Multibagger Stock Gives Better Returns Than FDs, Turn Rs 1 lakh to Rs 2.3 lakh in 1 Year; Should You Buy

Ujjivan Small Finance Bank is a smallcap under below Rs 45 per share currently. The stock is cheap but its performance is impressive. In a year, the stock has risen from trading below Rs 20 to over Rs 44, recording an upside of nearly 131% on BSE, making this SFB a multibagger. That also being said, the stock has given better returns than traditional fixed deposits (FDs). A Rs 1 lakh investment has more than doubled to Rs 2.3 lakh in a year if invested in Ujjivan SFB shares. There is more upside expected ahead!

On BSE, Ujjivan SFB shares ended at Rs 44.29 apiece, up by 0.43% on Friday. But the stock touched a new 52-week high of Rs 45.68 apiece as well on this day. Due to this, the stock ended the week on a 2% upside on BSE.

Riding on the back of bulls, Ujjivan SFB shares have rallied nearly 17% on BSE in a month, while their half-yearly gains are at least 60.5% as of now. Year-to-date, however, the stock has jumped over 48%. But in a year, from July 29, 2022, till date, the stock has skyrocketed by nearly 131%.

The reason behind the latest upside is due to its strong June 2023, where it posted the highest-ever PAT of Rs 324 crore driven by strong business momentum. Net interest income rose by 32% YoY to Rs 793 crore in the quarter, while net interest margin stood at 9.2%. Both deposits and gross loan book registered double-digit growth of 45% YoY and 30% YoY respectively. The SFB's disbursements stood at Rs 5,284 crore in the quarter, up by 22% YoY.

As of June 30, 2023, the lender's gross NPA also dipped to 2.4% as against 2.6% in March 2023 quarter. Net NPA continues to be negligible at 0.06%.

Using Axis Direct calculator, those investors who invested Rs 1 lakh in Ujjivan SFB shares on July 29, 2023, their investment value has risen to Rs 2,30,677 lakh as of July 28, 2023 --- registering an increase of 130.68%. Also, Ujjivan SFB's shares have outperformed Sensex which climbed by 14.9% in a year.

This is far better than the traditional FD rates ranging from 5% to 9% on a 1-year tenure. Even Ujjivan SFB's 1-year FD rate could not provide the type of returns like its stock price on exchanges. Ujjivan SFB offers an 8.45% rate on its 12-month FD.

Should you buy Ujjivan SFB shares further?

This SFB stock has further potential to rise nearly 13% in the near term!

Brokerage JM Financial in its latest report on Ujjivan SFB said, "We build CAGR AUM growth of 28% and average. credit cost at 106bps over FY24-25E. Mgmt. commented on the reverse merger, that their application with NCLT is completed on 28th June 23 and Ujjivan SFB expects to receive further orders entailing directions for stakeholder meetings and other directions on the process further."

Also, the management remains optimistic about sustaining growth momentum for advances and deposits with credit costs below 100bps, it cited.

"We believe the stock can rerate on the back of consistent performance on operational execution supported by a) growth and profitability across product segments, b) steady asset quality with lower credit costs, c) upswing in microfinance sector along with impetus on new businesses and d) robust deposit accretion," the brokerage's note added.

Hence, the brokerage added that current valuations at 1.3x FY25e BVPS are inexpensive given the return ratios of 3.4%/27.3% of RoA/RoE in FY25E. Maintain BUY with a revised TP of Rs 50 valuing it at 1.5x FY25E BVPS."

A similar target price is set by Kotak Institutional Equities on Ujjivan SFB with 'Buy' rating.

While raising its target price on Ujjivan SFB, brokerage Kotak's note said, "We retain BUY rating, with a revised FV of Rs50 (Rs42 earlier), valuing the bank at 1.6X June 2025E BVPS (adjusted) and 8X EPS for RoEs of 19-23% over the medium term. We expect the diversification of the loan book mix toward higher share of secured advances to help in reducing earnings volatility over the long term. Further, the focus on liability franchise improvement will make the business more sustainable. We prefer the holdco over the bank because risk-reward remains more attractive (12% holdco discount)."

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns. in advises users to consult with certified experts before making any investment decision.