Ujjivan Small Finance Bank IPO – Should you Invest?

Ujjivan Small Finance Bank IPO ReviewUjjivan Small Finance Bank IPO Review

Ujjivan Small Finance Bank (USF Bank) is coming up with an IPO that would open for subscription on 2nd December, 2019. Ujjivan Small Finance Bank Limited is a mass market focused Small Finance Bank in India. While PMC Bank Scam has created some fear for investors, CSB Bank IPO over subscription show how investors are fancy about banking stocks. Should you invest in the Ujjivan Small Finance Bank Ltd IPO? Let me review the USF Bank IPO in this article.

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About Ujjivan Small Finance Bank Limited

They are a mass market focused SFB in India, catering to unserved and underserved segments and committed to building financial inclusion in the country. Its Promoter, UFSL commenced operations as an NBFC in 2005 with the mission to provide a full range of financial services to the ‘economically active poor’ who were not adequately served by financial institutions. UFSL’s erstwhile business was primarily based on the joint liability group-lending model for providing collateral free, small ticket-size loans to economically active poor women. UFSL also offered individual loans to Micro and Small Enterprises and adopted an integrated approach to lending, which combined a customer Touchpoint similar to microfinance, with the technology infrastructure and related back-end support functions similar to that of a retail bank.

In Oct-15, UFSL received RBI In-Principle Approval to establish an SFB, following which it incorporated Ujjivan Small Finance Bank Limited as a wholly-owned subsidiary. UFSL, subsequent to obtaining the RBI Final Approval on November 11, 2016 to establish and carry on business as an SFB, transferred its business undertaking comprising of its lending and financing business to this Bank, which commenced its operations from February 1, 2017. The bank was included in the second schedule to the Reserve Bank of India Act, 1934 as a scheduled bank on July 3, 2017. In the short span of time that they have been operational as an SFB, and are among the leading SFBs in India in terms of deposits, advances, branch count and geographical spread, as of March 31, 2019.

Ujjivan Small Finance Bank IPO Issue details

Ujjivan Small Finance Bank IPO Issue details

Ujjivan Small Finance Bank IPO RHP Prospectus can be downloaded at this NSE Website link.

What are the Objects of the Ujjivan Small Finance Bank IPO?

Here are the objects of the IPO issue.

1) Bank proposes to utilize the Net Proceeds from the Issue towards augmenting our Bank’s Tier – 1 capital base to meet Bank’s future capital requirements.

2) Further, the proceeds from the Issue will also be used towards meeting the expenses in relation to the Issue.

3) Bank expects to receive the benefits of listing the Equity Shares on the Stock Exchanges.

Who are the Company Promoters?

Ujjivan Financial Services Limited (UFSL) is the promoter of the bank.

How is the company doing in terms of Financial Performance (Reinstated-Standalone)?

1) Company revenues increased from Rs 223.8 Crores for the year ended Mar-17 to Rs 2,037.5 Crores for the year ended Mar-19.  This shows 8x growth in the revenue in the last 3 years. For 9 months ended Sep-19 it posted Rs 1,434.8 Crores of revenue.

2) Company profits increased from Rs 3.5 Lakhs for the year ended Mar-17 and Rs 199.2 Crores for the year ended Mar-19 which is a good turnaround. It posted Rs 187.1 Crores for 6 months ended Sep-19 that indicates 13% margins over the total earnings.

3) Its EPS in the last 3 years is 0.62 and FY2019 is 1.2. For 6 months ended Sep-2019, its EPS is at 1.2.

Ujjivan Small Finance Bank Limited financials FY2017-2019

What is the of Ujjivan Small Finance Bank Credit Rating?

The credit rating is not required for issue of equity shares, hence, they have not approached any credit rating agency for credit rating.

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What are the key strengths of Ujjivan Small Finance Bank Limited?

Every investor should understand the company’s key strengths so that one can compare with its competitors to know how unique is such company in their business. Their investment decision would change based on these facts. Here are the key strengths of the Ujjivan Small Finance Bank.

1) Deep understanding of mass market serving unserved and underserved segments.

2) Customer centric organization with multiple delivery channels.

3) Pan-India presence.

4) Technology driven operating model with advanced digital platform.

5) Robust risk management framework.

6) Strong track record of financial performance.

7) Professional management, experienced leadership with a focus on employee welfare.

What are the various strategies of Ujjivan Small Finance Bank Ltd?

Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.

1) Diversify product offerings to enable multiple customer relationships.

2) Continue to focus on technology and data analytics to grow operations.

3) Strengthen liability franchise and focus on increasing our retail base.

4) Expand our distribution network to increase customer penetration.

5) Focus on developing responsible banking behavior for unserved and underserved segments.

6) Diversify revenue streams.

Positive Factors to invest Ujjivan Small Finance Bank IPO

These positive factors can impact company growth, its revenue and margins which can increase its share price. Investors should go through these points and understand these positive factors while investing.

1) One of the fastest growing small finance bank that generated 8x revenue growth in the last 3 years. However, one should note that FY17 base was small and may not be appropriate to compare with FY2019 revenues.

