Wishing you all a very happy Dasara. Ujjivan’s Q2 FY20 results are just around the corner. Before these results come out, let us have a quick look at the Q1 FY20 numbers. But before looking into the results, I recommend that you have a look at the following links (in case you have not read them yet).

Financial Analysis

The table below shows the financial performance of Ujjivan Finance for Q1 of FY20. We compare the results with Q1 of FY19. The P&L numbers look great. This is partly due to a lower base effect.

Q1 FY20 (Crores) Q1 FY19 (Crores) % Change
Revenue (including other Income) 689 427 61.3%
Expenses 562 387 45.2%
Profit before taxes 127 70 81.1%
Profit after taxes 83 46 80.4%

Expenses:

The table below compares the expenses for Q1 FY20 and Q1 FY19. I did not see any major cause of concern in the expense items.

Expense Item Q1 FY20 (Crores) Q1 FY19 (Crores) % Change
Finance costs 263 161 63%
Employee expense 163 115 41.7%
Other expenses 83 92 -11%
Impairment losses 19 6 216%

Other Numbers

  • Cost-to-Income: Cost to income is dropping. Since the branch conversions are more or less complete, the costs should stabilize from here hence the cost to income should also see a reduction (with increase in income in future)
Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19
Cost-to-Income 64.4% 78.0% 77.7% 77.4% 72.3%
  • Net Interest Margin: The NIM (consolidated) came in at 12 percent which is pretty good.
Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19
NIM 12% 11.7% 11.8% 12.0%
  • Return on Equity: ROE was fairly good in Q1. The management expects to reach and sustain an ROE of 18% in another three to four years.
Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19
ROE 17.4% 13.3% 9.7% 9.7%
  • Gross Non-performing Asset (GNPA) The GNPA and NNPA are at manageable levels.
Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18 Q2 FY18
GNPA 0.8% 0.9% 1.4% 1.9% 2.7% 3.6% 4.24% 4.99%
NNPA 0.3 0.3% 0.3% 0.3% 0.3% 0.7% 1.04% 1.38%
  • Employee Strength: There is a noticeable increase in the employee strength in Q1 FY20.
Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY18 Q1 FY19 Q4 FY18 Q3 FY18
Employee strength 15,626 14,757 14,305 13,169 12,295 11,242 10881
  • Customer Base: The number of customers of Ujjivan stands at 47.2 lakh active borrowers. The company has started to add new customers at a decent pace. Good to see the confidence is back and the company is able to lend to new customers.
Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18 Q2 FY18
Customer base (lakh) 47.2 46.1 41.4 40.3 36.9 37.1 37.13 36.64

Borrowing Profile

  • Borrowing profile provides details on the various sources of borrowings for Ujjivan and the composition of these instruments in the overall borrowing mix. In Q1 FY19, the management had hoped that the deposits will constitute about 75-80% of the total borrowing profile. The company is getting there slowly and steadily.
Type of Lender Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18 Q2 FY18 Q1 FY18 Q4 FY17
Term Loan (banks/NBFC) 2% 2% 2% 5% 12% 16% 25% 39% 55% 63%
Refinancing Facility 29% 31% 34% 39% 31% 26% 24% 21% 18% 15%
NCD 0% 1% 1% 6% 8% 8% 9% 9% 9% 12%
Deposits 65% 62% 58% 49% 49% 49% 35% 20% 6% 3%
Others 3% 4% 5% 2% 0% 0% 8% 11% 12% 7%
  • Due to the above borrowing mix, over the past few quarters, the cost of borrowing has been coming down for the company.
Item Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18 Q2 FY18
Average Cost of borrowing (including Deposits) 8.5% 8.5% 8.5% 8.5% 8.6% 9.0% 9.3% 9.61%

Loan Book Analysis

Loan Book Composition: The loan book composition numbers are given below. The company is consciously moving away from MFI which is evident from the growth in Housing, MSE, Rural and specifically the other segment (which comprises of loans like 2 wheeler loans etc).

  • By the way the management expects the MFI loans (including Group loans and Individual loans) to make up about 70% of the loan book by FY21. The long term target for MFI vs non-MFI is a 50 : 50 split.
  • Housing loan book Growth: There was a marked growth in housing loan book. The company touched 1000 crore loan book for housing loan. The company is focusing its credit lending more on the ‘ready to move’ homes which provide the comfort of safety as the houses are more or less complete.
Loan Book Composition Q1 FY20 (Crores) Q1 FY19 (crores) Growth (%) Q4 FY19 (Crores)
Group Loans 8444 6338 33.2% 8311
Micro Individual Loans 927 683 35.7% 857
Micro-Small Enterprise 686 280 145%
Housing 1007 417 141.4% 830
Rural 287 42 583.3% 185
Other 432 27 1500% 275

Loan Disbursements: Loan disbursements gives us a dynamic view of the loan book. The table below shows the loan disbursement details. Again, the emphasis on non-MFI loan disbursements is quite evident.

Loans Disbursed Q1 FY20 (Crores) Q1 FY19 (Crores) Growth (%) Q4 FY19 (Crores)
Group Loan 2092 1720 21.6% 2805
Micro Individual Loans 230 151 52.3% 285
Micro-Small Enterprise 141 76 85.5% 185
Housing 205 108 89.8% 195
Rural 115 18 538.8% 107
Others 175 150

The other metric worth looking at is the average ticket size of the loan. The ticket size for MSE and Housing loans have been going up. Personally, I prefer fewer loans with larger ticket size. It leads to efficient management of client base (provided the customers are credit worthy).

