Ujjivan has come out with its Q2 FY20 numbers. Results are encouraging! Let us have a look at the numbers. But before looking at them I would suggest you to have a look at the below numbers in case you have not done yet.

Financial Analysis

The table below shows the financial performance of Ujjivan Finance for Q2 of FY20. We compare the results with Q2 of FY19. The numbers are very good albeit on top a lower base of Q2 FY19.

Q2 FY20 (Crores) Q2 FY19 (Crores) % Change
Total Income 710 459 54.7%
Expenses 617 417 47.9%
Profit before taxes 93 42 121%
Profit after taxes 63 29 117.24%
  • Total Income growth: Ujjivan has shown a smart recovery in income growth in FY20. Both Q1 and Q2 have shown excellent growth in revenue. The historical revenue growth is given below
Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q3 FY18
54.7% 61.3% 31.1% 33.4% 23.6% 28.7% 3.4%
  • PAT: The table below captures the PAT growth over the past few quarters. Profit growth has been pretty erratic due to the provisioning requirements as well as other expenses related to branch conversions. Since both these items are now a thing of past, the company has been able to contain its expenses in FY20 leading to better profit numbers.
Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18
117.24% 80.4% -1.6% 54% -469.16% 160.1% -11.15%

Expenses

The table below compares the expenses for Q2 FY20 and Q2 FY19. I don’t see any major concerns in the expense numbers. Impairment losses seem higher in percentage terms, but in absolute number terms the numbers are not all that bad.

Expense Item Q2 FY20 (Crores) Q2 FY19 (Crores) % Change
Finance costs 273 166 64.3%
Employee expense 182 127 43.3%
Other expenses 92 94 -2.12%
Impairment losses 33 15 120%

Other Numbers

  • Cost-to-Income: Cost to income inched up Q-o-Q but Y-o-Y there is a noticeable drop. The costs are stabilizing due to the tapering of costs related to branch conversions.
Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19
Cost-to-Income 69.5% 64.4% 78.0% 77.7% 77.4% 72.3%
  • Net Interest Margin: The NIM (consolidated) dropped by 120 bps Y-o-Y. However it was still pretty good.
Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19
NIM 10.8% 12% 11.7% 11.8% 12.0%
  • Return on Equity: ROE was very encouraging. The goal of the management is to sustain an ROE of 18% in another three to four years. I am happy to see these ROE numbers.
Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19
ROE 18.9% 17.4% 13.3% 9.7% 9.7%
  • Gross Non-performing Asset (GNPA) The GNPA and NNPA are at manageable levels. The company has been able to contain the NPAs which again is a good sign!
Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18
GNPA 0.9% 0.8% 0.9% 1.4% 1.9% 2.7% 3.6% 4.24%
NNPA 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.7% 1.04%
  • Employee Strength: There is a noticeable increase in the employee strength in Q2 FY20.
Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY18 Q1 FY19 Q4 FY18 Q3 FY18
Employee strength 16,776 15,626 14,757 14,305 13,169 12,295 11,242 10881
  • Customer Base: The number of customers of Ujjivan stands at 49.4 lakh active borrowers. The company has started to add new customers at a decent pace. Happy to see that the confidence is back and the company is able to lend to new customers.
Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18
Customer base (lakh) 49.4 47.2 46.1 41.4 40.3 36.9 37.1 37.13

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. Deposits make up 3/4th of the borrowings and the rest 1/4th is via the refinancing facility. The bank is well on its way to be self-sufficient with respect to its funding requirements.
Type of Lender Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18 Q2 FY18
Term Loan (banks/NBFC) 2% 2% 2% 2% 5% 12% 16% 25% 39%
Refinancing Facility 23% 29% 31% 34% 39% 31% 26% 24% 21%
NCD 0% 0% 1% 1% 6% 8% 8% 9% 9%
Deposits 74% 65% 62% 58% 49% 49% 49% 35% 20%
Others 1% 3% 4% 5% 2% 0% 0% 8% 11%
  • Due to the above borrowing mix, over the past few quarters, the cost of borrowing has been coming down for the company.
Item Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18
Average Cost of borrowing (including Deposits) 8.4% 8.5% 8.5% 8.5% 8.5% 8.6% 9.0% 9.3%

Loan Book Analysis

Loan Book Composition:

The loan book composition numbers are given below. Growth in MSE and Housing indicates the intent of management to move in the direction wherein there is a sizeable presence of other products compared to MFI-type loans. The bank has shifted to secure lending for the MSE segment. This has enabled the management to disburse higher ticket sized loans and hence we see significant growth in the loan book for MSE in this quarter.

