Ujjivan Small Finance Bank reported a 200% surge in Q2 profit to Rs 3.65 billion, driven by strong loan book expansion. Following the results and a strategic pivot toward secured lending, Emkay Global has increased the stock's price target to Rs 90. Investors are now tracking how the bank manages margin pressure amid rising competition for deposits.
Ujjivan Small Finance Bank delivered a strong second-quarter performance for fiscal year 2027, reporting a net profit of Rs 3.65 billion, a 200% increase compared to the same period last year. This growth surpassed market estimates, supported by a 32% year-on-year increase in its total loan book, or Assets Under Management, which reached Rs 457 billion.
The bank is currently undergoing a strategic shift, prioritizing secured lending—loans backed by collateral—over unsecured advances. During the quarter, the secured lending segment grew by 47%, while unsecured lending grew at a slower pace of 19%. This change in the loan mix is designed to create a more stable portfolio and protect the bank from potential sector-wide volatility.
While the bank’s financial health appears strong, it faces pressure on its net interest margins. Net interest margin is the difference between the interest a bank earns on loans and the interest it pays on deposits. The management has noted that rising interest rates and intense competition to attract deposits are squeezing these margins across the banking sector. To address this, the bank is focusing on strict asset-liability management.
Asset quality remains a key metric for shareholders. The bank reported Gross Non-Performing Assets at 2.1% and Net Non-Performing Assets at 0.3%, indicating that a majority of its loans are currently performing well. To support its future growth plans and maintain capital buffers, the lender has also announced a plan to raise Rs 4.09 billion through a Qualified Institutional Placement. This process involves issuing new shares to institutional investors, which can lead to equity dilution for existing shareholders.
Emkay Global has raised its price target for the stock to Rs 90, maintaining a buy rating based on the bank's operational efficiency and improved valuation multiples. Looking ahead, the institution continues to guide for a 25% growth in its loan book for the fiscal year. Investors will likely watch the bank’s ability to defend its margins in a competitive deposit market and monitor the successful execution of its capital-raising plans.