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Ujjivan Small Finance Bank IPO – Should you Invest?November 28, 2019, Suresh KP[Ujjivan Small Finance Bank (USF Bank) is coming up with an IPO that would open for subscription on 2ndDecember 2019. Ujjivan Small Finance Bank Limited is a mass-market focused Small Finance Bank in India. While PMC Bank Scam has created some fear for investors, CSB Bank IPO oversubscription shows how investors are fancy about banking stocks. Should you invest in the Ujjivan Small Finance Bank Ltd IPO? Let me review the USF Bank IPO in this article.About Ujjivan Small Finance Bank LimitedThey are a mass-market focused SFB in India, catering to unserved and underserved segments and committed to building financial inclusion in the country. Its Promoter, UFSL commenced operations as an NBFC in 2005 with the mission to provide a full range of financial services to the ‘economically active poor’ who were not adequately served by financial institutions. UFSL’s erstwhile business was primarily based on the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active poor women. UFSL also offered individual loans to Micro and Small Enterprises and adopted an integrated approach to lending, which combined a customer Touchpoint similar to microfinance, with the technology infrastructure and related back-end support functions similar to that of a retail bank.In Oct-15, UFSL received RBI In-Principle Approval to establish an SFB, following which it incorporated Ujjivan Small Finance Bank Limited as a wholly-owned subsidiary. UFSL, subsequent to obtaining the RBI Final Approval on November 11, 2016, to establish and carry on business as an SFB, transferred its business undertaking comprising of it's lending and financing business to this Bank, which commenced its operations from February 1, 2017. The bank was included in the second schedule to the Reserve Bank of India Act, 1934 as a scheduled bank on July 3, 2017. In the short span of time that they have been operational as an SFB, and are among the leading SFBs in India in terms of deposits, advances, branch count and geographical spread, as of March 31, 2019.Ujjivan Small Finance Bank IPO Issue detailsUjjivan Small Finance Bank IPO RHP Prospectus can be downloaded at this NSE Website link.What are the Objects of the Ujjivan Small Finance Bank IPO?Here are the objects of the IPO issue.1) Bank proposes to utilize the Net Proceeds from the Issue towards augmenting our Bank’s Tier – 1 capital base to meet Bank’s future capital requirements.2) Further, the proceeds from the Issue will also be used towards meeting the expenses in relation to the Issue.3) Bank expects to receive the benefits of listing the Equity Shares on the Stock Exchanges.Who are the Company Promoters?Ujjivan Financial Services Limited (UFSL) is the promoter of the bank.How is the company doing in terms of Financial Performance (Reinstated-Standalone)?1) Company revenues increased from Rs 223.8 Crores for the year ended Mar-17 to Rs 2,037.5 Crores for the year ended Mar-19. This shows an 8x growth in revenue in the last 3 years. For 9 months ended Sep-19, it posted Rs 1,434.8 Crores of revenue.2) Company profits increased from Rs 3.5 Lakhs for the year ended Mar-17 and Rs 199.2 Crores for the year ended Mar-19 which is a good turnaround. It posted Rs 187.1 Crores for 6 months ended Sep-19 that indicates 13% margins over the total earnings.3) Its EPS in the last 3 years is 0.62 and FY2019 is 1.2. For 6 months ended Sep-2019, its EPS is at 1.2What is the of Ujjivan Small Finance Bank Credit Rating?The credit rating is not required for the issue of equity shares, hence, they have not approached any credit rating agency for credit rating.You may like: How Thumb rule 72 would help you to double your money?What are the key strengths of Ujjivan Small Finance Bank Limited?Every investor should understand the company’s key strengths so that one can compare with its competitors to know how unique is such a company in their business. Their investment decision would change based on these facts. Here are the key strengths of the Ujjivan Small Finance Bank.1) Deep understanding of mass-market serving unserved and underserved segments.2) A customer-centric organization with multiple delivery channels.3) Pan-India presence.4) A technology-driven operating model with an advanced digital platform.5) Robust risk management framework.6) Strong track record of financial performance.7) Professional management, experienced leadership with a focus on employee welfare.What are the various strategies of Ujjivan Small Finance Bank Ltd?Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest in the short term, medium-term or for the long term. Here are the company strategies.1) Diversify product offerings to enable multiple customer relationships.2) Continue to focus on technology and data analytics to grow operations.3) Strengthen liability franchise and focus on increasing our retail base.4) Expand our distribution network to increase customer penetration.5) Focus on developing responsible banking behavior for unserved and underserved segments.6) Diversify revenue streams.Positive Factors to invest in Ujjivan Small Finance Bank IPOThese positive factors can impact company growth, its revenue, and margins which can increase its share price. Investors should go through these points and understand these positive factors while investing.1) One of the fastest-growing small finance banks that generated 8x revenue growth in the last 3 years. However, one should note that the FY17 base was small and may not be appropriate to compare with FY2019 revenues.2) Bank margins are improved in the last 3 years. It’s posted just Rs 3.5 Lakhs profits 3 years back and now Rs 199 Crores. While it would take a few years to set-up a small finance bank and initial investment would go in there, this bank has started generating profits within 3 years time frame which is a positive thing.3) Small finance banks are just evolving and it is good to invest in an initial period to reap the benefits in the medium to long term.Major risk factors to consider before investing in Ujjivan Small Finance Bank Limited IPOThese risk factors can impact company revenue and margins which would affect its share price. Investors should go through these points and understand these risk factors before investing.1) They are subject to stringent regulatory requirements and prudential norms and its inability to comply with such laws, regulations, and norms may have an adverse effect on its business, results of operations, financial condition, and cash flows.2) They significantly depend on micro banking business, particularly group loans, and any adverse developments in this segment could adversely affect its business, results of operations, financial condition, and cash flows.3) They have a limited operating history as an SFB and its future financial and operational performance cannot be evaluated on account of evolving and growing operations. Accordingly, its future results may not be reflective of its past performance. Further, they cannot effectively compare its financial statements for Fiscal 2017 with our financial statements for Fiscal 2018 and 2019 due to non-comparable reporting periods.4) Banking companies in India, including this bank, will be required to report financial statements as per Ind AS in the future. However, its Promoter, UFSL, currently reports its financial statements under Ind AS and as a result, they are required to prepare to select Ind AS financial information for the limited purposes of consolidation by UFSL. Differences exist between Ind AS and Indian GAAP, which may be material to investors’ assessment of its financial condition.5) They have a continuous requirement of funds and its inability to access sources of funds in an acceptable and timely manner or any disruption in the access to funds would adversely impact its results of operations and financial condition.6) The Indian banking industry is very competitive and its growth strategy depends on its ability to compete effectively.7) If they are not able to control the level of non-performing assets in its portfolio or any increase in RBI mandated provisioning requirements could adversely affect its business, financial conditions and results of operations.8) The micro banking loan portfolio, personal loans, and certain categories of its MSE loans are not supported by any collateral that could help ensure repayment of the loan, and in the event of non-payment by a borrower of one of these loans, they may be unable to collect the unpaid balance.9) Bank and its Promoter are involved in certain legal proceedings, any adverse developments related to which could materially and adversely affect it's business, reputation and cash flows.10) For complete internal and external risk factors, you can refer to the IPO RHP of the company.Ujjivan Small Finance Bank IPO ScheduleOffer Opens – 2-Dec-2019Offer Closes – 4-Dec -2019Finalization of Basis of Allotment – 9-Dec-2019Unblocking of ABSA and Initiation of Refunds – 10-Dec-2019A credit of shares to Demat Accounts – 11-Dec-2019IPO Shares Listing Date – 12-Dec-2019You may like: Best Index Funds to invest in IndiaIs the issue price of