Article

Ujjivan Small Finance Bank Ltd.- Information Note

16 Dec 2019 Nikita Bhoota

This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Herring Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so. This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.

Issue Opens: December 02, 2019

Issue Closes: December 04, 2019

Price Band: Rs36- 37

Face Value: Rs10

Public issue: Primary Issue Aggregating up to Rs750cr

Issue Size: ~Rs750cr

Bid Lot: 400 equity shares

% Shareholding

Pre IPO

Promoter and Promoter Group

94.4

Public

5.6

Company Background

Ujjivan Small Finance Bank (USFB) is a mass market focused SFB in India, catering to unserved and underserved segments and committed to building financial inclusion in the country. Among the leading SFBs in India, USFB has the most diversified portfolio, spread across 24 states and union territories as of March 31, 2019 (Source: CRISIL Report). As of September 30, 2019, the bank served 4.94 million customers and operated from 552 Banking Outlets. The bank’s asset products comprise: (i) loans to its 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. On the liability side, it offers savings & current accounts and a variety of deposit accounts. As of September 30, 2019, its percentage of gross NPAs to gross advances was 0.85%, while percentage of net NPAs to Net Advances was 0.33%. Its Gross Advances (including securitization/ IBPC) were Rs12,864cr

Object of the Offer

The objective of the Issue is to augment the bank’s Tier – 1 capital base to meet its future capital requirements such as organic growth and expansion and to comply with regulatory requirements for enhanced capital base. Further, the proceeds from the Issue will also be used towards meeting the expenses in relation to the Issue.

Financials

(Rs Cr., except percentages)

FY17*

FY18

FY19

H1-FY20

Gross Advances (including securitization / IBPC)

6,384

7,561

11,049

12,864

Total Disbursements

933

8,072

11,111

6,583

Total Assets

8,436

9,473

13,742

16,108

Total Deposits

206

3,773

7,379

10,130

 

Total Income

224

1,579

2,038

1,435

Net Interest Income

108

861

1,106

740

PAT

0

6.9

199

187

 

Return on average equity (%)

0.02

0.42

11.49

19.57^

Return on average assets (%)

0.00

0.08

1.72

2.51^

Cost to income ratio (%)

95.35

67.13

76.45

66.95

GNPA (%)

0.28

3.65

0.92

0.85

NNPA (%)

0.03

0.69

0.26

0.33

 

CASA to Total Deposits (%)

1.57

3.68

10.63

11.87

Retail to total deposit ratio (%)

3.15

11.32

37.07

41.93

Source: RHP; *UFSBL commenced operations in Feb 2017 and thus reflects only 2 months of operations, ^on annualized basis

For additional information and risk factors please refer to the Red Herring Prospectus. Please note that this document is for information purpose only

Key Points

USFB has served 4.94 million customers as of September 30, 2019, and the bank considers its customers to be the most significant stakeholders at the core of its operations. USFB believes that customers prefer one source for multiple financial products and services, and hence, the bank’s spectrum of products and services coupled with allocating each customer with a relationship officer helps in customer acquisition and retention. The bank launched “Sampoorna Banking” in April 2019 that extends full banking services including education loans, vehicle loans, deposits, funds transfer facilities and distribution of insurance to families of their existing micro banking customers. On the liability side, they offer a variety of demand deposits and other services so that its customers can realize their savings goals. To constantly assess its customers’ requirements and feedback for the introduction of new products, the bank has a dedicated service quality department to focus on customer retention, customer protection and grievance redressal. Customer satisfaction scores of its Banking Outlets have improved from 77.11% in FY18 to 78.53% in FY 2019.

USFB has an established risk management framework to identify, measure, monitor and manage credit, market, liquidity, IT and operational risks. The bank has implemented credit management models such as decentralized loan sanctioning and stringent credit history checks. USFB continually uses technology and data analytics to manage credit risks and its in-house analytics team has developed a credit application scorecard to make informed decisions on lending. The bank’s effective credit risk management also reflects in its portfolio quality indicators such as robust repayment rates, stable portfolio at risk and low gross and net NPAs. As of September 30, 2019, its gross NPAs accounted for 0.85% of its gross advances, while its net NPAs accounted for 0.33% of its Net Advances. The bank’s GNPA was the lowest among the small finance banks in India, as of March 31, 2019 (Source: CRISIL Report). Its effective risk management framework is also evident from its low portfolio at risk ratio that was 1.49% and 1.64% as of March 31, 2019 and September 30, 2019, respectively.

Key Risk

Its loan portfolio contains significant advances towards micro banking segment, particularly through group loans. As of March 31, 2017, 2018, 2019 and September 30, 2019, advances in its micro banking business accounted for 97.50%, 92.55%, 84.67% and 79.22%, respectively, of its total Gross Advances (including securitization/ IBPC). They significantly depend on their micro banking business, particularly group loans, and any adverse developments in this segment could adversely affect the bank’s business, results of operations, financial condition and cash flows.