Loan Book Composition Q2 FY20 (Crores) Q2 FY19 (crores) Growth (%)
Group Loans 9012 6706 34.38%
Micro Individual Loans 1086 680 59.7%
Micro-Small Enterprise 835 352 137.21%
Housing 1212 533 127.39%
Rural 92 0 NA
FIG Lending 521 25 1984%
Other 105 24 337.5%

Loan Disbursements: Loan disbursement numbers give us a dynamic view of the loan book. The table below shows the loan disbursement details. Non-MFI segments are seeing excellent growth in disbursements.

Loans Disbursed Q2 FY20 (Crores) Q2 FY19 (Crores) Growth (%)
Group Loan 2523 1989 26.84%
Micro Individual Loans 313 154 103.24%
Micro-Small Enterprise 203 101 101%
Housing 232 130 78.4%
Rural 42 0 0%
FIG Lending 226 0 0%
Others 67 9 644%

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 3.4 lakhs to 14.3 lakhs! As we noted above, 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 the management enough room to increase their ticket size as the loans are backed by collaterals.
Average Ticket Size Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18 Q3 FY18
Group Loan (Rs.) 33,316 32,146 31,363 31,517 29,506 30,192 26,828 27,591
Micro Individual Loans (Rs.) 88,592 87,778 87,531 81,976 80,929 79,545 75,518 75,646
Micro-Small Enterprise (Rs.) 14,30,000 12,60,000 10,10,000 7,40,000 5,80,000 5,21,620 3,46,830 3,47,040
Housing (Rs.) 10,00,000 9,80,000 9,40,000 9,10,000 9,30,000 8,26,000 6,31,213 6,41,463

Small Finance Bank

  • Ujjivan currently has 552 branches and almost all the MFI centers have now been converted to bank branches.
  • Deposits now form close to 74% of all the borrowings. Let us try to dissect the deposit numbers.
Deposit Type Q2 FY20 Q1 FY20 Q4 FY19 Q3 FY19 Q2 FY19 Q1 FY19 Q4 FY18
Retail CASA (Crores)

Retail Term Deposit (Crores)

 1202

3083

 827

2616

 784

1955

 561

1384

 377

936

 239

511

 138

289
Institutional Deposits (Crores) 5082 4267 3,658 2,468 1714 1307 1179
Certificate of Deposit (Crores) 762 247 982 963 1162 1746 2166
CASA to Total Deposits (%) 11.9% 10.4% 10.6% 10.4% 9% 6.28% 3.65%
Retail to Total Deposits (%) 41.9% 43.1% 37.1% 36.2% 31.3% 19.72% 11.32
Average cost of Deposits (%) 8.0% 8.0% 7.8% 7.8% 7.5%
  • Regarding depositors, I was taken aback when I looked at the profile of depositors and their percentage. The below table lists the breakup. The largest depositors in Ujjivan are other banks! Why are banks parking their money in Ujjivan deposits? Interest rates seem to be drawing them to Ujjivan.
Depositor Share in total deposit
Individuals 36%
Banks 40%
Corporate 17%
Government 4%
Trusts, Associations, Societies, Clubs 3%

Summary

  • Revenue and profit growth were pretty good.
  • Cost-to-income has dropped in Q2 of FY20 in-comparison with Q2 FY19.
  • ROE at 18.9% is very encouraging. Both the NPA and provisioning numbers are very positive.
  • Customer base growth and employee count growth was very good.
  • Borrowing profile has decisively moved towards retail deposits. Another positive sign.
  • Loan book growth and disbursement growth were primarily focused on MSE and Housing segments. Lending to the MSE segment has moved to secure lending which has resulted in higher ticket sized loans. With time we should also see customer growth in MSE. Again a positive sign.

Q2 FY20 was a very positive quarter. I am extremely happy to see these numbers from Ujjivan!

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.