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Finance

Ujjivan Small Finance Bank Shares Dip: 3 Key Reasons

Mark Eisenberg
Last updated: 24.06.2024 9:42 am
By Mark Eisenberg
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Ujjivan Small Finance Bank Shares Dip: 3 Key Reasons | FinOracle
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Ujjivan Small Finance Bank Shares Drop 8% After Lower Growth Guidance

Summary: Ujjivan Small Finance Bank (Ujjivan SFB) shares fell drastically, dropping 8% in a single day. This decline came after the bank adjusted its growth expectations for its loan book. They've also mentioned an expected rise in credit costs.

Contents
Ujjivan Small Finance Bank Shares Drop 8% After Lower Growth GuidanceKey Points:Analyst Opinions:Conclusion:Definitions:

Key Points:

  1. Loan Book Growth Reduced:

    • Initially, Ujjivan SFB expected their loan book (the total sum of loans they provide) to grow by nearly 25%. They have now downgraded this figure to 20%.

      Example: Think of this like planning to purchase 25 groceries but later deciding to buy only 20.

  2. Increase in Credit Costs:

    • The bank initially expected credit costs (the expenses linked to lending) to be 1.4%. They now foresee these costs rising to 1.7% for the financial year 2025 (FY25).

      Example: It’s like budgeting $1.40 for grocery bags, then realizing later that you'll need to spend $1.70.

  3. Stable Net Interest Margin, but Falling Return on Equity:

  • Ujjivan SFB expects its Net Interest Margin (NIM) (difference between interest earned and interest paid) to remain steady at around 9%.

  • However, their Return on Equity (RoE) (how effectively the bank is using investor funds to generate profit) is expected to drop to 20%.

    Example: Imagine earning constant interest from a savings account, but the overall profit you make from it reduces.

  1. Impact of Leadership Change:

    • Sanjeev Nautiyal is set to take over as the new MD and CEO from July 1. This leadership change happens amid these revised financial forecasts.
  2. Earnings Projections Cut:

    • As a result of these adjustments, predictions for the bank's earnings in FY25 have been lowered.
    • The stock price fell to Rs 44.73 on BSE, a drop of 7.51%.

Analyst Opinions:

  • Centrum Broking:

    • Centrum Broking pointed out that the dip in stock value is partly because Ujjivan SFB has significant exposure to the Microfinance Institution (MFI) segment, which forms 70% of its loan book.

    • They believe this is a temporary issue and the management has taken steps to address it.

      Example: Imagine your income is primarily from one job (70%). If that job's prospects worsen for a while, you'll need to adjust, but it's temporary.

    • Centrum has set an optimistic target price of Rs 72 per share, believing the current situation is an opportunity for growth.

  • JM Financial:

    • Praised the new leadership's direction, focusing on secured assets (assets like real estate which are less risky).

    • Believes Ujjivan SFB might be eligible for a Universal Banking License, enhancing its prospects.

      Example: This license is like getting a ‘full-service permit’ to operate different types of banking services.

    • Maintains a target price of Rs 65 per share.

  • Antique Stock Broking:

  • Lowered their earnings estimates for FY25-26 by 10-15%, and further by 2-3%.

  • Despite these cuts, they still advocate a 'Buy' recommendation, setting the new target price at Rs 65.

Conclusion:

Ujjivan Small Finance Bank has faced a significant drop in share price due to revising its growth guidance downward. However, analysts see potential for recovery and growth especially with the new leadership and strategic initiatives. The long-term outlook remains cautiously optimistic.

Definitions:

  • Loan Book: Total value of loans given by a bank.
  • Credit Costs: Expenses related to lending.
  • Net Interest Margin (NIM): Difference between interest a bank earns on loans and pays on deposits.
  • Return on Equity (RoE): Measures profitability relative to shareholders' equity.
  • Microfinance Institution (MFI): Provides loans to low-income individuals/groups.
  • Target Price: Projected price level of a stock, as predicted by analysts.
TAGGED:AbilityAIAidALSAntARArtAssetBankBankingBanking licenseBETBudgetCamCatCESCostCreditCureDeFiEarningsExamExpenseFinanceFinancial forecastFunFurGeneGrowthHipIceIncomeIndividualInitiativeInkInstitutionInterestInvestorIonLeadershipLicenseLINKLoanManagementMicrofinanceNet interest marginOpinionOppoOreOvidPlanningPortPotentialPredictionPredictionsPricePrice levelProjectReal estateReasonReturn on equityRiceRiskSavingSavings accountSECShare priceShareholderShipSinSmall finance bankStockTeaUjjivan Small Finance BankUSVanWarWit
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Mark Eisenberg
ByMark Eisenberg
Mark Eisenberg is a financial analyst and writer with over 15 years of experience in the finance industry. A graduate of the Wharton School of the University of Pennsylvania, Mark specializes in investment strategies, market analysis, and personal finance. His work has been featured in prominent publications like The Wall Street Journal, Bloomberg, and Forbes. Mark’s articles are known for their in-depth research, clear presentation, and actionable insights, making them highly valuable to readers seeking reliable financial advice. He stays updated on the latest trends and developments in the financial sector, regularly attending industry conferences and seminars. With a reputation for expertise, authoritativeness, and trustworthiness, Mark Eisenberg continues to contribute high-quality content that helps individuals and businesses make informed financial decisions.​⬤

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