The market has been on a roll over the past one year, but Ujjivan Financial Services, the parent company of Ujjivan Small Finance Bank, has had a rather mediocre run. At its current price of Rs.395, it has gained just 8% against the 33% posted by the benchmark Sensex. A large part of the underperformance has been driven by the headwind that the micro finance institution is facing. The MFI, besides its niche presence in lending to self-employed individuals, also operates in the micro & small enterprises, and affordable housing segments.
Things turned awry post-demonetisation in November 2016. The move impacted Ujjivan, resulting in provisioning on stressed asset portfolio amounting to Rs.446 crore. Following a total provisioning of Rs.277 crore towards these stressed loans, it now expects substantial lower provisioning in 2HFY18. In the first quarter of the current fiscal, the bank, which has a gross loan book of over Rs.6,600 crore, posted a loss of Rs.75 crore but managed to narrow it down to Rs.12 crore in the second quarter, owing to lower provisioning and better margins. As of September 2017, the MFI had 445 branches, of which 92 were bank branches. The management is planning to increase the contribution of non-MFI business to 40% by FY20 from current level of 5%.
Ujjivan which got listed in May 2016, is up 88% from its issue price of Rs.210, but has had a chequered ride after hitting an all-time high of Rs.464. In October 2017, the exit of CFO Hiren Shah impacted sentiment but the rumour of a merger with Kotak Mahindra Bank kept the excitement alive. Amidst the diversified shareholding, since the beginning of CY18, CEO Samit Ghosh has sold stock worth Rs.20 crore at an average price of Rs.411. He had earlier sold stock worth Rs.12 crore in September 2017.
Post this transaction, Ghosh’s stake in the firm stands at 1.13%. Over the past one year, Cinnamon Capital, which was among the largest investors till September 2017, holding 9.79%, exited in the December 2017 quarter. CX Partners and Sequoia Capital India have also marginally reduced their stake from 2.19% to 2.16% and 3.54% to 3.48%, respectively. Insurance companies have also halved their stake from 8.43% to 4.49%, with HDFC Standard Life, Birla Sun Life and Bajaj Allianz Life heading for the exit.
Incidentally, domestic mutual funds and FIIs have bought in. Over the past one year, mutual funds have increased their stake from 5.26% to 8.73%, while foreign portfolio investors have ramped up their holding from 7.42% in December 2016 to 9.72% in December 2017. Though the MFI continues to battle poor operating efficiency, manifested in an increasing cost to income ratio, from about 47% to 73.2%, management expects its woes to end soon. At 2.4x one-year forward, the price-book multiple seems to price in that optimism but Ghosh is hedging his bets.
