Ujjivan Small Finance Bank Ltd (Ujjivan SFB) has garnered unanimous bullish sentiment from financial analysts after reporting strong June quarter results and subsequently raising its FY27 return on assets (RoA) guidance. All 13 analyst recommendations reviewed were either 'Buy' or 'Outperform', with no 'Hold' or 'Sell' ratings.
The consensus target price for Ujjivan SFB shares stands at Rs 80.65, implying approximately a 17 percent upside from current levels, even after a recent rally. Notably, brokerages like Investec, Nuvama, and ICICI Securities have assigned the highest target price of Rs 90 each. This top-end projection suggests a potential upside of up to 31 percent for the SFB stock.
Strong Performance Fuels Optimism
JM Financial highlighted that a guidance upgrade just one quarter into the financial year is an unusual move, signaling strong credibility. The brokerage noted that Ujjivan SFB's RoA already surpasses the upper end of its revised guidance band. Furthermore, credit costs have normalized quicker than anticipated, and the secured loan mix has now exceeded 50 percent without negatively impacting margins.
Despite these positives, JM Financial pointed out that deferred capacity-building expenses might cap near-term operating leverage, and cost-of-funds tailwinds have largely diminished. Nonetheless, JM Financial maintained its 'Buy' rating and increased its target price to Rs 82 from Rs 75, valuing the bank at 1.6 times FY28 estimated Price-to-Book Value.
Key Drivers of Q1 Success
Ujjivan SFB's robust first-quarter performance was underpinned by several factors:
- Strong Credit Growth: The bank reported significant credit growth, reaching 29.2 percent year-on-year.
- Healthy Margins: A high and stable net interest margin (NIM) of 8.5 percent contributed significantly to profitability.
- Improving Asset Quality: Asset quality continued to improve, particularly with stabilization in the micro-banking portfolio across various states.
These factors collectively led to strong profitability, exceeding analyst estimates by 9 percent. The lowest target on the stock, set by Haitong International, was Rs 76, still suggesting a 10 percent upside over recent closing prices.
Upgraded Guidance and Future Outlook
For FY27, management has revised its RoA guidance upwards to 1.8–2 percent from the previous 1.6 percent. This confidence stems from anticipated steady improvements in credit costs and operating expenses. SBI Securities corroborated this view, stating that Ujjivan's strong quarterly results were supported by robust business growth, stable margins, lower-than-expected operational expenditure growth, and enhanced asset quality.
SBI Securities believes that Ujjivan is exceptionally well-positioned to capitalize on the revival of credit demand within the microfinance industry, driven by benign forward flows and restored pre-crisis collection efficiency.