Multibagger stock: Ujjivan SFB shares climb 11%; price targets suggest further upside

Shares of multibagger Ujjivan Small Finance Bank Ltd (Ujjivan SFB) jumped 11 per cent in Monday's trade to hit a fresh three-year high following a strong earnings beat, led by better margins, recovery from write offs and continued lower provisions. Analysts noted that return on assets (RoA) sustained at over 3.5 per cent for the fourth consecutive quarter with an average return on equity (RoE) of 30 per cent during the same period. Analysts are largely positive on the stock's prospects that has rallied 133 per cent in the last one year. 

The stock jumped 10.92 per cent to hit a high of Rs 49.13 on BSE. This was the highest level for the stock since February 2020. Emkay Global has raised its FY24-26 earnings estimates by 5-17 per cent and expect bank to log the best return on asset of 2.5-3.4 per cent and return on equity of 22-28 per cent during the period.

"Deposit growth remained strong at 45 per cent YoY, but CASA slipped to a low of 25 per cent. Going forward, the bank expects growth as well as margin to remain strong, but LLP normalisation in 2H should lead to some moderation in RoA, albeit remain above 3 per cent.  Bank expects to complete the reverse merger of the holdco soon, while the process to identify the successor of the current MD (internal/external) is work in progress," the brokerage said.

Emkay Global sees the stock at Rs 58.

"Having flagged off FY24 on a strong note, the management remains committed to sustaining business growth momentum, maintaining healthy asset quality (eyeing exit-GNPA of 2 per cent in FY24) and delivering strong profitability. With Ittira Davis (MD CEO) slated to retire by January, the bank is identifying a suitable successor and has assured of an appointment to be made ahead of time, to ensure a smooth management transition," Axis Securities said. This brokerage finds Ujjivan SFB worth Rs 54.

HDFC Institutional Equities said despite a strong sequential traction in deposits, back-book repricing in the MFI portfolio supported NIM expansion. It said gross NPA ratio improved sequentially to 2.6 per cent on the back of strong upgrades/write-offs despite seasonally higher slippages.

"While Ujjivan has absorbed most of the surplus liquidity on its balance sheet, incremental pressure on funding costs and high opex intensity from franchise-building investments are likely to restrict productivity gains. We adjust our FY24/25 estimates for improvement in yields and credit costs; maintain ADD with a revised target of Rs 50," it said.

ICICI Securities has upped its target to Rs 60 from Rs 40, valuing the stock at 2 times book value per share (BVPS) against 1.5 times September 2024 BVPS.

JM Financial, which also has a target of Rs 50 on the stock said the prevailing valuations are inexpensive given return ratios.

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