Earnings Outlook
Ujjivan Small Fin Bank PAT seen down on credit cost, NIM pinch
This story was originally published at 11:10 IST on 23 October 2024
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By Ashna Mariam George
MUMBAI – An increase in credit costs, decline in net interest margin, and stress in the microfinance book are seen as drags on the net profit of Ujjivan Small Finance Bank for the Jul-Sept quarter. According to the average of estimates from six brokerages, the small finance bank's net profit for the reporting quarter is seen falling 20.4% on-year to INR 2.61 billion.
Estimates for the Bengaluru-based lender's net profit were in the range of INR 2.23 billion-INR 3.06 billion. The small finance bank's Jul-Sept quarter earnings are scheduled to be announced Thursday. At 0917 IST, Ujjivan Small Finance Bank's shares traded 1.1% lower at INR 36.38 on the National Stock Exchange.
On a sequential basis, the lender's net profit is estimated to fall 13.3%. For the quarter ended June, the small finance bank reported a net profit of INR 3.01 billion, down 7.1% from a year ago, due to a rise in provisioning caused by higher slippages.
Analysts expect Ujjivan Small Finance Bank to post over 15% growth on-year in net interest income in the reporting quarter. According to the average of estimates from six brokerages, the lender's net interest income is seen at INR 9.47 billion. Sequentially, the figure is seen largely unchanged, with the rise a mere 0.6%. Kotak Institutional Equities expects healthy net interest income growth of around 11% year-on-year driven by advances (on-book) growth of around 20% year-on-year.
According to provisional figures released by the bank, its gross loan book grew 14% on year to INR 303.44 billion as of Sept. 30. The bank's total deposits were up 17% on year to INR 340.46 billion as of September-end. Current account savings account deposits were up 26% on year at INR 88.22 billion. The bank's current account savings account ratio was at 25.9% as on Sept. 30, against 25.6% as on Jun. 30.
In terms of loan growth, brokerages seemed to have a divided opinion. While YES Securities and Centrum Broking expect lower credit growth, Emkay Global expects the bank to demonstrate healthy credit growth.
Most analysts expect an industry-wide fall in net interest margin and higher credit costs to weigh on Ujjivan Small Finance Bank's performance in the reporting quarter. YES Securities estimates the lender's net interest margin to be under pressure from portfolio mix changes and sustained adverse trends in asset quality.
The net interest margin of the bank was marginally down at 9.3% in Apr-Jun from 9.4% in the previous quarter but higher than 9.2% a year ago. As per the estimates of Kotak Institutional Equities, Ujjivan Small Finance Bank's net interest margin for Jul-Sept is seen at 8.7%.
Centrum Broking expects Ujjivan Small Finance Bank to report a 23?cline in net profit due to rising credit costs. As per the estimates of Kotak Institutional Equities, the bank is expected to post a 2.30% credit cost compared with 0.81% a year ago. According to the guidance offered by the bank, credit cost for 2024-25 (Apr-Mar) is seen at 1.7%. For the June quarter, the bank recorded a credit cost of INR 1.10 billion, up 322% on year.
Analysts also expect underperformance in the microfinance sector to drag down the bank's net profit for the quarter. "Management had highlighted weakness in collections in select pockets in the microfinance business. We expect this weakness to reflect in higher slippages and credit cost for the bank," Kotak Institutional Equities said in a pre-earnings estimate. Emkay Global Financial Services also noted that "stress in the microfinance space refuses to subside and could manifest via higher slippages or lower recoveries. This could lead to higher non-performing assets for microfinance-heavy banks like Ujjivan."
For the quarter ended June, Ujjivan Small Finance Bank's net non-performing assets ratio was 0.41%, deteriorating from 0.28% in Jan-Mar. According to provisional figures, the lender's asset quality slightly deteriorated during the quarter under review, with the portfolio against risk at 5.1% as on Sept. 30, and the gross non-performing asset ratio was at 2.5%.
Kotak Institutional Equities said that provisions would be meaningfully higher year-on-year, resulting in a sharp quarter-on-quarter decline in return on assets. For the quarter ended June, the small finance bank's provisioning was INR 1.10 billion, up from INR 261.1 million a year ago.
The bank's asset quality outlook and the new management's growth outlook remain key monitorables for the quarter under review. The board of Ujjivan Small Finance Bank appointed Sanjeev Nautiyal as managing director and chief executive officer of the bank with effect from Jul. 1.
Following are the Jul-Sept earnings estimates of Ujjivan Small Finance Bank based on reports from six brokerage houses:
|
BROKERAGE |
NET INTEREST INCOME (in INR million) |
NET PROFIT (in INR million) |
|
Antique Stock Broking Ltd. |
9,583.00 |
2,798.00 |
|
Axis Securities Ltd. |
9,420.00 |
2,690.00 |
|
Centrum Broking Ltd. |
9,408.00 |
2,527.00 |
|
Emkay Global Financial Services Ltd. |
9,652.00 |
3,062.00 |
|
Kotak Institutional Equities |
9,530.00 |
2,234.00 |
|
YES Securities (India) Ltd. |
9,251.00 |
2,350.00 |
|
Average |
9,474.00 |
2,610.17 |
|
Number of responses |
6 |
6 |
End
Edited by Namrata Rao
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