Shares of Ujjivan Financial Services fell close to 8 percent on Monday even after its wholly-owned unit- Ujjivan Small Finance Bank filed for an IPO (initial public offering) with SEBI on Friday, to raise Rs 1,200 crore. While such a news is ideally positive for a holding company, the IPO is estimated to not be profitable for existing shareholders who will end up owning only shares of the holding company.

In a stock exchange filing post market hours on Friday, the company informed of its filing for the small finance bank's listing and said the offer included reservation of equity shares of up to Rs 120 crore for eligible Ujjivan Financial Services' shareholders. Multiple brokerages think that the separate listing could bring down the share price of the holding by 50 percent or more.

"While it is very difficult at this stage to estimate what discount the market is implying currently, we think a 50 per cent hold company discount (on 80 per cent of the firm value) is a fair estimate as a reverse merger is also not an easy task in our view," Nomura India said.

In October 2015, Ujjivan Financial had received permission from RBI to set up a small finance bank which led to the incorporation of Ujjivan Small Finance Bank. In November 2016, the NBFC received permission to establish and continue as a Small Finance Bank. Ujjivan Financial moved its lending and financial businesses to USFB and commenced operations on 1 February 2017.

In October, RBI said that USFB will require to comply with all the licensing requirements of a small finance bank, which includes listing the bank within 3 years of commencing operations (31 January 2020) and maintaining a 40 percent shareholding by the promoter for at least 5 years (31 January 2022).

RBI is reviewing USFB's incorporation and licence condition. The NBFC's reverse merger plans, that would automatically list the bank, were halted by the RBI in 2018 as it would bring down promoter holding to below 40 percent.

While Equirus Capital has downgraded the rating for the stock, Edelweiss put the stock on hold and has advised investors to wait until there is clarity on USFB's IPO pricing as it holds a positive outlook for the bank's business.