Ujjivan Small Finance Bank Limited Q4 FY23 Earnings Conference Call Insights

Key highlights from Ujjivan Small Finance Bank Limited (UJJIVANSFB) Q4 FY23 Earnings Concall

Management Update:

• [00:00:32] UJJIVANSFB achieved quarterly disbursements of INR6,001 crores and yearly disbursements of INR20,037 crores, marking a 23% and 42% YonY increase, respectively.

• [00:03:10] UJJIVANSFB added 31 new branches, with plans to open 100 more in financial year FY24.

Q&A Highlights:

• [00:12:30] Rajiv from Yes Securities asked about the implied view on NIM when giving a 22% ROE guidance for FY24. Deepak Khetan IR replied that NIM is expected to reach 9% or higher next year. In the current quarter, high liquidity inflow caused the treasury book to increase, which typically has lower NIMs. However, this can be corrected in 1Q, and the full-year NIM is projected to be 9% or higher.

• [00:14:02] Rajiv from Yes Securities enquired about the collection efficiency on the NPA portfolio for 4Q23. Deepak Khetan IR said that NPA has been tracking 40% or more for the bank.

• [00:14:43] Rajiv from Yes Securities asked if the 1% trade cost guidance takes into account any rollbacks and write-backs of current provisions, considering the 98% provisions on NPLs and regular collection. Deepak Khetan IR replied that Rollback might occur due to high collection efficiency on the restructured book and NPA book. Overall, the guidance is below 100 basis points.

• [00:16:41] Renish Bhuva at ICICI enquired if the yield expansion was driven by investment yield or asset yield. Deepak Khetan IR said that yield expansion was driven by rate hikes in September and March in MFI, as well as a decline in NPAs. The trend is expected to continue in the coming year.

• [00:18:32] Gautam C Jain from GCJ Financial asked about the cost-to-income ratio guidance for the next 1-2 years, considering the opening of 100 branches next year. Deepak Khetan IR replied that no cost-to-income ratio guidance is provided currently. Heavy investments in branches, IT, and HR will likely keep the ratio at 55%.

• [00:19:40] Gautam C Jain of GCJ Financial enquired if the cost of fund has stabilized or if it’s going down. Deepak Khetan IR answered that cost of funds is expected to remain elevated in near term. It may come down in second half if interest rates fall.

• [00:20:46] Shreepal Doshi with Equirus asked about the branch expansion strategy for the next two years, and which geographies will be targeted. Deepak Khetan IR replied that the bank will open 100 new branches in FY24, across the country, with a focus on digital banking. New state addition will be Andhra in FY24.

• [00:23:29] Yash Dandewaria from Dande Equity queried why are the bank’s write-offs higher than its peers, and how can it recover more of its write-offs. Deepak Khetan IR replied that the bank has INR1,000 crore of active technical write-offs, from which it expects to recover some money in the coming years.

• [00:25:54] Yash Dandewaria from Dande Equity asked about gold loan update, if any traction is expected. Carol Furtado CBO answered that the bank is expanding its gold loan portfolio and expects to see better growth in this segment this year. The bank has identified branches in the South region to focus on gold loans.

• [00:27:14] Harsh Shah from Dimensional Securities enquired about the expected growth in the MFI and non-MFI segments going forward. Ittira Davis MD said the bank’s micro banking book grew significantly in FY ’23 and is expected to account for 68% of the total portfolio in FY24. The bank is also working to grow its housing portfolio and other businesses in the coming years.

• [00:29:17] Harsh Shah at Dimensional Securities asked what led to the higher rundown in the individual MFI and affordable housing MFI books. Ittira Davis MD said that affordable housing book was impacted by INR160 crore subsidy repayment this year.

• [00:32:01] Darpin Shah from Haitong queried why is the bank expecting to make 100 basis points of loan loss provisions for the next financial year. Deepak Khetan IR said the bank is not looking at any change in provisioning policy as of now. The bank will review the situation during the year and make changes if necessary.

• [00:33:22] Rusmik Oza at Nine Rays asked about the bank’s targets for CASA and reverse merger in FY24. Ittira Davis MD said the bank is targeting to increase CASA to 30% in FY24 and complete the reverse merger process by September 2024. The completion of the reverse merger is subject to the approval of the NCLT.

• [00:34:55] CA Kanwaljeet Singh of Balaji Infin Investment asked about the next step to becoming a full-fledged bank. Ittira Davis MD said the bank is preparing to apply for a universal bank license. It has met some of the requirements, and is waiting for the reverse merger to be completed before the board can make a decision. The bank is balancing its portfolio between secured and unsecured lending in preparation for a possible application.

• [00:37:23] CA Kanwaljeet Singh of Balaji Infin Investment enquired if the bank need to raise funds in the near future looking at the capital adequacy ratio. Ittira Davis MD clarified that the bank is well-capitalized with a capital adequacy ratio of 25.8%. The bank does not expect any need to raise additional capital in the next 2 years. The bank will continue to monitor its capital requirements and may raise additional capital if necessary.

• [00:41:40] Vivek Gautam at GS Investments asked about the bank’s plans to mitigate political risk in India and move towards secured lending. Ittira Davis MD said the bank has a diversified portfolio across India and limits its exposure to any one state to 15%. This mitigates political risk. The company also has strong early warning systems in place to identify and address potential risks.

• [00:44:55] Vivek Gautam of GS Investments asked about the current and future plan for secured lending. Carol Furtado CBO said that the bank currently has a 73% unsecured lending book. The company plans to reduce this to 68% by focusing on secured lending, such as housing, MSME, gold loans, vehicle finance, and secured agribusiness. The company has already seen success in these areas, and is confident that it can achieve its goal.

• [00:49:38] Himanshu Taluja from Aditya Birla enquired what proportion of the 30% deposit growth does UJJIVANSFB expect to come from retail deposits and what new initiatives has the bank taken to build the retail deposit franchise. Ittira Davis MD said that UJJIVANSFB expects to grow deposits by 30% in FY24. The bank is focusing on CASA deposits, expanding branches, investing in digital banking, segmenting customers, and improving brand image.