Ujjivan Small Finance Bank IPO reasonably priced or overpriced?On the upper price band of Rs 37 and the last 3 years average EPS of Rs 0.6, the P/E works out to be 60x. Similarly, on the upper price band of Rs 37 and the last year FY19 average EPS of Rs 1.2, the P/E works out to be 31x. Even if we take 6 months ended Sep-2019 EPS of 1.2, P/E works out to be 31x. Its peers like AU Small Finance Bank are trading at P/E of 60.8x (Highest) and RBL Bank Limited at 15.7x (Lowest) and industry average P/E is 29.6x. Hence Ujjivan Small Finance Bank IPO Price at P/E of 31x is reasonably priced.Ujjivan Small Finance Bank IPO – Should you Invest or Avoid?Ujjivan Small Finance Bank revenues are in increasing mode. Its margins are also improving. Its share price is also reasonably priced. Considering all these positive factors, one can invest in this IPO for 3-5 years tenure. One may or may not get listing gains.]

Thanks for the A2A.Lets look at all the factors of this IPO.Introduction: [1]“Incorporated in 1969, Cochin Shipyard Limited is one of the largest public sector shipyard in India in terms of dock capacity. They operates a shipyard that provides shipbuilding and ships/offshore structures repair services.Cochin Shipyard's shipbuilding activities include the construction of vessels for clients operating in the defense and in the commercial sector shipping industry. In addition to shipbuilding and ship repair, they also offers marine engineering training programs as well as offer additional courses, including six months practical training for marine engineering students from colleges affiliated to universities, fire prevention and firefighting, and elementary first aid training through its marine engineering training institute; and chemical, mechanical, and non-destructive testing services of metals, welds, and alloys.They have built and delivered vessels across broad class ifications including bulk carriers, tankers, Platform Supply Vessels (“PSVs”), Anchor Handling Tug Supply vessels (“AHTSs”), barges, bollard pull tugs, passenger vessels and Fast Patrol Vessels (“FPVs ”). They are currently building India's first Indigenous Aircraft Carrier (“IAC”) for the Indian Navy.”IPO Information (Date , Objects of Issue and Issue Details)[2]Issue Timetable:Issue Price Band:Kindly note that a Discount of Rs 21 is offered to Retail Investors and Employees. Discounted price band is therefore Rs 403 - Rs 411 for Retail and Employee.Issue Objects:Issue objects look good , no repayment of debt or filling the pockets of exiting investors with all the proceeds (some proceeds will go to government since President of India is 100% owner of this PSU). Note that this issue is a combination of OFS + Fresh issue.What does Cochin Shipyard do? What are it’s products & services?[3]Clients of Cochin Shipyard:[4]Indian clients include the Indian Navy, the Indian Coast Guard, SCI, ONGC, DGLL and DCI.Key foreign clients include NPCC, the Clipper Group, Vroon and SIGBA AS.Strengths of this company:[5]One of India's leading public-sector shipyards catering to both commercial clients as well as clients engaged in the defence sector with a multitude of offerings for a broad range of vessels across life cycles.Modern facilities and infrastructure and integrated capabilities to deliver quality products and servicesOrder book with a strong customer base of reputable ship owners and marquee clientsCompetitive cost structure and efficient operationsLed by a dedicated board, long serving and experienced senior management backed by a strong pool of experienced professionalsContinuous profits leading to robust financial performanceStrategies Ahead:[6]Expand their capabilities through the proposed Dry Dock and International Ship Repair Facility.Build a strong order book by bidding vigorously for projects to be awarded by the Indian PSUs and defence sector pursuant to ‘Make in India’ initiative.Continue to enhance their construction quality and delivery time and enhance the price competitiveness in order to increase market share.Strengthen market leadership by continuously adding upgraded and new vessel models to their offerings and expanding customer servicesContinue to leverage their market position and relationships with customers, suppliers and other business partners to support growth and improve competitivenessBalance Sheet:[7]Observations from Balance sheet:Trade receivables(current assets) has been coming down consistently from 582.5 crores in 2015 to 306.9 crores in 2017. This is a good thing as company is getting paid on time.Inventories has also come down consistently from 303.3 crores in 2015 to 