IPO ANALYSIS

By –Praneet Agrawal
ABOUT THE ISSUE

Opening Date – 2nd December 2019

Closing Date – 4th December 2019

The Issue comprises of a Fresh Issue

Fresh Issue Up to 97,663,910 Equity Shares

No. of shares offered are 12,39,58,333 at a face value of Rs. 10

Shareholding % Pre-Issue Post-Issue

Promoters & Promoters Group 94.4% 83.32%

Institution/Public 5.6% 16.68%
Total 100.00% 100.00%
ISSUE SUMMARY

Price band – Rs. 36-37

Bid Lot – 400 Shares and in multiples thereof

OBJECTIVE FOR ISSUE

In terms of the RBI In-Principle Approval, RBI Final Approval and SFB Licensing Guidelines, the Bank
is required to list its Equity Shares on the Stock Exchanges within three years from the date of
commencement of business by the Bank, i.e., January 31, 2020.

The fresh issue is to augment Bank’s Tier-I capital base to meet future capital requirements.
The proceeds from the issue will be used towards meeting the expenses in relation to the issue.

BASIS FOR ISSUE PRICE

Two fundamental factors used for computing the issue price are Basic and Diluted Earnings Per Share
(“EPS”) as adjusted for changes in capital, and Price/Earning (“P/E”) ratio in relation to Price Band of Rs.
36 to 37 per Equity Share.
 Fiscal Year ended Basic EPS Diluted EPS Weight

March 31, 2017 0.00 0.00 1

March 31, 2018 0.05 0.05 2
March 31, 2019 1.20 1.20 3
Weighted Average 0.62 0.62
Three months period 0.66 0.66
ended June 30, 2019

Industry Peer Group P/E ratio Industry P/E

Highest 53.04
Lowest 18.67
Industry Composite 27.40

Considering the weighted average EPS and the price band, the P/E ratio comes out to be 30 to
30.83 which is well above the industry composite.
Ujjivan’s comparison with other listed players:

Name of the Total Face Book EPS

company Value Value RONW (%) P/B CASA (%) GNPA (%)
Income
Ujjivan SFB 20,375.75 10 12.64 1.20 9.49 2.93 10.63 0.90

AU SFB 34,108.65 10 108.19 13.16 12.07 5.51 21.00 2.00

Equitas
23,585.30 10 71.57 5.18 7.24 1.40 25.20 2.50
Holdings
Bandhan
77,070.99 10 93.89 16.36 17.42 5.61 33.00 1.76
Bank
CreditAccess 10 164.75 23.37 13.18 6.53 - 0.60
12,833.20
Grameen
RBL Bank 77,430.64 10 176.58 20.25 11.43 3.38 26.50 2.60

DCB Bank 33,916.47 10 100.65 10.53 10.44 2.21 23.00 2.09

ABOUT THE COMPANY

Incorporated in 2017, Ujjivan Small Finance Bank Limited (USFB) offers small finance to underserved
& unserved segments in India. The bank aims to work for the financial inclusion of the country. Ujjivan
Small Finance Bank is promoted by Ujjivan Financial Services Limited (UFSL) which is a Non-Banking
Finance Company providing financial services to the economically active poor, who are not served by the
Financial Institutions.
Ujjivan Financial Services Limited offers small size loan products to economically poor women,
individual loans to Micro and Small Enterprises (MSEs). It follows the integrated lending approach
where the company considers technology infrastructure and back-end support functioning before lending.
Ujjivan Small Finance Bank has a wide presence across 24 states and union territories in India. As on 30
June 2019, it has 4.72 million customers, 474 Banking Outlets, 387 ATMs, two 24/7 phone banking units
(in Bengaluru and Pune) and 50 additionally operated Asset Centres. Customers can use Ujjivan Small
Finance Bank mobile banking application in 5 languages.
Ujjivan’s assets consist of retail loans, SME loans and Small Enterprise loans -

Type of Loan Percentage Share

Group loans 75%
Micro individual loans 8%

Affordable housing 8%
MSE 5%
Rural 2%
Others 2%

The liability products consist of savings accounts, current accounts and a variety of fixed deposit accounts
FACTORS TO CONSIDER BEFORE INVESTING

Ujjivan’s strength lies in microfinance. It has a network of 552 Banking Touchpoints and 385 ATM’s in 233
districts in 24 States and Union Territories. It has more than 43 lakh borrowers and a total customer base of more
than 49 lakh. It boasts of an employee strength of 16,347 employees.

