Buy 25%+ growth at a PE less than 6: Ujjivan Small Finance Bank
Strong FY23, 25%+ growth and ROE of 20%+ for FY24-26 available at PE less than 6
Company Overview
Ujjivan Small Finance Bank Limited is a mass market focused small finance bank based in Bangalore. Ujjivan SFB is the third largest small finance bank in the country.
Ujjivan Financial Services Limited (UFSL) is a core holding company of Ujjivan SFB, holding 73.68% stake. Ujjivan SFB has obtained RBI’s approval and is awaiting NCLT’s direction to hold shareholder’s meeting and obtain their approval for the reverse merger with the holding company. The reverse merger is expected to be completed by Q3FY24.
Share Details
NSE:UJJIVANSFB( ujjivansfb.in)
Quality: Returns on capital employed in cash
The return ratios have recovered from the FY20-22 period and the company has delivered a performance better than the pre-Covid days.
Growth
The overall growth story has been severely dented by the FY20-22 period but the bank is on a path of recovery starting FY22-23. From an external point of view, Ujjivan SFB is growing faster than the industry and taking market share from competition.
Growth Momentum
Barring the Covid impact period of FY20-22, Ujjivan SFB has delivered a strong 53% bottom-line growth.
Outlook
The visibility of 25%+ growth for FY24-26 being delivered at at ROE of 20%+ (best amongst SFBs) with margins being maintained at 9% for FY24 provides a an attractive outlook for Ujjivan SFB. Additinally merger with the holding company in Q2-Q3FY24 will increase the book value by 6-8% in the short term.
So What????
If I currently hold the stock, I may continue holding it based on my past returns, expectations for future returns, and the availability of alternative stock ideas. I want to wait and see the 25%+ growth story play itself out. I am looking forward to not only earnings growth but also a growth in the PE multiple at which Ujjivan SFB is being valued.
If I don't currently own the stock, I want to enter it.
Return to efficiency in terms of return ratios and growth
Faster than industry growth and gaining of market share from competitors
FY-24 results are strong, confirming growth is back on track.
PE of less than 6, provides a possibility for a re-rating of the PE awarded to it by the market.
The reverse merger with the holding company will add to its book value
Disclaimer
It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades