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Ujjivan SFB recorded a strong operational quarter with beat on PAT at INR 3.2bn (+15% JMFe, +60% YoY, +5% QoQ) supported by robust NII growth (+32% YoY, +7% QoQ) and steady other income (+42% YoY, -1% QoQ). NIMs stood at 9.2% (+10bps QoQ) supported by a) increase in yields (+20bps QoQ) and b) reduction in excess liquidity. Mgmt. remains confident of maintaining NIMs c.9% by passing rate hikes to customers (40% of the loan book yet to be repriced by 100bps) even with expected increase in CoF. Ujjivan SFB witnessed strong loan growth momentum at INR 253bn (+30% YoY, +5% QoQ) with its focused approach to improve its secured business by targeted reduction in MFI contribution to ~50% over next 3-4 years period supported by healthy disbursement demand across segments. Deposit growth was strong (+45% YoY, +4% QoQ) driven by focus on branding and branch expansion with decline in CASA ratio at 24.6% (-182bps QoQ). Asset quality remains pristine with GNPA/NNPA at 2.62%/0.06% (-26bps/+2bps QoQ) with restructured pool at 0.8% of gross advances (-10bps QoQ). Mgmt. remains optimistic on sustaining growth momentum for advances and deposit with credit cost below 100bps. We build CAGR AUM growth of 28% and avg. credit cost at 106bps over FY24-25E. Mgmt. commented on the reverse merger, that their application with NCLT is completed on 28th June 23 and Ujjivan SFB expects to receive further order entailing directions for stakeholder meetings and other directions on the process further. We believe the stock can rerate on the back of consistent performance on operational execution supported by a) growth and profitability across product segments, b) steady asset quality with lower credit costs, c) upswing in microfinance sector along with impetus on new businesses and d) robust deposit accretion. Current valuations at 1.3x FY25e P/BV and 5x FY25e P/E are inexpensive given return ratios of 3.4%/27.3% of RoA/RoE in FY25E. Maintain BUY with a revised TP of INR 50 valuing it at 1.5x FY25E BVPS.

* Strong advances and deposit growth: In 1QFY24, AUM remained strong at INR 253bn (+30% YoY, +5% QoQ) on the back of robust disbursements of INR 53bn (+22% YoY, - 12% QoQ). Advances growth was driven by micro individual loans, housing and FIG segment which grew at +11%/ +8%/ +8% QoQ with Ujjivan SFBs secured book standing at 27% aided by affordable housing and FIG witnessing strong growth while other segments expected to pick up towards the second half of the year. Deposit growth was strong (+45% YoY, +4% QoQ) driven by focus towards retail with increased in share of retail TD (+130bps QoQ) with decline in CASA ratio at 24.6% (-182bps QoQ). We have built CAGR AUM growth of 28% over FY23-25E.

Strong operational execution: Ujjivan SFB exhibited strong operational quarter with beat on PAT at INR 3.2bn (+15% JMFe, +60% YoY, +5% QoQ) supported by robust NII growth (+32% YoY, +7% QoQ) and steady other income (+42% YoY, -1% QoQ). NIMs expanded by 10bps QoQ to 9.2%, with continued momentum in loan growth aided by yield expansion by +20bps vs cost of funds increase by +30bps. Mgmt. remains confident of sustaining NIMs above 9% with pass though of rate hikes (40% of the book yet to be repriced by 100bps) alongside expected increase in CoF due to pending repricing of old

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