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ICICI Securities Report
Utkarsh Small Finance Bank Ltd. kick-started its lending journey in the states of Uttar Pradesh and Bihar, and since inception (in FY10), it has remained committed in establishing a strong niche in these states.
Considering the under penetration in its core markets (Bihar's top five districts covered 46% of overall credit, of which Patna alone contributes 29% share), with Utkarsh having a strong market share of 56% within small finance banks (overall market share at 2%), the SFB is best placed to complement the Bihar growth story.
This, coupled with its 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), ensure sustainability of more than 18% return on equity and more than 25% growth over FY24-26E.
Maintain Buy with an unchanged target price of Rs 70, valuing the stock at two times FY25E book value per share.
Key risks:
Sharper margin deterioration due to stiff competition in secured lending and
higher-than-expected credit costs.
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