Ujjivan Financial Services Ltd IPO

Issue Summary
Type
Public Issue, 100% Book building
Size
Rs 8.74 bn to Rs 8.82 bn
Offer Price
Rs 207 to Rs 210 per share
Minimum subscription
Minimum- 70 shares and in multiples of 70
thereafter
Listing
BSE and NSE
Bid/Issue opens
28-April-2016
Bid/Issue closes
02-May-2016
Shares on offer
Fresh Issue- 17 to 17.3 million shares Offer
for sale- 24.96 million shares
Face Value
Rs 10 per share
Pre/Post-issue promoter holding
Not Applicable
Promoters
Not Applicable
Lead Managers
Kotak Mahindra Capital Company Limited,
Axis Capital Limited, ICICI Securities Ltd
and IIFL Holdings Limited

Objects of the issue

Offer for sale:
The proceeds from offer for sale will go to the selling shareholders and Ujjivan
Financial Services Ltd will not receive any proceeds except reimbursement of
issue expenses incurred by the company on behalf of the selling shareholders.

Objects of the Fresh Issue:

The company proposes to utilize the net proceeds from the fresh issue to augment
its capital base for meeting future capital requirements that arise out of growth in
business.

Particulars

Amount (in Rs million)

Augmenting capital base to meet their future capital

requirements arising out of growth in our business in
FY17

3,582

Company background
1.

Business

Ujjivan Financial Services Ltd (UFSL) is a microfinance institution incorporated

in 2005. The company provides a full range of financial services to the
economically active poor that still do not have access to formal financing
channels. UFSL's loan products can be broadly classified into two broad categories,
Group loans and Individual loans. Group loan products make up for a lion's share
of 90% of the loan and revenue portfolio with the balance being contributed by
Individual loans. UFSL provides all kinds of loans including agricultural,
educational, home improvement, home purchase and livestock loans. The
Microfinance Institution also provides individual loans to the Micro & Small
Enterprises. In addition, UFSL provides life insurance products in partnership with
insurance companies.
The Microfinance Institution's business is based on the joint liability group
lending model for providing collateral-free, small ticket-size loans to the
economically active women. This model ensures that the members are jointly and
severally liable for timely payments. Although the MFI is the third largest with a
market share of 7%, it ranks first as far as geographical diversity is concerned. The
Microfinance Institution has its operations spread across 24 states and union
territories and 209 districts across India. It has a decentralized management
structure for operations with four regional offices at Bengaluru, New Delhi,
Kolkata and Pune. USFL has received an in-principle nod from the RBI to operate
as a Small Finance Bank (SFB).
2.

Key management personnel

Mr. Samit Ghosh is the Managing Director and Chief Executive Officer of the
Company. He founded the company in 2005. He holds a Bachelor's degree in
Science from University of Madras. He holds a master of business administration
from the Wharton School of Business at the University of Pennsylvania. He
worked as banker for 30 years in both South Asia and Middle East. He started his
career with Citibank in 1975 and later worked with Standard Chartered Bank,
HDFC Bank and Bank Muscat. He was the past president of Microfinance
Institutions Network.
Ms Sudha Suresh is the Chief Financial Officer of the Company. She is a
Chartered accountant with a corporate career of over 18 years. She is also a

qualified cost accountant. She has worked in areas such as strategic business
planning and budgetary controls, treasury management, accounts and taxation,
and management of board and regulatory compliance.

Particulars

Ms. Sudha Suresh

Fixed Remuneration

Rs 4.36 million per annum

Reasons to apply
1.
2.
3.
4.
5.

Pan India presence to help transition into Small Finance Bank

Professional and experienced management
Robust risk management
Technology driven model to aid in the transition
Improving operational efficiency

Reasons not to apply

1.
2.
3.

Transition to Individual loan products

Transition may impact fund sourcing and profitability
Higher expenses post conversion to a Small Finance Bank

Comparative valuations & Concluding remarks

UFSL has got an in principle nod from the RBI to operate as a SFB. This will be the
second SFB to be listed after transitioning from Microfinance Institution. At the
upper end of the price band, the price-to-book value works out to 1.8 times.
Although in comparison to listed Microfinance Institutions, the company seems
reasonably priced. However, an important point to note is that the cost structure
and valuations are not comparable to Microfinance Institutions.
As compared to established small banks such as City Union Bank and Yes Bank,
the valuations are on the higher side. The Microfinance Institution's pan-India
presence, experienced management and strong asset quality hold it in good stead.
But concerns regarding move towards the riskier individual lending model
coupled with near term pressure on margins do not provide a clear visibility of
business growth for the firm.

Comparison of Accounting ratios with listed industry peers

Name of company

EPS
(Rs)

Ujjivan Financial
Services Ltd
Equitas Holding
Ltd
Shriram City Union
Finance
Sundaram Finanace

11.2
0
4.50

93.90

10.30

1.80

0.15

43.50

9.10

2.30

1.30

86.2
0
40.9
0
15.2
0
6.60
48.0
0

622.30

13.60

2.60

4.30

268.00

15.20

4.00

2.30

82.90

17.90

5.40

0.10

50.70
323.30

16.90
20.60

1.90
2.70

1.90
0.70

SKS Microfinance
Ltd
City Union Bank
Yes Bank

Book value per RONW

share (Rs)
(%)

P/Book
value
(times)

Therefore, I recommend investors to ?????? the IPO

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Gross NPA
ratio (%)