I still feel a lot of the traditional ways of thinking (say secured vs unsecured) don’t factor in how much more efficient unsecured lending has become over the years because of multiple layers of India stack & then Account Aggregator.
Today, one can predict the cash flows of a borrower with much more certainty than they could 10 years ago. And this makes a lot of difference in the end NIMs, ROAs, ROEs, etc. etc.
Agreed that Ujjivan, much like other lenders, is focussing on building a secured book, but if NPAs remain fairly within the guided range in the next 2-3 quarters, perhaps a case has to be made for revaluing unsecured lending players in general, factoring in revised risk models.
As for valuations, post the reverse merger, the existing book value will increase by around Rs 2 (guided by the management). Add extra 6 bucks (don’t agree with all research reports out there who are assuming a profit degrowth due to higher provisioning), we get to around Rs 28 as FY24 book value. Assuming a 2xPB exit multiple, we’re looking at 56. Around 30/35% upside from current levels.
Ofcourse, the bank could get further treated depending upon the following key monitorables:- NPA trajectory, diversification into secured lending, reverse merger, and succession of Ittira Davis.
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