geographies.
  11. Absolute Opex may also rise in the future as the company makes investments into technology but the proportion to revenue will remain range-bound.
  12. The company provides a yield of 650 bps in the retail term deposits and 555 bps in the institutional term deposits.
  13. 86% of the customers have made full EMI payment and 2% have made partial payment in Oct.
  14. There isn’t any convenience fee charge for cash transactions.
  15. The management hopes that the bank can reach 95% of collections in Q3.
  16. The management hopes that the bank gets permission to reverse merge and not go through the dilution process.
  17. The bank doesn’t have any issues with collections in Karnataka as the disruption in the state is mainly in the Mangalore belt where the company doesn’t have any presence.
  18. The company will continue to engage its customers on the issue of restructuring the debt and will make a decision on it in Dec.

Analyst’s View

Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest and most diversified company in this sector in terms of geographical reach. The company has had a decent quarter with modest revenue growth but good pre-provision profit growth of above 60% YoY. It has also seen encouraging results in its digital acquisition efforts with 39000 new customers in digital in H1. The company has also seen a good bounce back in collections. It is also launching new products like gold loans and targeted loans at street vendors, etc which may see good uptake. It remains to be seen what is the exact extent that the MFI sector has been damaged by COVID-19 and how the industry will bounce back to pre-covid levels in the near future. 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 just above 2 times book value.


Q1 FY21 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 775 706 9.77% 810 -4.32%
PBT 74 142 -47.89% 94 -21.28%
PAT 55 94 -41.49% 73 -24.66%

Detailed Results

  1. The company had a modest quarter with a 10% growth in YoY revenues. The profits for the company fell 41.5% YoY while PBT fell 48% YoY in Q1. These figures were subdued because of the increased provision made of Rs 140 Cr in Q1 vs Rs 19 Cr last year.
  2. The company made disbursements of Rs 474 Cr in the current quarter vs Rs 2959 Cr last year.
  3. The gross loan portfolio has risen to Rs 14366 Cr registering a YoY growth of 22%.
  4. The non-MicroBanking portfolio now contributes 23% to the portfolio against 18% as of last year.
  5. Secured loans now constitute 21% of all loans as compared to 16% a year ago.
  6. GNPA in Q1 was at 1% while NNPA was at 0.2%. An additional write-off of Rs 0.08 Cr was taken in Q1. COVID-19 provisioning was at Rs 129 Cr in Q1. Total provisions for COVID-19 now stand at Rs 199 Cr.
  7. Deposits were up 39% YoY at Rs 11057 Cr covering 77% of total loans vs 68% a year ago.
  8. Retail deposits are now at 45% of total deposits vs 43% a year ago. CASA has improved to 14% vs 10% a year ago.
  9. Net Interest Income rose 30% YoY at Rs 458 Cr.
  10. Net interest margin declined slightly to 10.2% in Q1FY21 vs 10.5% a year ago.
  11. Cost to income ratio was reduced to 56% from 64% a year ago.
  12. ROA and ROE for the company rose to 1.2% (vs 2.7% a year ago) and 6.8% (vs 20.2% a year ago) in Q1.
  13. The company maintained an LCR of 453%. CAR was at 29% with tier 1 capital at 28%.
  14. The number of customers rose to 52.5 lakh from 46.1 lakh a year ago.
  15. The company’s recently launched digital deposit products helped add 17000 new customers for them in Q1.
  16. Collection efficiency was at 54% and 59% for June and July respectively.
  17. Pre-Provision Operating Profit was at Rs 215 Cr which is a YoY growth of 33%.
  18. June 2020 disbursement was at Rs 370 Cr which is around 1/3rd of pre-COVID levels.
  19. Loan against Rent Receivables was launched in Q1.
  20. The cost of funds was reduced to 7.7% which is down 21 bps QoQ.
  21. Active trading in Treasury commenced in Q1 and Rs 10.4 Cr of MTM gains realized in the shift of portfolio from HTM to AFS.
  22. 4% of the total loan book was under moratorium in June.
  23. Collection through digital channels rose to 37% in July.
  24. The top 3 states Tamil Nadu, Karnataka, and West Bengal account for 45% of total advances.
  25. 95% of MFI loans were given to repeat customers in Q1.
  26. Group loans account for 66% of gross advances.
  27. The average ticket size in group loans is at Rs 39068.
  28. The company PCR for Q1 was at 82%.
  29. Book value per share was at Rs 17.6 per share.

