Brokerages have recommended subscribing to the IPO of Ujjivan Small Finance Bank as it has been priced at a significant discount to its peers owing to its strong fundamentals. Angel Broking, Geojit Securities, ICICIdirect and NVS Wealth Managers have given a ‘subscribe’ rating to the issue. The Rs 750-crore IPO will open on Monday and close on Wednesday with its price band being set at Rs 36-Rs 37. Ujjivan Small Finance Bank’s holding company Ujjivan Financial Services was listed in 2016. The Ujjivan Small Finance Bank was to list within three years of getting a banking licence from the RBI even when the holding company is listed. Ujjivan Small Finance Bank raised Rs 303.75 crore from anchor investors on Friday.
The experience of Ujjivan Financial Services as an erstwhile microfinance institution, coupled with the ability to address mass market customers will further help Ujjivan Small Finance Bank to be among the leading small finance banks in India, said Geojit. At the upper price band of Rs 37, it is available at a price-to-book value of 2.5 times FY19, which is at a significant discount to its peers, the brokerage said.
Ujjivan Small Finance Bank had a steady ride in terms of advances growth along with maintaining asset quality, said ICICIdirect. There was continued focus on garnering retail liability along with building a CASA base, the brokerage said. At the IPO price band of Rs 36-37, the stock is available at a P/BV (price to book value) of around 2.2 times (post issue) at the upper band on April-September FY20 basis, it said.
At the upper end of the price band, Ujjivan Small Finance Bank is valued at 2.8 times its July-September FY20 book value (pre-IPO) and on a post dilution basis at 2.3 times of book value. The pricing is attractive considering similar businesses are trading at higher valuations, said Angel Broking. Moreover, experienced management, pan-India presence, and pristine asset quality provide comfort, the brokerage said.
NVS Wealth Managers
Ujjivan Small Finance Bank has shown superlative performance by growing from a profit after tax of Rs 199 crore in FY19 to Rs 187 crore PAT in the first half of FY20. It is even more noteworthy that the small finance bank has posted this profitability in the backdrop of one of the worst quarters for the entire Indian banking sector in recent times, the brokerage said. The brokerage has recommended subscribing to the issue with an 18-24 month horizon. At a price band of Rs 36- Rs 37, Ujjivan Small Finance Bank could provide excellent listing gains for investors.
The bank is spearheaded by a quality team of professionals who have implemented a well-thoughtout strategy which will ensure that the bank grows at a brisk pace maintaining profitability without compromising on asset quality, said Ventura. The pricing of the issue at 1.6 times FY21 adjusted book value when compared with peers is extremely attractive and given its strong fundamentals offers a significant margin of safety, the brokerage said.