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Small Finance Bank Stock in India | Quantitative Analysis of Small Finance Bank Stock

Small Finance Bank Stock in India | Quantitative Analysis of Small Finance Bank Stock | Yadnya Investment Academy

Published on 11 March 2021 .Views 351 .Comments 0
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AU Small Finance Vs. Equitas Vs. Ujjivan Small Finance Bank

In this blog we will go through the quantitative analysis on certain parameters of three Small Finance Bank stocks on the basis of their Market Capitalization. So, let’s get started!


  • Small Finance Banks (SFBs) are initiative of Reserve Bank of India (RBI) to enhance the financial inclusion in India.
  • Small Finance Banks are similar to other commercial banks that undertake normal operations of banking business like accepting deposits and lending.
  • SFBs are basically formed to serve those segments of the Indian Geography where the commercial banks have failed to reach or limited customer base. SFBs target the unserved and untargeted customers who are still unbanked and since great percentage of India population is deprived or away from banking system, therefore a great opportunity of growth is available for small finance bank in India.
  • Customers of Small Finance Banks are: Small Business Units, small and marginal farmers, micro and small industries and unorganized entities.
  • In FY20, with growth of 30%, SFBs Total Asset base crossed the level of Rs. 1,30,000 crores & AUM of Rs. 90,000 crores. (As per ET dated 14/09/2020).

Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on quantitative basis. No suggestions are being made to directly make any investment in the top scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top scoring companies in this analysis and take investment decision based on risk profile.

Small Finance Bank Quantitative Analysis

Companies selected for Analysis:

We have selected the following 3 SFBs companies for our Quantitative Analysis.

  • AU Small Finance Bank
  • Equitas Small Finance Bank
  • Ujjivan Small Finance Bank

Procedure of Analysis and its Interpretation

  • These 3 SFBs are analysed on following 22+ various quantitative parameters and ranked and scored accordingly.
  • The Evaluation of performance is done on the basis of results of December 2020.
  • For example, company with higher PE ratio is provided lower rank and hence has scored lesser points. Similarly, if a company has higher RoE, it has higher rank and has scored higher points.
  • Here, 1 means that the company has scored lowest points and 3 means the company has scored highest points.
  • In the end, we have added all the points together and companies are ranked accordingly.

Market Capitalization of 5 FMCG Stocks:

Parameters of Quantitative Analysis:

1) PE:

  • PE generally means how much investors need to pay for each rupee of profit earned.
  • In this segment, Equitas Small Finance Bank has the lowest PE of 28.15 and hence given first rank and full points. PE of AU Small Finance bank is 34.57 and therefore given 2 points.
  • Since, Ujjivan Small Finance Bank reported a loss of Rs. 279 cr. In Dec. 20 due to heavy increase in provisioning, PE is NA  and hence is rewarded with the 3rd rank.

2) P/B:

  • P/B ratio or Price-to-Book Ratio is an important valuation ratio which evaluates whether company’s stock is overvalued or undervalued by comparing the price with the net assets of the company.
  • It can be calculated by the following formula: Current Market Price of a Stock/ Book Value per share.
  • Companies with lower P/B ratio are considered better and vice versa.
  • So, accordingly, Ujjivan Small Finance Bank tops the list with PB of 1.97 whereas AU Small finance banks ranks the lowest due to highest PB ratio of 7.97 among the peers.

3) Return on Equity (RoE)

  • Return on Equity (RoE) is another most common ratio used in fundamental analysis. We can calculate RoE by the following formula: Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Surplus).
  • RoE signifies how well the company generates the return on shareholders’ investment.
  • Here also, the company with higher RoE, is considered to be strong and vice versa.
  • In this case, AU Small Finance Bank grabs the first position and 3 points for delivering 37.1% of RoE, highest among its peers.
  • And since, Ujjivan Small Finance bank has reported loss of Rs. 279 cr in Q3FY21, the RoE is negative and stood at -34.7%. Therefore, Ujjivan is given 1 points and 3rd rank.

4) Return on Asset (RoA) 

  • RoA simply indicated how well the company is able to generate profits from its assets.
  • Formula for calculating RoA: Net Income / Total Assets
  • In case of Banking & NBFC Institutions, loans are the assets of these institutions and hence profit generated via interests, etc. by banks & NBFC are referred as Return on Asset.
  • Like RoE, higher the RoA of a company, stronger its positions and vice versa.
  • Here also, AU Small Finance Bank with the highest RoA of 4.20% tops the chart and grabs the first position
  • And due to loss in the December quarter, RoA of Ujjivan SFB remains in negative with -5.80% and hence marked and ranked accordingly.

5) Institutional Holding (DII + FII)

  • Stake of Institutional investors in the stock builds a strong confidence among the retail investors as well. So more the stake of DIIs & FIIs in a stock, better it is and vice versa.
  • In this case also, AU Small Finance Bank takes the full points with 51.70% of Institutional Investors in company’s shareholding.
  • Institutional Investors have lowest stake in Ujjivan of only 9.44% and hence given 3rd rank.

