Ujjivan Small Finance Bank IPO Analysis

Details of Ujjivan Small Finance Bank IPO

Introduction

Ujjivan Small Finance Bank is raising Rs.750 Cr through a fresh IPO issue (Initial Public Offer) from December 2, with a price band Rs.36-37 per share. The bank issued IPO to comply with RBI’s licensing regulations and raise growth capital. In this article, we will do a detailed analysis of key financials, objectives and details of IPO, and the valuation of the Ujjivan Small Finance Bank.

Ujjivan Small Finance Bank IPO Analysis

Company Overview

• Ujjivan Small Finance Bank Ltd (USFB) is a mass market focused bank in India, catering to financially unserved and underserved segments.
• Promoter, Ujjivan Financial Services Limited (UFSL), commenced the operations as an NBFC in 2005, is the holding company of the bank.
• On 7, October, 2015, UFSL received RBI In-Principle Approval to set up a Small Finance Bank (SFB). Thus, after it UFSL incorporated Ujjivan Small Finance Bank Limited as a wholly-owned subsidiary.
• USFB has a diversified portfolio with branches spread across 24 states and union and a customer base of 4.9 million as of September 30, 2019.

Key Financials of Ujjivan Small Finance Bank

• Net Interest Margin (NIM) : Bank has NIM 10.8% for Q2 FY20. NIM numbers are comparatively very high as compared with other banks.
• Loan Book : A strong growth in bank’s loan book is seen QoQ as well as YoY. Gross Advances stands at Rs.12,864 Cr for Q2 FY20.
• Asset Quality : As Gross NPA is 0.9% and Net NPA is 0.3%, we can see that asset quality of the bank is very good, on account of the strong growth in micro-banking advances growth.
• Capital Adequacy Ratio (CAR) : For Q2 FY20, CAR of bank is 18.8% and will improve to around 22% post IPO.

Ujjivan Small Finance Bank IPO – Objectives & Details

Objectives of IPO

• As part of the licensing conditions, the bank has to list within three years even when the holding company is listed. So, the bank planned IPO now for complying RBI’s licensing conditions.
• The bank was planning to raise around Rs.1,000 Cr in total for fulfilling the above objective. Out of Total Rs.1,000 Cr :
  • Rs.250 Cr was raised through Pre-IPO placement route this month and
  • Rs.750 Cr is planned to raised through a fresh issue, IPO

Details of IPO

• The IPO details of Ujjivan Small Finance Bank are given in the above table.
• In the Pre-IPO Placement, banks has already issued 71,428,570 Equity Shares, Aggregating to Rs.250 Cr
• While in the fresh IPO issue, bank is going to issue 208,333,333 Equity shares, aggregating Rs.750 Cr

Valuation of Ujjivan Small Finance Bank

Valuation Comparison with Listed Industry Peers

• While doing the valuation comparison of the Ujjivan Small Finance bank with its industry peers, the PE ratios of all the peer banks are enlisted in the above chart.
• USFB has averaged out the PE ratios of its industry peers, which came to be 29.64. Thus USFB set its PE ratio at 30 (at the floor price). And the issue price is also set in the range Rs.36-37 per share.
• Thus, we can see that the bank is trying to list at its fair valuation by executing the valuation comparison with its industry peer banks.

Valuation of Bank

• After IPO, the promoter’s holding is going to decrease to 85% as mentioned by Joel Rebello, Ujjivan bank’s CEO.
• Thus, total 15% divestment is there through IPO route, which corresponds to Rs.1,000 Cr.
• Thus, the Total valuation of the bank is calculated with the above scenario. It come at around Rs.6,667 Cr.