Ujjivan Small Finance Bank Ltd (Ujjivan SFB) shares plunged 8 per cent in Monday’s trade after the SFB revised its loan book growth guidance downwards to 20 per cent from nearly 25 per cent and noted that Ujjivan SFB has projected an increase in credit costs from the previous guidance of 1.4 per cent to 1.7 per cent for FY25 at its annual analyst meet. While net interest margin (NIM) is to remain stable at around 9 per cent, return on equity (RoE) is anticipated to fall to 20 per cent. This is just ahead of a change in the leadership, with Sanjeev Nautiyal taking up the role of MD and CEO from July 1.

All of this has led to cuts in earnings projections for FY25. The stock fell 7.51 per cent to hit a low of Rs 44.73 on BSE.

Centrum Broking expects the stock to stay weak after the management update amid Ujjivan’s significant exposure to the MFI segment, which constitutes 70 per cent of its total loan book.

“However, we view this as a non-structural issue, and the management has already implemented necessary measures. Notably, the GL book growth in the traditionally stronger 2HFY24 was slower than in the 1HFY24, and as per the management early signs of improvement are already emerging, leading to a more optimistic outlook for the 2HFY25,” Centrum Broking said.

It said the current valuations at 1.2 times (post downward revision) appear attractive considering the growth prospects and a 20 per cent RoE, along with potential gains from a Universal Banking license. The brokerage has a target price of Rs 72 per share on the stock.

“In our view, new leadership is taking the asset mix in the right direction by increasing the contribution of secured assets, which bodes well for the medium term. In addition, management feels that Ujjivan SFB fits the RBI criteria of receiving a universal banking licence and has indicated its willingness to apply for the same. We believe greater thrust on improving efficiency and ability to deliver on improved liability franchise will drive rerating ahead,” said JM Financial.

The brokerage expects Ujjivan SFB to deliver average RoA/RoE of 3.2 per cent/23 per cent over FY25-26E and retained ‘Buy’ on the stock with a revised target price of Rs 65 valuing it at 1.5 times FY26E BVPS.

Antique Stock Broking said it had earlier moderated its earnings estimate — 10/15 per cent lower than consensus for FY25-FY26. It has now reduced it further by 3 per cent/ 2 per cent for FY25/ 26E. That said, the brokerage maintained its ‘Buy’ on Ujjivan SFB with the reduced target of Rs 65 from Rs 70) valuing the bank at 1.3 times 1HFY27E PBV.