Ujjivan Small Finance Bank IPO Opens 2 Dec; Should You Subscribe?

Ujjivan Small Finance Bank's IPO (initial public offering) is set to open on 2 December. With the Rs 750-crore issue, its holding company Ujjivan Financial Services Limited will be fulfilling the RBI regulation of listing a small finance bank within 3 years of receiving a license, separately.

IPO Details

• Dates: 2 to 4 December 2019
• Price band: Rs 36-37 per share
• Issue size: 208,333,333 shares at the face value of Rs 10, aggregating a total of Rs 750 crore
• Lot size: 400 shares. A minimum of 1 lot (of 400 shares) and a maximum of 13 lots can be subscribed to
• To be listed on: NSE, BSE
• Listing date: 12 December 2019
• Booking running managers: Kotak Mahindra Capital Company, IIFL Securities and JM Financial.
• Registrar: Karvy Fintech Private Limited
• Of the net issue, 75 percent is reserved for Qualified Institutional Buyers (60 percent of QIB to Anchor Investors), 15 percent for non-institutional investors and 10 percent for retail individual investors.
• Shares worth Rs 75 crore are being reserved for eligible shareholders of Ujjivan Financial Services with 22 November as the cut-off date. They will receive Rs 2 discount per share.
• The bank raised Rs 250 crore in a pre-IPO round earlier this month.
• Proceeds from the issue will be utilised for augmenting its Tier-1 capital base to meet its future capital requirements and towards meeting the expenses in relation to the Issue.

About the company

Ujjivan Small Finance Bank Limited was incorporated in 2017 and is in the business of lending to under-served segments of the country. It has micro-banking products that include loans to MSMEs, agricultural loans, affordable housing loans, group loans, personal loans and vehicle loans.

It has a wide presence across 24 states and union territories. As on 30 June 2019, it had 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. USFB has a mobile banking app that works in 5 languages.

Post the IPO, its promoter's (Ujjivan Financial Services Limited) stake will be reduced from 94.40 percent to 83.32 percent. As per RBI rules, Ujjivan Financial Services is required to reduce its stake to 40 percent by January 2022, 30 percent by January 2027 and eventually to 15 percent by January 2032.

Financials

• Gross advances at Rs 11,783 crore as of 30 June as against Rs 11,048 crore on 31 March.
• Deposits at Rs 10,130 crore as of 30 September, in comparison to Rs 7,956 crore on 30 June and Rs 7,379 crore on 31 March.
• Net profit was at Rs 187 crore for the six months to September 2019, Rs 199.21 crore for 2018-19 and Rs 6.86 crore in 2017-18.
• Gross NPAs (non-performing assets) at 0.84 percent of gross advances at the end of June, which is the lowest amoung small finance banks in India.

Should you subscribe?

Brokerage ICICI Direct has recommended a "Subscribe" to the issue.

"USFB had a steady ride in terms of advances growth along with maintaining asset quality. There was continued focus on garnering retail liability along with building CASA base. We have a SUBSCRIBE recommendation on the stock. Further, at the IPO price band of Rs 36-37, the stock is available at a P/BV of ~2.2x (post issue) at the upper band on H1FY20 basis," it said.

Ujjivan Small Finance Bank has a strong presence in the country's microfinance sector and has started looking at retail loan segment.

Angel Broking thinks the price band valuations on the issue are attractive, considering similar businesses are trading at higher valuations. "Moreover, experienced management, Pan-India presence, and pristine asset quality provides comfort," it added.