The liabilities, too, are fast assuming the colour of a bank. Deposits account for 76 per cent of liabilities, with retail deposits accounting for 42 per cent of deposits. Ujjivan
SFB is also making progress in mopping up low-cost current account–savings account (CASA) deposits, share of which has increased from 3.8 per cent in FY18 to 11.9 per cent as of the first half of FY20 (H1FY20).
Financials, too, have accordingly turned attractive for the bank, especially with much of demonetisation pain being absorbed in FY18.
While the track record of the bank has been impressive, the question is how much of this will hold up when years of product diversification lies ahead of it. In other words, the asset quality and profitability of Ujjivan SFB may be put to test going forward, making it the key risk for investors. For instance, the gross non-performing assets ratio of 0.9 per cent in H1FY20 doesn’t reflect the behaviour or asset quality movement of recently introduced loan products, the quality of which could be vastly different from that of MFI loans. “The bank needs to be cautious on asset-quality risk emanating from its unseasoned non-MFI portfolio,” say analysts at Emkay Global Financial Services.
Likewise, net interest margin or NIM marginally contracted from 10.9 in FY19 to 10.6 per cent in H1FY20 with the bank pursuing non-MFI products for growth.
Also, with the promoters having to reduce their stake from 84 per cent after the IPO
to 40 per cent by January 2022, investors stare at further stake dilution. Since stake dilution is potentially value depletive, much depends on how well Ujjivan SFB fares on the bourses and to what extent the post listing gains insulate investors from this risk.
What awaits shareholders
Much of the underperformance related to listing of Ujjivan SFB has been well absorbed by the Street, with the Ujjivan Financial Services (the promoter entity) stock moving up over 50 per cent in a year; it has gained over 55 per cent since listing. Therefore, fears of value depletion and the stock not holding potential for its existing investors are well behind it. However, with sentiment around the stock not being healthy despite the gains, analysts say investors should avoid taking fresh exposure to Ujjivan Financial Services and instead look at Ujjivan SFB.