Ujjivan Finance | Results Overview | Q3 FY19
Ujjivan announced its Q3 FY19 results in January. Let us have a look at the results. But before looking into the results I recommend you go through the following links, in case you have not read them yet.
You can also watch the abridged version of the review at the below link.
Financial Analysis
The table below shows the financial performance of Ujjivan finance for Q3 of FY19. We compare the results with Q3 of FY18
Q3 FY19 (Crores) | Q3 FY18 (Crores) | % Change | |
Revenue | 512.6 | 384.1 | 33.4% |
Expenses | 445.9 | 337.5 | 32.1% |
Profit before taxes | 66.7 | 46.7 | 42.9% |
Tax | 21.5 | 17.3 | 24% |
Profit after taxes | 45.2 | 29.3 | 54% |
- Revenue and PAT: The positive momentum from Q1 and Q2 has been carried on to Q3 as well. The company saw the revenue grow by about 33% while the PAT was about 45.2 crores which was a 54% improvement when compared to the PAT for Q3 FY18. The table below captures a quick snapshot of the improvements that the company has seen in its performance in the past 3 quarters.
Q3 FY19 (Crores) | % Change (Y-o-Y) | Q2 FY19 (Crores) | % Change (Y-o-Y) | Q1 FY19 (Crores) | % Change (Y-o-Y) | |
Revenue | 512.6 | 33.4% | 467.4 | 23.6% | 461.7 | 28.7% |
Profit after taxes | 45.2 | 54% | 44.3 | 45 | 160.1% |
- Expenses: Expense growth was in line with the revenue growth. The main reason for the increase in PAT growth is due to a relatively lower growth in expense. And the reason for the drop in expenses is due to the lower provisioning numbers. Let us now look at the expense items in detail.
Expenses
The table below compares the expenses for Q3 FY19 and Q3 FY18.
Expense Item | Q3 FY19 (Crores) | Q3 FY18 (Crores) | % Change |
Finance costs | 182.7 | 141.4 | 29.2% |
Employee expense | 137.3 | 93.2 | 47.3% |
Other expenses | 102.1 | 63.1 | 62% |
Provisions and write-offs | 7 | 28.7 | -75.6% |
- Finance Costs: Finance cost is a major expense for the company which increased by about 29.2%. The important point to note is the fact that revenue grew faster than the finance cost. This is an indicator that the company earned more money than it spent in financing its liabilities. Let us look at the finance cost as a percentage of revenue. The table below shows the values. As a percentage of revenue, there is a decline of 117 bps.
Expense Item | Q3 FY19 | Q3 FY18 | Growth (bps) |
Finance costs as a % of revenue | 35.64% | 36.81% | -117 |
- Employee Expense: Employee expense has grown by about 47% in Q3. The main reason for the rise in employee expense is the conversion of MFI branches into SFB branches. This would entail hiring more specialized staff. When a new branch is setup, the employee expense needs to be borne upfront. The profits from the branch accrue over a period of time. Hence the employee expense seems higher for Ujjivan. The company expanded/converted 97 asset centers into SFB branches in Q3 FY19. Once the branch conversions are completed by around Q1 FY20 we should see the employee expense growth stabilize at a certain level.
Expense Item | Q3 FY19 | Q3 FY18 | Growth (bps) |
Employee cost as a % of revenue | 26.78% | 24.26% | 252 |
- Other Expenses: Year-on-Year the other expenses have gone up by 62%. In Q2 FY19 it had gone up by about 73%. Again the rise in other expense should be due to the branch expansion. Other expenses are a percentage of revenue are depicted below. We may have to wait for Q2 FY20 results to evaluate and judge these numbers as the branch conversions seem to be skewing these numbers.
Expense Item | Q3 FY19 | Q3 FY18 | Growth (bps) |
Other expense as a % of revenue | 19.91% | 16.42% | 349 |
- Provisions and write-offs: There is a 75% drop in provisioning in Q3. This was in continuation from Q2 where we saw a 93% drop in provisioning. As expected, provisioning as a percentage of revenue has also dropped substantially as shown in the table below. This indicates that the management is confident about its assets and believes that it can recover the loans on time.
