Ujjivan Financial gains for sixth straight day ahead of Ujjivan SFB IPO

Shares of Ujjivan Financial Services (UFSL) were trading higher for the sixth straight day, up 6 per cent at Rs 346 on the BSE on Friday ahead of the subsidiary company’s Ujjivan Small Finance Bank (USFB) initial public offer (IPO) due next week.

In the past six trading days, the share price of UFSL has appreciated by 19 per cent, as compared to one per cent rise in the S&P BSE Sensex. The stock is trading close to its 52-week high of Rs 372, touched on June 4, 2019.

The Rs 750 crore IPO of Ujjivan Small Finance Bank will open on December 2. The share sale will close on December 4. Ujjivan Small Finance Bank, promoted by Ujjivan Financial Services, has set a price-band in the range of Rs 36-37 per share.

The proposed Issue of USFB comprises fresh issue of equity shares aggregating up to Rs 750 crore and a portion of the issue, aggregating up to Rs 75 crore, has been made available for the eligible UFSL shareholders, on a proportionate basis.

“Post achieving the listing of the bank, the management would start a dialogue with Reserve Bank of India (RBI) about the possibility of a reverse merger after completion of five years of commercial operations. The management would think about other options also for bringing the promoter shareholding down to 40 per cent,” analysts at YES Securities said in company report.

The brokerage firm estimate USFB to deliver around 40 per cent loan CAGR growth and 60 per cent plus earnings growth over FY19-21. A significant reduction in cost/income ratio is likely to keep RoEs healthy at 15-16 per cent notwithstanding a substantial augmentation in CAR due to IPO, it added. The stock has ‘buy’ rating on UFSL with the price target of Rs 360 per share.

Depending on the success of IPO and pricing, Ujjivan Holdco will own 80- 90 per cent in USFB. In an unfavourable future event of RBI not allowing reverse merger, the holdco will have to divest more stakes to reach 40 per cent shareholding norm, said analysts at Antique Stock Broking in Q2 result preview.

At 01:37 pm, the stock was trading 5 per cent higher at Rs 344 on the BSE, as compared to a 0.87 per cent decline in the S&P BSE Sensex. The trading volumes on the counter nearly doubled with a combined 5.5 million shares changing hands on the NSE and BSE.