Ujjivan Financial IPO – Should you invest?

Ujjivan Financial IPO ReviewUjjivan Financial IPO – Should you invest?

Bengaluru based, Ujjivan Financial IPO would open for subscription on 28th April, 2016.  Ujjivan Financial Services Ltd is a micro financial institution in India. The company revenues have grown at 40% CAGR in last 5 years. Company has made 16% profits for 9 months ended Dec-15. What are the positive factors in Ujjivan Financial IPO? What are the hidden factors about this IPO? Should you invest in this Ujjivan IPO or not? In this article, I would do Ujjivan IPO Review

About Ujjivan Financial Services Limited

Ujjivan Financial Services Ltd is an Indian microfinance services company primarily based on the joint liability group lending model for providing collateral free, small ticket-size loans to economically active poor women. They also offer individual loans to Micro & Small Enterprises (“MSEs”). In addition to loan products, they also provide non-credit offerings comprising of life insurance products, in partnership with insurance providers such as Bajaj Allianz Life Insurance Company Limited, Kotak Mahindra Old Mutual Life Insurance Limited and HDFC Standard Life Insurance.

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Ujjivan Financial is a professionally managed company and does not have an identifiable promoter either in terms of the SEBI ICDR Regulations or the Companies Act, 2013. Consequently, it has no ‘promoter group’ in terms of the SEBI ICDR Regulations.

One of the conditions for microfinance institutions receiving the RBI’s in-principle approval to convert into a small finance bank is to reduce foreign shareholding to under 49 per cent. Through this IPO, Ujjivan will reduce its foreign shareholding from the current 77 per cent to 44-45 per cent, with partial and full exits by several foreign investors, including International Finance Corporation, Elevar Equity Mauritius, Sarva Capital and Mauritius Unitus Corporation.

Issue details of Ujjivan Financial IPO

  • IPO opens: 28-April-2016
  • IPO closes: 2-May-2016
  • Face Value: Rs 10 per share
  • Issue price band : Rs 207 to Rs 210 per share
  • Issue size: Rs 875 Crores – Rs 882 Crores
  • Market lot: 70 shares and in multiples of 70 shares therein
  • Minimum investment: Rs 14,490 on lower price band
  • Lead Managers: Kotak Mahindra Capital, ICICI Securities, Axis Capital and IIFL
  • Listing: BSE / NSE
  • Download Ujjivan Financial IPO Prospectus at this link.

Purpose of Ujjivan Financial IPO

1. Augmenting capital base to meet future capital requirements;

2. Offer from sale from existing share holders. Company would not get any proceeds out of it.

3. General corporate purpose.

Company Financials (reinstated)

  • Company generated revenue of Rs 156.44 Crores for the year ended Mar-11 and Rs 611.88 Crores for the year ended Mar-15. For 9 months ended Dec-15, it generated revenue of Rs 729.64 Crores.
  • Company posted a profit of Rs 11.69 Crores for the year ended Mar-11 and profit of Rs 75.78 Crores for the year ended Mar-2015. For 9 months ended Dec-15, it generated a profit of Rs 122.30 Crores.
  • Its restated EPS for FY 2015 is Rs 10.62 and last 3 years average EPS Rs 8.93.

Ujjivan Financial IPO - Financials

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Reasons to invest Ujjivan Financial IPO

  • Revenues have grown from Rs 156.44 Crores FY11 to Rs 611.88 Crores in FY15 indicating a strong revenue growth of over 40% CAGR.
  • Generated good margins of 12% to 16% in last 3 years and 9 months.
  • Inprinciple approval received from RBI to set-up Small Finance Bank (SFB) which can boost its revenues in future.

Reasons not to invest in a Ujjivan Financial IPO

  • Company may not be able to set up the proposed SFB within the timelines prescribed by the RBI, or at all, which may have an adverse effect on its prospects, reputation, results of operations and financial condition.
  • The regulatory framework which will govern the business operations of the proposed SFB is uncertain.
  • There can be no assurance that they will be able to replicate its past business performance, growth and profitability during the SFB transition period.
  • The proposed SFB, once operational, will be subject to operational risks which may impact its anticipated growth and profitability.The sources of funds available to the proposed SFB will be limited, which may impact our results of operations and financial condition.
  • As a banking company, the proposed SFB will be subject to stringent regulatory requirements and prudential norms which could adversely affect its business, financial conditions and results of operations Ltd.
  • Company results of operations and income are dependent on its ability to manage interest rate risk, and an inability to manage its interest rate risk may have a material adverse effect on its business prospects and financial performance.
  • They are exposed to operational and credit risks which may result in NPAs, and we may be unable to control or reduce the level of NPAs in its portfolio.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 14 onwards.

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Recommendation / Investment strategy – Ujjivan Financial IPO

  • On the upper price band of Rs 210 and on FY15 EPS of Rs 10.63, P/E ratio works out to 19.7x. Similarly, on last 3 years EPS of Rs 8.93, P/E Ratio works out to be 23.5x. Means company is asking issue price forOn the u
  • P/E ratio between 19.7 and 23.5.
  • Its competitors, SKS Microfinance P/E ratio is 36x (Highest) and Shiriram City Union Finance is 17.5x (Lowest) and the industry average is 28. Hence, I feel the upper price band of Rs 210 per share is reasonably priced.
  • Company posted robost revenue growth in last 5 years of over 40% CAGR. It is generating good margins in the last 3 years and 9 months. Issue price also looks reasonable. Considering all these points, I would recommend investors to invest in this IPO. One should note that some of the recent IPO’s (apart from Equitas IPO) have listed below issue price. Once should consider the risk factors indicated above before investing in such IPO’s.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Ujjivan Financial IPO Review


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