Ujjivan Financial gains 10% on bonus hope

The stock rallied 10% to Rs 238 on BSE in the intra-day trade on hopes that Ujjivan Small Finance Bank may issue bonus shares to the existing shareholders of the company.

Shares of Ujjivan Financial Services have rallied 10% to Rs 238 on BSE in the intra-day trade on hopes that Ujjivan Small Finance Bank may issue bonus shares to the existing shareholders of the company. Ujjivan Financial Services is the holding company and promoter of its 100% subsidiary Ujjivan Small Finance Bank, which is a small finance bank.

“Ujjivan Small Finance Bank may issue up to 60% of its bonus shares to existing shareholders of the bank’s holding company, Ujjivan Financial Services. The remaining 40% of the holding will remain with the holding company, which is the promoter of the bank, till Jan 2022 as per the Reserve Bank of India’s (RBI) direction,” the Economic Times report suggests.

The stock of Ujjivan Financial had corrected sharply and hit a record low of Rs 166 on October 26, 2018, in the intra-day trade, following the RBI reiterating that the company will need to list its small finance bank in three years from the start of operations.

Regulatory rules mandate that Ujjivan Financial service list its banking subsidiary Ujjivan Small Finance Bank within three years of operations, that is by January 2020.

“We are fully committed to abiding by the RBI guidelines in terms of promoter holding dilution to 40% by January 2022 and listing of the Bank by January 2020 and are working out various options which are tax efficient and protects the interest of our shareholder. We have formed a Board Committee to evaluate all options and decide on a course of action by January,” said Samit Ghosh, MD & CEO, Ujjivan Small Finance Bank.

Meanwhile, Ujjivan Financial Services posted a net profit of Rs 443 million in Q2FY19, as compared to a net loss of Rs 120 million in the corresponding quarter of the previous financial year. Net interest income grew 45% at Rs 2,393 million over the previous year quarter.

The management expects the growth to pick-up in H2 leading to 30-35% AUM growth in FY19. The quarter also witnessed stressed liquidity in the money market. However, Ujjivan was not impacted because of conservative asset & liability structure of relatively short-term assets & longer term liabilities inherited as a microfinance institution, it added.

“Next few quarters will continue to be the year of margin & operating cost adjustments. The need to diversify has forced Ujjivan to go slow in its most profitable segment i.e. microfinance. Yield pressures are already evident from the fact that Ujjivan raised rates in micro financial institutions (MFI) business despite reduced borrowing costs and now charges 225 basis points (bps) higher than Bharat Financial. Also, the liquidity in the system isn't exactly benign and garnering low-cost deposits may not be as simple as opening branches,” analysts at Antique Stock Broking said in result review.

At 10:35 am, Ujjivan Financial Services was trading 9% higher at Rs 237 on BSE, as compared to 0.08% rise in the S&P BSE Sensex. The trading volumes on the counter jumped more than two-fold with a combined 5.22 million equity shares changed hands on the BSE and NSE so far.