Ujjivan Small Finance Bank Ltd (Ujjivan SFB) saw its shares falling 6 per cent in Friday's trade following a 64 per cent year-on-year (YoY) slide in its December quarter results, amid a 250 per cent YoY increase in provisions. The stock fell 6.48 per cent to hit a low of Rs 32.32 on BSE. Analysts, however, suggested a 'Buy' on the stock, citing attractive valuations.
Kotak Institutional Equity noted that asset-quality ratios deteriorated sequentially with gross non-performing loan ratio up 20 basis points (bps) sequentially, slippage ratio at 5 per cent and credit cost at 3 per cent. That said, they still were meaningfully better than peers, the broking firm said.
"Slippages are yet to peak for the industry, but we find valuations reasonable. Retain BUY with a fair value of Rs 50 (unchanged)," Kotak said.
ICICI Securities said Q3 earnings were impacted by an 8 per cent QoQ decline in its MFI book, 6 per cent fall in NII and 3 per cent rise in credit cost. But Ujjivan’s secured retail book grew a robust 12 per cent QoQ and contributed to 40 per cent of total loans.
"Ujjivan’s asset quality performance in its MFI book is better than industry; hence, we believe it would sustain over 14 per cent RoE in FY26–27E. We upgrade Ujjivan to BUY (earlier Hold) with a revised target price of Rs 45 (earlier Rs 36)," it said.
YES Securities said the normalisation of growth and credit cost is expected to start from Q1 FY26 and the full-year outcomes would likely be much better than FY25. It believes the Ujjivan SFB stock is available at attractive valuation on FY27 estimates for a significant growth and return on equity (RoE) turnaround. It retaind a constructive stance on the stock with a 12-month target of Rs 42.
Kotak said slippages for the microfinance industry may stay elevated for a few more quarters, as weaker borrowers get weeded out due to tighter credit norms when their loans are due for renewal. As a result, on-ground challenges have persisted even though there are early signs of collections bottoming out.
"We are not fully convinced yet that peak risk is behind us; the tail risk from any external intervention can result in swift deterioration in this business. However, a revival in disbursement momentum should result in steady improvement, as the liquidity for the borrower improves over time. We believe valuations have turned attractive and allow us to retain a positive view on the stock as it can potentially yield healthy returns when the cycle turns," Kotak said.