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Ujjivan Small Finance Bank

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INTRODUCTION

Ujjivan Small Finance Bank is a mass market focused SFB in India catering to unserved and underserved segments and committed to building financial inclusion in the country. The promoters, UFSL, offers a complete set of financial services to the ‘economically active poor’ who were not sufficiently helped by any budgetary foundation.

Ujjivan Small Finance Bank had the most diversified portfolio, among all the leading SFBs in India, which was spread across 24 states and union territories as of March 31, 2019.

Bank served 4.94 million customers and worked from 552 Banking Outlets that included 141 Banking Outlets in Unbanked Rural and also operated 4 Asset Centers, as of September 30, 2019.

In Fiscal 2019, they opened 287 Banking Outlets and also had a network of 441 ATMs and two 24/7 phone banking units based in Bengaluru and Pune that serve customers in 11 languages, and a mobile banking application that is accessible in 5 languages, as of September 30, 2019.

The portfolio of products and services includes various asset and liability products and services comprising; loans to the micro banking customers that include group loans and individual loans, agriculture and allied loans, MSE loans, affordable housing loans, financial institutions group loans, personal loans, and vehicle loans.

The Gross Advances have grown from ₹ 63,839.77 million as of March 31, 2017 to ₹ 110,485.91 million as of March 31, 2019 and were ₹ 128,636.45 million as of September 30, 2019. The deposits have increased from ₹ 2,064.05 million as of March 31, 2017 to ₹ 73,794.40 million as of March 31, 2019 and were ₹ 101,298.49 million as of September 30, 2019. As of September 30, 2019, the percentage of gross NPAs to gross advances was 0.85% while the percentage of net NPAs to Net Advances was 0.33%. The profit after tax as restated for Fiscal 2018 and 2019 was ₹ 68.63 million and ₹ 1,992.18 million, respectively while for the six months ended September 30, 2019, the profit after tax as restated was ₹ 1,871.10 million.

STRATEGIES

Diversify product offerings to enable multiple customer relationships
We offer a range of loan and overdraft facilities to the customers, provide with financing facilities for electric vehicles, life insurance, general insurance, cash management, POS terminals, debit cards and fee collection solutions for educational institutions. By using multiple delivery channels, we endeavor to meet the financial needs of our customers and will be able to develop a stronger relationship with them.


Continue to focus on technology and data analytics to grow operations
They have put in place technology at the front-end, such as our mobile banking application, internet banking, missed call services, SMS banking, ATMs and ACRs which allow the customers to access the banking services round the clock from the convenience of their homes and neighborhoods.

Strengthen liability franchise and focus on increasing our retail base
They intend to further expand our retail deposit base through measured expansion of our Banking Outlets and offer digital savings and deposit products through internet and mobile banking to acquire new customers and also providing our existing customers with a convenient banking experience to meet the needs of their particular demographics.

Expand our distribution network to increase customer penetration
They intend to expand the Banking Outlets and infrastructure by focusing on rural and semi-urban areas and also believe these areas represent a significant opportunity for the continued growth as they expand banking services to those areas which have traditionally been underserved.

Focus on developing responsible banking behavior for unserved and underserved segments
A majority of customers still use cash for their transactions and the adoption of digital banking and payment gateways is minimal. We intend to take a number of initiatives to promote the use of bank accounts, UPI and digital payment gateways among such customers.

Diversify our revenue streams
They intend to leverage on the Banking Outlet network, digital channels and the increasingly diversified product and service portfolio to develop the fee and commission-based business.

STRENGTHS

Deep understanding of mass market serving unserved and underserved segments
Small finance banks locate at least 25% of their banking outlets in URCs, and at least 75% of adjusted address mass market customer segments has allowed them to become among the leading small finance banks in India in terms lending to micro banking customers with deposits from our micro banking customers constituting 6.75% of our total deposits.

Customer centric organization with multiple delivery channels
They have served 4.94 million customers as of September 30, 2019, and believe that customers prefer one source for multiple financial products and services and that the spectrum of products and services and allocating each customer with a relationship officer helps in customer.

Pan-India presence
As of September 30, 2019, they operated 131, 167, 173 and 81 Banking Outlets in the North, South, East and West regions, respectively. In Fiscal 2019, they operationalized 287 Banking Outlets. Their operations are well-diversified and in Fiscal 2019, no single state constituted more than 18.00% of overall loan portfolio.

Technology driven operating model with advanced digital platform
The number of banking transactions through our digital channels were 0.60% and 8.31% of our overall transactions in Fiscal 2018 and 2019, respectively and such transactions accounted for 18.29% of our overall transactions in the six months ended September 30, 2019.

