Target: ₹26

CMP: ₹19.75 

Ujjivan Small Finance Bank (UJSFB) reported a stellar set of numbers in Q1-FY23, a beat across all parameters, led by strong credit growth with disbursement pick-up across segments, robust operating performance, negligible provisions and improved asset quality.

Asset quality improvement continued aided by slippage moderation and strong recoveries/upgrades with GNPA declining by 389/116 basis points year-on-year/quarter-on-quarter and standing at 5.9 per cent in Q1-FY23. Provision coverage ratio further improved to 98 per cent from 92 per cent quarter-on-quarter.

On the operational front, the bank maintained its growth momentum registering a robust disbursement growth of 248 per cent year-on-year. With asset quality concerns largely addressed, the bank will shift its focus on sustaining the growth momentum, building a granular retail-dominated liability franchise and improving profitability.

With a strong start to the year, the management remains confident of replicating a similar performance over FY23. Advances are expected to grow at 30 per cent in FY23, while deposits growth is expected to outperform advances growth. With asset quality improvement underway, the management expects credit costs to remain muted and contained at sub-1 per cent driving earnings growth.

UJSFB has successfully addressed the key concerns by firming up the management team which is likely to bring more stability going forward along with improving asset quality to manageable levels, and will now shift its focus to growth. Though the shift in the portfolio mix and customer profile could result in margin compression, moderation in op-ex ratios and benign credit costs will support superior RoA delivery by the bank.

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