Ujjivan Small Finance Bank Share Price Target at Rs 72: BOB Capital Markets
BOB Capital Markets has reiterated its BUY recommendation on Ujjivan Small Finance Bank with an unchanged target price of Rs 72, implying an upside potential of nearly 15% from the current market price of Rs 62. The brokerage believes the lender has entered a more stable growth phase as stress in the microfinance segment begins to moderate while profitability metrics steadily recover. A sharp improvement in quarterly earnings, expanding secured loan exposure, stronger margins and better asset quality indicators have strengthened investor confidence around the bank’s medium-term trajectory. Management also remains committed to eventually securing a universal banking license once portfolio diversification targets are achieved.
BOBCAPS Reaffirms BUY Call With Rs 72 Target
BOB Capital Markets maintained its bullish stance on Ujjivan Small Finance Bank after the lender delivered a stronger-than-expected Q4FY26 performance. The brokerage retained its target price of Rs 72 while valuing the stock at 1.6x Mar’28 estimated adjusted book value.
The research house believes the bank’s strategy of shifting toward secured lending is gradually reducing balance-sheet volatility and lowering credit-risk exposure. Although the valuation multiple was marginally reduced from 1.7x earlier, analysts maintained confidence in the lender’s structural earnings outlook due to improving operational trends.
Quarterly Profit Surges As Provisions Decline
Ujjivan Small Finance Bank reported a substantial jump in profitability during Q4FY26. Net profit climbed to Rs 2.82 billion, marking a sharp 238% year-on-year increase and a 52% sequential rise. The performance exceeded analyst expectations primarily because provisioning expenses fell materially during the quarter.
Pre-provision operating profit stood at Rs 5.15 billion, broadly in line with estimates, reflecting strong operating momentum across core banking operations. Net interest income rose 26.4% year-on-year to Rs 10.93 billion, aided by healthy credit growth and expanding margins.
The following table highlights the bank’s Q4FY26 performance snapshot:
| Metric | Q4FY26 | YoY Growth |
|---|---|---|
| Net Interest Income | Rs 10.93 bn | 26.4% |
| PPoP | Rs 5.15 bn | 43% |
| Net Profit | Rs 2.82 bn | 238.1% |
| Provisions | Rs 1.44 bn | -45.6% |
| RoA | 2.1% | +63 bps QoQ |
Margin Expansion Emerges As Key Positive
The lender’s net interest margin expanded meaningfully during the quarter as funding costs moderated and liquidity management improved. Net interest margin rose to 8.5% compared with 8.2% in the previous quarter.
Cost of funds declined to nearly 7%, supported by deposit repricing and a higher CASA mix. Meanwhile, the CASA ratio improved to 28.6% in Q4FY26 from 25.5% a year earlier, indicating improving deposit franchise strength.
The bank also witnessed operational efficiency gains. Cost-to-income ratio improved to 63.2% from 68.3% a year earlier, helping profitability metrics recover steadily.
Secured Loan Strategy Reduces Risk Profile
One of the most important strategic shifts underway is the aggressive expansion of secured lending. Management has been consciously reducing dependence on unsecured microfinance exposure by scaling up mortgages, gold loans, vehicle finance and MSME-backed lending.
Secured loans accounted for 49% of gross advances by March 2026 compared with 43% a year earlier. In terms of fresh disbursements, secured products formed 47% of total disbursements in Q4FY26 against 43% in the preceding quarter.
Management now expects the secured portfolio mix to rise to nearly 56% by FY27. This transition is expected to materially reduce volatility in credit costs over the medium term.
The bank is also planning a Rs 20 billion capital raise during H2FY27 to support accelerated balance-sheet growth and branch expansion.
Asset Quality Trends Show Visible Improvement
Asset quality indicators continued to improve despite lingering stress in the microfinance ecosystem. Gross NPA ratio declined to 2.27% in Q4FY26 from 2.39% in the previous quarter. Net NPA ratio improved sharply to 0.43%.
The slippage ratio also moderated to 2.5% versus 2.7% in Q3FY26, indicating stabilizing stress formation. Early delinquency indicators such as SMA accounts improved further, reinforcing management’s view that stress in the microfinance book may have peaked.
Provision coverage ratio strengthened to over 81%, giving the bank a healthy buffer against future stress scenarios.
Management Provides Strong FY27 Growth Guidance
Management remains optimistic about FY27 growth prospects. The lender has guided for approximately 25% advance growth, largely driven by secured retail products, while microfinance growth is expected to remain in high single digits.
The bank plans to add nearly 140 new branches during FY27 to deepen deposit mobilisation and distribution reach. Analysts believe this expansion could temporarily raise operating expenses but significantly improve long-term franchise value.
Management expects return on assets to improve toward 1.6% during FY27, supported by stable margins and lower credit costs in the range of 1.4%-1.5%.
Financial Outlook Suggests Strong Earnings Expansion
BOBCAPS projects healthy earnings growth over the next three years. The brokerage estimates loan growth CAGR of roughly 21% through FY29, supported by improving profitability and balance-sheet diversification.
Key projections include:
| Metric | FY26A | FY27E | FY28E |
|---|---|---|---|
| Net Interest Income | Rs 38.7 bn | Rs 48.9 bn | Rs 57.8 bn |
| Net Profit | Rs 6.9 bn | Rs 9.8 bn | Rs 12.4 bn |
| EPS | Rs 3.6 | Rs 5.0 | Rs 6.4 |
| ROE | 10.7% | 13.6% | 15.2% |
Universal Banking Ambition Remains Intact
Despite the Reserve Bank of India returning its earlier application for a universal banking license, management reiterated that it remains committed to reapplying after achieving better portfolio diversification and a larger secured lending mix.
Analysts believe a future transition toward universal banking could significantly enhance valuation multiples if executed successfully.
Investment View And Key Risks
BOBCAPS believes the bank is entering a healthier operating cycle as credit costs normalize and profitability recovers. The combination of strong growth, improving return ratios and declining stress in the MFI portfolio positions the lender favorably among small finance banks.
However, investors should continue monitoring a few critical risks, including elevated competition for deposits, potential pressure on CASA mobilisation, higher-than-expected operating expenses and any prolonged weakness in the microfinance segment.
At current valuations, analysts view the risk-reward profile as attractive for medium-term investors, particularly given the expected improvement in RoA and RoE over FY27-FY29.
