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Ujjivan SFB has once again reported a strong earnings beat, with PAT at Rs3.2bn/RoA at 3.8%, mainly backed by better margins, fees/recovery from woffs and continued lower provisions. Bank clocked 30% YoY/5% QoQ AUM growth, though the SME book declined amid some signs of stress. Deposit growth remained strong at 45% YoY/4% QoQ, but CASA slipped to a low of 25%. However, better loan yields led to 10bps QoQ expansion in NIM. Going forward, Bank expects growth as well as margin to remain strong, but LLP normalization in 2H should lead to some moderation in RoA, albeit remain above 3%. Bank expects to complete the reverse merger of the holdco soon, while the process to identify the successor of the current MD (internal/external) is WIP. Building-in a strong 1Q beat, we raise FY24E-26E earnings by 5%-17% and expect Bank to log the best RoA/RoE among peers, at 2.5%-3.4%/22%-28%. We roll-forward our TP on 1.8x Jun-25 ABV, revising it upwards to Rs58/sh.

Strong growth in a seasonally-weak quarter; margins surprise positively Ujjivan SFB reported healthy AUM growth at 30% YoY/5% QoQ to Rs253bn, and net loan growth at 34% YoY/4% QoQ to Rs222bn. This was mainly driven by continued traction in MFI loans (share at 72% of AUM) and supported by healthy growth in the retail (affordable housing) book. However, the SME book continues to contract for a 3rd quarter in a row amid some stress build-up. Deposits growth too remained healthy at 45% YoY/4% QoQ, but CASA slipped to 25%. However, better yields and run-down of excess liquidity led to 10bps improvement in NIM to 9.2%. Bank remains confident of maintaining NIMs at 9% levels, given the pending asset repricing (40% of the book).

Headline NPAs continue to trend well, but SME remains an irritant Fresh slippages were seasonally higher in 1Q at Rs1bn/2.5% of loans, but better recoveries led to continued decline in GNPA ratio to 2.6%. However, collection efficiency in the SME book remains sub-par at 88%, given the elevated stress in some pockets; thus, Bank has consciously held back growth in this segment. Bank carries a strong 98% PCR on the back-book, but believes that with the new book seasoning, credit cost would start normalizing from 2H. Additionally, we believe most MFI players have indicated building contingent buffers and believe Ujjivan too would build such provisions. Factoring-in our belief, our FY24-26E LLP inches-up to 1.1-2.1% from the low of 0.1%.

We retain BUY, with revised TP of Rs58/share Building-in a strong 1Q beat, we raise FY24E-26E earnings by 5%-17% and expect the bank to clock peer-best RoA/RoE at 2.5%-3.4%/22%-28%. We roll-forward our TP on 1.8x Jun-25E ABV and revise it upwards to Rs58/share (vs Rs50/share earlier). That said, we believe the bank needs to ramp-up its liability profile as well as efficiently manage the new Management transition. Key risks: Macro/micro disruption leading to slower than expected growth; higher NPAs with seasoning of the MFI/SME book and KMP attrition.

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