 

Investor Conference Call Highlights

  1. Collections in the housing business are around 70-75%.
  2. The company has tied up with Airtel Payments Bank and is rolling out the Airtel Payments Bank points as collection points.
  3. The company has seen a dramatic rise in digital collections from 16% in Q1 to 37% in July.
  4. The company is in a very advanced API integration stage now.
  5. The company is going to launch a BBPS integrated platform for our customers to make payments. It is expected to accommodate all apps available on BBPS for payments. This is expected to improve collection efficiency and free up a lot of time and manpower on the field.
  6. The company is planning to deploy the excess field staff into early-stage businesses of personal loans and vehicle finance, mostly through tele-calling.
  7. The company now has more than 7000 personnel working on the collection.
  8. In terms of geography, the North had a better repayment rate followed by the South, followed by East, and then lastly West.
  9. In July the company saw a better collection rate of 65% in rural vs 58.5% in urban areas.
  10. Total provisions stand at Rs 370 Cr which is 2.6% of the total balance sheet.
  11. The company reduced its deposit rates by 125 bps QoQ in Q1.
  12. The company is now close to deploying its own video KYC solution. It is also in the advanced stages of a few other robotic process automation projects.
  13. The greatest focus will be on digital acquisition for all business segments.
  14. The company is looking to pilot gold loans and other variants in its existing loan products.
  15. The expansion will be dependent on 3 factors which are:
    1. New product categories
    2. Cross-selling to existing customers
    3. Digital partnerships to acquire more customers and offer more services with other fintech companies
  16. The company is not too concerned with the loss of income for its customer base as the majority of them are running their own business. Also, the company is always looking for a secondary source of income according to its underwriting policies. This reduces dependence on one income source for customers.
  17. Nearly 50% of customers are engaged in essential services of groceries, dairy, etc.
  18. The company was able to bring down costs as the cost of funds and the cost of deposits have come down for them. The management has stated that the cost of funds is likely to continue down.
  19. Most of the reduction in operating expenses was due to the rise of digital and the fall in travel and related expenses. The management has stated that all of the reductions are not expected to be permanent as expenses related to the growth of the new business will indeed come back but some will sustain due to change in operating mechanisms like in the case of a rise in digital customer acquisitions.
  20. The company is also looking to pay back some of its grandfathered high-cost loans since it has so much excess liquidity.
  21. Opex to average assets was at 5.8% in Q1 where 5% was all fixed costs.
  22. The cost to sales would have been at 59.6% vs the reported 55.9% in case no rent renegotiations.
  23. The management has admitted that it is hard to say definitively how long it will take for collection efficiency to come back to above 95%.
  24. In mobile-only banking, the bank has around 531,000 customers all of which are non-micro banking and retail customers.
  25. The average balance in the micro banking side has come down to below Rs 1000 from Rs 1500-1600 before COVID-19 as a result of people dipping into their savings in current uncertain times.
  26. The management believes that the bank is currently adequately capitalized and it should not need to raise any additional capital until the end of FY21 at least.
  27. Only 6% of the customer set is part of the catering industry. Around 1% of customers are in transportation and 3% are into household help and maid services.
  28. Around 21% of customers are in small scale manufacturing while 20% are in agriculture, 16% in dairy, and 16% in essential groceries.
  29. In the MSE portfolio, around 20% is eligible for the CGT-MSE scheme. The bank is still finalizing the whole product program and is planning to roll it out at the end of August.
  30. The interest capitalization under moratorium is at Rs 450-500 Cr.
  31. In new products, the bank is looking to capitalize on its existing customer set. For example, in the recently expedited used vehicle finance division, it is targeting family members of existing micro-banking customers. It is looking to cater to the existing set of customers and strengthen relationships with them through all possible product categories.
  32. In the MSME segment, the company has maintained rigorous checks which include the standard rule like three lenders, overall exposure limit, and additional checks like tele-verification which has also been implemented in Microfinance. The bank remains cautious and had reduced disbursement in May to maintain overall quality of the portfolio. As a result, the segment is seeing almost 99% repayment.
  33. In the case of repeat loans to MFI customers, they have been provided the new loans only on complete payment of existing loans.
  34. The management has stated that the company had borrowed Rs 600 Cr from NHB and Rs 500 Cr from SIDBI at low cost as it wanted to change of borrowing mix and reduce overall costs for the bank. The company will continue this rebalancing of the funding mix until it reaches a more acceptable level of cost of funds for ourselves, which will get reflected in its cost of deposits. It will continue to repay high-cost loans and replace them with low-cost borrowings.
  35. In the case of the moratorium, the company will only add the accrued interest into the principal and it will not be looking at interest on interest in this period.
  36. The management is not concerned by the higher collection efficiency by other industry players as it remains confident on its customer set and its underwriting policies and the fact that it has been generous in granting moratorium to everyone who asked for it and is not being aggressive in its collections to maintain good relationships with all customers.