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Ujjivan Small Finance Bank Ltd.- Information Note

16 Dec 2019 Nikita Bhoota

This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Herring Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so. This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.

Issue Opens: December 02, 2019

Issue Closes: December 04, 2019

Price Band: Rs36- 37

Face Value: Rs10

Public issue: Primary Issue Aggregating up to Rs750cr

Issue Size: ~Rs750cr

Bid Lot: 400 equity shares

% Shareholding

Pre IPO

Promoter and Promoter Group

94.4

Public

5.6

Company Background

Ujjivan Small Finance Bank (USFB) is a mass market focused SFB in India, catering to unserved and underserved segments and committed to building financial inclusion in the country. Among the leading SFBs in India, USFB has the most diversified portfolio, spread across 24 states and union territories as of March 31, 2019 (Source: CRISIL Report). As of September 30, 2019, the bank served 4.94 million customers and operated from 552 Banking Outlets. The bank’s asset products comprise: (i) loans to its 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. On the liability side, it offers savings & current accounts and a variety of deposit accounts. As of September 30, 2019, its percentage of gross NPAs to gross advances was 0.85%, while percentage of net NPAs to Net Advances was 0.33%. Its Gross Advances (including securitization/ IBPC) were Rs12,864cr

Object of the Offer

The objective of the Issue is to augment the bank’s Tier – 1 capital base to meet its future capital requirements such as organic growth and expansion and to comply with regulatory requirements for enhanced capital base. Further, the proceeds from the Issue will also be used towards meeting the expenses in relation to the Issue.

Financials

(Rs Cr., except percentages)

FY17*

FY18

FY19

H1-FY20

Gross Advances (including securitization / IBPC)

6,384

7,561

11,049

12,864

Total Disbursements

933

8,072

11,111

6,583

Total Assets

8,436

9,473

13,742

16,108

Total Deposits

206

3,773

7,379

10,130

 

Total Income

224

1,579

2,038

1,435

Net Interest Income

108

861

1,106

740

PAT

0

6.9

199

187

 

Return on average equity (%)

0.02

0.42

11.49

19.57^

Return on average assets (%)

0.00

0.08

1.72

2.51^

Cost to income ratio (%)

95.35

67.13

76.45

66.95

GNPA (%)

0.28

3.65

0.92

0.85

NNPA (%)

0.03

0.69

0.26

0.33

 

CASA to Total Deposits (%)

1.57

3.68

10.63

11.87

Retail to total deposit ratio (%)

3.15

11.32

37.07

41.93

Source: RHP; *UFSBL commenced operations in Feb 2017 and thus reflects only 2 months of operations, ^on annualized basis

For additional information and risk factors please refer to the Red Herring Prospectus. Please note that this document is for information purpose only

Key Points

USFB has served 4.94 million customers as of September 30, 2019, and the bank considers its customers to be the most significant stakeholders at the core of its operations. USFB believes that customers prefer one source for multiple financial products and services, and hence, the bank’s spectrum of products and services coupled with allocating each customer with a relationship officer helps in customer acquisition and retention. The bank launched “Sampoorna Banking” in April 2019 that extends full banking services including education loans, vehicle loans, deposits, funds transfer facilities and distribution of insurance to families of their existing micro banking customers. On the liability side, they offer a variety of demand deposits and other services so that its customers can realize their savings goals. To constantly assess its customers’ requirements and feedback for the introduction of new products, the bank has a dedicated service quality department to focus on customer retention, customer protection and grievance redressal. Customer satisfaction scores of its Banking Outlets have improved from 77.11% in FY18 to 78.53% in FY 2019.

USFB has an established risk management framework to identify, measure, monitor and manage credit, market, liquidity, IT and operational risks. The bank has implemented credit management models such as decentralized loan sanctioning and stringent credit history checks. USFB continually uses technology and data analytics to manage credit risks and its in-house analytics team has developed a credit application scorecard to make informed decisions on lending. The bank’s effective credit risk management also reflects in its portfolio quality indicators such as robust repayment rates, stable portfolio at risk and low gross and net NPAs. As of September 30, 2019, its gross NPAs accounted for 0.85% of its gross advances, while its net NPAs accounted for 0.33% of its Net Advances. The bank’s GNPA was the lowest among the small finance banks in India, as of March 31, 2019 (Source: CRISIL Report). Its effective risk management framework is also evident from its low portfolio at risk ratio that was 1.49% and 1.64% as of March 31, 2019 and September 30, 2019, respectively.

Key Risk

Its loan portfolio contains significant advances towards micro banking segment, particularly through group loans. As of March 31, 2017, 2018, 2019 and September 30, 2019, advances in its micro banking business accounted for 97.50%, 92.55%, 84.67% and 79.22%, respectively, of its total Gross Advances (including securitization/ IBPC). They significantly depend on their micro banking business, particularly group loans, and any adverse developments in this segment could adversely affect the bank’s business, results of operations, financial condition and cash flows.

Research Disclaimer