Ujjivan Small Finance Bank IPO Review (USFB IPO)

Ujjivan Small Finance Bank IPO (USFB IPO) comprises fresh issue of equity shares aggregating up to Rs. 750 crore and a reservation of equity shares aggregating up to around Rs. 75 crore for subscription by eligible shareholders of Ujjivan Financial Services. The IPO comes in the background that Ujjivan Small Finance Bank (USFB) is required to list its equity shares on the stock exchanges within three years from the date of commencement of business by the bank.

Ujjivan Small Finance Bank IPO Details

Issue PeriodDec 2 – Dec 4, 2019
Anchor Investor Bidding 29th November, 2019
Issue Size DetailsRs. 750 Cr
Price BandRs.  36 – 37
Bid Lot400 Equity Shares 
UFSL Shareholders ReservationEquity Shares of Rs. 75 Cr
UFSL Shareholders Discount₹ 2/- per Equity Share
Issue Structure : 
QIB75% of the Net offer 
NIB15% of offer-  27,364,864 Shares-  Rs. 101.25 Cr
Retail10% of Net offer- 18,243,243 Shares ₹ 67.50 Cr)
BRLMsKotak Mahindra Capital, IIFL Securities, JM Financial
RegistrarKarvy Fintech Pvt. Ltd.

About Ujjivan Small Finance Bank

  • Ujjivan Financial Services Ltd (“UFSL”) the Promoter of Ujjivan Small Finance Bank Ltd (“USFB”) was granted the RBI In-Principle Approval to establish an Small Finance Bank (“SFB”), on October 7, 2015. USFB was incorporated on July 4, 2016.
  • Ujjivan Small Finance Bank commencing operations on 1 February 2017 is a mass market focused small finance bank (SFB) in India, catering to unserved and underserved segments.
  • Ujjivan Small Finance Bank is included in the second schedule to the Reserve Bank of India Act, 1934 as a scheduled bank on July 3, 2017.
  • The bank is promoted by Ujjivan Financial Services (UFSL) – an NBFC which began operations 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. Ujjivan Financial Services is among the 10 recipients of SFB license from the Reserve Bank of India (RBI) in 2015.
  • As on March 2019, the Bank is spread across 24 states and union territories end March 2019. As on September 2019, it has 4.94 million customers and operated from 552 Banking Outlets . In FY2019 alone, the bank has operationalized 287 banking outlets. The bank has a network of 441 ATMs (including 18 ACRs), two 24/7 phone banking units based in Bengaluru and Pune that service customers in 11 languages, and a mobile banking application that is accessible in five languages as well as internet banking facility for individual and corporate customers.
  • Ujjivan Small Finance Bank portfolio of products and services includes various asset and liability products and services.
  • The asset products consist of : (i) loans to micro banking customers that include group loans and individual loans, (ii) agriculture and allied loans, (iii) MSE loans, (iv)affordable housing loans, (v) financial institutions group loans, (vi) personal loans, and (vii) vehicle loans.
  • The bank offers savings accounts, current accounts and a variety of deposit accounts. In addition, the bank also provides non-credit offerings comprising ATM-cum-debit cards, Aadhaar enrolment services, distribute third party insurance products and point of sales (POS) terminals.
  • The bank has a network of 412 branches and 290 ATMs spread across 16 states and four union territories end September 2019, in addition to various alternate channels such as micro ATMs, debit cards, internet banking, mobile banking, point of sale services and UPI. The bank is primarily focused in the states of Kerala and Tamil Nadu.

