Ujjivan Financials IPO – Should You Invest?
While the memories of stupendous 30% listing gains from Equitas IPO last week have still now faded away, there is another IPO from the same stable – Ujjivan Financial Services. Ujjivan is amongst the 10 companies in India that has received an in-principle approval from the RBI to set up a small finance bank. It provides collateral free, small ticket-size loans to women through Joint Liability Group (JLG) model. The gross AUM stands at Rs. 4,090 crores and has approximately 11.15% market share of the NBFC-MFI business in India.
We recommend to subscribe to this IPO for the below reasons:
Investment Arguments
- Conversion to Small Finance Bank (SFB) improves Business Longevity:
Ujjivan has won small finance bank license awarded by the RBI. Conversion to SFB will pose regulatory and liability side challenges, but Ujjivan will be free from all the state level laws that could potentially interfere with MFIs & also the restrictions imposed under the NBFC-MFI avatar. Ujjivan has already developed cross-sell capabilities through its individual loans, which could help a smoother transition to a bank, especially on the asset side.
- Geographic Diversification: A Positive –
As of Sep’15, Ujjivan has operations spread across 24 states and 209 districts in India and serves over 2.60 million active customers through 469 branches and 7,786 employees. Even within the various regions, Ujjivan has a healthy presence in rural, semi-urban and urban areas, which constitute 28%, 38% and 34% of its total customer base. A notable feature of this diversification is the management’s foresight to stay away from the state of Andhra Pradesh during the heydays of 2008-10.
- Decentralized Management Structure & Technology Enable Robust Operational Control:
In order to manage its widespread operations, Ujjivan has two-tiered management hierarchy consists of a national leadership team providing overall direction to the business, and four regional leadership teams responsible for taking on-ground operational decisions. This structure has enabled Ujjivan to provide best-in-class service and control over each of its regions. Right from the start of its operations in Bangalore, Ujjivan has focused on state-of-art technology to provide best-in-class service quality and exercise control on the operations. As a result, Ujjivan boasts of high operating efficiency with ~50% of cashless disbursements and 688 customers handled per loan officer.
GreenEdge Wealth Services’ View
At the higher price band of Rs. 210, the company is valued at 1.6x post money book. Its recently listed peer – Equitas was valued at ~1.7x post money book. Ujjivan’s valuation is quite reasonable compared to other retail focused banks or NBFCs & considering its focus on niche customer base. We recommend to subscribe to the Ujjivan IPO.
Issue Details
| Issue Open Date | 28th April, 2016, Thursday |
| Issue Close Date | 2nd May, 2016, Monday |
| Issue Price (Rs.) | 207 to 210 |
| Market Lot | 70 |
| Minimum Application Size for Retail (Rs.) | 14,700 |