Jana Small Finance jumps 5% as Nuvama initiates coverage, 35% upside seen

Jana Small Finance Bank share price: Shares of small finance bank Jana Small Finance Bank surged nearly 5 per cent on Friday to hit an intraday high of ₹464 after Nuvama Institutional Equities initiated its coverage with a ‘Buy’ rating. The brokerage has set a share price target of ₹600, which shows an upside potential of 35 per cent from its last closing price of ₹442.45.

 

According to analysts at Nuvama, the bank has the scale to achieve sustainable profitability given its focus on stronger deposit mobilisation, changing loan mix towards secured lending, better operating leverage and normalisation of credit costs amid better asset quality. 

 

At 10:23 AM on Friday, Jana Small Finance Bank’s stock was quoting at ₹447.55, up 1.15 per cent on the National Stock Exchange (NSE). In comparison, the benchmark Nifty50 index was trading at 22,848.00, up 448.85 points or 2 per cent. On a year-to-date basis, the stock has surged around 1.5 per cent compared to a 3.2 per cent decrease in the Nifty50 index. The bank’s total market capitalisation stood at ₹4,701.80 crore.  ALSO READ | Stock Market LIVE: Sensex 1500 pts higher at 75,350; Nifty at 22,900

 

Since its transformation into a small finance bank (SFB), the bank has seen a significant transition from secured book (collateral-backed) to unsecured loans. Its secured book grew at a 39 per cent compound annual growth rate (CAGR) from 50 per cent in the fiscal year 2021-22 (FY22) to 68 per cent in the December 2024 quarter (Q3 FY25). The accelerated growth in secured books led the total loan book to grow at a CAGR of 25 per cent during the same period. 

 

“We expect its gross loan book to clock 21 per cent CAGR over FY24–27E, with an expected increase in the share of secured loans to 80 per cent by the end of FY27E from 68 per cent, in line with the management’s guidance,” the brokerage said.

 

On the asset quality front, Jana Small Finance Bank’s asset quality declined marginally in H1FY25 given the rising stress in the MFI segment. Its gross non-performing assets (GNPA) growth was minimal against the widespread deterioration in the quality of portfolio for some NBFCs, SFB and also in some private banks which have some exposure in MFI. 

 

According to Nuvama, despite the challenging market conditions in FY25, the bank's asset quality remained stable due to its shift towards secured lending on the back of strong underwriting standards and guarantee schemes for unsecured loans, reduced reliance on BC channels and a switch from group to individual loans.  ALSO READ | Muthoot Finance slips 14% in 2 days on RBI's new rules for gold loans

 

On the margin’s front, the bank’s focused measures to improve retail deposits and CASA (Current Account and Savings Account) have helped maintain stable net interest margins (NIM), despite rising share of secured loans. 

 

“We expect return ratios to remain elevated on account of moderating opex and credit cost. Hence; we have projected RoA of 1.7 per cent to 1.9 per cent and ROE of 16 per cent to 18 per cent for FY26-27E. It is pertinent to note that, the bank holds an unrecognized Deferred Tax Asset (DTA) of ₹735 crore, enabling tax-free operations until FY27,” the brokerage said.