Have a look at what Drishtee Capital has to say on the latest IPO in the bourses - Ujjivan Small Finance Bank

1. IPO ANALYSIS

2. About Ujjivan Small Finance Bank
• Assets comprise lending to micro-banking customers:
o Group loans and individual loans, agriculture and allied loans, micro and small enterprise loans,
affordable housing loans and personal loans, among others.
• On the liability side, it offers savings accounts, current accounts and a variety of deposit accounts.
• The bank started as a microfinance lender but has diversified by entering the non-microfinance business.
• Founded in 2017 by Samit Ghosh, the mass-market small finance bank caters to unserved and
underserved segments
• Present in 24 states and union territories, with 552 banking outlets and 441 automated teller machines

3. Briefing about the IPO
USFB is diluting 12% equity to raise 750 Cr(@Rs36/- Lower Band) ~ 770 Cr(@Rs37/- Upper Band) funds by
selling 208,333,333 shares
How is 12% equity split?
75% - Institutional buyers (QIBs)
15% - Non-Institutional (NIIs)
10% - Retail
Note: 10% of 750cr is reserved for existing shareholders of USFB
Issue Objectives
1. Augmenting the Bank's Tier - 1 capital base to meet our Bank's future capital requirements
2. Meeting the expenses in relation to the Issue
3. Receive the benefits of listing the Equity Shares on the Stock Exchanges

4. Balance Sheet Review
• More than 50% jump in Assets QoQ
• Credit growth at 58% QoQ
• Deposit growth at almost 150%
(in Millions INR)

5. P&L Review
• Profit more than doubled at 2.2 times QoQ
• EPS doubled to 1.21
(in Millions INR)

6. Key Financial Ratios
Profitability 2017 2018 2019
Return on average equity 0.02% 0.42% 11.49%
Return on average assets 0.00% 0.08% 1.72%
Dividend payout ratio NA NA NA
Credit to total deposit ratio 3092.94% 200.43% 149.72%
CASA to total deposits ratio 1.57% 3.68% 10.63%
Cost to income ratio 95.35% 67.13% 76.45%
Net Profit Margin 0.02% 0.44% 10.03%
Non-Performing Assets (in millions INR) 2017 2018 2019
Gross NPAs 163.99 2,759.20 978.51
NPA net of provisions 17.97 509.34 275.47
Gross advances 58,756.46 75,611.99 1,06,227.59
Net Advances 58,610.45 73,362.11 1,05,524.55
Gross NPAs/gross advances (%) 0.28% 3.65% 0.92%
Net NPAs/Net advances (%) 0.03% 0.69% 0.26%
0.03%
0.69%
0.26%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
2017 2018 2019
Net NPAs
0.02% 0.44%
10.03%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2017 2018 2019
Profit Growth

7. SWOT
S
1. Serving mass-market segment of unserved and underserved
2. Multiple delivery channels
3. Pan-India presence
4. Digitally advanced platform
5. An established risk management framework
W
1. Higher dependence on microfinance business acts as concentration risk.
2. Ability to shore up retail and CASA deposit to impact profitability.
3. Introduction of new products pose risk of turning non-performing assets.
4. Red flags raised by RBI regarding risk management
O
1. Supportive govt. and enabling policies for promoting financial inclusion and support to such SFBs
2. Leveraging technology to promote such inclusion to the underserved sections of society
T
1. Competition from rural-centric new banking initiatives and other SFB players
2. Restrictions by SEBI on capital adequacy ratios and priority sector lending

8. Valuation parameters
• Pan India presence, strong asset quality (net NPA – 0.33%)
• Second-highest provision coverage ratio among SFBs
• Huge client base of 49.4 lakh and 3rd largest SFB in AUM terms
• Issue type – Book built Issue
• Stock is available at a P/BV of around 2.2x (post issue) at the upper band
• P/BV of 2.5x FY19 - At a significant discount compared to other SFBs in India (7x in average)
• PAT – Rs. 199 cr. (FY19) and Rs. 187 cr. (H1FY20)
• ‘Subscribe’ from ICICI Direct, Geojit Securities, Mehta Equities, Angel Broking and Chola Securities
• Subscribed 1.62 times on first day of bidding (8.6 times by retail investors)

9. Recommendation - Subscribe
What When How ?
To Subscribe for an IPO
Need to have an UPI account
with Rs 14800/- which shall be put on Hold (blocked)
Approve the hold in UPI Mandates option in bank’s UPI app
(will not debited unless shares are allocated)
Bid/Offer Opens On Dec 2, 2019
Bid/Offer Closes On Dec 4, 2019
Finalisation of Basis of
Allotment
Dec 9, 2019
Initiation of Refunds Dec 10, 2019
Credit of Shares to
Demat Acct
Dec 11, 2019
IPO Shares Listing Date Dec 12, 2019
Application Lots Shares Amount (Cut-off)
Minimum 1 400 ₹14,800
Maximum 13 5200 ₹192,400