Ujjivan Small Finance Bank - Profit Warning In Core MFI Business: HDFC Securities

HDFC Securities Institutional Equities

Ujjivan Small Finance Bank Ltd. hosted its Analyst Meet and cut its loan growth and credit cost guidance, primarily from the emerging headwinds in select pockets of its core MFI business (70% of loan book).

The bank continues to look to diversify its loan book by increasing its secured mix, largely through affordable housing and scale-up of new business such as two-wheeler, micro-loan against property, and gold loans. Ujjivan SFB revised its FY25 loan growth guidance to 20% (from earlier range of 20-25%), and its credit cost estimates upwards to ~1.7% (from earlier guidance of ~1.4%).

Ujjivan SFB is likely to continue investing in people and technology to improve its customer franchise and distribution footprint. The bank is looking to apply for a universal bank license, supported by continued diversification of the asset book and more granular retail liabilities.

We cut our FY25/26 estimates by 7-8%, factoring in higher credit costs for FY25/26 given the stress building up in the MFI book; however, we believe that Ujjivan SFB is more conservative than its peers on underwriting, and impairment recognition norms. We reiterate Buy with a revised target price of Rs 65 (1.5 times Mar-26 adjusted book value per share).

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