186.4 crores in 2017. This shows company’s products are not staying with them for long. This is a favorable indicator since company is not producing small goods , they are producing ships and other ultra heavy and ultra large goods which require additional costs to store and maintain.Non Current Liabilities has stayed almost same for the years 2015–2017 which is very good. Finances are being managed well and thus no additional funding is being required.Current Liabilities did spike in 2016 but they again reduced by about 11% in 2017 which again shows good financial management.Debt to Equity Ratio:Debt to Equity has consistently come down from 0.86 to 0.63 in 2017. This augurs well for a capital expensive company like Cochin Shipyard. They can borrow more in the future if they wish to.Profit & Loss Statement:[8]Observations from P&L Statement:Profit quadrupled in 2016 from 68.835 crores to 290.7 cores. Profit increased 10% in 2017 from 2016. Nevertheless the profit trajectory is upward.Employee benefit expenses , other expenses have been the same throughout the three years which shows firms control over these costs.Other Income has also doubled in 2 years.Cash Flow Statement:[9]The above Cash flow statement shows that there has been a good amount of capital being retained as positive cash flow. This augurs well for this company since the retained amount can be used back in the business.Price to Earnings:The Earnings per share figure as per March 31 , 2017 is 27.56. Therefore at the upper price band P/E ratio comes out to be 14.9 (with discount) and 15.6(without discount). Nevertheless looking at Price to earnings, IPO pricing shows evidence of ample money left on table for investors.Peer Analysis and Book Value:[10]The book value of 180 rupees depicts price to book value of 2.28 (with discount at upper band) and 2.4 (without discount at upper band).Also looking at its peers , one thing gets clear that other companies in the same industry are having bad financial position.This also shows this company is excellently managed when compared to others.Risks:[11]Worldwide demand and pricing in the commercial shipbuilding industry are highly dependent upon global economic conditions. If the global economy fails to grow at an adequate pace, it may adversely impact the commercial shipbuilding industry which may negatively affect the business, financial condition and growth prospects.The cost estimates by the Dry Dock Project Consultant and the ISRF Project Consultant have been derived from and benchmarked against similar maritime and dry dock/shipyard projects carried out by the Dry Dock Project Consultant and the ISRF Project Consultant respectively in recent years and may not be accurate.The entire business operations are based out of a single shipyard at Kochi. The loss of, or shutdown of, our operations at the shipyard in Kochi will have a material adverse effect on the business, financial condition and results of operations.Company may be unable to attract and retain sufficient skilled or qualified personnel. The business, financial condition and results of operations could be adversely affected if they are unable to recruit and retain suitable staff for our operationsPending Tax Litigation:The sea channel adjacent to their shipyard suffers from siltation which requires incurring additional expenditure.Industry Outlook:[12]According to a 2016 UNCTAD report, global seaborne trade increased by 2.1% to 10,048 million tonnes in 2015. Dry bulk cargo comprised the largest share at 54%. Developing economies accounted for the largest share of seaborne trade, in volume terms, at an estimated 60%. Developing countries have become global manufacturing centres with growing demand for capital and consumer goods, and are no longer viewed as only suppliers of raw materials. In terms of a regional comparison, Asia was the largest loading and unloading region, followed by the Americas, Europe, Oceania and Africa. As of January 2016, the global commercial fleet stood at 90,917 vessels, totalling 1.8 billion DWT. Dry bulk carriers comprised the largest share at 43.1% followed by the oil tanker segment with a share of approximately 27.9%.The respective shares of oil tankers and general cargo vessels in the global fleet have declined over the years, while those of dry bulk carriers and container ships have increased. As of January 2016, the dry bulk carriers, with a 43% contribution in terms of gross registered tonnage (GRT), was the largest vessel category in the global fleet. The share of oil tankers, which made up for 50% of the global fleet in 1980, has declined to 28% in 2016. Over