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Ujjivan SFB has reported in-line PAT at Rs3.3bn/RoA at 3.6%, mainly led by healthy other income, and partly offset by slightly lower NII and higher provisions. Bank clocked healthy 27% YoY/5% QoQ AUM growth, largely owing to mortgages, while growth in the MFI book was relatively moderate and the SME book continued to decline QoQ. This weighed on loan yields which, coupled with rising CoF, led to a 40bps QoQ correction in NIM to 8.8%. Going forward, Bank expects growth/NIM to stay robust in 2H, mostly due to residual repricing of the portfolio. Bank targets completing the reverse merger of the holdco by 4Q, while the process to identify a successor to the current MD is WIP. Factoring-in the strong growth, we raise FY24E-26E earnings by 6%-11% and expect the bank to log the best RoA/RoE among peers, at 2.5%-3.4%/23%- 30%. We roll-forward our TP on 1.8x Sep-25 ABV, revising it up, to Rs65/sh from Rs58/share; we retain our BUY rating on UJSFB. Separately, we value Ujjivan Fin Services (holdco) at Rs692/share, assuming a 20% holdco discount.

Strong growth continues, but margins contract QoQ

Ujjivan SFB reported healthy AUM growth at 27% YoY/5% QoQ to Rs266bn, and net loan growth at 40% YoY/10% QoQ to Rs243bn. However, MFI (JLG) loan growth was relatively moderate, while the bank continues to accelerate the MFI individual loan book. Bank has also accelerated mortgage growth (@31% YoY/10% QoQ); contraction in the MSE book was unrelenting for the fourth straight quarter amid some stress build-up. Deposits growth remained strong at 43% YoY/9% QoQ, but CASA slipped further to 24%, leading to higher than expected increase in CoF. This, coupled with near-flattish loan yields, led to a sharp 40bps contraction in NIM to 8.8%. Bank expects margins to remain healthy in 2H, mainly on the back of repricing of the residual portfolio.

Headline NPAs continue to trend well, but SME remains an irritant

Fresh slippages were seasonally higher in 2Q at Rs1.1bn/2.6% of loans, but better recoveries and strong growth led to a 27bps QoQ reduction in the GNPA ratio to 2.4%. However, collection efficiency in the SME book remains sub-par at 88%, given the elevated stress in some pockets; thus, the bank has been continuously shedding the book. Bank carries a strong 96% PCR on the back-book, but believes that with the new book seasoning, credit cost would start normalizing from 2H. Ujjivan carries floating provisions to the extent of Rs2.5bn/0.9% of loans, which we believe need to be shoredup to withstand any future asset-quality hiccups, as being advocated by a number of other MFI players.

We retain BUY, with revised TP of Rs58/share

Factoring-in the strong growth, we raise FY24E-26E earnings by 4%-10% and expect Bank to log the best RoA/RoE among peers, at 2.5%-3.4%/23%-29%. We roll-forward our TP on 1.8x Sep-25 ABV, hoisting it to Rs65/share and retain our BUY rating on UJSFB. Separately, we value Ujjivan Fin Services (holdco) at Rs692/share, assuming a 20% holdco discount. 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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