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Ujjivan SFB delivered a strong 2QFY27, with PAT rising 200% yoy and 15.3% qoq to Rs3.65bn, beating our/consensus estimates by 13%/19%, driven by lower credit costs and opex alongside robust loan growth. AUM grew 32% yoy to Rs457bn, led by secured advances (up 47%), while unsecured loans grew 19%. Management expects ~10bps NIM pressure from the repo-rate hike and deposit competition, partly offset by ALM measures, higher securitization, and the proposed Rs4.09bn QIP. Asset quality improved marginally, with GNPA/NNPA at 2.1%/0.3%, while H2FY27 credit costs are expected to be in line with those in 1H. The bank retained ~25% AUM growth guidance, targeting ~40% growth in secured advances and a 56% secured mix by FY27-end. Lower opex to ATA guidance of 6.2% (vs 6.4% earlier) should further support profitability. We believe Ujjivan remains a strong play on the MFI recovery story and should drive up ROA to 2-2.1% over FY27-29E from 1.3% in FY26. We retain BUY on the stock while raising our TP by 6% to Rs90 from Rs85, on rollforward to 1.7x Sep-28E P/ABV

Strong growth led by secured portfolio Ujjivan AUM grew 32% yoy and 7% qoq to Rs457bn, driven by strong growth across the secured and unsecured segments. Secured advances expanded 47% yoy and 10% qoq to Rs238bn, led by MSME (+51%), FIG (+45%), and housing finance (+38%), while group loans grew 20% yoy. Consequently, the secured mix improved to 52% from 50% in 1QFY27. Management targets a 56% secured mix by FY27-end, with a further 5ppt annual increase thereafter. NIM was broadly stable qoq at 8.4%, as the 19bps rise in yields to 14.5% was largely offset by a 25bps increase in cost of funds to 6.9%. The 25bps repo-rate hike and deposit competition are expected to exert ~10bps pressure on margins, partly offset by ALM measures and improved funding mix. Management expects FY27 NIM to remain at 8.3–8.35%.

Asset quality stable; credit cost guidance revised downward Asset quality improved further, with gross slippage stable at Rs1.8bn (1.6% of loans) and GNPA/NNPA improving to 2.1%/0.31% vs 2.16%/0.34% in 1QFY27. The improvement was led by sustained normalization in the unsecured portfolio, with group/individual loan GNPAs at 3.2%/2.6% vs 3.1%/2.8%, respectively. Collection efficiency remained robust at 99.7%, prompting the management to lower FY27 credit cost guidance to 0.9–1.0% of ATA from 1.4- 1.5% of gross loans. Management expects portfolio-at-risk (PAR) levels to be broadly stable at 2QFY27 levels, with 2HFY27 credit costs likely to be in line with that of 1HFY27. Micro-mortgage GNPA edged up, to 0.7%, reflecting seasoning of the portfolio. Exposure eligible for relief under the respective notices was limited, at Rs151mn in Karnataka and ~Rs180mn in Maharashtra.

We retain BUY on Ujjivan SFB We believe Ujjivan remains a strong play on the MFI recovery story and should drive up ROA to 2.1% over FY27-29E from 1.3% in FY26. Thus, we retain BUY while revising up TP by 10% to Rs90 from Rs85, on roll-forward to 1.7x Sep-28E P/ABV. Key risks: macro and micro disruption leading to slower-than-expected growth and higher NPAs; KMP attrition.

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