Utkarsh Small Finance Bank - Best Placed To Play Uttar Pradesh’s Structural Growth Story: ICICI Securities

ICICI Securities Report

Utkarsh Small Finance Bank Ltd. has kick-started its lending journey in the states of Uttar Pradesh and Bihar, and since inception (in FY10), it has developed strong demographic knowledge and built deep distribution network in these two states.

We see Utkarsh’s deep presence in under-penetrated states (of total 75 districts only seven districts have more than 20% credit penetration in UP), enhanced product offering, proven track record of managing asset quality better than peers (write-offs during Covid at 12% versus 15-20% for micro finance players) and its rapidly evolving liability franchise (steady decline in cost of funds) ensuring sustainability of more than 18% return on equity and more than 25% growth over FY24-26E.

While its credit market share in Uttar Pradesh stood at sub 42 basis points, within small finance bank space, its market share stands at 40% as on December 2023.

Maintain Buy with an unchanged target price of Rs 70, valuing the stock at two times FY25E book value per share.

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