Analysts should not satisfied that the resignation of Chugh, whose three-year time period would have resulted in December 2022, was as a result of private causes. However their value targets recommend the inventory has largely factored within the unfavourable occasion.
Chugh’s exit got here within the backdrop of exit of a number of board members and administration executives at Ujjivan SFB. That included the CFO’s resignation a month in the past.
Emkay International mentioned the impression from the analyst name was that the resignation of Chugh, an ex-digital banking head at HDFC Financial institution, was primarily as a result of financial institution’s persistent underperformance on the asset-quality entrance, delayed recognition of NPAs in MFI and large-scale attrition on the lower-middle stage.
Apart from the underperformance, some niggling points with the outdated administration and his incompatible new-age administration fashion within the nonetheless MFI-dominated old-fashioned financial institution might even have contributed to the resignation, Emkay mentioned.
“Ujjivan’s present scenario might be an excessive model of challenges that smaller/newer banks have confronted when present process management transition or entry of exterior expertise at senior administration stage. Rebuilding and motivating the workforce can be essential in order that the financial institution can get well misplaced floor and profit from a potential restoration in asset high quality and mortgage progress over the following 12 months,” Kotak Institutional Equities mentioned.
The brokerage, nonetheless, felt this isn’t an underwriting challenge and is much more operational in nature. Whereas the medium-term problem can be to determine the following appropriate CEO, such transitions, Kotak mentioned, are hardly ever clean.
The inventory fell 9.64 per cent to hit a low of Rs 17.80 in Monday’s commerce. The scrip is down 31.93 per cent over August 12’s closing of Rs 26.15.
A choice on the appointment of an interim CEO can be taken within the board assembly on August 25, Wednesday. Chugh’s resignation can be efficient from September 30.
“The churn within the administration workforce and board of administrators is prone to have a knock-on impact on the expansion technique of the financial institution, as Chugh was spearheading the digital initiatives of the financial institution. Contemplating the uncertainty when it comes to incoming prime administration and the long run progress outlook, we’re placing Ujjivan SFB “below preview,” mentioned Edelweiss Securities.
The financial institution has on-boarded 4 administrators, together with Samit Ghosh and erstwhile CEO/CFO Sudha Suresh, to strengthen the board, oversee the administration transition and make an try and resurrect the financial institution.
Ghosh is a typical director with the holding firm Ujjivan Monetary Providers.
As MD & CEO, Chugh’s Ujjivan confronted 4 main challenges: holding firm dilution, opex management, retail deposit build-up, and bettering secured mortgage share. Analysts mentioned the financial institution was on the trail to checking out three of those 4 points.
“On the hold-co dilution challenge, the RBI by way of letter dated July 9 permitted SFBs and holding firms to use for reverse merger, which signalled that Ujjival Monetary Providers might be reverse merged with Ujjivan SFB. Throughout Chugh’s tenure, the financial institution did nicely on deposits, as CASA ratio persistently elevated from 11.6 per cent in December quarter to twenty.3 per cent in June quarter. Opex was additionally managed, with opex to property in FY21 seeing a pointy discount to six.2 per cent from 8.2 per cent in FY20,” mentioned Centrum Broking.
The brokerage mentioned whereas the transition in direction of a secured mortgage profile was progressing nicely, with the secured share rising from 21 per cent to 32 per cent on a YoY foundation in June quarter, materials publicity (practically 80 per cent of loans) to MFI and secured SME severely affected asset high quality.
“Resignation of key managerial personnel might result in near-term strain till somebody is appointed, although stress formation is partly priced in. We had downgraded FY22E earnings by 76 per cent as a result of loss in Q1FY22 and certain provisions in FY22. MFI/MSE mortgage publicity at 80 per cent is affecting USFB, resulting in stress build-up and protracted recoveries,” Centrum mentioned whereas suggesting a goal of Rs 31.
Kotak has a goal of Rs 24, down from Rs 31 earlier. Emkay finds the inventory Rs 17 value Monday’s low, these targets recommend a restricted draw back from right here on.