Ujjivan Small Finance Bank Limited Q2 FY24 Earnings Conference Call Insights

Key highlights from Ujjivan Small Finance Bank Limited (UJJIVANSFB) Q2 FY24 Earnings Concall

• Business Performance and Growth
  • Disbursements grew 18% year-on-year to INR 5,749 crores.
  • Gross loan book increased 27% year-on-year and 5% quarter-on-quarter.
  • Total deposits grew 43% year-on-year and 9% quarter-on-quarter to INR 29,139 crores.
  • Added 39 new branches, taking total to 700.
  • Asset growth driven by MicroBanking, affordable housing and FIG.
• Affordable Housing Performance and Expansion
  • Affordable housing constitutes 15% of the bank’s total gross loan book, with INR541 crores disbursed in the last quarter.
  • The business is moving towards a hub-and-spoke model, adding 10 new hubs in the recent quarter to improve operational efficiency and reduce costs.
• Secured Loan Portfolios and FIG Growth
  • Individual loans are growing faster, and existing group loan borrowers are transitioning to individual loans.
  • The bank expects mature individual loan borrowers to shift to secured loan portfolios like Micro – LAP and affordable housing, further enhancing growth opportunities.
  • FIG disbursed INR293 crores, a 39% year-on-year increase, focusing on good quality NBFCs with stable collections.
• Digital and Retail Initiatives
  • The bank is enhancing its analytics to facilitate customer transition to secured loans and to explore cross-selling and upselling opportunities.
  • The Hello Ujjivan app is gaining acceptance, with plans to introduce a repeat loan facility to reduce branch visits and costs.
  • CASA crossed INR7,000 crores, growing 28% year-on-year, and retail term deposits increased by 56% year-on-year.
• Asset Quality Remains Strong
  • GNPA at 2.2% versus 2.4% in June.
  • NNPA remains negligible at 0.09%.
  • Collections strong with 98.3% up to 1 EMI collection efficiency.
  • Slippages lower at INR 113 crores versus INR 103 crores in Q1.
• Yield Trends Across Segments
  • MSME yield decline due to low disbursements during transition.
  • Affordable housing yields largely flat.
  • Microbanking yields to increase with upcoming repricing.
• Guidance on Credit Costs and ROE
  • Credit cost guidance of <100 bps for FY24.
  • Normalized credit cost of 125-150 bps.
  • ROE guidance of 20% plus for FY25 and FY26.
  • ROE guidance of 22% for FY24.
• Trends in Individual Lending
  • Average ticket size largely flat quarter-on-quarter at about INR 131,000.
  • EPS decline possibly due to lower yields.
• Repricing of Assets
  • Expects repricing of assets to occur, particularly in the MicroBanking book, where 53% is yet to be repriced.
  • The repricing will be gradual, with 28% of the book getting a 50 basis-point adjustment and the remaining 25% seeing a 100 basis-point adjustment over the next 3-4 quarters.
• Opex Trends
  • Reduction in off-roll collection staff due to improving asset quality.
  • Increase in on-roll staff for secured loan collections and new branches.
  • Costs in line with projections, new branches to bring business.
  • Cashless collections increased to 37% from 20% last year.
• New Customer Acquisition
  • Added 5.3 lakh in H1, marginally below 3 lakhs per quarter.
  • Slower growth compared to last year due to regulatory changes.
  • New branches will boost acquisition going forward.
• Group Loan Growth Outlook
  • Lower in Q1/Q2, picks up in Q3/Q4 seasonally.
  • Impacted by floods in some geographies in Q2.
  • Expect pickup in disbursements and loan growth in Q3 and Q4.
• Andhra Pradesh Market Entry
  • Soft launch and starting with liability business.
  • Microbanking not in focus currently.
• Margin Outlook and Market Share
  • Yield may decline as secured loans increase, but CASA may offset this partly for MSME.
  • As rates fall, margin should remain healthy.
  • Market share growing faster than industry in key states.
  • New clients have no prior NPA history.
  • Marketing costs should reduce going forward.
  • Board to consider applying for universal bank license.
• Impact of Reverse Merger
  • Addition of over INR 400 crores to equity net worth.
  • Reduction of 2.82 crore shares from total base.
  • Expected to add over INR2.4 to book value.