Ujjivan Financial Services gains 7% on good December quarter results

Shares of Ujjivan Financial Services surged 7 per cent to Rs 305 apiece on BSE in the early morning trade after the company reported a healthy 54 per cent year-on-year (YoY) growth in net profit at Rs 45.2 crore in December quarter (Q3FY19). Net interest income grew 30 per cent at Rs 255 crore on YoY basis. Net interest margin (NIM) was at 11.8 per cent in Q3FY19, in line with Q3FY18.

"The stable cost of funds and interest rate hike for group loans which we took in September 2018 has helped the company to maintain net interest margin (NIM) in line with Q2FY19. The asset quality remains strong with gross non-performing assets (NPA) at 1.4 per cent and net NPA at 0.3 per cent," managing director and chief executive Ittira Davis said.

Ujjivan Financial stock has been under pressure due to the listing requirement of its small bank subsidiary which would have resulted in dilution in existing shareholders’ return; however, management is exploring various options for listing to minimize the dilution.

The stock hit a record low of Rs 167 on October 26, 2018, fallen 60 per cent from its 52-week high level of Rs 432 on May 11, 2018.

The management expects the overall growth momentum to continue, leading to 30-35 per cent assets under management (AUM) growth in FY19. The management fully committed to abide by the Reserve Bank of India (RBI) guidelines in terms of promoter holding dilution to 40 per cent by January 2022 and listing of the bank by January 2020.

“For the first time after demonetization, traction was witnessed on the asset side, especially with the microfinance book growing 10 per cent sequentially. Stable margins and lowest provisioning in eight quarters helped to maintain profitability at Q2 levels despite a sharp rise in operating costs. The major part of the branch roll out plan almost comes to an end with the addition of 97 bank branches in Q3FY19,” analysts at Antique Stock Broking said in result review.

However, re-rating will hinge on management's ability to scale up its branch business, manage risks in MFI business and clarity around the separate listing of the bank. Operating leverage is central to Ujjivan's road to profitability, given that its fixed costs have inched up by Rs 500 crore over the transition period, it added.

At 10:38 am, Ujjivan Financial was trading 6 per cent higher at Rs 303 on BSE. In comparison, the S&P BSE Sensex was up 0.19 per cent at 36,176 points. The trading volumes on the counter jumped nearly five-fold with a combined 7.04 million equity shares changed hands on the NSE and BSE so far.

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