They launched their small finance banking business on February 1, 2017 after getting final approval
from RBI on November 11, 2016. It has a phone banking unit that services customers in nine languages,
a mobile banking application that is accessible in five languages as well as internet banking facility for
individual and corporate customers. Their focus is to use technology as an enabler for our customers that
allows us to customize and deliver products and services to suit their needs.
The promoters must bring their shareholding below 40% before February 2022; 30% before February
2027 and 26% before February 2029. Their distribution network is particularly strong in Karnataka,
Tamil Nadu and West Bengal together accounting for 45.21% of their gross advances, and their focus is to
expand across India. Their lending portfolio is highly concentrated in unsecured segments with micro-
banking, personal and MSE loans consisting of 81.97%, 0.31% and 1.64% of their total advances. The
top 20 depositor contribute 41.84% of the total deposits.

Other risks that the bank faces is of attracting customers in semi-urban and urban/metro cities. They are
currently offering higher interest rates on deposits, which makes its cost of borrowing higher than other
banks. CASA deposits make up for 10.63% of total deposits. It has been generating negative cash from
operating activities in the first quarter. The loss has doubled this year over last year.

Another important thing to watch out for is RBI’s observations pertaining to banks business and
operations, it made in its inspection for Fiscal 2018. Among the inspections are lack of a system to tag
Priority Sector Lending advances, lack of a rating methodology to asses borrowers, lack of a fraud
management system and lack of an independent compliance department.
Interest income for the bank increased 49% in the first quarter of this fiscal and fee income increased
88%. Profit after Tax (PAT) during the quarter rose 103%. Earnings per Share to more than doubled
Rs. 0.66 for the quarter against Rs. 0.32 in the previous year. It’s NPA is amongst the lowest amongst
its peers with Gross Non-Performing Assets (GNPA) standing at 0.92% and Net Non-Performing
Assets (NNPA) at 0.26%. It has the 2nd highest provision coverage ratio of 72% after Utkarsh SFB. Its
Net Interest Margin is 9.5%.

Growth Prospects

Ujjivan majorly caters to underbanked or unbanked population of the country and issues small ticket
size loans. The banking industry has huge growth prospects as a significant portion of population is
still unbanked and underbanked.
 CURRENT BIDDING STATUS AS OF 5 P.M., 2nd December 2019

Number of Times Subscribed (BSE + NSE)

Reserved for
QIB NII RII Total
Shareholder
Shares
5,62,50,000 2,81,25,000 1,87,50,000 2,08,33,333 12,39,58,333
offered/reserved
Day 1 0.23 times 0.43 times 8.61 times 0.72 times 1.62 times

References
1. https://www.sebi.gov.in/filings/public-issues/aug-2019/ujjivan-small-finance-bank-limited_43982.html
2. https://www.bseindia.com/markets/publicIssues/BSEDemandSchedule_new.aspx?Scripcode=4094
3. https://www.ujjivansfb.in
4. https://www.thehindubusinessline.com/portfolio/stock-fundamental-analysis-india/ujjivan-small-finance-bank-ipo-should-you-
subscribe/article30123472.ece
Disclosure:

We, Samnidhy, hereby certify that all the views expressed in this research report accurately reflect our views
about the subject issuer(s) or securities. Research analyst or Samnidhy does not have any financial interest in
the subject company. Further Research Analyst or Samnidhy or its associate does not have any material
conflict of interest.

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