2) Bank margins are improved in the last 3 years. It’s posted just Rs 3.5 Lakhs profits 3 years back and now Rs 199 Crores. While it would take few years to set-up small finance bank and initial investment would go in there, this bank has started generating profits within 3 years time frame which is positive thing.

3) Small finance banks are just evolving and it is good to invest in initial period to reap the benefits in medium to long term.

Major risk Factors to consider before investing in Ujjivan Small Finance Bank Limited IPO

These risk factors can impact company revenue and margins which would effect its share price. Investors should go through these points and understand these risk factors before investing.

1) They are subject to stringent regulatory requirements and prudential norms and its inability to comply with such laws, regulations and norms may have an adverse effect on its business, results of operations, financial condition and cash flows.

2) They are significantly depend on micro banking business, particularly group loans, and any adverse developments in this segment could adversely affect its business, results of operations, financial condition and cash flows.

3) They have a limited operating history as an SFB and its future financial and operational performance cannot be evaluated on account of evolving and growing operations. Accordingly, its future results may not be reflective of its past performance. Further, they cannot effectively compare its financial statements for Fiscal 2017 with our financial statements for Fiscal 2018 and 2019 due to non-comparable reporting periods.

4) Banking companies in India, including this bank, will be required to report financial statements as per Ind AS in the future. However, its Promoter, UFSL, currently reports its financial statements under Ind AS and as a result, they are required to prepare select Ind AS financial information for the limited purposes of consolidation by UFSL. Differences exist between Ind AS and Indian GAAP, which may be material to investors’ assessment of its financial condition.

5) They have a continuous requirement of funds and its inability to access sources of funds in an acceptable and timely manner or any disruption in the access to funds would adversely impact its results of operations and financial condition.

6) The Indian banking industry is very competitive and its growth strategy depends on its ability to compete effectively.

7) If they are not able to control the level of non-performing assets in its portfolio or any increase in RBI mandated provisioning requirements could adversely affect its business, financial conditions and results of operations.

8) Micro banking loan portfolio, personal loans, and certain categories of its MSE loans are not supported by any collateral that could help ensure repayment of the loan, and in the event of non-payment by a borrower of one of these loans, they may be unable to collect the unpaid balance.

9) Bank and its Promoter are involved in certain legal proceedings, any adverse developments related to which could materially and adversely affect its business, reputation and cash flows.

10) For complete internal and external risk factors, you can refer the IPO RHP of the company.

Ujjivan Small Finance Bank IPO Schedule

Offer Opens – 2-Dec-2019

Offer Closes – 4-Dec -2019

Finalization of Basis of Allotment – 9-Dec-2019

Unblocking of ABSA and Initiation of Refunds – 10-Dec-2019

Credit of shares to Demat Accounts – 11-Dec-2019

IPO Shares Listing Date – 12-Dec-2019

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Is the issue price of Ujjivan Small Finance Bank IPO reasonably priced or over priced?

On the upper price band of Rs 37 and the last 3 years average EPS of Rs 0.6, the P/E works out to be 60x. Similarly, on the upper price band of Rs 37 and the last year FY19 average EPS of Rs 1.2, the P/E works out to be 31x. Even if we take 6 months ended Sep-2019 EPS of 1.2, P/E works out to be 31x. Its peers like AU Small Finance Bank is trading at P/E of 60.8x (Highest) and RBL Bank Limited at 15.7x (Lowest) and industry average P/E is 29.6x. Hence Ujjivan Small Finance Bank IPO Price at P/E of 31x is reasonably priced.

Ujjivan Small Finance Bank IPO – Should you Invest or Avoid?

Ujjivan Small Finance Bank revenues are on increasing mode. Its margins are also improving. Its share price is also reasonably priced. Considering all these positive factors, one can invest in this IPO for 3-5 years tenure. One may or may not get listing gains.

Readers, what do you feel about investing in this USF bank now?

Disclaimer: The information in this article is for information only. This is not a recommendation to invest in this IPO. Please consult your investment advisor before you invest in such high risk IPOs.

If you like our IPO analysis, please share it with your friends through email, on Facebook or on Twitter. This would help us to reach a larger audience and we can provide more and more meaningful analysis in the coming IPOs.

Suresh KP

Ujjivan Small Finance Bank IPO – Should you Invest or Avoid

Suresh KP


  1. This would be oversubscribed. Hence would wait till final day, as such don’t have much luck in lottery to get allocation (missed IRCTC lottery :o). If only there be a provision to distribute shares equally during allocation during oversubscription :D.
    If it gets oversubscribed more than 10 X , might as well invest in RBL .. fingers crossed

    1. Roji, It is like any other shares. You can open demat and trading account, select your demat units and sell at market price / price what you are expecting, if it is nearby, it would execute immediatley

  2. Thank you for the write-up.
    I am a shareholder in UFSL. How many lots should I apply to get a confirmed allotment, under shareholder quota

    1. Jayaprakash, If you are already shareholder, you can apply in multiple lots. However the maximum amount for retail per PAN should not exceed Rs 2 Lakh (Irrespective of share holder or retail category).

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