this period, the share of container vessels’ increased from 2% to 14%, following China’s manufacturing-led growth as well as the shipping industry’s strategy to reduce costs using economies of scale. The fall in the oil tanker share was due to a change in the pattern of trade and demand, primarily due to a decline in the refining capacity in Europe and a corresponding increase in Asia and the Middle EastAccording to the Indian Ministry of Shipping, the total overseas cargo handled at Indian ports was approximately 879.6 million tonnes in 2014-15. The vessels carrying Indian flags contributed approximately 7.5% of overseas cargo tonnage. Even as the total overseas cargo handled at Indian ports increased, the contribution of vessels carrying Indian flags in terms of tonnage declined in absolute terms as well as in percentage terms. Meanwhile, ships above the age of 20 years comprised over 40% of the Indian fleet, as ship owners preferred to maintain the existing fleet due to uncertainty in global trade. However, approximately 20% of the ships in the Indian fleet are below the age of five years, indicating that new vessels have been added during the recent past.Here is Porinju Veliyath[13] checking out Cochin shipyard , perhaps he is investing too[14] ?Disclosure: This article has also been published on my website after writing the answer on Quora. Most of the information and images published in this answer have been taken from the Prospectus filed with SEBI, the footnotes have been given for the same. I have mentioned the advantages and disadvantages surrounding this issue. Also note that we are in the midst of a Bull Run and many IPOs usually pop up during this time. Kindly read the Prospectus filed with SEBI before taking up a position in this IPO.Hope this helps,.Thanks.-ASLNKFootnotes[1] Cochin Shipyard IPO Details[2] Cochin Shipyard IPO Details[3] Welcome to Cochin Shipyard : ISO 9001 Certified[4] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[5] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[6] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[7] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[8] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[9] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[10] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[11] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[12] http://www.sebi.gov.in/sebi_data/attachdocs/jul-2017/1500963436435.pdf[13] Porinju Veliyath - Wikipedia[14] Porinju Veliyath on Twitter

Profile: X - 10 CGPA (CBSE 2013), XII - 96% (CBSE 2015), BMS Finance 8.7 GPA (Keshav Mahavidyalaya, DU 2018), Workex - 3 Months in a Financial Services Company, CAT 2018 - 98.38%ile, General Non-Engineer MaleLocation: New DelhiPanelists: Three Professors. All Male.Interview:P3: Tell me about yourself?I was born and brought up in Chandausi, a town near Moradabad in Uttar Pradesh. I had been reciting Shlokas since when I was six years old and have completed Char Dham Yatra. I have also seen originating points of various rivers. I did my graduation in management studies from Keshav Mahavidyalaya, DU. In my curriculum, I found Investment Analysis and Portfolio Management particularly interesting. I did my internship in IFCI Venture Capital Funds Ltd where I was the part of Loan Analysis team. I have won various competitions across different colleges of DU while maintaining top 3 rank. I have also completed all modules of Certified Financial Planner program. After completing my graduation, I worked for 3 months in a financial services firm.In the middle, P2 asked about the originating point of Godavari River?Trimbkeshwar, Maharashtra (Brahmagiri Hills)P3: What do you do apart from religious travelling?I read books and Wikipedia pages.P3: Which type of books do you read?I read different kinds of books. I read books on economics and finance and self-help books.Stopped in the middle and P3 asked which self-help book have you read?The power of Habit by Charles DuhiggP3: What does he say in the book?He explores the science behind habit creation and reformation. There is a habit loop which consists of three elements: cue, routine and reward.Stopped by P3. He said okay do you know the current situation of Syria?Sir, I don't know the exact present condition. But I know about the adversity going on there especially because of the Islamic State of Iraq and Syria. And the country was thus involved in fighting against terrorism.P3: What is Taliban?Taliban is a military organisation based out of Afghanistan.P3: What does it want?It feels that their government is being controlled by the Americans and