  • MSE Loan ticket size: Within a few quarters the MSE ticket size has gone up from 3.2 lakhs to 12.6 which is a fourfold increase! That is quite a leap. One reason for the increase in the ticket size for MSE loan is because the company has moved to a completely securitized loan book for MSE loans. This gives them room to increase their ticket size as the loans are backed by collaterals.
Average Ticket Size Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18 Q2 FY18
Group Loan (Rs.) 32,146 31,363 31,517 29,506 30,192 26,828 27,591 24,677
Micro Individual Loans (Rs.) 87,778 87,531 81,976 80,929 79,545 75,518 75,646 73,893
Micro-Small Enterprise (Rs.) 12,60,000 10,10,000 7,40,000 5,80,000 5,21,620 3,46,830 3,47,040 3,27,816
Housing (Rs.) 9,80,000 9,40,000 9,10,000 9,30,000 8,26,000 6,31,213 6,41,463 5,79,447

Small Finance Bank

  • Ujjivan currently has 474 branches with 50 asset centers pending conversion to SFBs. Compared to Q4 FY19 there was no change in the branch count in the first quarter.
  • Deposits now form close to 65% of all the borrowings. Let us try to dissect the deposit numbers.
Deposit Type Q1 FY20 Crores or  % Q4 FY19 Crores of % Q3 FY19 Crores or % Q2 FY19 Crores or % Q1 FY19 Crores or % Q4 FY18 Crores or % Q3 FY18 Crores or %
Retail CASA

Retail Term Deposit

 827 Crores

2616 Crores

 784 Crores

1955 Crores

 561 Crores

1384 Crores

 377 Crores

936 Crores

 239 Crores

511 Crores

 138 Crores

289 Crores

 90 Crores

168 Crores
Institutional Deposits 4267 Crores 3,658 Crores 2,468 Crores 1714 Crores 1307 Crores 1179 Crores 799 crores
Certificate of Deposit 247 Crores 982 Crores 963 Crores 1162 Crores 1746 Crores 2166 Crores 1379 Crores
CASA to Total Deposits 10.4% 10.6% 10.4% 9% 6.28% 3.65% 3.69%
Retail to Total Deposits 43.1% 37.1% 36.2% 31.3% 19.72% 11.32 10.58%
Average cost of Deposits 8.0% 7.8% 7.8% 7.5% 7%

Regarding Listing of Small Finance Bank (USFB):

One of the hot topics for the company is the listing of the SFB. Below is my understanding of how the entire listing mess will unravel.

  • Let us assume the share capital (in terms of number of shares) for the existing company i.e. UFSL = 1000 shares.
  • Out of these 1000 shares, Let us assume that number of shares that I own of UFSL = 20 shares
  • Now assume that USFB (i.e. the small finance bank subsidiary) will do a 10 percent dilution via IPO in Jan 2020.
    • So number of shares allotted in IPO = 100 shares of USFB. Total shares of USFB would be 1100 shares.
      • UFSL would own 1000 shares out of the 1100 shares of USFB.
      • New shareholders will own the rest 100 shares out of the 1100 shares of USFB.

With the above assumption in mind the following would happen.

  • I continue to hold my 20 shares out of 1000 shares of UFSL, but I will NOT directly own any of the 1000 shares of USFB (UFSL will own them).
    • Hence, I indirectly own 20 shares of UFSB (i.e. via UFSL).
  • After five years of listing of UFSL (i.e. in another two years), there might be a reverse merger of UFSL with USFB and I might get 20 shares of USFB (assuming RBI AGREES\APPROVES, and the existing USFB shareholders approve as well)

Summary

  • Revenue and profit growth were pretty good. This was partly due to base effect.
  • Cost-to-income has dropped noticeably in Q1. I hope the company manages to bring it down further.
  • ROE improved in Q1 to about 17%. The guidance for ROE for FY20 is about 14% (as indicated in Q4 FY19).
  • Both the NPA and provisioning numbers are very encouraging.
  • Customer base growth and employee count growth is a positive sign for future growth.
  • Borrowing profile continues to tilt towards retail deposits. Again a very good sign.
  • Loan book growth and disbursement growth were primarily focused on MSE and Housing segments. I was very happy to see the ticket size increase for MSE segment.

Q1 FY20 was a very consistent quarter. Good to see such positive numbers being reported by the company.

Disclaimer

I am not a SEBI registered research analyst. The information provided above is my subjective view based on what I have read on different websites, annual reports, and quarterly reports of various companies which I assume to be accurate. The above information should not be treated as an offer/advise to purchase a specific stock/investment instrument. Since these are my subjective opinions, I could be wrong in my understanding or presentation of information. I do not claim that the above information is complete or can be relied upon as such. I cannot be held responsible for any loss or damage caused due to any inadvertent error in the above information. I will not be liable for investment decisions made by readers of this article based on the above information. I am not an investment advisor. I may or may not have position in the above company. Please consult your investment advisor for all your investment needs.