Ujjivan Small Finance Bank : Financials

Particulars / Rs.cr.HY20HY19201920182017
Gross Advances 12,863.658,319.2311,048.597,561.206,383.98
Interest Earned1,259.70833.331,831.611,467.88217.01
EBITDA (%)23.42%18.90%17.96%3.42%2.75%
Profit Before Tax259.04130.36268.428.541.19
Net Profit187.1190.13199.226.860.04
Net Profit Margin14.85%10.82%10.88%0.47%0.02%
Net Interest Margin10.64%10.88%10.93%10.31%8.36%
Equity Share Capital1,440.041,440.041,440.041,440.041,440.04
Reserves 353.4497.03179.596.90.04
Net worth1,993.481,737.071,819.631,646.941,640.07
Gross NPAs109.4153.8997.85275.9216.4
Net NPAs42.5323.3527.5550.931.8
EPS (Rs.) 1.210.631.20.050
RoNW (%) 9.39%5.19%9.49%0.42%0.00%
Net Asset Value (Rs.)13.8412.0612.6411.4411.39
Post IPO equity1728.22
BV (Post IPO)16.4
Face Value (Rs.)10
IPO Price37
EPS (post IPO)- ann2.17
PE (Post IPO)17.09
P/ BV (post IPO)2.26

Ujjivan Small Finance Bank IPO: Salient Points

  • As per Small Finance Bank listing guidelines, USFB is required to list its equity shares on the stock exchanges within 3 years from the date of commencement of business by the bank which is January 31, 2020. .
  • The bank proposes to utilize the IPO proceeds for augmenting its Tier-1 capital base to meet its future capital requirements and towards meeting the expenses in relation to the Issue.
  • Ujjivan Financial Services shareholders will get a discount of  Rs. 2 per equity share
  • The Promoter is required to reduce its shareholding in our Bank to 40% of our paid-up Equity Share capital within a period of five years from the date of commencement of our business operations and thereafter required to reduce its shareholding to 30% and 26% of paid-up Equity Share capital within a period of 10 years and 12 years, respectively from the date of commencement of our business operations.
  • The bank in Nov. 2019 issued 71,428,570 equity shares for Rs 250 crore in a pre-IPO placement at Rs 35 per share.

Ujjivan Small Finance Bank IPO: Assessment

  • Small Finance Banks (SFBs)are a type of niche banks in India , mainly focused on providing financial inclusion and catering to the needs of needy and unserved segments of the society.
  • The ability of SFBs to take deposits gives them an edge of having a lower cost of funds vis-a-vis NBFCs and Micro finance companies.
  • USFB has deep understanding of mass market serving unserved and underserved segments.
  • Bank’s GNPA was the lowest among the small finance banks in India end March 2019.
  • Ujjivan Small Finance Bank has exhibited strong growth in Loan Book, Disbursements, Retail deposits, robust NII growth led by gross advances.
  • Professional management, experienced leadership with focus on employee welfare. USFB jumped to 6th rank as India’s best companies to work with as declared by Great Place To Work Institute.
  • The Bank has a robust risk management framework and a reasonable string track record of financial performance.
  • Ujjivan Small Finance Bank annualized EPS on post-IPO equity share capital works out to Rs 2.2 which translates to a P/E of 17.1 times.
  • After the IPO, The Book Value shall stand at Rs 16.4, and Ujjivan Small Finance Bank is being offered at price to BV of 2.25 times at the upper price band.
  • The only listed SFB, AU Small Finance Bank is trading at P/BV of 7.16 times. Thus is considerably lower than the only listed peer AU Small Finance Bank.
  • The issue is very small with only 10% reserved for small investors.
  • The Ujjivan Small Finance Bank IPO looks quite attractive considering its track record, good asset quality, growth prospects and reasonable valuations. I intend to subscribe in the shareholder as well as in the retail quota.
  • NOTE : UFSL Shareholder Bidding in the Shareholder Reservation Portion as well as retail Investors should take care that Bids fall within the Limit of Rs. 200,000, net of UFSL Shareholder Discount. Bids by an Eligible UFSL Shareholder Bidding in the UFSL Shareholder Reservation Portion and in the Non-Institutional Portion shall be treated as multiple Bids

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering and Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2)  Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors.  I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or  leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.

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