Analyst’s View

Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest and most diversified company in this sector in terms of geographical reach. The company has done well to maintain deposit growth in Q1. It has also seen encouraging results in its digital acquisition efforts. The company has indeed seen low collection efficiency as compared to its peers due to the high proportion of the book in the moratorium. The bank is doing well in keeping track of its customer base and keeping in touch with them and collecting relevant survey data to identify which segments of its customer set have been affected the most from COVID-19. It is encouraging that the bank is now looking to focus on transforming its operations to a more contactless mechanism using digital techniques and concentrating on repeat business from customers with a good operational and repayment history all the while deploying its excess workforce into new product segments. It remains to be seen what is the exact extent that the MFI sector has been damaged by COVID-19 and how the industry will fare once the moratorium ends in September. 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 just above 2 times book value.


 

 

Q4 FY20 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 809.7 602.2 34.46% 781.3 3.63% 3025.8 2037.6 48.50%
PBT 93.7 72.2 29.78% 113.5 -17.44% 466.2 268.4 73.70%
PAT 73.2 63.8 14.73% 89.7 -18.39% 349.9 199.2 75.65%

Detailed Results

    1. The company had a stellar quarter with more than a 35% growth in YoY revenues. FY20 revenues were up 48.5% YoY showcasing a good year for the bank.
    2. The profits for the company rose 15% YoY while PBT growth was also 30% YoY in Q4. These figures were subdued because of the increased provision made of Rs 96.88 Cr in Q4.
    3. The company made disbursements of Rs 3254 Cr in the current quarter vs Rs 3728 Cr last year.
    4. The gross loan portfolio has risen to Rs 14153 Cr registering a YoY growth of 28%.
    5. Secured loans now constitute 22% of all loans as compared to 14% a year ago.
    6. GNPA in Q4 was at 1% while NNPA was at 0.2%. An additional write-off of Rs 19.2 Cr was taken in Q4. COVID-19 provisioning was at Rs 70 Cr.
    7. Deposits were up 46% YoY to reach Rs 10780 Cr covering 76% of total loans vs 67% a year ago.
    8. Retail deposits are now at 44% of total deposits vs 37% a year ago. CASA has improved to 14% vs 11% a year ago. CASA was up 86% YoY.
    9. Net Interest Income rose 46% YoY.
    10. Net interest margin declined slightly to 11.2% in Q4FY20 vs 10.8% a year ago.
    11. Cost to income ratio was reduced to 65% from 78% a year ago.
    12. ROA and ROE for the company rose to 1.6% (vs 2% a year ago) and 9.3% (vs 14.2% a year ago) in Q4.
    13. ROA and ROE for the company rose to 2.2% (vs 1.7% a year ago) and 13.9% (vs 11.5% a year ago) in FY20.
    14. The company maintained an LCR of 261%. CRAR improved to 28.8% vs 18.9% a year ago.
    15. The number of customers rose to 52.5 lakh from 46.1 lakh a year ago.
    16. The top 3 states Tamil Nadu, Karnataka, and West Bengal account for 44.9% of total advances.
    17. Group loans constitute 65.8% of all advances and have grown 10.3% YoY.
    18. The average ticket size in group loans is at Rs 35440.
    19. The company PCR for Q4 was at 80%.
    20. The average cost of funds has gone down to 7.9%.
    21. The book value per share was at Rs 17.3 per share.

