Why Ujjivan Small Finance Bank Share Price is Rising

While benchmark indices Nifty and Sensex have shown a 3% gain in 2024 so far, the Nifty Private Bank index has experienced a decline of nearly 3%.

Within the Nifty Private Bank index, except ICICI Bank, which has seen a 7.3% increase, all other constituents have reported negative returns year-to-date in 2024.

Notably, Bandhan Bank and RBL Bank have incurred the most significant losses, plummeting over 19%, followed by HDFC Bank, which has declined by over 8%. Other private sector lenders within the index have also experienced losses ranging from 1% to 12%.

Despite the overall downward trend in private bank stocks, Ujjivan Small Finance Bank, which falls under the small finance bank category, has defied this trend by recording a gain of 20% in the past five days. Here's why.

#1 Robust Q4 Growth

Ujjivan Small Finance Bank shares rallied more than 7% on 4 April 2024 after the lender reported healthy business highlights for the quarter and the financial year ending on 31 March 2024.

The bank registered a healthy double-digit growth of 24% year-on-year (YoY) in its total deposits at Rs 316.5 billion (bn) as of 31 March 2024, compared to Rs 255.4 bn in the preceding fiscal.

The bank's Current Account Saving Account (CASA) ratio stood at 26.3% in the March 2024 quarter, compared to 26.4% in the same period last year.

The CASA also increased by 24% year-on-year to Rs 83.3 bn in Q4FY24 against Rs 67.4 bn in the corresponding quarter of the previous fiscal year and by 10% from the December 2023 quarter.

The CASA ratio is an indicator of a bank's total deposits in both current and savings accounts. It reflects the profitability of the bank.

The small finance bank's gross loan book also grew in the March 2024 quarter by 24% YoY to Rs 297.8 bn from Rs 240.9 bn in the year-ago period.

Its disbursements showed an uptick of 11% YoY to Rs 66.8 bn as of 31 March 2024.

The bank's collections and asset quality also continued to remain strong during the period under focus.

Its gross Non-Performing Asset (GNPA) reduced by 2.6%, witnessed in the same period last year.

#2 Branch Expansion and Service Diversification Plan

Ujjivan Small Finance Bank, despite its relatively recent entry into the banking sector in 2017, has rapidly garnered recognition.

Achieving significant scale within seven years, this Bengaluru-based small finance bank (SFB) is now positioned to compete with established players in the industry.

The SFB, projected to conclude the current fiscal year with over 750 branches, strategically expands its presence into major urban centres, focusing on leveraging low-cost current and savings accounts (CASA) deposits.

Notably, a recent branch inauguration in Mumbai's financial hub near BSE exemplifies this expansion effort. Simultaneously, the bank is enhancing its service offerings, with an emphasis on expanding mutual funds and gold loan portfolios.

Furthermore, it is actively exploring avenues to increase the proportion of secured loans within its lending portfolio, standing at 28%.

#3 Strong Differentiation and Growth Strategy

Ujjivan's business model revolves around unsecured micro-loans, enabling the bank to offer higher interest rates to depositors and enhancing profit margins.

Despite the inherent risks, this approach fosters competitiveness in deposit rates and overall profitability.

Obtaining a deposit-taking license from a bank has empowered Ujjivan to effectively manage its balance sheet liabilities. This unique licensing advantage attracts a diverse customer base, including high-net-worth individuals seeking higher interest rates.

As of Q3FY24, the bank's CASA ratio stood at 25.5%, reflecting its commitment to managing credit risk effectively.

Ujjivan's asset mix encompasses various loan categories, including micro group loans, individual loans, affordable housing, and MSMEs.

Additionally, the bank has ventured into capital market services through collaborations, further diversifying its offerings and expanding its market presence.

What Next?

Moving forward, the bank is strategizing to expand its presence in metropolitan areas, with a focus on mobilizing deposits. Recent branch inaugurations in cities like Mumbai and Delhi exemplify this approach.

Furthermore, the SFB is committed to executing a comprehensive restructuring of its housing loan product to prioritize accessibility and streamline turnaround times. This initiative is crucial in light of the fierce competition from major banks and non-banking financial companies (NBFCs).

Additionally, the bank aims to enhance the quality of its loan book by increasing the proportion of secured loans, recognizing that its current mix leans heavily towards unsecured lending at a ratio of 72:28.

This adjustment is particularly noteworthy given that competitors like Utkarsh Small Finance Bank, and Jana Small Finance Bank have a higher share of secured loans in their portfolios.

However, the bank's ambitions extend beyond this. It is actively exploring opportunities in gold loans, mutual funds, housing loans, and potential collaborations with fintech firms.

In the domain of housing loans, which constitute 15% of the bank's total loan portfolio, a revamped approach is being introduced through a hub-and-spoke model to broaden its customer base.

Looking ahead, the bank is gearing up to explore mutual fund offerings further, with plans underway for potential partnerships in this area.

How Shares of Ujjivan Small Finance Bank Have Performed Recently

Ujjivan Small Finance Bank share price has rallied around 108% in the past one year. Over a month, the share price has gone up by 6%.

Ujjivan Small Finance Bank share price touched its 52-week high price of Rs 63 on 12 November 2023. Its 52-week low was Rs 25.2 touched on 3 April 2023.

The company is currently trading at a PE (price to earnings) multiple of 8.7 times.

About Ujjivan Small Finance Bank

Ujjivan Small Finance Bank, leading SFB in India, offers banking services like home loan, business, personal & vehicle loans, Online Savings accounts & deposit etc.

Ujjivan Small Finance Bank is among the leading small finance banks in the country. As a mass-market bank, it remains committed to serving the unserved and underserved segments through financial and digital inclusion.

It has a network of over 600 branches and 12,000 ATMs across 24 states and union territories. The bank also offers internet banking, phone banking and mobile banking facilities to customers.

For more details, see the Ujjivan Small Finance Bank company fact sheet and quarterly results. For a sector overview, read our banking sector report.

You can also compare Ujjivan Small Finance Bank with its peers:

Ujjivan Small Finance Bank vs DCB Bank

Ujjivan Small Finance Bank vs Bank of Maharashtra

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

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