Robust risk management framework
The credit risk monitoring policies seek to monitor and control performance of both our loan assets at account and portfolio levels, with account monitoring designed to identify and facilitate corrective action for weak accounts, and portfolio monitoring aimed at identifying credit stress in specific sectors and geographies.

Strong track record of financial performance
As of March 31, 2017, 2018 and 2019 and as of September 30, 2019, our percentage of gross NPAs to gross advances was 0.28%, 3.65%, 0.92% and 0.85%, respectively, while our percentage of net NPAs to Net Advances was 0.03%, 0.69%, 0.26% and 0.33%, respectively.

Professional management, experienced leadership with focus on employee welfare
As a performance driven organization, we have undertaken a number of measures towards employee welfare, including introduction of specific programs to address role specific regulatory requirements and build a culture of governance. SWAYAM, our learning application, was introduced in October 2018, which allowed our foray into technology-enabled, self-paced learning.

INITIAL PUBLIC OFFERING

BID/OFFER OPENS ON Dec 2,2019
ISSUE TYPE Book Built Issue
BID/OFFER CLOSES ON  Dec 4,2019
ISSUE SIZE Rs 750 Crore
ISSUE PRICE Rs36-Rs37 per Equity Share
FACE VALUE Rs 10 per Equity Share
MARKET LOT 400 shares
LISTING AT BSE, NSE

SHAREHOLDING PATTERN

The major Equity Shareholders holding 1% or more of the paid-up Equity Share capital of the Bank and the number of Equity Shares held by them as on the date of this Red Herring Prospectus are set forth in the table below:

Name of the Shareholder Number of Equity shares on a fully diluted bases Percentage of the Equity Share capital (%) on a fully diluted basis
UFSL 1,440,036,800 94.40
Total 1,440,036,800 94.40

INDUSTRIAL ANALYSIS

SMALL FINANCE BANKING INDUSTRY

In order to promote financial inclusion, the Indian banking industry has seen several changes in recent
years. NBFCs such as, Bandhan and IDFC, received permission to set up universal banks. Further, a few
microfinance companies, local area banks and NBFCs have received permission to set up SFBs. SFBs are
allowed to take deposits, which provide them an edge of having lower cost of funds in comparison with
NBFCs. MFIs turned into SFBs are now diversifying their advances mix, and focusing on other retail and
corporate lending business.

Industry Growth and Outlook
SFBs have grown at a CAGR of 26% from Fiscal 2016 to Fiscal 2019, in terms of assets under management (AUM). Top three SFBs accounted for 64% of the total SFB AUM in Fiscal 2019, compared to 53% in Fiscal 2016.
Assets under Management (Rs bn)

Deposits (Rs Bn)
Going forward, deposits are expected to grow at 68-70% CAGR between Fiscal 2019 to Fiscal 2021 as players focus on popularising convenient banking habits so that banking reaches the last mile and enhances financial inclusion.

Top 3 Players account for 64% of the industry AUM as of 2019


ANALYSIS OF VARIOUS SEGMENTS

Microfinance
Rising penetration is expected to help the microfinance industry grow at a CAGR of approximately 25% over the next three fiscals.
As of March 31, 2019, the microfinance industry has a total GLP of approximately ₹ 1.9 trillion and grew by 34% year-on year. Further, the number of microfinance accounts increased by 22% from 76.6 million as of March 31, 2018 to 93.3 million as of March 31, 2019.
Growth in Client base to drive MFI loan portfolio

Banks, including SFBs, are the market leaders; however, NBFC-MFIs share is also increasing
Banks provide loans under the SHG model; however, they also provide microfinance loans directly or through BCs to meet their PSL targets. After commencement of operations, SFBs with microfinance lending businesses have begun offering and focusing on other asset classes, including, affordable housing, MSEs and vehicle finance, after receiving the SFB license.
Banks & SFBs combined have more than half the share in gross loan portfolio


MSME Finance
MSME financing market is expected to grow at approximately 12% to 13% until Fiscal 2023 due to definite Government focus and initiatives
MSME financing along with LAP loans that are secured, have a significant outstanding amount of approximately ₹ 18 trillion as of March 31, 2019. This outstanding amount grew by 11% year- on-year, and was approximately ₹ 16.5 trillion as of March 31, 2018. To complement this growth, the number of user accounts have grown at a CAGR of approximately 10% from 12.9 million as of March 31, 2018 to 14.3 million as of March 31, 2019. With increased focus on easing the loan process for MSMEs, the loan outstanding amount is expected to reach approximately ₹ 26 trillion as of March 31, 2022.
Structural reforms & better access to credit to drive MSME loan growth


Region wise split of MSME segment
Eastern and central regions of India are underpenetrated and account for only 12% share, while southern and western regions of India account for approximately two-third of outstanding loans in the MSME segment, primarily due to organised nature of the MSMEs present in these regions.

