Ujjivan Small Finance Bank shares fall 8%; target revised as SFB lowers FY25 guidance

Shares of Ujjivan Small Finance Bank (Ujjivan SFB) Ltd. declined as much as 8% in trade Monday, June 24. This was after the bank lowered its financial year 2025 loan growth guidance by 500 basis points as it sees stress building up in some pockets of its business.

Ujjivan SFB expects the loan book to grow by 20% year-on-year by March 31 next year. During its March quarter earnings announcement made just a month ago, the expectation was for a 25% loan growth.

Additionally, the bank’s latest guidance for FY25 also estimates a return on equity (RoE) of 20% than the previous estimates of 22%.

Besides AU SFB, Ujjivan SFB claims it is eligible for a universal banking license per recently released norms by the Reserve Bank of India (RBI), and plans to apply for the license within 12 months; for this, Ujjivan has formed an independent team.

The bank has recently hired Sanjeev Nautiyal from the State Bank of India (SBI) to replace the outgoing MD and CEO Ittira Davis.

“We believe that an SBI banker would provide long-term strategic stability and smoothen the transformation journey into a ‘universal bank’. Notably, the ‘universal bank’ tag would lead to better customer perception and hence CASA, coupled with release of PSL and capital,” said Emkay Global in a note.

Factoring in the moderate growth and asset quality normalisation leading to rise in limited liability partnership (LLP), the brokerage has trimmed its FY25-27 earnings estimate by 4-6%, but expects the bank to still deliver healthy RoA at 2.5-3%, and RoE at 20-22%.

“We believe Ujjivan offers a good play on the MFI cum rural and ‘universal bank’ transformation story,” Emkay said while retaining a ‘Buy’ rating and a target price of ₹65 per share.

According to Axis Capital, SFB’s analyst meet highlighted initial signs of stress in MFI in select districts of Punjab, Haryana, Gujarat, Kerala and Uttar Pradesh. This is expected to impact other companies in the segment too.

While the brokerage believes the stress is transient, it will remain an overhang; thus Axis Capital has downgraded the stock to ‘Reduce’ from ‘Add’ earlier. It has a target price of ₹48 per share on the stock.

Ujjivan SFB stock has a price-to-equity (P/E) ratio of 7.29, compared to a price-to-book (P/B) value of 1.66. The company’s earnings per share (EPS) stood at 6.63 with a RoE of 22.83.

Shares of Ujjivan SFB settled 4.98% lower at ₹45.95 apiece on the NSE today. The scrip has fallen nearly 20% so far in 2024.