Ujjivan is on a slide. what happened?

Ujjivan is on a slide. what happened?

Ujjivan Small Finance bank is having a difficult week. over the past week, its stock price has slid ~20%. and has been on a downward trend through Friday as well. 

but why? simple answer is that its CEO, Nitin Chugh, abruptly resigned from his post citing personal reasons. it got its investors worried about the future of the company, especially because there were no immediate announcements as to who will take Chugh’s spot when he exits at the end of September. but it was not just his resignation. other stories started to drip out as well. a day after Chugh resigned, the company’s founder, Samit Ghosh, said provisions against bad loans and a churn in top management talent were also points of concern. so is that it? is that the reason for the anxiety? no. sadly, there’s more.

things look difficult for Ujjivan

if you look at the stock’s performance over the year, it has been on a slide consistently. Ujjivan Small Finance Bank has lost 47% of its value in about a year. one big reason is the poor performance of the company in the first quarter of FY21. Ujjivan recorded a loss of ₹233 crore. the same time last year, it recorded a modest profit of ₹55 crore. the second wave of the pandemic, lockdowns and job losses because of them have stressed several of Ujjivan’s customers. NPA ratio rose to 9.8% in June, which was just 1% a year ago. the bank also wrote off loans worth ₹280 crore. the collection process was also impacted. collection efficiency dropped to 78% in June as against 94% in March. 

back to sender

another reason for the lack of optimism for Ujjivan Small Finance bank is that almost two years after its IPO, the bank wants to initiate reverse merger proceedings a few months ahead of schedule. when Ujjivan Small Finance Bank was preparing to list, Ujjivan Financial Services had announced that the possibility of that would be considered after five years of completion of the parent company’s business. according to reports, the UFS has made the application for a reverse merger to be completed in November rather than February.

this has put both companies in an interesting position. Ujjivan Financial Services will have to absorb the NPAs and the losses on to its books. and that’s one thing investors dislike, that’s losses. and nothing scares investors more than NPAs. there seems to be a bit of both.