Shares of Ujjivan Small Finance Bank got listed on the bourses at a 59 per cent premium to issue price on Thursday, delivering a windfall to those lucky investors who got allocations. The IPO had recorded most subscription for a primary market offering of 2019.
After earning those notional fat gains, what should investors do now?
Analysts, who had given a ‘subscribe’ rating to the IPO, are now worried about the valuation the stock achieved in debut trade. Most suggested booking profits and enter the stock only if there is a correction.
At the moment, the valuations are high, said Jaikishan Parmar, Research Analyst at Angel Broking. He said he would not recommend it anyone at this price.
“Post issue, it is trading at 3.5 times book value. So, it is fairly valued at the moment. From a safety margin point of view, if we get below 3 times the book value, then it makes sense to enter. The company is good in every department – be it management, business, everything is there. It is just that valuations are a concern now,” Parmar said.
Ujjivan SFB is among the 35-odd issues that got subscribed over 50 times in last 12 years. It joined the league of 13 stocks that got listed with more than 50 per cent premium to issue price. Of these 13, half are now trading below their issue prices, while nine are at a discount to listing prices.
Deepak Jasani, Head of Retail Research at HDFC Securities, thinks the stock commanded such high premium because of oversubscription in the HNI segment. He said it factors in the short-term interest component on the money betted on the IPO and pegged the fair value of the stock at around Rs 50 .
“At Rs 55, the issue is quoting at 3.4 times the post issue HY20 book value. This is slightly on the higher side for the time being. It may settle around 3-3.2 times book value, meaning a fair price band of Rs 49-52,” said Deepak Jasani, Head Retail Research at HDFC Securities.
HDFC Securities said what works in favour of Ujjivan Finance Bank is its deep understanding of the mass market serving the unserved and underserved segments, pan-India presence, a technology-driven operating model, robust risk management and strong track record of financial performance, among others.
Analysts agree on the pedigree of the company and its growth prospects. “No doubt the business model is very strong. There is capital adequacy, but valuations look on the higher side. At lower levels, one can enter the counter, but one should book profit at this level. That is probably why we are expecting some downside,” said Siddharth Purohit of SMC Institutional Equities.
Purohit suggested retail investors to book profit around the listing price.
Bunty Chawla of IDBI Capital said it’s a growing company and the prospects for microfinance are good. “Growth seems to be on a low base of Rs 13,000 crore, so sustaining a 20-25 per cent growth rate will not be a big problem,” he said.
However, he had a slightly contrarian view and said if investors have got allotment, they should hold on to that. “If someone has a long-term view, she can buy it at current price,” he said.
With the listing of Ujjivan SFB, the holding company Ujjivan Financial Services may face some headwinds too.