Ujjivan Financial Services hit primary markets on Thursday (April 28) to raise nearly Rs 885 crore through an initial public offering (IPO). The company will become the second micro-lender to go public, has already received in-principle approval to set up a small finance bank. Earlier this month, another microfinance player, Equitas Holdings came out with its IPO.
On the last day of its IPO, Ujjivan Financial Services has been oversubscribed 1.22 times, data available with the NSE till 1030 hrs showed.
The IPO of microfinance player Ujjivan Financial Services got subscribed 83 per cent on the second day of the offer on Friday. The Rs 885-crore public issue received bids for 2,43,26,820 shares against the total issue size of 2,96,63,706 shares, as per data available with stock exchanges till 1900 hours. On day 1, the IPO was subscribed 21 per cent. It received bids for 62,49,600 shares against the total issue size of 2,96,63,706 shares, data available with the NSE till 1700 hrs showed. The issue will close on May 2.
The qualified institutional buyers (QIBs) category was subscribed 1 per cent while non-institutional investors’ quota was at 5 per cent.
The portion set aside for retail investors received 40 per cent subscription, as per the NSE data.
Below are 10 things you should know about Ujjivan Financial Services and its public offer before investing:
1) Business and Background: Ujjivan Financial Services (UFSL) commenced operation in 2005 as an NBFC with a mission of providing a full range of financial services to the economically active poor who are inadequately served by financial institutions. Its business is primarily based on the joint group lending model for providing collateral free, small ticket size loans to economically active individuals belonging to the weaker section of the society. The company also provides individual loans to Micro & Small Enterprises (“MSEs”). UFSL received in-principal approval to set up Small Finance Bank on October 7, 2015 from the RBI.
2) About the issue: The public issue of Ujjivan Financial Services comprises fresh issuance of shares worth Rs 358.16 crore and an offer for sale of up to 24,968,332 shares by the existing shareholders. The IPO is priced at a band of Rs 207-210 a share of Rs 10 each.
3) Objectives of the issue: Net proceeds from the offer will be utilised to augment the capital base of company to meet future capital requirements.
4) Should you invest: Choice Broking in a reserach report said, “At higher price band of Rs 210, UFSL’s stock is available at P/BV(x) of 2.8 of its 9MFY16 book value of equity per share (post issue), which is available at 32 per cent discount to its peers such as Equitas Holding, SKS Micro finance. Thus, we assign ‘Subscribe’ rating to this issue.”
According to Prabhudas Lilladher, the company has started to offer individual loans to Micro & Small Enterprises and has delivered 51 per cent and 59 per cent CAGR in AUMs and net earnings over past four years. UFSL has received in‐principle approval from the RBI to set up a small finance bank which the brokerage house believes will add scalability to the business. At the upper band of Rs 210, UFSL will trade at 1.6x on projected book value of Rs 130 (post‐issue) which is fairly priced. Prabhudas Lilladher has recommend investors to ‘Subscribe’ to the issue.
5) Key positive: According to Reliance Securities, small finance bank (SFB) licence is a long term positive for the company. It is followed by strong presence in high growth, under penetrated micro finance, Micro & Small Enterprises finance and affordable home loan segments. Differential business model will help in to provide stable margin in the long term.
6) Key Risks: Post conversion into small bank the company will have to comply with CRR, SLR and higher priority sector lending requirements, which may negatively impact its operating performance in the next 18-24 months, according to Reliance Securities. Further, key to the successful transition will be the build up of CASA base, which will be challenging for any new entrant.
7) Strong Distribution Network: With deeper pan-India presence, Ujjivan’s branch network spans across 470 branches with 7,862 employees spread across 24 states and union territories and 209 districts serving over 2.77 mn active customers (as at end of December 2015).
8) Superior Asset Quality: According to KR Choksey Shares & Securities, Ujjivan’s superior asset quality can be largely attributed to the effective credit risk management characterised by robust repayment rates, stable portfolio at risk (PAR) and low rates of GNPA and NNPA. The gross NPA (as a percentage of Net AUM) have only witnessed declining trends; gross NPAs in FY13, FY14 and FY15 and the 9M-ended December 31, 2015 stood at 0.08 per cent, 0.07 per cent, 0.07 per cent and 0.15%, respectively. KR Choksey has ‘Subscribe’ rating on Ujjivan IPO.
9) Management track record: Ujjivan’s senior management has a diversified track record in the financial services industry, with approximately average 20 years of experience in the industry. The CEO and MD, Samit Ghosh, has over 30 years of experience in the banking industry, and was part of the bank, management team involved in setting up retail operations of Citibank, Standard Chartered HDFC Bank and the Bank Muscat in India. The company’s national leadership team, comprising of four COOs and functional heads, similarly has considerable experience in the financial services industry. This impeccable experience of the Management team in the banking and consumer banking space should greatly benefit the proposed SFB operations.
10) Financials:
