01 May 2016

Ujjivan Financial Services IPO review:: Dilip Davda

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Ujjivan Financial Services Ltd. (UFSL) is a well established player in Micro Finance sector and is in operation since 2005. Company’s missions of providing a full range of financial services to the economically active poor who are not adequately served by financial institutions bear fruits. It’s business is primarily based on the joint liability group lending model for providing collateral free, small ticket-size loans to economically active women. UFSL also offers individual loans to Micro & Small Enterprises (“MSEs”). On October 7, 2015, the company was one amongst 10 companies in India, out of a total of 72 applicants, to receive in-principle approval from the RBI to set up a small finance bank.
The company has adopted an integrated approach to lending, which combines a high customer touch-point typical of microfinance, with the technology infrastructure and related back-end support functions similar to that of a retail bank. Its integrated approach has enabled it to manage increasing business volumes and optimise overall efficiencies. A technology-enabled business model has been its strategic priority, and the back-end of its operations have a fully integrated IT platform.
UFSL offers a diverse range of loan products to cater to the specific requirements of our customers. Its products are classified under two broad categories, namely, group loans and individual loans. Depending upon the end use, these products can be further sub-divided into agricultural, education, home improvement and home purchase and livestock loans. All of its assets under management (“AUM”) fall under the priority sector lending norms prescribed by the RBI. In addition to loan products, company also provides non-credit offerings comprising of life insurance products, in partnership with insurance providers such as Bajaj Allianz Life Insurance Company Limited, Kotak Mahindra Old Mutual Life Insurance Limited and HDFC Standard Life Insurance Company Limited. As on 31st December 2015, company’s operations are spread across 24 states and union territories covering 209 districts across India.
To provide exit option to its existing stakeholders and to raise fresh funds to meet its future capital requirements, the company is coming out with a maiden IPO consisting of primary as well as secondary offer. The company is issuing approx 17055286 equity shares of Rs. 10 each (based on upper price band) and has also on offer for sale 24968332 equity shares. This issue is being made via book building route and has fixed price band in the range of Rs. 207-210. Minimum application is to be made for 70 shares and in multiples thereon, thereafter.  It opens for subscription on 28.04.16 and will close on 02.05.16. Thus the aggregate size of the issue is Rs. 875.00 crore to Rs. 882.50 crore (based on lower and upper price band), but Rs. 358.16 crore will be going to company out of it. In February 2016, the company has already raised Rs. 291.83 crore via pre IPO placement at a price of Rs. 205 per share.
Post allotment, the shares will be listed on BSE and NSE. After the IPO, the shareholding pattern of the company will change from 22.9% domestic + 77.1% foreign to 51% domestic + 49% foreign. Post issue its paid up equity capital will stand enhanced to Rs. 118.25 crore from Rs. 101.19 crore.
On performance front, while the company enjoys well experienced and trained staff as well as loyal customers trust, its AUM and business marked CAGR of 51% and 41% respectively for last five fiscals. Its top and bottom lines has been growing steadily. For last three fiscals its total income and net profits were Rs. 233.93 cr. / Rs. 32.84 cr. (FY13), Rs. 357.66 cr. / Rs. 58.42 cr. (FY14) and Rs. 611.88 cr. / Rs. 75.79 cr. (FY15). For first nine months ended 31.12.15 it has reported net profit of Rs. 122.31 crore on a total income of Rs.729.64 crore. If we attribute these earnings on annualized basis on fully diluted equity post IPO then asking price is around 15 P/E that augurs well compared to its listed peers.
On merchant bankers’ front, they have mixed trends for their past mandates.

Conclusion / Investment Strategy

Conclusion: Considering the status enjoyed by this company in MFI business and the plans for transition into a small finance bank, investment in this IPO will bring reasonable rewards in coming years. Investment may be considered for medium to long term

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