Buy Ujjivan Financial Services; target of Rs 400: Axis Direct

November 17
05:41 2017

Axis Direct’s research report on Ujjivan Financial Services

Ujjivan reported a loss of Rs 120 mn (est. Rs 118 mn PAT) due to higher provisions (11x YoY but down 45% QoQ at Rs 882 mn) related to bad assets generated during demonetization. However, operating metrics posted strong turnaround with 15% QoQ pick-up in disbursement, uptick in NIM and significant improvement in collection efficiencies and headline asset quality (GNPLs down 117 bps at ~5%; PCR at 72%).

We expect diversification benefits to play out over the next few years (targets 50% non-MFI book in 5 years) along with operating leverage that will lead to a steady state RoA of ~2.5%, which offers a good risk-reward opportunity.

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