Ujjivan Financial Services tanks 10%, hits 52-week low

Ujjivan Financial is a non-operating holding company with sole 83.32% ownership of Ujjivan Small Finance Bank and does not have any other business interest

Shares of Ujjivan Financial Services (UFSL) hit a 52-week low of Rs 137.70 as they tanked 10 per cent on the BSE in intra-day trade on Tuesday. In the past one month, the stock of the non-banking finance company (NBFC) has slipped 38 per cent after the exit of multiple board members and management executives at Ujjivan Small Finance Bank (USFB).

UFSL is a non-operating holding company (holdco) with sole 83.32 per cent ownership of USFB and it does not have any other business interest. At the standalone level, the income streams of UFSL include dividend income from investments held in its subsidiary, UFSB and interest earned on fixed deposits invested with various banks. UFSL has not received any dividend income on its equity investment in USFB since the inception of the bank, including during the financial year 2020-21, due to restrictions on declaring dividend by banks as per the Reserve Bank of India (RBI).

Most recently, and in a surprise move, on August 19, 2021, Nitin Chugh, (CEO & MD) resigned from the bank. He had joined Ujjivan SFB in August 2019 and was elevated to MD & CEO’s position in December 2019. Samit Kumar Ghosh has been appointed as a common director between the holdco and USFB with key priorities being managing portfolio quality proactively, arresting attrition and ensuring a smooth reverse merger process.

"Not surprisingly, the management has admitted that the provisioning philosophy over the last five quarters (pandemic period) has not been the most prudent one. Going forward, the bank would like to be known for proactive and upfront recognition of stress and provisioning. We have been discomforted by the bank’s provisioning policy since Q3FY21 and it was a key reason for us to downgrade the stock to SELL post Q4FY21 earnings, despite compelling valuation,” analysts at Nirmal Bang Equities said in a note.

Analysts see multiple challenges in the near term with respect to asset quality, credit cost-led earnings pressure and management instability. However, we would look out for (any) effective resolution of the aforementioned challenges and keep reassessing our stance in light of the bank’s inexpensive valuation, it added.

At 09:48 am, UFSL was down 8.5 per cent at Rs 139.95 on the BSE, as compared to a 0.06 per cent decline in the S&P BSE Sensex. The trading volumes on the counter more-than-doubled, with a combined 2.12 million equity shares having changed hands on the NSE and BSE so far.

Meanwhile, the stock of USFB was down 4 per cent at Rs 18.80, trading at the day’s low on the BSE. A combined 2.1 million shares have changed hands on the counter on the NSE and BSE. The stock had hit a 52-week low of Rs 17.80 on August 23, 2021.