More Stories

Informist, Friday, Jul 19, 2024

By Priyasmita Dutta

NEW DELHI – Beating Street estimates, Ujjivan Small Finance Bank recorded a profit in the March quarter. But the cheer seems to be short-lived as lower margins, higher slippages, and rise in provisioning are seen eating into the small finance bank's profit in the June quarter. According to the estimates by three brokerages, the small finance bank's net profit for Apr-Jun is seen at 2.40-3.12 bln rupees, against 3.24 bln rupees in the corresponding period a year ago.

The net profit projection of Kotak Institutional Equities is the most conservative at 2.40 bln rupees, while that of Emkay Global Financial Services Ltd is the highest at 3.12 bln rupees.

On a sequential basis, the bottom line is seen significantly lower. In Jan-Mar, the Bengaluru-headquartered lender posted a net profit of 3.30 bln rupees. The bank is scheduled to announce its earnings Thursday.

Both Emkay Global Financial Services and Kotak Institutional Equities said microfinance portfolios may witness higher slippages in Apr-Jun owing to election-related collection disruption in May, though there was a partial recovery in June. "This is in addition to the existing ‘Karza Maafi’ (loan waiver) campaign-related stress in Punjab, Haryana, over-leveraging in Gujarat, and economic distress in Kerala," Emkay Global said.

Additionally, the heatwave scenario in the summer months is expected to have worsened the small finance bank's slippages. At 1520 IST, shares of the bank traded at 43.40 rupees on the National Stock Exchange, down 1.2%. "We expect this weakness to reflect in higher slippages and credit costs for the bank." Kotak Institutional Equities said. "On the other hand, recoveries from non-performing assets and written-off accounts are likely to continue on a declining trend," it added.

The higher provisioning comes when the net non-performing asset ratio worsened to 0.28% in the March quarter from 0.04% a year ago and 0.17% in the December quarter. The gross non-performing asset ratio deteriorated to 2.23% in Jan-Mar from 2.18% at the end of December, but was better than the 2.88% a year ago.

Owing to the risks of slippage, the lender's provisioning is seen going up. Kotak Institutional Equities said the lender's provisioning is seen growing five-fold on year to 1.28 bln rupees, from 261 mln rupees a year ago. Sequentially, they see it going up 61.2%.

A silver lining in this muted outlook is that growth in the small finance bank's business is likely to maintain its pace, though the performance is lower than expected. Ujjivan's gross loan book grew 19% on year to 300.9 bln rupees as of Jun 30, according to provisional figures released by the bank. Disbursements during Apr-Jun fell 21% on quarter to 53.5 bln rupees.

The growth in the lender's business is seen aiding its net interest income. As per the three brokerages, the net interest income is seen in the range of 9.16-9.44 bln rupees. A year ago, it was 7.93 bln rupees. In Jan-Mar, it was 9.34 bln rupees.

For the past couple of quarters, the bank's net profit has been hit by the growth in its business operations and the way it manages its expenses. In Jan-Mar, there was a rise of almost 31% in expenses, with interest costs being a chunk of it.

"Moderate growth coupled with decline in margins shall lead to some moderation in the otherwise healthy profitability," Emkay Global said.

Kotak Institutional Equities, in its report, said the lender's net interest margin is expected to decline sequentially because of the one-time boost in Jan-Mar. In Jan-Mar, net interest margin was 9.6%. In Apr-Jun, it is expected to be 9.4%, the brokerage said. Emkay Global sees the net interest margin even lower at 9.2% in Apr-Jun.

The board will offer guidance on the lender's future trajectory as it aims to diversify both its operations and portfolio.

Following are the Apr-Jun earnings estimates of Ujjivan Small Finance Bank, in million rupees, based on reports from three brokerages:

End

Edited by Rajeev Pai

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.