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.

Ujjivan SFB's Rs 750-cr IPO priced at 3x its book value; issue opens Dec 2

The initial public offering (IPO) of Ujjivan Small Finance Bank (SFB) will open on December 2. The price band has been fixed at Rs 36-37 a share. The issue will close on December 4. Bids can be made for a minimum 400 equity shares and in multiples of 400 shares thereafter.

The proposed issue of Ujjivan SFB comprises fresh issue of equity shares aggregating up to Rs 750 crore and a reservation of equity shares aggregating up to around Rs 75 crore for subscription by eligible shareholders of Ujjivan Financial Services.

Samit Ghosh, founder, Ujjivan SFB, told reporters at the press conference: “After we do this IPO, the promoter-shareholding will be down from 100 per cent to 84-85 per cent. Over the next two years, we will have to reduce the shareholding to 40 per cent. This is something we want to take up with the Reserve Bank of India (RBI) after we have completed with this listing.

Microfinance lender Ujjivan Financial Services is the holding company of Ujjivan SFB.

The shareholders of Ujjivan Financial Services will get shares at a discount of Rs 2 per share to the final issue price.

The SFB reduced its issue size after fundraising in a pre-IPO placement of over 71.4 million shares totalling Rs 250 crore, at about Rs 35 per share.

The SFB had received approval for the public issue from the Securities and Exchange Board of India in October.

In its red herring prospectus, the SFB said proceeds of the fresh issue would be utilised towards augmenting its tier–1 capital base to meet future requirements, and issue expenses.

The book running lead managers to the issue are Kotak Mahindra Capital Company, IIFL Securities, and JM Financial. Karvy Fintech is the registrar to the issue.

While talking about the economic slowdown, Ghosh said, “There is no slowdown in the microfinance sector and, in fact, we have seen some growth opportunities in the housing sector because some players left, but yes, there is slowdown in the micro, small and medium enterprises sector.”

Commenting on the reverse merger possibilities, Ghosh added, “We have been in discussion with the RBI about the reverse merger at the end of five years. The RBI has told us once you complete five years, you can come back to us. Based on their comfort level with us, they would consider it for a reverse merger.”