they want that the rule should be indigenous for the citizens of the country.P3: Tell me the name of the state in which neither BJP nor Congress is in power?Tamil NaduP3: Which Party?AIADMK(All India Anna Dravida Munnetra Kazhagam) headed by CM PanaliswamiP3: Any other states?Yes Sir. TDP in Andhra Pradesh and TRS in Telangana.About to tell(CPIM in Kerala and TMC in West Bengal) but stopped by P3.P3: I am done. (Looking towards P1)P1: Have you heard of beta?Yes Sir.P1: What is it?Beta is a measure of volatility or systematic risk. It is calculated by dividing the Covariance of market and security variable by Variance of the market variable.P1: If beta is high then what will happen to WACC?WACC stands for the weighted average cost of capital and is calculated using the cost of equity and the after-tax cost of debt. If the beta is high then the cost of equity will be higher and thus the WACC would be higher.P1: You mentioned the after-tax cost of debt. Why after tax is taken into account?Sir, We pay the interest on debt before paying the taxes. The companies use this phenomenon to practice trading on equity. So, that's why the tax effect of interest component is taken into account.P1: Have you heard of Levered and Unlevered Beta?Yes Sir.P1: What are they?Thought for 20 seconds. Sir, when a company is not readily traded in the securities market then we make use of levered and unlevered beta. We use the beta of the company which is its industry peer and actively traded. We then make amendments to it to make it useful for a particular company.P1: The beta of the company that we have used is levered or unlevered?Sir, I think it should be unlevered but I am not sure.P3: Okay. Now you have to give extempore on the topic ‘People are using religion to their own benefit.’Given 30 sec to think and 1 min to speak.P3 stopped me after 1 min.P1: Can you draw an efficient frontier for me?Yes Sir. Drew the graph.P1: What is the shape of the graph?C Shaped.P1: Okay. You have drawn it correctly.P3: But looking at the graph, it seems that you will have two expected returns?No sir. Efficient frontier shows the optimal portfolios. So for a given level of risk, we will have only one expected return.P3: Okay.P1: What will be the equation of this efficient forntier?Sir, I do not know what will be the equation of this frontier. But we have drawn this using CAPM(Capital Asset Pricing Model) whose equation is Expected return = Risk-free Rate + Market Risk Premium × Beta.P1: Can we use gold, currency or mutual fund in the efficient frontier?Sir efficient frontier shows the optimal portfolios. And these assets can be part of the portfolio so they can be used.P1: How will you use CAPM for Gold?Sir, I think CAPM can not be used for Gold.P1: Then both of the statements are contradictory. Which one is right then?Sir, I think that we can use mutual funds and other assets in an efficient frontier but I am not sure.P1: Okay. How do you calculate the standard deviation for a portfolio?Sir, there is a formula for it.P1: What is it?Sir, I am not able to recall it. But if we have to calculate portfolio beta then we will use individual beta and use weighted average to calculate portfolio beta.P1: Why can't we do the same for standard deviation?The standard deviation shows the deviation from the expected return. While beta shows systematic risk, standard deviation shows risk specific to the company. And the correlation between assets has to be taken into account.P1: Write the words I am telling on Paper. Words - Discount Rate, Inflation, Growth Rate, Sales Growth, Income and Capex.P1: Use them in a paragraph with relation to subject Business Analysis and Valuation that you have studied.Absolute Valuation is one of the methods for valuing a company and we use DCF(Discounted Cash Flow) Approach in this method. It calculates the value of the firm by discounting the future cash flows of the company using a discount rate. Discount rate basically involves inflation rate and opportunity cost and in quantitative terms, we use WACC for it. To calculate future cash flows, we have to forecast sales which will be done using sales growth. Then we will calculate FCFF using the future income and CAPEX of the firm. We then use the growth rate to calculate the terminal value of the firm. Then we will discount these cash flows using a discount factor to arrive at the valuation of the firm.P2: Okay. Thank You.I thanked each of them and left.VERDICT: CONVERTEDEdit:Visit the following link to get the insights and tips for an iim interview. Tips By IIM Indore Students - Crack IIM Indore WAT-PI Process! - Part 2 - InsideIIM