Ujjivan Small Finance Bank (USFB) IPO

Ujjivan Small Finance Bank (USFB) is a mass market focused SFB in India, catering to unserved and underserved population segments of the country. USFB is well diversified with presence across 24 states and union territories and is catering to over 4.94 million customers as on September 30, 2019. USFB is involved in (i) loans to micro banking customers, (ii) agriculture & allied loans, (iii) MSE loans, (iv) Affordable housing loans, (v) financial institutions group loans, (vi) Personal loans, and (vii) vehicle loans. Healthy AUM growth with calibrated geographic diversification: USFB’s AUM grew at impressive CAGR of 32% over FY2017-19. In 2017, when USFB started operation as SFB, its majority portfolio (97.5%) was concentrated towards micro finance. However, as of Q2FY2020 it contributes 79.2% and other major contributors are Affordable housing (9.4%) and SME (6.5%). Since Feb 2017, USFB has added 100 branches, Tamilnadu formed 16.5% of advances and the top two states (Tamilnadu+ Kerela) contribute 32% of advances, which is among the lowest. To leverage existing client base and network further it has extended loans to the two wheeler and electric three wheelers. Asset quality improvement continues: Post demonetisation USFB’s GNPA rose to 6.23%, however management has been able to reduce it to 0.9% in Q2FY2020. Bank has been maintaining one of the highest provision coverage ratios (67%), which is a positive. However, there is some issue in few areas of Assam, but USFB’s exposure to Assam is 3.7% and AUM in concerned area is minuscule. Improving liability profile: Within 3 years of operation, USFB has been able to improve funding mix towards deposit and CASA ratio of 12%. In FY2017, out of total borrowing, only 3% was sourced through term deposit and reached to 76% in Q2FY2020. However, it has only garnered 41% of deposits from retail. To mobilize retail deposits, USFB is offering higher term deposit rate. Outlook & Valuation: At the upper end of the price band, USFB is valued at 2.8x its Q2FY2020 book value (Pre-IPO) and on post dilution basis at 2.3x of BV, which we believe is attractive considering similar businesses are trading at higher valuations. Moreover, experienced management, Pan-India presence, and pristine asset quality provides comfort. We recommend a Subscribe to the issue.  

Comp Background USFB, a wholly owned subsidiary of Ujjivan Financial Services (UFSL), was incorporated in July 2016, but started its operations on Feb 01, 2017 after its promoter company UFSL transferred its business to USFB. By this time, UFSB also received receipt of the license to operate as a small finance bank. It operates as a scheduled commercial bank under the RBI norms. UFSL was operating as an NBFC since 2005, and hence, USFB gets an upper edge of having an experienced promoter in its field. The bank’s business is primarily based on the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active poor women. It also offers individual loans to Micro and Small Enterprises (MSEs) and insurance. USFB follows a diversified operation model with presence across 24 states. This enables the bank to reduce credit risk in its loan portfolio. Apart from this, the bank adopted an integrated approach to lending, which combined a customer touch point similar to microfinance, with the technology infrastructure similar to that of a retail bank. This makes it more competitive in customer service in its industry. Key Management Personnel Samit Kumar Ghosh is the Managing Director and Chief Executive Officer of USFB. He holds a bachelor’s degree in arts with honors in economics from Jadavpur University and a master of business administration degree from the University of Pennsylvania. He has worked with First National City Bank, Standard Chartered Bank, HDFC Bank, Citibank, and the Bank Muscat Al Ahli Al Omani. He was the president of Microfinance Institutions Network and the chairman of Association of Karnataka Microfinance Institutions. Nitin Chugh is the President of USFB. Joined as a President with effect from August 17, 2019 and will assume office of MD &CEO from December 01, 2019 Experience across multiple associations including, HDFC Bank Ltd, Standard Chartered Bank, HCL Ltd. and Modi Xerox Ltd. Sanjay Kao is the Chief Business Officer of Bank. He is a post graduate diploma in management from the Indian Institute of Management, Calcutta. He was previously employed with Lipton India Limited, Dunia Finance LLC, Citibank, N.A. and ABN AMRO Bank, N.V. He was appointed as the Chief Business Officer of the Bank with effect from February 12, 2018. Upma Goel is the Chief Financial Officer of Bank. She is a chartered accountant from the Institute of Chartered Accountants of India. She was previously employed with L&T Finance Holdings Limited, Ujjivan Financial Services Limited and Escorts Securities Limited. She joined the Bank as the Chief Financial Officer with effect from February 01, 2017. Sachin Bansal, co-founder of Flipkart, is an Independent Director of USFB. He holds a bachelor of technology degree in computer science and engineering from the Indian Institute of Technology, Delhi.   

Book Building

QIBs 75% of issue Non-Institutional 15% of issue

Retail 10% of issue 

Promoters 83.3%

Others 16.7%  

Post Issue Shareholding Pattern 

Promoters 83.3%

Others 16.7%   

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Issue Open: Dec 02, 2019

Issue Close: Dec 04, 2019  

Issue Details Face Value: `10 Present Eq. 

Paid up Capital: `1,640cr

Post Issue Shareholding Pattern Post Eq. Paid up Capital: `1,728cr 

Issue size (amount): *`730cr -**750 cr 

Price Band:`36-37 

Lot Size: 400 

shares and in multiple thereafter Post-issue implied mkt. cap: *`6,222cr - **`6,394cr 

Promoters holding Pre-Issue: 94.4% 

Promoters holding Post-Issue: 83.3%  

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