This non banking finance company's stock has zoomed over 100% in 5 months

Shares of Ujjivan Financial Services (UFSL) hit a fresh 52-week high of Rs 295.35 as they surged 6 per cent on the BSE in Tuesday's intra-day trade. The stock of the non banking finance company (NBFC) surpassed its previous high of Rs 289.25, touched on November 9, 2022.

In the past three months, the market price of UFSL has rallied nearly 65 per cent, as compared to 3.6 per cent rise in the Sensex. Moreover, its stock price has more-than-doubled, zooming 120 per cent from a level of Rs 134, in the past five months. It had hit a record low of Rs 96.10 on February 24, 2022. However, the stock had hit a record high of Rs 547 on July 28, 2016.

UFSL is a core holding company of Ujjivan Small Finance Bank (SFB), holding 73.68 per cent stake. Ujjivan SFB is a mass market focused bank in India, catering to financially unserved and underserved segments, and committed to building financial inclusion in the country.

Last year, in July 2021, the Reserve Bank of India (RBI) had permitted small finance banks, which were subsidiaries of holding companies (i.e. the promoters) and which had completed 5 years of operations, to merge with the holding companies, thereby permitting the promoters to exit by this route.

On October 14, 2022, the board of UFSL had approved amalgamation of the company with its subsidiary Ujjivan SFB. In consideration of the proposed merger, the Bank will allot 116 equity shares for every 10 equity shares held by its shareholders in UFSL. 

On October 14, 2022, UFSL said that the scheme of amalgamation is subject to receipt of requisite regulatory approvals including but not limited to RBI, SEBI, BSE, NSE, and National Company Law Tribunal (NCLT).
 

"The amalgamation would result in formation of a larger and stronger entity having greater capacity for conducting its operations more efficiently and competitively. It would avoid operational inefficiency in the group by operating one listed entity and create synergies," UFSL said in rationale behind the move.

The amalgamation would also result in larger free public float for the combined listed entity as pursuant to coming into effect of the Scheme, the resultant listed entity would be entirely held by the public shareholders; better administration and cost reduction, including reduction in administrative, legal and other costs associated with the UFSL.

Meanwhile, Ujjivan SFB has rallied 41 per cent in the past three months, and has surged 84 per cent in the past five months. The stock had hit a 52-week high of Rs 31 on November 7, 2022.

"Ujjivan SFB's management seems quite optimistic about delivering on its business guidance with a clear strategic path in sight for growth and expansion. With major asset quality clean-up completed and the focus shifting to low-cost deposits," analysts at HDFC Securities expect profitability metrics to pan out better than earlier expectations.