Investor Conference Call Highlights

  1. The bank has offered moratorium to almost 70% of its customers.
  2. Around 60% of the bank’s branches are fully operational at present.
  3. The bank has gotten a reaffirmed credit rating of A1+.
  4. Around 50% or more of the customer set for the company is engaged in essential services like groceries, dairy, etc.
  5. The management has stated that there isn’t any issue arising from the exodus of migrant labour as most of the bank’s customers are women borrowers. The bank has a policy to only lend to people who have stayed at the same residence for at least 5 years which does not allow any floating population in the customer set.
  6. Around 91% of the bank’s customers are in allied Agri or dairy business which has not seen any drop in demand due to COVID-19.
  7. The bank has been able to take some funds at low cost from SIDBI under the Atmanirbhar package from the Indian Government and the management expects the overall cost of funds to go down due to this.
  8. The management expects demand for credit to remain steady especially in rural regions mainly on the back of expectations of normal monsoons.
  9. The management sees a good opportunity to reduce customer acquisition costs using digital techniques.
  10. The basis for arriving at Rs 70 Cr of COVID-19 provisioning was that it represents 2.5% of the bank’s portfolio.
  11. The management has stated that around 90% of the overall portfolio is under moratorium with 99% in micro banking, 70% in MSE & housing, and 60% in personal loans.
  12. The management maintained that the bank did not see any premature withdrawal of deposits due to the Yes bank moratorium event.
  13. The total CASA for the bank is at Rs 1459 Cr with savings at Rs 1230 Cr and current at Rs 229 Cr. Around 44% of deposits are retail and the rest are wholesale.
  14. The concentration of top 10 customers is at 17-18% of the portfolio at the bank level.
  15. From the survey done on the bank’s customer set, the bank found out that only 4% of customers said that it will take 3-6 months for them to recover from the COVID-19 impact. The rest 96% did indeed report some reduction in income but their work seems secure at the moment.
  16. In the FIG book, less than 40% of value has been under moratorium as reported by the management.
  17. Around 40-44% of the total book falls in the red zone while 16% falls in the green zone. The rest of the book falls in the orange zone.
  18. The management believes that a large portion of the business will continue to come from repeat businesses and a large portion of repeat business can be done in a contactless manner which can lead to cost savings.
  19. The management has stated that the company has an adequate amount of workforce currently and thus it didn’t see any need add to current headcount since December. The efficiencies going forward are expected to come from implementing new technologies and contactless lending.
  20. The bank has put on hold its plan for branch expansion and is expected to revisit it after Q2 this year.
  21. The management has stated that there will definitely be a need for top-up and other kinds of emergency loans and the bank will definitely be ready with it. Collections are largely expected to improve as compared to April but to what extent exactly remains debatable until everything opens up.
  22. The bank is not seeing any adverse change in customer behaviour due to the moratorium. The management believes that there aren’t any wilful defaulters here in the customer set that the bank has. In the MSE & housing loan space, the bank has LTV of 40% and thus it has more than adequate collateral to cover defaults and even provide emergency loans to customers in this division.
  23. As things open up, the management has stated that the bank shall focus on repayment and extending credit to good customers.
  24. The management has stated that misc income is what the banks get for banking operations and cards and AMC income. Most of these are through digital transactions and thus as digital transactions for the bank is rising so is misc income.

Analyst’s View

Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest and most diversified company in this sector in terms of geographical reach. The company has done well to deliver a good performance in Q4 after its bumper listing. But despite all the good performance, the bank is staring at an impending dip in performance due to the disruption caused by COVID-19 in the upcoming quarter. The bank is doing well in keeping track of its customer base and keeping in touch with them and collecting relevant survey data to identify how the customer is being affected by COVID-19. It is a good sign that the bank is now looking to focus on transforming its operations to a more contactless mechanism using digital techniques and concentrating on repeat business from customers with a good operational and repayment history. It remains to be seen what is the exact extent that the MFI sector has been damaged by COVID-19 and what issues will this industry face going forward. 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 under 2 times book value.


