Ujjivan Small Finance Bank reported a 63.8% YoY profit decline in Q3 FY25. Despite this, NII increased by 3.2%. Emkay Global retains a BUY rating with a target price of ₹45.
Ujjivan Small Finance Bank Ltd, a Bengaluru-based lender, recently announced its financial results for the third quarter ending December 31, 2024. The bank experienced a significant year-on-year (YoY) decline of 63.8% in net profit, reaching ₹108.6 crore, compared to ₹300 crore in the same period the previous year. Despite this drop in profit, the bank’s net interest income (NII) saw a modest increase of 3.2%, totaling ₹886.7 crore, up from ₹859.3 crore in the corresponding quarter of FY24. NII is a critical metric representing the difference between a bank’s earnings from lending activities and the interest paid to depositors. The bank also saw an increase in gross non-performing assets (GNPA), which stood at 2.68% in the December quarter, slightly up from 2.52% in the September quarter. However, net NPA remained stable at 0.56%.
The bank’s gross loan book reached ₹30,466 crore, reflecting a 9.8% YoY growth and a 0.4% quarter-on-quarter (QoQ) growth. The secured loan book accounted for 39.3% of the total loan book, a notable increase from 28.3% in December 2023 and 34.9% in September 2024. Ujjivan Small Finance Bank also reported an improved collection efficiency, with an overall rate of 96% in December 2024. Specifically, the bucket X collection efficiency for group and individual loan books was at 99.3% as of December 2024. The portfolio at risk (PAR) stood at 5.4%, GNPA at 2.7%, and net NPA at 0.6% as of December 2024. Ujjivan SFB’s deposit base also grew by 16.3% YoY and 1.2% QoQ, reaching ₹34,494 crore. Within this, the current account and savings account (CASA) deposits amounted to ₹8,662 crore, a 15% YoY increase, giving a CASA ratio of 25.1%. Retail term deposits continued to show growth, reaching ₹16,612 crore, up 29.5% YoY and 4.4% QoQ.
The bank’s net interest margin (NIM) for the third quarter was 8.6%. The operating expenses to average assets ratio improved to 6.2% in Q3FY25 from 6.4% in Q2FY25. The profit before other income and provisions (PPoP) reached ₹359 crore. In terms of capital adequacy, the bank’s capital adequacy ratio was at 23.9%, and the provisional daily average liquidity coverage ratio (LCR) for December 2024 was 130.4%. The adjusted return on assets (ROA) and return on equity (ROE) for Q3FY25 were 1.2% and 8.8%, respectively.
Emkay Global Financial’s research report highlighted that Ujjivan SFB’s profit after tax (PAT) missed expectations by 30%, reaching ₹1.1 billion. This was primarily due to a contraction in margin and increased provisions, influenced by rising non-performing assets within the MFI portfolio. This was triggered by the implementation of MFIN guardrails. Slippages were elevated at ₹3.5 billion, which constitutes 4.7% of total loans, largely attributable to stress in Ujjivan+3 customer segment. Despite these challenges, the bank maintained its GNPA ratio at 2.7%, below the 3% threshold required for SFB licenses, aided by increased write-offs and NPA sales. However, the portfolio at risk (PAR) for the 30+ MFI portfolio remains high at 5.6%. The bank anticipates that slippages will continue to be high in Q4FY25 before showing some improvement from Q1FY26 onward. The Ujjivan+3 lender-wise borrower portfolio accounts for 8%, and the report suggests that Ujjivan might experience a faster recovery than some other NBFC-MFIs. Emkay Global Financial has revised its earnings estimates downwards by 14-18% due to slower growth, reduced margins, and higher loan loss provisions. However, they have retained a BUY rating, with a target price of ₹45, factoring in a 1.1x Dec-26E ABV. This is based on the bank’s healthy ROA compared to peers like Equitas, and the potential transition into a Universal Bank.
The Ujjivan Small Finance Bank share closed at ₹34.56 on the BSE, showing a minor increase of ₹0.15, or 0.44%, after the results announcement.
Sources: https://www.cnbctv18.com/market/stocks/ujjivan-small-finance-bank-share-price-q3-results-net-profit-slides-64-pc-nii-up-3-pc-npa-19545386.htm
https://www.financialexpress.com/business/banking-finance-ujjivan-sfb-q3-profit-slumps-64-to-rs-109-crore-3724360/
https://www.moneycontrol.com/news/business/stocks/buy-ujjivan-small-finance-bank-target-of-rs-45-emkay-global-financial-2-12918657.html