Emkay Global Recommends Buying Ujjivan Small Finance Bank, Sees Target Price of Rs 80

Ujjivan Small Finance Bank Continues to Ride MFI Recovery Story

Ujjivan Small Finance Bank has reported a strong set of numbers, continuing its momentum in the Micro Finance Institutions (MFI) recovery story. According to Emkay Global Financial's research report, the bank's Asset Under Management (AUM) growth accelerated to 27% Year-over-Year (YoY). This growth, coupled with a 30 basis points (bps) Quarter-on-Quarter (QoQ) increase in margin to 8.5%, and a moderation in credit cost to 1.5%, led to an 8% Profit After Tax (PAT) beat, at Rs2.8 billion. The bank's Return on Assets (RoA) also crossed the 2% mark, standing at 2.1%.

The credit growth was primarily driven by Micro and Small Enterprises (MSME) and mortgages, while MFI growth has turned positive. The bank's MFI group Portfolio At Risk (PAR) 0+, 30+, and 60+ Days Past Due (DPD) improved further by 50bps/40bps/20bps QoQ to 4.2%/4.0%/3.4%, respectively. Looking ahead, the management expects AUM growth to remain strong, with a focus on diversifying the loan portfolio more towards secured loans, increasing the share to 56% from the current 49%. The bank is also planning to re-apply for the Universal Banking license.

Outlook and Recommendations

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Emkay Global Financial believes that Ujjivan remains a strong play on the MFI recovery story and expects the bank to drive up RoA to 1.6-1.9% over FY27-29E, from 1.3% in FY26. The research firm has retained a BUY rating and raised the target price by ~11% to Rs80 (from Rs72), on rolling forward to 1.8x FY28E Absolute Book Value (ABV).

Note: The above table presents a comparison of Ujjivan Small Finance Bank's financial metrics over the given periods.