Ujjivan Financial – Small Finance Bank

I don’t know. After reading up on several private sector banks, NBFCs I have come to realise that in most cases (except when there are glaring concers / irregularities such as poor business model, zero sum same – i.e. borrower has to lose for lender to win, governance issues) the issue isn’t business, the issue is people not paying heed to valuations at fundamental level and relying on other people’s work (analysts, market commentators, influencers, PMS/AIF interviews on news channel, historical valuations – history itself might be falling in bear phase) to make a judgement as to when and whether to invest.

People lose money in well run companies with excellent profitability/growth and people make money in sub-par periods of profitability. What matters is understanding economics of the business, getting confidence that the business is run by able / honest management – not one who’s behind money or status or other forms of non-shareholder-friendly motives and lastly, buy at a fair valuation with insistence on some margin of safety.

5/7/10 years down the line will a Ujjivan Small Finance Bank (or any business being evaluated) live and not just live but also thrive? And at that time will they have significantly better business economics than they do now? If the answer is yes, is the bank currently available at a valuation at which one would want to hold on to it if business economics / management remain BAU (business-as-usual)? Not prediction but based on tangible / visible economics as of now. Nobody asks these questions, some analysts do – which is helpful, but largely nobody does. Which is where I think most participants miss the forest for the trees.

Needless to say, these are just my rumblings, I could be wrong, right, whatever! But the way to think is what I am trying to highlight.

People who have been running business for decades (e.g. Ujjivan is in business since 2005 or 2007 I think) are being questioned by novices about short term business metrics like what will be this year’s return on assets and what is the current cost of funds, where will be cost to income ratio, etc. and that is being used to buy/sell the stocks and retail investors are falling prey to this. Madness!