Western & South region account for the lion share in MSME Segment

Personal Loan Segment
Personal loan increased at a CAGR of 35% over the last three Fiscals
The personal loan segment has been able to grow at a CAGR of approximately 35% from Fiscal 2016 to Fiscal 2019. In Fiscal 2019, the personal loan segment increased by 39% from approximately ₹ 30 billion to approximately ₹ 42 billion. Further, deeper credit penetration and increase in data availability as well as increasing use of non-traditional means to access the behavioural and payments data, are expected to lead to better credit related decision making which will help this segment continue to grow at a strong pace. It is expected that this segment will grow at CAGR of approximately 23% to 25% until Fiscal 2022.
Personal Loans segment has grown witnessed robust growth in the last few years

Personal loan accounts have grown at 34% from 16 million as of March 31, 2018 to reach approximately 22 million as of March 31, 2019. This is further expected to increase in the near term with increasing penetration and with the advent of robust technology to make effective decisions in the unsecured category.

Southern region is well-penetrated in personal loans; Eastern and Central region have a lower share
The southern region of India has large shares of personal loan customers due to enhanced penetration and is followed by the western and northern regions of India. The top eight cities currently hold approximately 29% of the market share.
Region wise share of personal loans (as of FY19)

Affordable housing loan (Ticket size < ₹ 2.5 million)
Affordable Housing Loan is expected to increase at a CAGR of approximately 9% to 10% till Fiscal 2022
The affordable housing loan segment has grown at a CAGR of 12% from Fiscal 2016 to Fiscal 2019. As of March 31, 2019, the outstanding loans was approximately ₹ 8.5 trillion, having grown from 11% from approximately ₹ 7.7 trillion as of March 31, 2018. The affordable housing loan is further expected to increase by approximately 9% to 10% until Fiscal 2022. Loans with ticket sizes from ₹ 1 million to ₹ 2.5 million are expected to grow faster than the low cost housing finance loans below ₹ 1 million.
Growth to be range in the medium term as in past three fiscals

The number of accounts for affordable housing loans have grown from 11 million to approximately 11.9 million as of March 31, 2019, at a CAGR of approximately 8%.

Western and southern markets account for two-thirds of the outstanding loans
With the high influx of affordable housing finance players, it is expected to continue with the major housing markets remaining to be saturated. The focus of buyers on these low cost options in low cost and affordable segment has spread across the regions, which was traditionally focused in the southern and western regions of India.
Region wise share in affordable housing in loans 2019

Low mortgage penetration and increasing lender interest to lead growth
While the mortgage-to-GDP ratio in India is very low at 12.4% as of March 31, 2019, mortgage penetration in affordable housing is considered to be even smaller. These banks tend to offer long-term mortgage loans, which extend to 20 years and require down payment between 10% and 30% of the home value, pay slips, and legal title to property.
Mortgage to GDP ratio in India compared with other countries (2017)

Trend in Mortgage to GDP ratio in India


FINANCIAL OVERVIEW

(Value in Rs Million)

Year Total Income Total Expenses  Profit Total Assets Borrowings
31 March 2017 2,238.74 2,238.39 0.35 84,359.05 62,914.o4
31 March 2018 15,793.55 15,724.92 68.89 94,728.73 38,528.45
31 March 2019 20,375.75 18,383.57 2,043.91 1,37,422.15 41,660.90
30 Sept 2019 14348.57 12,477.47 3,054.73 1,61,078.96 34,701.70

Total Income

Total Expenses

Profit

Total Assets

Borrowings

STASTICAL OVERVIEW

Year Basic EPS(Rs) RoNW(%)
31 March 2017 0 0
31 March 2018 0.05 0.42
31 March 2019 1.20 9.49

Basic EPS(RS)

RoNW(%)

COMPARISION WITH PEERS

 

Total Income(Rs Million)

Basic EPS(Rs)

P/E

RoNW(%)

NAV (Rs)

Ujjivan Small Finance Bank Limited

20,375.75

1.20

-

9.49

12.64

AU Small Finance Bank Ltd

34,108.65

13.16

60.85

12.07%

108.19

Equitas Holdings Limited

23,585.30

5.18

16.65

7.24%

71.57

Bandhan Bank Limited

77,070.99

16.36

34.23

17.42%

93.89

CreditAccess Grameen Ltd

12,833.20

23.37 1

33.08

13.18%

164.75

RBL Bank Limited

77,430.64

20.25 1

15.70

11.43%

176.58

DCB Bank Limited

33,916.47

10.53 1

17.35

10.44%

100.65

Total Income

Basic EPS(Rs)

P/E

RoNW(%)

NAV(Rs)

REFERENCES

  • Ujjivan Small Finance Bank RHP
  • www.ujjivansfb.in

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