Broker’s call: Ujjivan SFB (Buy)

Target: ₹45

CMP: ₹32.40

Successful scale-up of retail (secured) portfolio and calibrated growth in microfinance (13 per cent y-o-y growth in FY24) helped Ujjivan Small Finance Bank (Ujjivan) in delivering better than industry profitability. Its RoA at about 1 per cent (despite PAT falling by >50 per cent q-o-q to ₹100 crore) is likely to be highest amongst MFI players.

Earnings, during Q3FY25, were impacted by an 8 per cent q-o-q decline in its MFI book, 6 per cent fall in NII and around 3 per cent rise in credit cost vs. 2 per cent q-o-q . However, Ujjivan’s secured retail book grew a robust 12 per cent q-o-q; contributes around 40 per cent of total loans, as on Dec’24.

Ujjvan’s asset quality performance in its MFI book is better than industry; hence, we believe it would sustain >14% RoE in FY26–27.

We upgrade Ujjivan to Buy (earlier Hold) with a revised TP of ₹45 (earlier ₹36), valuing it at 1.25x (1x earlier) on Sep’25E BVPS.

Key risks: Lower-than-expected slippages and credit cost, particularly from the microfinance portfolio, thereby, impacting credit cost; and Slower-than-expected loan growth, particularly due to lower growth in unsecured portfolio.