Expense Item | Q3 FY19 | Q3 FY18 | Growth (bps) |
Provisioning as a % of revenue | 1.36% | 7.47% | -611 |
Other Numbers
- Cost-to-Income: The cost to income has increased from 69% in Q3 FY18 to 77.7%, however, quarter on quarter the numbers have remained flat. The branch transition is adding up to the costs. The management expects the cost-to-income to be round 75% for FY19. Over a longer term of three to four years, management sees the cost to income to drop down to around 55%.
Q3 FY19 | Q3 FY18 | Q2 FY19 | Q1 FY19 | |
Cost-to-Income | 77.7% | 69% | 77.4% | 72.3% |
- Net Interest Margin: The NIM for Q3 was 11.8%. On a quarter-on-quarter basis as well as on a year-on-year basis the NIM has remained constant which is definitely a good sign.
Q3 FY19 | Q3 FY18 | Q2 FY19 | |
NIM | 11.8% | 11.79% | 12.0% |
- Return on Equity: The return on equity was 9.7 for Q3 FY19. ROE is way below the cost of capital in India. This is definitely disappointing. I hope the numbers improve in future.
Q3 FY19 | Q3 FY18 | Q2 FY19 | |
ROE | 9.7% | 7.0% | 9.7% |
- Gross Non-performing Asset (GNPA) The GNPA and NNPA have dropped down to 1.4% and 0.3%% respectively. Compared to the NPA numbers of the demonetization period, these are pretty tidy set of numbers.
Q3 FY19 | Q2 FY19 | Q1 FY19 | Q4 FY18 | Q3 FY18 | Q2 FY18 | Q1 FY18 | |
GNPA | 1.4% | 1.9% | 2.7% | 3.6% | 4.24% | 4.99% | 6.16% |
NNPA | 0.3% | 0.3% | 0.3% | 0.7% | 1.04% | 1.38% | 2.30% |
The company has been publishing segment wise NNPA numbers for the past few quarters. Individual loan NPA has dropped significantly. However the MSE segment seems to be under some stress. The MSE loans need to be monitored closely.
Q3 FY19 | Q2 FY19 | Q1 FY19 | Q4 FY18 | Q3 FY18 | Q2 FY18 | |
Individual Loan | 0.4% | 0.5% | 0.8% | 1.7% | 2.3% | 2.7% |
Group Loan | 0.2% | 0.3% | 0.3% | 0.6% | 1.0% | 1.3% |
MSE | 1.0% | 0.6% | 0.6% | 0.5% | 0.5% | 0.5% |
Housing | 0.2% | 0.1% | 0.1% | 0.1% | 0.1% | 0.1% |
- PAR and Provisioning: The principal at risk (PAR) has dropped from 267 crores in Q2 FY19 to 220 crores in Q3 FY19.
- Employee Strength: The Company is adding employees at a very brisk pace. In FY19, the company has added about 1000 employees per quarter. The table below captures the employee strength over the past few quarters.
Q3 FY19 | Q2 FY18 | Q1 FY19 | Q4 FY18 | Q3 FY18 | Q2 FY18 | Q1 FY18 | |
Employee strength | 14,305 | 13,169 | 12,295 | 11,242 | 10881 | 10,755 | 10,653 |
- Customer Base: The number of customers of Ujjivan stands at 41.4 lakh active borrowers. In the recent quarters, the company has been adding new customers at a decent pace. Good to see that the confidence is coming back and the company is able to lend to more people.
Q3 FY19 | Q2 FY19 | Q1 FY19 | Q4 FY18 | Q3 FY18 | Q2 FY18 | Q1 FY18 | |
Customer base | 41.4 lakh | 40.3 lakh | 36.9 lakh | 37.1 lakh | 37.13 lakh | 36.64 lakh | 36.25 lakh |
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. The company has made excellent progress in garnering deposits. Deposits make up 58% of the total borrowings. In Q1 FY19, the management had indicated that, for FY19, the deposits will constitute about 75-80% of the total borrowing profile. We have one more quarter left and I don’t think we will reach this number in one quarter. By the way, note the significant drop in high cost term loans.
Type of Lender | As of Q3 FY19 (Crores) | As a of Total | As of Q2 FY19 (Crores) | As a % of Total | As of Q1 FY19 (Crores) | As a % of Total |
Term Loan (banks/NBFC) | 185 | 2% | 426 | 5% | 933 | 12% |
Refinancing Facility | 3143 | 34% | 3325 | 39% | 2410 | 31% |
NCD | 92 | 1% | 512 | 6% | 622 | 8% |
Deposits | 5361 | 58% | 4177 | 49% | 3810 | 49% |
Total Borrowing | 9244 | 8525 | 7775 |
- We get a better picture when we look at the borrowing profile as it has evolved over the past eight quarters. The table below lists the transformation of the company towards low cost options. Note the constant drift away from Term loans and moving towards the deposits over these eight quarters.
