Ujjivan Small Finance Bank Share Price Could Reach Rs 78: Axis Securities
Axis Securities has maintained its BUY recommendation on Ujjivan Small Finance Bank Ltd. (UJSFB), while raising the target price to Rs 78 per share from Rs 74, implying an upside potential of nearly 25% from the current market price of Rs 62.4. The brokerage believes the bank is entering a stronger structural growth phase, supported by rapid diversification into secured lending, resilient margins, improving asset quality, and a strengthening liability franchise. Q4FY26 performance exceeded expectations at the profitability level, with pre-provision operating profit and net profit comfortably ahead of estimates. Management remains optimistic about sustaining over 25% credit growth while gradually improving return ratios over the next two financial years.
Axis Securities Reaffirms Confidence In Ujjivan Small Finance Bank
Axis Securities has reiterated a BUY call on Ujjivan Small Finance Bank with a revised target price of Rs 78. The brokerage highlighted that the lender is steadily transitioning into a more diversified and structurally resilient franchise, reducing dependence on the microfinance business while scaling secured lending aggressively.
The brokerage noted that UJSFB’s secured asset mix is expected to rise to nearly 56% in FY27, compared with around 49% in FY26. This transition is expected to improve portfolio quality and support more stable long-term earnings visibility. The bank is witnessing healthy traction in housing finance, MSME lending, gold loans, vehicle finance, and agricultural loans.
Strong Q4FY26 Performance Beats Street Expectations
Ujjivan Small Finance Bank delivered a robust operational and financial performance during the March quarter. Net Interest Income (NII) came broadly in line with estimates, while profitability significantly outperformed expectations.
| Metric | Q4FY26 | YoY Growth | QoQ Growth |
|---|---|---|---|
| Net Interest Income | Rs 1,093 Cr | 26.4% | 9.2% |
| PPOP | Rs 515 Cr | 43% | 17% |
| Net Profit | Rs 282 Cr | 238% | 52% |
| RoA | 2.1% | +134 bps | +60 bps |
The standout factor in the quarter was margin expansion alongside improving asset quality. Net Interest Margins improved to 8.5% from 8.2% in the previous quarter, supported by lower cost of funds, better liquidity utilization, and reduced interest reversals.
Secured Lending Push Becoming A Major Growth Engine
One of the most important developments for the bank is its aggressive diversification strategy away from pure microfinance exposure.
Affordable housing loans rose sharply by 43.4% year-on-year, while MSME advances surged nearly 58%. Other emerging secured segments also recorded meaningful acceleration.
| Segment | Growth YoY |
|---|---|
| Affordable Housing | 43.4% |
| MSME | 57.8% |
| Other Secured Loans | 80.7% |
| Total Advances | 26.6% |
Management expects secured businesses to continue growing at 35-40% in FY27. Meanwhile, the MFI portfolio is expected to grow at a relatively muted pace of 8-10%, helping the bank lower concentration risk over time.
Margins Expected To Stay Resilient Despite Portfolio Shift
Typically, a higher secured loan mix compresses yields because secured products carry lower interest rates compared with unsecured microfinance lending. However, UJSFB appears to be managing this transition effectively.
Axis Securities believes the bank can sustain NIMs between 8.0% and 8.2% through FY27 and FY28.
The report stated that incremental products such as used car finance, two-wheeler loans, micro-mortgages, and gold loans are helping maintain healthy yields. At the same time, savings account rate cuts implemented in April 2026 are expected to provide an additional 25-30 basis points benefit to the cost of funds.
Asset Quality Trends Continue To Improve
Asset quality metrics showed encouraging improvement during the quarter, reinforcing confidence in the lender’s underwriting standards.
Gross NPA declined sequentially to 2.26%, while Net NPA improved to just 0.43%. Provision Coverage Ratio strengthened to 81%.
The bank’s microfinance collection efficiency remained exceptionally strong at approximately 99.8%. Slippages reduced to Rs 218 crore during the quarter compared with the previous quarter’s elevated levels.
Management also clarified that geopolitical tensions in West Asia have not materially affected the bank’s customer base or portfolio quality due to its granular retail-focused structure and negligible foreign currency-linked exposure.
Deposit Franchise Showing Strong Momentum
The liability franchise has emerged as another key strength.
Deposits grew by 21% year-on-year, while CASA deposits surged by an impressive 36%. The CASA ratio improved to 28.6% from 27.3% sequentially.
Management expects CASA ratio to further improve toward the 29-30% range in FY27, supported by granular retail deposits and sustained traction in savings accounts.
Technology Investments And Expansion To Keep Costs Elevated
While profitability is improving sharply, management acknowledged that operating expenses will likely remain elevated in the near term due to continued investments in technology, AI infrastructure, digital capabilities, and branch expansion.
The bank plans to add nearly 140 branches in FY27, representing approximately 20% expansion in the branch network. Despite these investments, the management expects the cost-to-income ratio to remain broadly stable.
Financial Outlook Remains Strong Through FY28
Axis Securities projects healthy growth across all major operating parameters over FY26-28.
| Financial Metric | FY26 | FY28E |
|---|---|---|
| NII | Rs 3,871 Cr | Rs 5,872 Cr |
| PPOP | Rs 1,710 Cr | Rs 2,682 Cr |
| Net Profit | Rs 693 Cr | Rs 1,411 Cr |
| RoA | 1.3% | 1.8% |
| EPS | Rs 3.6 | Rs 7.3 |
The brokerage expects earnings CAGR of roughly 43% between FY26 and FY28, driven by improving margins, moderating credit costs, and robust loan growth.
Valuation Attractive Despite Strong Rally
Even after the recent rally in the stock, Axis Securities believes valuations remain attractive.
The stock currently trades at nearly 1.4x FY28 estimated adjusted book value, while the brokerage has assigned a valuation multiple of 1.7x FY28E ABV to arrive at its revised target price of Rs 78.
The brokerage believes the bank’s improving business mix, stable asset quality, scalable liability franchise, and rising profitability justify a premium valuation relative to peers.
Key Risks Investors Should Monitor
Despite the optimistic outlook, several risks remain on the radar.
Key monitorable factors include:
- Potential slowdown in overall credit growth.
- Execution challenges in scaling newer secured products.
- Persistently elevated credit costs if asset quality weakens unexpectedly.
- Higher-than-anticipated operating expenses due to expansion investments.
Nevertheless, the overall outlook remains constructive as the lender appears to be transitioning into a more balanced, scalable, and profitable banking franchise.
