Nuvama Recommends 'BUY' Rating for Jana Small Finance Bank with ₹600 Target Price. Bank Shows 43% Upside Potential, Benefiting from Secured Loans and Strong Deposit Base.
Nuvama Brokerage has initiated coverage on Jana Small Finance Bank (JSFB) with a 'BUY' rating and a target price of ₹600, indicating a potential upside of 43% from the current level of ₹419. This small finance bank's b presence in rural India and expanding loan portfolio suggest b long-term return potential.
JSFB's Key Growth Drivers
Jana Bank was established with the aim of promoting financial inclusion, extending banking services to previously underserved populations. Initially an NBFC, it transitioned into a microfinance company and subsequently a small finance bank. In 2019, it achieved scheduled commercial bank status. Under the leadership of CEO Ajay Kanwal, significant changes have been implemented, including a shift towards secured loans, expansion of the deposit base, and investment in technology.
Market Position and Future Plans
By Q3FY25, Jana Small Finance Bank had become the fourth largest small finance bank in India, with Assets Under Management (AUM) of ₹27,984 crore. It operates 778 banking outlets across the country, with 252 located in rural areas. The bank has recorded a 27% annual growth rate over the past three years, reflecting its expanding reach.
The bank is working towards becoming a universal bank in the first quarter of FY26. It is fulfilling the necessary prerequisites, such as consistent profitability for two consecutive years and maintaining gross NPA and net NPA below 3% and 1%, respectively.
FY25 and Beyond: Projections
FY25 may see a decline in microfinance loans and an increase in credit costs, potentially impacting the bank's profitability. However, the bank anticipates an improvement by FY26. The plan to increase the proportion of secured loans will accelerate loan book growth and reduce risk, further boosting growth rates.
Stable Asset Quality and Strong Returns Expected
Despite increased stress in the microfinance sector, JSFB has witnessed only a modest increase in its gross NPAs. The bank believes this stress has peaked and will improve in FY26. The bank projects an ROA (Return on Assets) of 1.7%-1.9% and an ROE (Return on Equity) of 16%-18% for FY26 and FY27.
Attractive Investment Opportunity
Nuvama Brokerage believes Jana Small Finance Bank is on a path to stability, and its increasing secured loan share, b deposit base, and improved asset quality present a compelling investment opportunity. This positive outlook underpins the 'BUY' rating and the ₹600 target price, representing a potential upside of 43%.
