Ujjivan Small Finance Bank IPO: What you must know before investing in it

NEW DELHI: Ujjivan Small Finance Bank is all set to come out with its Rs 750 crore initial public offering on Monday. The issue comes on the heels of the CSB Bank offer, which received an overwhelming 87 times subscription earlier this week.

The price band for the SFB issue has been fixed in the Rs 36-37 range.

Ujjivan Small Finance Bank’s holding company Ujjivan Financial Services got listed in 2016. The Ujjivan Small Finance Bank was to list within three years of getting bank licence from RBI even when the holding company is listed.

Among peers, AU Small Finance Bank had a successful listing in 2017. Equitas Small Finance Bank is another SFB looking to list to meet RBI’s norms by floating its IPO by March 2020.

Here is what you need to know about the bank:

Background: The bank’s products comprise loans to micro banking customers that include group loans and individual loans, agriculture and allied loans, MSE loans, affordable housing loans, financial institutions group loans, personal loans and vehicle loans.

On the liability side, the bank offers savings accounts, current accounts and a variety of deposit accounts. In addition, it also provides non-credit offerings comprising ATM-cum-debit cards, Aadhaar enrolment services, distribution of third party insurance products and point of sales terminals.

As of June 30, the bank had 4.72 million customers and operated from 474 banking outlets. The bank had a network of 387 ATMs and two phone banking units based in Bengaluru and Pune. The bank has exposure to 24 states and Union Territories as of March 31.

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About the issue: Bids for the issue can be made for a minimum of 400 equity shares and in multiples of 400 shares thereafter. Out of the issue size of Rs 750 crore, there is a reservation of Rs 75 crore shares for subscription by eligible shareholders of Ujjivan Financial Services. For that, the NBFC’s eligible shareholders will get a Rs 2 per share discount on the issue price.

The bank raised Rs 250 crore in a pre-IPO round earlier this month at Rs 35 per share. The new capital raised from the issue will increase the capital adequacy ratio of SFB to 22 per cent from 18.5 per cent. Kotak Mahindra Capital Company, IIFL Securities and JM Financial are the book running lead managers to the issue.

Financials: SFB’s gross advances stood at Rs 11,783 crore as of June 30 against Rs 11,048 crore as of March 31 and Rs 6,384 crore as of March 31, 2007. Deposits at the bank jumped to Rs 7,956 crore as of June 30 from Rs 7,379 crore on March 31 and Rs 206 crore in March, 2017. In June quarter, the bank reported Rs 94.48 crore profit. Its FY19 profit stood at Rs 199.21 crore and FY18 profit at Rs 6.86 crore. Gross NPAs of the bank stood at 0.84 per cent at the end of June quarter.

Valuations: Brokerage Emkay Global values the bank at 1.5 times September 2021 adjusted book value (ABV), while the IPO at the higher price band of Rs 37 valued it at a slight premium valuation of 1.7 times September 2021 ABV.

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“At the IPO price, USFB’s valuation will imply a discount of 27 per cent for Ujjivan Holding company. We already have coverage on Ujjivan Financial Services with ‘Sell’ rating and a target of Rs 250 given concerns around its weak liability profile/asset diversification and that the bank is still exposed to managerial and business transitional risks,” the brokerage said.

What does the management say?

In an interview with ETNOW, Samit Ghosh, Founder and Nitin Chugh, MD & CEO, Ujjivan Small Finance Bank, said the bank is going to be very focused on the mass market.

“We want to dominate that space. We want to do a meaningful job of serving the underserved and the unserved. We want to make very good use of technology. We want to be serving our customers with dignity and respect. We want to bring them all kinds of banking services, financial services products through our own products or through partnerships,” he said.

Post-IPO shareholding

With the IPO, holding company Ujjivan Financial Services’ stake will drop to about 85 per cent in the bank from 95 per cent. Ujjivan Financial Services is required to cut its stake in the SFB to 40 per cent by January, 2022, 30 per cent by January, 2027 and eventually to 15 per cent by January, 2032.



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