PERFORMANCE SCORECARD
Opens on Closes on Price band (~) 28 June 30 June 355-358 of Ujjivan and Equitas are extrapolated, one needs to factor in for higher operating expenses. This could, in turn, dampen the pace of revenue and profit growth in the coming years. Equitas and Ujjivan have seen their cost to income ratios increase from 51 per cent in FY16 to 54 per cent in FY17, and 53 per cent in FY16 to 63 per cent in FY17, respectively. With the transition phase continuing, the ratios might further increase in FY18.
Likewise, building a liability franchisee would also entail higher costs, particularly with the competition Net interest income % growth y-o-y Net interest margin (%) Net profit % growth y-o-y Return on equity (%) Return on assets (%) among SFBs to lure customers. Therefore, it would be interesting to see how AU maintains its net interest margin at 9.7 per cent.
Asset quality might also see some moderation in the coming years. The transition from 150 days per dues (DPD) to 120 DPD (reduction in non-performing asset recognition) resulted in the gross NPA ratio jumping from 0.6 per cent in FY16 to 1.6 per cent in FY17. This could see a further rise if NPAs were to be adopted on a 90 DPD basis by FY18. 278 30.2 6.8 73 4.6 12.1 1.8 405 45.7 8.1 140 92.2 18.2 2.8 60.9 9.5 77.2 24.7
3.6 40.7 9.7 240.9 40.0 15.6 Valuations At 5.3, the FY17 price to book ratio on a post IPO basis, the SFB appears expensive to most of its listed peers such as Ujjivan, Equitas, Capital First and Shriram City Union. These trade between two and four times the FY17 priceto-book. Considering the potential dilution in earnings, the SFB’s asking rate appears expensive. At these valuations, analysts at Prabhudas Lilladher say the issue is fully valued, with little scope of return in the near term. “We recommend investors to subscribe to the issue with a long-term investment objective,” they add. Risks Concentration in Rajasthan (54 per cent of its AUM) is a key risk. Also, with 33 per cent exposure to term loans from banks, it is likely that after conversion into an SFB, the ability to tap the banking channels could be restricted due to regulatory constraints. And, if the SFB operations do not lead to the necessary cost benefits, particularly in establishing its deposit base, that could also impact its profitability.