6) Sales & Net Profit Growth (YoY) [March 2019-March 2020]

  • Ujjivan Small Finance Bank has recorded the highest sales growth of 48% YoY and hence ranked first. Whereas, with sales growth of 25% year-on-year, Equitas Small Finance Bank is provided with 1 points and last rank.
  • In terms of Profit Growth, AU Small Finance Bank secures the first rank with highest net profit growth of 77% YoY and yet again, Equitas Small Finance banks ranks the lowest with Net Profit growth of 16% YoY only.

7) Sales & Net Profit Growth (2-Year CAGR) (March 2018- March 2020):

  • Since not much historic data is available for small and mid-companies, we will be taking their 2-Years CAGR growth into consideration.
  • In terms of Sales Growth on 2-Year CAGR basis, AU Small Finance Bank delivers the highest growth of 56% and hence given full points. In same criteria, Equitas delivers the lowest sales growth of 31% on 2-Year CAGR among the peers and hence rewarded 1 point only.
  • In terms of Profit Growth on 2-Year CAGR basis, scenarios completely changes and Ujjivan with magnificent Net Profit Growth of 607% in 2 years tops the list and grabs the first position. Equitas with Profit growth of 176% in same period gets 2 points and with 52% of profit in 2 years, AU Small Finance is rewarded with 1 point only.
  • The simple reason behind the magnificent profit growth on Equitas and Ujjivan Net Profit growth of 2 years accounts to low base effect.

8) Net Interest Income as a % of Operating Income

  • For a banks, it is considered better to generate more income from their core banking operations.
  • More the Net Interest Income of a bank, better it is for bank and vice versa.
  • Here, the first position is awarded to Ujjivan Small Finance Bank, which possess the highest Net Interest Income of 81.2%.
  • AU Small Finance Bank have also reported a decent NII of 76.6%, but remains the lowest scorer in the list.

9) Credit to Deposit Ratio (CD ratio):

  • This ratio shows proportion of credit to that of deposits in a bank.
  • Normally, SFBs face challenges regarding deposits in comparison to Large Banks and therefore if this number is quite large also, then it is considered fine as it may help in building confidence of customers.
  • The Credit-to-Deposit ratio of large banks generally ranges between 70%-80%.
  • Here, AU Small Finance Bank with CD ratio of 102% receives the first rank and 3 points and 3rd rank are given to Ujjivan Small Finance Bank, its CD ratio is 116%.

10) Micro Banking Loan Book (%):

  • AU Small Finance Bank is gradually shifting from micro to retail banking and therefore having Micro Loan Book (%) of 12.1%. With these percentage, 3 points are awarded to this bank and the first position.
  • In threatful situation of NPAs creation, it is better for banks that their Micro Loan Book (%) reduces.
  • Ujjivan has the highest percentage towards Micro Loan of 73.2%, which also develops high probability of big NPA numbers and hence ranked 3rd and given 1 point only.

11) CASA Ratio:

  • It is better for the bank to maintain high level of CASA ratio for determining a decent profitability.
  • Equitas have the highest CASA ratio of 24% and hence provided with 3 points, contrarily, 1 point and last rank is awarded to Ujjivan for the low CASA ratio of 18%.

12) Gross NPA & Proforma NPA:

  • According to the declared Gross NPA of these 3 small finance banks, Ujjivan reports the lowest Gross NPA of 0.96% and hence given 3 points and first rank. Whereas with the highest Gross NPA of 2.23%, Equitas is ranked 3rd with score of 1 point.
  • And in the Proforma Gross NPA, AU Small Finance banks seems to be well managed with 3.3% and hence given 3 points and opposite to situation of Gross NPA, Ujjivan here has the highest Proforma Gross NPA of 4.8%.

13) Net NPA & Proforma Net NPA:

  • Here again in terms of declared Net NPA, Ujjivan looks good with the lowest number of 0.05% and hence tops the list in this category with the highest Net NPA of 0.65%, Equitas is ranked the last position.
  • In terms of Proforma Net NPA, once again, the situation seems miserable for Ujjivan, with 2.1% of proforma Net NPA, it is ranked 3rd and with the lowest proforma Net NPA of 1.3%, AU SFB is given full points.

14) Provision Coverage Ratio (PCR):

  • It simply refers to the ratio of provisions to gross NPAs.
  • So, here the bank with the highest provisioning ratio will definitely be in good positions to cope with the NPA mess, if any. Ideally, Provision Coverage Ratio should be a big number.
  • So due to heavy provisioning in Dec. 2020, Ujjivan is able to maintain a high provision coverage ratio and hence this bank is ranked and scored accordingly.
  • Equitas Small Finance Bank with the lowest provision coverage ratio of 59.9% among its peers, it is ranked last and with 1 point only.

15) Collection Efficiency:

  • In these criteria, we will be measuring the performance of the banks on pre-covid levels.
  • So, here, Equitas Small Finance Bank with the highest collection efficiency of 105% gets the full points and first position.
  • Here, the second position is provided to AU Small Finance Bank which have 103% collection efficiency and last rank is given to Ujjivan which have collection efficiency of 95%.

16) Net Interest Margin (NIM) (%):

  • Due to high micro loan book, Ujjivan Small Finance has the highest NIM of 9.7% and hence awarded with 3 points and first rank.
  • With the low micro loan of 12.1%, AU Small Finance have low NIM of 5.4% among the peers as well. Therefore, AU SFB is ranked with 3rd rank.

17) Cost to Income Ratio: