Ujjivan Small Finance Bank Q3 Results Review - Strong Performance Continues: Yes Securities

Yes Securities Report

Ujjivan Small Finance Bank Ltd. delivered a 7%/30% beat on our pre-provision operating profit/profit after tax expectations driven by-

1. higher net interest income,

2. measured increase in opex (normalisation of collection-related costs),

3. higher other income (strong core fee growth plus sustained elevated bad debts recovery) and

4. NIL credit cost (continued robust collections and non-performing loan recoveries).

Management expects a similar operating (earnings) performance in Q4 FY23, and 25% loan growth and 1% credit cost in FY24. With collections-related costs normalising, the bank hopes to limit the likely increase in cost/income ratio next year owing to lower bad debts recovery and some pressure on net interest margin.

As the granular deposits inflow remains strong, Ujjivan SFB doesn’t see any imminent need to raise deposits pricing.

We raise our earnings estimates by 35%/20% for FY23/24 on much stronger-than expected operational delivery in Q3 FY23 and encouraging medium-term commentary on asset quality, growth, loans/deposits pricing flexibility and cost metric.

While FY23 will be an exceptionally profitable year due to lower-than-usual credit cost and higher-than-usual bad debts recovery, we estimate the bank to deliver 18-20% return on equity even under normalised circumstances.

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