Emkay Global

Ujjivan SFB (Sell)

Target: ₹17

CMP: ₹19.7

Key takeaways from the Ujjivan SFB concall amid the resignation of Nitin Chugh, MD & CEO: Though the press release indicated that Chugh's (ex-Digi-Banking Head at HDFCB) resignation was due to personal reasons, the impression from the call was that it was mainly due to the bank’s persistent underperformance on the asset-quality front, delayed recognition/correction of NPAs in MFI, and large-scale attrition at the lower-middle level.

In our view, apart from the bank's underperformance, some niggling issues with the old management and his incompatible new-age management style in the still MFI-dominated old school bank, could also have contributed to the resignation.

We believe that the bank's early-stage faltered strategy to mobilise deposits from MFI customers, lack of credible leadership to manage the liability business, and higher dependence on the vulnerable MFI business have led to its current status as a troubled SFB. The Covid-induced disruption aggravated its asset-quality problems. We believe the bank will take time to emerge from these issues.

Given the management-related uncertainty, weak liability profile, persistent asset-quality issues and sub-par return ratios, we retain our Sell rating on Ujjivan SFB and cut our TP from ₹23 to ₹17. We also downgrade Ujjivan Financial Services (holdco) to Sell from Hold, while reducing the TP to ₹160 from ₹217.