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.
Key Points:
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.
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.
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.
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.
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.
