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ICICI Securities Report
Ujjivan Small Finance Bank Ltd.'s profit after tax fell 23% QoQ to Rs 2.3 billion versus Rs 3 billion QoQ, largely due to higher provisioning at Rs 1.5 billion versus Rs 1.1 billion QoQ driven by higher delinquencies in its MFI portfolio.
Ujjivan's strategy of de-risking its asset portfolio is playing out well, evident in robust 12% QoQ growth in secured asset versus muted 1% QoQ growth in overall advances. However, its unsecured portfolio still contributes >65% of the overall of portfolio, as on Sep-24.
Management highlighted that stress in MFI shall subside only from Q4 FY25 and it poses a near-term risk on asset quality. As a result, management revised its credit cost guidance upward to 2.3–2.5% versus 1.7% earlier and hinted at lower-than-expected loan growth and lower NIM.
Considering the lack of visibility around the revival in the MFI segment, we downgrade Ujjivan to Hold (earlier Buy) with a revised target price of Rs 36 (earlier Rs 60), valuing it at 1x (1.5x earlier) on Sep'25E book value per share.
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