Ujjivan Small Finance Bank (Ujjivan SFB) hosted analysts get in touch with on August 20, 2021 led by Samit Ghosh and Sunil Patel to address the concern relating to greater attritions at senior management and Board level in the current previous, followed by the most up-to-date resignation of its MD and CEO – Nitin Chugh on August 18, 2021. Samit Ghosh (founder) was appointed as Additional Director on Ujjivan SFB’s Board w.e.f. August 20, 2021 along with 3 other newly appointed Board members. While admitting concern about asset high-quality and intent to clean the balance sheet in Q2FY22e, the Board assured continuity of strategic business enterprise initiatives below the new leadership. Immediate focus of the Board would be i) to handle and enhance the asset high-quality with upfront provisioning if expected and strengthen collection group, ii) rebuild senior management group, iii) guarantee smooth transition of the bank below the new leadership and iv) prepare roadmap to guarantee timely reverse merger approach of holdco and the bank. Considering the most likely lumpy provisioning in Q2FY22e and the uncertainty more than the appointment of new MD & CEO, we downgrade the stock to HOLD (earlier Add) with revised TP of Rs 20 (earlier Rs 31) as we now worth the stock at 1x FY23e PBV vs 1.5x earlier.
Board to conduct asset high-quality evaluation and initiate corrective measure to strengthen balance sheet by Q2FY22e: Board admits that managing the asset high-quality in present atmosphere along with modify in guard is going to be the crucial challenge. Nevertheless, it sounded confident about sailing by means of smoothly offered hugely expertise Board and appointment of specific officer (Carol Furtado – prime candidate offered her stint with the Ujjivan group for more than 15 years) for far better coordination among Board and business enterprise teams. Immediate focus would be on strengthening the collection group and upfront pressure recognition with sufficient provisioning in Q2FY22e. Post that, it intends to accomplish business enterprise normalcy by Q4FY22e.
Appointment of specific officer to guarantee smooth transitioning: The Board appointed specific duty officer to guarantee smooth transition below new leadership, triggered by present MD & CEO Nitin Chugh stepping down as MD and CEO (w.e.f. September 30, 2021). The specific duty officer will also resume part as interim CEO from October 1, 2021 till the appointment of new CEO (which is anticipated to take 3-4 months). Carol Furtado, becoming engaged with the Ujjivan group for more than 15 years, is one of the prime candidates for the mentioned position based on her expertise in – A) managing the earlier MFI crisis for Ujjivan group and B) obtaining the superior ground and persons connect due to handling of head of Human Resources division at Ujjivan.
Key dangers: Upside danger – decrease than anticipated provisions in Q2FY22, and downside danger – delay in appointment of MD and CEO could influence transition approach and execution of the bank.