Type of Lender | Q3 FY19 | Q2 FY19 | Q1 FY19 | Q4 FY18 | Q3 FY18 | Q2 FY18 | Q1 FY18 | Q4 FY17 |
Term Loan (banks/NBFC) | 2% | 5% | 12% | 16% | 25% | 39% | 55% | 63% |
Refinancing Facility | 34% | 39% | 31% | 26% | 24% | 21% | 18% | 15% |
NCD | 1% | 6% | 8% | 8% | 9% | 9% | 9% | 12% |
Deposits | 58% | 49% | 49% | 49% | 35% | 20% | 6% | 3% |
Others | 5% | 2% | 0% | 0% | 8% | 11% | 12% | 7% |
- Due to the above borrowing profile, the cost of borrowing has been coming down for the company. In Q3 FY19 the weighted average cost of borrowing was 8.5%. Quarter on quarter this number has remained constant. As I was indicating in Q2 result analysis, it would be tough to reduce the cost of borrowing further as the company advertises its deposit rates around 8.25% (for senior citizens the interest rate is about 9.1%) and 58% of the borrowings are made up of deposits. Hence getting further down might be very tough unless the company decides to reduce its FD rates. By the way, average cost of deposits is 7.8%.
Item | Q3 FY19 (%) | Q2 FY19 (%) | Q1 FY19 (%) | Q4 FY18 (%) | Q3 FY18 (%) | Q2 FY18 (%) |
Weighted Average Cost of borrowing (including the Deposits) | 8.5% | 8.5% | 8.6% | 9.0% | 9.3% | 9.61% |
Loan Book Analysis
Loan Book Composition:
Let us now look at loan book composition. As of Q3 FY19 the loan book size is Rs. 9,349 crores and in Q2 FY19 the size of loan book was 8,317 crores. In Q1 FY19 the loan book was 7787 crores. In Q3 FY19 the company securitized 276 crores worth of loans. Over the past few quarters the company had gone slow on securitization as there were (probably) lack of securitization opportunities. The company has been able to increase the securitization from 10 crores in Q2 FY19 to about 27 crores in Q3 FY19. By the way, with respect to the loan book, the company continues to maintain its focus on housing and MSE loans. Hence in Q3, MSE and housing loan were the fastest growing businesses. With respect to MSE loan book, the management confirmed that they are moving towards secured loan book for MSE. The delinquencies in unsecured book for MSE would have prompted the management to shift towards secured MSE loans.
Loan Book Composition | Up to Q3 FY19 (Crores) | Up to Q3 FY18 (crores) | Growth (%) | Up to Q2 FY19 (Crores) |
Group Loans | 7,267 | 6,030 | 20.51% | 6,634 |
Micro Individual Loans | 730 | 674 | 8.3% | 681 |
Micro-Small Enterprise | 451 | 163 | 176.7% | 352 |
Housing | 668 | 228 | 193% | 533 |
Rural | 99 | 0 | 66 | |
Other | 134 | 0 | 51 |
Loan Disbursements: Loan disbursement number gives us a dynamic view of the loan book. The table below shows the loan disbursements for Q3 FY19 vis-a-vis Q3 FY18. In Q3, the total loans disbursed was Rs. 2,885 crores and in Q2 the total loan disbursed was about Rs. 2,383 crores where as in Q1 FY19 the company saw disbursals of about Rs. 2092 crores. The growth numbers clearly indicate that the focus continues to be on MSE and Housing loans.
Loans Disbursed | Q3 FY19 (Crores) | Q3 FY18 (Crores) | Growth (%) | Q2 FY19 (Crores) |
Group Loan | 2268 | 1877 | 20.8% | 1,958 |
Micro Individual Loans | 202 | 132 | 53% | 151 |
Micro-Small Enterprise | 134 | 56 | 139.2% | 101 |
Housing | 157 | 70 | 124.3% | 130 |
Rural | 47 | 0 | 34 | |
Others | 77 | 0 | 9 |
The other metric worth looking at is the average ticket size of the loan. The ticket size for MSE loans has gone up whereas the ticket size for housing loans saw a marginal decline. Higher ticket sizes are always good as it reduces the acquisition cost for the company and the company need not hunt for many customers to achieve its AUM target. In our previous discussion we noted that the MSE loans have moved from unsecured to secured lending. The rise in MSE ticket size is the direct consequence of moving to secured loans.