 

 

 

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 781.31 510.87 52.94% 729.36 7.12% 2216.17 1435.34 54.40%
PBT 144.01 72.86 97.65% 141.39 1.85% 446.64 224.44 99.00%
PAT 89.66 45.31 97.88% 92.63 -3.21% 276.77 135.44 104.35%

Detailed Results

    1. The company had a stellar quarter with more than 53% growth in YoY revenues.
    2. The profits for the company rose in line with revenues to grow more than 98% YoY while PBT growth was also 98% YoY in Q3.
    3. The company made disbursements of Rs 3403 Cr in the current quarter which was up 18% YoY.
    4. The gross loan portfolio has risen to Rs 13617 Cr registering a YoY growth of 46%.
    5. Secured loans now constitute 21% of all loans as compared to 16% a year ago.
    6. GNPA in Q3 was at 0.9% while NNPA was at 0.3%. An additional write-off of Rs 12 Cr was taken in Q3.
    7. Deposits rose 98% YoY to reach Rs 10656 Cr covering 78% of total loans vs 58% a year ago.
    8. Retail deposits are now at 43% of total deposits vs 36% a year ago. CASA was improved to 12% vs 10% a year ago.
    9. Net Interest Income rose 52% YoY.
    10. Net interest margin declined slightly to 10.9% in Q3FY20 vs 11% a year ago.
    11. Cost to income ratio was reduced to 71.3% from 77.8% a year ago.
    12. ROA and ROE for the company rose to 2.1% (vs 1.7% a year ago) and 14% (vs 10.4% a year ago).
    13. The top 3 states Tamil Nadu, Karnataka, and West Bengal account for 45.5% of total advances.
    14. Group loans constitute 67.6% of all advances and have grown 25.2% YoY.
    15. The average ticket size in group loans is at Rs 35086.
    16. The company PCR for Q2 was at 60%.
    17. The average cost of funds has gone down to 8.1%.
    18. The company maintained a CRAR of 27.5% in Q2.

Investor Conference Call Highlights

  1. The management has admitted that it had seen signs of overheating in the microfinance sector in north Assam and thus the company had slowed down its activities and were only servicing existing customers in the region in the quarter.
  2. The non-microfinance book is now 22% of total advances mainly driven by affordable housing loans.
  3. The company added digital savings and digital fixed deposits in the quarter and has received a good response in these products.
  4. In the vehicle loan business, the company wants to focus on the mass market and most in 2-3 wheelers with special focus on electric 3 wheelers.
  5. The management has guided that the company is targeting 75-80% of advances to be funded by deposits and to bring CASA up to 25% from current levels of 12% in the next 2-3 years.
  6. The company also hopes to bring the cost to income ratio down to 70% by the end of FY20.
  7. The company is running a pilot for the abovementioned electric 3 wheeler loans and the company sees good demand for this product.
  8. The collection efficiency in Assam has been 99% in the quarter.
  9. The company will stay focused on building small and granular CASA and reduce account concentration despite doing so will cause the CASA build-up to slow.
  10. The company is running many initiatives and scaling up of businesses. For example, the company is looking to leverage digital capabilities to reduce customer onboarding costs, etc.
  11. The management has mentioned that it does not see any signs of the overheating contagion spreading to neighbouring states from Assam.
  12. The management has mentioned that the company will aim to calibrate its growth slowly and not expand aggressively from now on as the company has done in the past 2 years.
  13. The rough plan for the future is for the company to use digital transaction data of its individual customers and recommend other products (cross-selling) based on their transactional behaviour. But this is a long term plan and the company needs a lot bigger transactional behavior database to be able to optimize this service mechanism.
  14. The company is actively trying and expanding into those segment clusters only that the management feels to be currently unaffected by market trends and avoid segments that have been hit hard like the auto sector.
  15. The company is maintaining a cautious stance in Karnataka and maintain a tighter control on acquiring new customers and keep an eye on signs of overheating.

Analyst’s View

Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest company in this sector in terms of geographical reach. The company has done well to deliver a good performance in Q3 after its bumper listing. Despite all the growth momentum on its side, the management remains cautious and have been proactive in handling signs of industry overheating like the one that happened recently in Assam. The management has also indicated that the company will now be pursuing a more moderate pace of growth and expansion as compared to the recent past. It remains to be seen whether the company will be able to maintain the same growth momentum despite slowing down its expansion plans in the near future. Nonetheless, given the company’s geographical reach and stellar performance in the past, Ujjivan SFB remains one of the top choices for investors interested in the themes of microfinance and micro-banking. Valuation is stretched for sure at more than 5 times FY19 book value. An investor looking to invest must carefully weigh the growth opportunity vis-a-vis the risks attached to the sector.

 

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