Aditya Birla Money’s IPO report on Ujjivan Small Finance Bank
Ujjivan Small Finance Bank Ltd (USFB), promoted by Ujjivan Financial Services Ltd (UFSL), is a mass market focused small finance bank (SFB), catering to the unserved & underserved segment. USFB is doing an IPO to meet the RBI regulation which requires the SFB to list within a period of 3 years. Currently, the holding promoter company UFSL is listed which will have 83.3% stake in USFB post IPO. As per RBI guidelines, the promoter is required to reduce its shareholding in SFB to 40% within a period of 5 years from the date of commencement (1st Feb, 2017 for USFB) of business operations. This could act as an overhang on the stock. However, once the IPO process is completed, USFB will consult the RBI on the reverse merger process which if approved, will act as a positive trigger. These events outcome are likely to have significant bearing on stock price in medium term. The IPO consists of fresh issue of ` 7.5 bn.
Valuation and Outlook
The bank has been delivering strong growth in recent times with steady shift in business model from micro-banking to a diversified SFB. Deposits have been growing at strong pace, led by retail deposits and CASA. With this capital raise, the company will be more than adequately capitalised for growth. Besides, the company earns healthy return ratios with RoA of ~2.5% and RoE of ~19%. At higher price band of ` 37, the stock is attractively priced at 2.2x P/ABV post considering the fresh capital infusion. This leaves enough room for stock appreciation. Recommend investors to SUBSCRIBE the issue for listing gains.
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