Prudence in taking profits from Ujjivan Small Finance Bank.

Prudence in taking profits from Ujjivan Small Finance Bank.

Shares of Ujjivan Small Finance Bank were listed on the Stock Exchange on Thursday, up 59 percent from the issue price. This has led to strong profits for investors. This year, the issue was the highest subscription among all the IPOs that have come so far. What should the people who have got shares of Ujjivan Small Bank do in IPO? Market analysts who had suggested subscribing to the bank's IPO have become increasingly concerned about its valuation on the first day of trading.

Profit booking advice

Most of them have suggested profit booking. They say that if its share price falls further, it can be reinvested. Jaikishan Parmar, research analyst at Angel Broking, said that Ujjivan Small Finance has a higher valuation. He said that he would not advise to invest in it at any stage.

Trading at 3.5 times the book value

Parmar said, "It is currently trading at 3.5 times the book value." This means that the stock is no longer attractive in this regard. If you consider the margin of safety, then if you trade at less than three times the book value, then it can be reinvested. ”Parmar also said that the management of the bank is good. Business models and other things are also great. However, their concern has increased as valuations have increased.

Subscriptions over 50 times

Ujjivan Small Finance Bank is among the 35 IPOs in the last 12 years that received more than 50 times subscription. It has also joined the club of 13 stocks whose listings have been 50 percent above the issue price. Half of these 13 are trading below the issue price today, while 9 are trading below the listing price.

High valuation due to oversubscription

Deepak Jasani, head of retail research at HDFC Securities, said that the stock is getting higher valuations due to oversubscription in the HNI segment. He said that investors are showing more interest in the short term and its fair value is close to Rs 50. Jasani said, 'At an issue price of Rs 55, it is trading at 3.4 times the book value of the first half of FY 2020. This is a high valuation. The stock may be stable at 3-3.2 times book value. This means that its fair value is between Rs 49-52. '

Good market understanding

HDFC Securities says that Ujjivan Finance Bank has a good market understanding. Especially for the class of customers who do not have access to banking services. It is trying to connect more and more customers with the help of technology across the country. His risk management is strong and financial performance is also good. Analysts expect the bank's growth to be good in the coming years.

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Strong Business Model

Siddharth Purohit of SMC Institutional Equities said, "There is no doubt that the business model of the bank is strong." He also has sufficient capital, but the valuation seems high. It can be re-entered at lower level. However, now investors should leave with profits. That is why we are expecting a decline in its share price. ”Bunty Chawla of IDBI Capital said that the company is growing and there is good growth potential in the micro finance segment. He told that its base is only Rs 13,000 crore. Therefore, it is not difficult for the bank to achieve annual growth of 20-25 percent.