Hopes to raise $25-$30 m; plans IPO in 2012-13.

Anjana Chandramouly

Bangalore, June 30

Ujjivan Financial Services, a Bangalore-based microfinance institution, plans to start process for the next round of capital infusion by the year-end. The company, which has been making month-on-month profits since January 2009, expects to raise $25-$30 million.

“It would be easier for us to raise funds now, since we have wiped out our losses and made month-on-month profits since January 2009,” said Mr Samit Ghosh, Managing Director, Ujjivan Financial Services. The MFI took four years to break even, because “it was our conscious plan to have pan-India expansion,” he added.

The company plans to go for an IPO in a couple of years, since “we need two more years of profitable operations to go in for an IPO. We would be eligible for an IPO in 2012-13,” he said. The idea is to raise as much from domestic investors, and cut down on dependency on institutional investors, he added. Going for an IPO would enable them to diversify ownership too, explained Mr Ghosh.

Currently, the company has a capital adequacy ratio of about 27 per cent, thanks to about Rs 88.4 crore raised during end-2009, “which will hold us good till March 2011,” he added. The company, as on March 31, 2010, wiped out cumulative losses of about Rs 5.85 crore, and posted profits of Rs 9.64 crore after transferring Rs 1.93 crore to the statutory reserve fund according to the RBI guidelines.

Focus areas

The MFI now has 270 branches across 18 States. Expanding was increasingly becoming difficult, said Mr Ghosh, “because of competition since it was becoming more difficult to find areas where two or three MFIs are not present already.” The company wants to expand into the North-East, which are under-served, Gujarat and urban areas of Maharashtra in the West, Kerala and Puducherry in the South, and Punjab and Haryana in the North. Another focus area would be Bihar.

According to him, MFIs do not serve Mumbai because of the high expenses involved there. “But we want to go to Mumbai with 36 branches,” said Mr Ghosh, adding that the company has 14 branches in that city already.

He also said that the company would not look at “expansion in States such as Rajasthan, Madhya Pradesh and Uttar Pradesh because there is already a large MFI concentration”. He added that Ujjivan expanded “dramatically” in Jharkhand with 20 branches, and ruled out more branches in that State too.

Service quality

The company has also initiated a service quality programme to deal with customer problems and cut down customer drop-outs, which he explained was one of the major costs for MFIs. “And if the product is not differentiated, then even at the slightest reason the customer drops out,” he said. There are plans to put up a help desk at each big branch of Ujjivan, he added.

The biggest challenge is value-addition to customers, because “unless that is done, MFIs will run out of steam,” said Mr Ghosh.

(This article was published in the Business Line print edition dated July 1, 2010)
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