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Ujjivan SFB (Ujjivan) posted numbers for 3QFY24 which were in below our expectations. The PAT came in at Rs3,001mn, showing an increase of +2.3%/-8.4% YoY/QoQ vs. our expectations of Rs3,436mn. NII at Rs8.6bn, (+23% YoY /+4.4% QoQ) was exactly in line with our estimates. NIMs (calc) for the quarter came in at 10.7% a sequential dip of ~30bps. Therefore, Bank reported decent performance on NII front but higher opex (CTI for the quarter was sequentially higher at 56.2% vs. 52.2% in 2QFY24) led to disappointment. Resultantly, PPOP came at Rs4.6bn (+17.6% YoY/-5.4% QoQ). Credit cost came in sequentially at elevated levels (1.01% vs. 0.79% in 2QFY24). We marginally revise our earnings estimate downwards for FY24/FY25 to factor in above factors and maintain BUY with a revised TP of Rs64 (earlier TP of 65).

Higher opex and credit cost leads to sequential decline in earnings NII came in at Rs8.6bn, (+23% YoY /4.4% QoQ) in line with our expectations inspite of marginal increase in CoF (calc +4bps QoQ). NIMs (calc) for the quarter came in at 10.7% a sequential dip of 32bps primarily due to lower yield on advances. CTI for the quarter was came in at 56.2%, showing an increase of +275bps/~400bps YoY/QoQ. PPOP came at Rs4.6bn (17.6% YoY /-5.4% QoQ). The PAT came in at Rs3,001mn, showing an increase of +2.3%/decline -8.4% YoY/QoQ against our expectations of Rs3,436mn. Annualized gross slippages were 2.0% of AUM (+20bps sequentially) and bank had a write off Rs930mn during the quarter. Furthermore, Ujjivan has a written off pool of Rs800cr. As per the bank the bad debts recovery would be lower in FY25 vs. Rs135cr/Rs105cr in FY23 and 9MFY24.

Gross loan book (+27% YoY) and Deposits (~28% YoY) continue impressive march ahead Gross loan book at Rs277.9bn up 27%/4.4% Y-o-Y/Q-o-Q with Non-MFI book forming 28.7% of the book. Disbursements were at Rs56.7bn/ Rs167.1bn in Q3FY24/9MFY24 +18%/+19% YoY. Sequentially, the ATS in JLG exhibited a 4.6% increase, while the IL remained relatively stable at Rs56,534/Rs1,31,183, respectively. Total Deposits stands at Rs297bn, growing by 27.9% YoY and 1.8% QoQ. Notably, retail TD grew ~45%/9% Y-o-Y/Q-o-Q in line with management guidance of deposits growth driven by granular retail deposits. CASA has grown sequentially during the quarter by 7.8% (unlike its peers) and stands at 25.47% vs. 24.06% in 2QFY24.

Reverse merger hearing date at NCLT on 30/01/24 The management has indicated that they are in the concluding phases of merging with the holding company, and they anticipate a favorable outcome during the hearing scheduled on January 30, 2024, before the NCLT. Furthermore, they project the merger to be finalized within the current fiscal year. It is expected that the reverse merger will result in a one-time accretion to book value of approximately 2-3%.

Reasonable valuations + Guidance maintained = BUY with TP of Rs64 We expect Ujjivan to report strong numbers in Advances/NII/PPoP with CAGR of 31%/25%/23% respectively, over FY23-26E. Resultantly, Ujjivan is well-positioned to deliver an average RoAA/RoAE of 3.0%/24%, over FY24-26E. Moreover, management has maintained their guidance for FY25 and beyond. At current price, the stock is trading at 1.6x on APBV/1HFY26E basis which is attractive considering banks growth and return profile. We ascribe 1.8x APBV to 1HFY26E translating in a TP of Rs64, potential upside of 16%.

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