Average Ticket Size | Q3 FY19 (Rs) | Q2 FY19 (Rs) | Q1 FY19 (Rs) | Q4 FY18 (Rs) | Q3 FY18 (Rs) | Q2 FY18 (Rs) | Q1 FY18 (Rs) |
Group Loan | 31,517 | 29,506 | 30,192 | 26,828 | 27,591 | 24,677 | 25,572 |
Micro Individual Loans | 81,976 | 80,929 | 79,545 | 75,518 | 75,646 | 73,893 | 72,301 |
Micro-Small Enterprise | 7,40,000 | 5,80,000 | 5,21,620 | 3,46,830 | 3,47,040 | 3,27,816 | 2,96,106 |
Housing | 9,10,000 | 9,30,000 | 8,26,000 | 6,31,213 | 6,41,463 | 5,79,447 | 4,85,264 |
Small Finance Bank
- Ujjivan currently has 464 branches. In Q3 FY19, 97 asset centers were converted to bank branches.
- Deposits now form close to 60% of all the borrowings. Let us try to dissect the deposits. CASA has been picking up at a steady rate it now makes up about 10.4% of the total deposits. Institutional deposits have also grown at a good pace.
Deposit Type | Q3 FY19 Crores or % | Q2 FY19 Crores or % | Q1 FY19 Crores or % | Q4 FY18 Crores or % | Q3 FY18 Crores or % | Q2 FY18 Crores or % | Q1 FY18 Crores or % |
Retail Deposits
CASA Term Deposit |
1945 Crores
561 Crores 1384 Crores |
1313 Crores
377 Crores 936 Crores |
750 Crores
239 Crores 511 Crores |
427 Crores
138 Crores 289 Crores |
258 Crores
90 Crores 168 Crores |
127 Crores
62 Crores 65 Crores |
39.4 Crores
21.56 crores 17.85 crores |
Institutional Deposits | 2,468 Crores | 1714 Crores | 1307 Crores | 1179 Crores | 799 crores | 607 Crores | 364.3 Crores |
Certificate of Deposit | 963 Crores | 1162 Crores | 1746 Crores | 2166 Crores | 1379 Crores | 615 Crores | 0 |
CASA to Total Deposits | 10.4% | 9% | 6.28% | 3.65% | 3.69% | 4.59% | 5.3% |
Retail to Total Deposits | 36.2% | 31.3% | 19.72% | 11.32 | 10.58% | 9.4% | 9.8% |
Average cost of Deposits | 7.8% | 7.5% | 7% | 5.6% |
Growth Drivers for the company
In the coming quarters the growth drivers for the company shall include dedicated efforts to increase the CASA accounts, garner higher deposit base by providing better rates for fixed deposit accounts, extend the corporate internet banking service to SME industries, encourage mobile app based transactions and provide more services linked to savings accounts. The company is also hopeful that 2-wheeler loans and personal loans will drive the business forward.
Summary
- Revenue growth was pretty decent. PAT growth was excellent at 54%. The company has made great strides in FY19. It should end FY19 on a very positive note.
- Cost-to-income continues to disappoint and is still high at 77%
- ROE continues to disappoint at 9.7% another disappointing quarter with respect to ROE.
- NPAs have been steady which indicates that loan repayments are happening on time. Provisioning numbers are encouraging as well which indicates that the company does not expect large defaults in the near future.
- Customer base has expanded which indicates that the company is confident and lending to new customers. Employee strength is increasing which is another sign of management’s confidence in the future business opportunities.
- Borrowing profile has moved decisively towards deposits which is a healthy sign.
- Loan book growth and disbursement growth were primarily focused on MSE and Housing segments. The company is aiming towards a 50:50 split between Group-lending vs Housing & MSE business.
Overall another quarter of consistent growth. FY19 is turning out to be the best year in recent times.
References
- Ujjivan Finance Quarterly Results Announcement for Q3 FY19
- Ujjivan Finance Investor Presentation for Q3 FY19
- Ujjivan Finance Conference call for Q3 FY19
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.
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