India Micro Finance/SFB: Global Experience Shows Challenges in Establishing Viability

Ujjivan Financial IPO - Morphing into a Bank Gives It a License to Mint Money While Doing Some Good

Senior investment analyst

Pallavi Deshpande

Equity Bottom-Up

Ujjivan Financial Services / Equity Bottom-Up

<p>We like <a href="https://www.smartkarma.com/entities/22697" target="_blank" data-smartkarma-citation="entities:22697:1">Ujjivan Financial Services (UJJIVAN IN)</a> and expect it to rerate as it builds a liability franchise and achieves scale. We believe management’s change of strategy on savings deposit mobilization will boost its current and savings accounts (CASA) ratio, which we view as positive. In addition, a recovery in the microfinance market could drive AUM growth as microfinance (81% of AUM) remains the company’s core business.</p>
<p><a href="https://www.smartkarma.com/entities/24834" target="_blank" data-smartkarma-citation="entities:24834:1">Equitas Holdings Ltd/India (EQUITAS IN)</a>, our pick in the small finance banks sector underperformed over the last year as asset quality in its used commercial vehicle book deteriorated. We believe visibility on Ujjivan’s asset quality continues to improve and it is now our preferred stock in the sector.</p>

We like Ujjivan Financial Services (UJJIVAN IN) and expect it to rerate as it builds a liability franchise and achieves scale. We believe management’s change of strategy on savings deposit mobilization will boost its current and savings accounts (CASA) ratio, which we view as positive. In addition, a recovery in the microfinance market could drive AUM growth as microfinance (81% of AUM) remains the company’s core business.
Equitas Holdings Ltd/India (EQUITAS IN), our pick in the small finance banks sector underperformed over the last year as asset quality in its used commercial vehicle book deteriorated. We believe visibility on Ujjivan’s asset quality continues to improve and it is now our preferred stock in the sector.

Ujjivan (UJJIVAN IN): Positioned for Growth from Upswing in Microfinance