Equitas Small Finance Bank IPO

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(i) They were the largest SFB in India in terms of a number of banking outlets, and the second-largest SFB in India in terms of assets under management and total deposits in Fiscal 2019. (Source: CRISIL Report).  As of September 30, 2019, they have distribution channels comprised of 853 Banking Outlets and 322 ATMs across 15 states and union territories in India.

(ii) They offer a range of banking products and services to customers with a focus on serving the financially unserved and underserved customer segments in India.

(iii) The loan book includes the loans to small business loans comprising LAPs, housing loans, and agriculture loans to micro-entrepreneurs, microfinance to JLGs predominantly comprising women, used, and new commercial vehicle loans to drivers and micro-entrepreneurs typically engaged in logistics, MSE loans to proprietorships, and corporate loans.

(iv) To get the money for the business they target customers comprise of mass and mass-affluent individuals to whom they offer current accounts, salary accounts, savings accounts, and a variety of deposit accounts.

(v) Loan Profile

Type of Loan (Cr) 2017 2018 2019 % of Loan 2017 % of Loan 2018 % of Loan 2019
Small Business Loans 1181 2113 3672 19% 27% 33%
Housing Finance 196 270 376 3% 4% 3%
Agriculture Loans 30 286 527 0% 4% 5%
Micro-Finance 2859 2257 3069 46% 29% 27%
Vehicle Financing 1855 2237 2951 30% 29% 26%
MSME Finance 0 7 180 0% 0% 2%
Corporates & Others 134 514 469 2% 7% 4%
Total Loan book 6255 7684 11244

(vi) Key Performance Metrics

Metric (in Crores) 2017 2018 2019 6MFY19
Total Disbursements 5,171.72 5,808.70 8,578.31 4,425.87
Retail Deposits 543.88 642.63 1,636.25 2,607.57
CASA 331.38 1,637.84 2,274.27 2,249.11
CASA Ratio 17.25% 29.23% 25.25% 22.43%
Net profit for the period / Year 104.13 31.83 210.57 106.54
Net Interest Income 535.21 860.54 1,151.73 687.70
Net Interest Margin 9.52% 9.02% 8.55% 8.87% [4.44%]
Cost to Income Ratio 66.44% 79.97% 70.30% 69.07%
Debt Equity Ratio 3.33 5.28 5.76 6.06
CRAR 37.18% 29.60% 22.45% 21.58%
Common Equity Tier 1 Capital Ratio 33.82% 27.07% 20.93% 20.46%
Net worth 1,998.64 2,030.47 2,241.04 2,347.58
GNPA Ratio 3.30% 2.68% 2.53% 2.86%
Net NPA to net Advance (%) 1.51% 1.46% 1.44% 1.63%
Provision coverage ratio 58.37% 47.07% 43.38% 43.83%
Return on Assets 1.28% 0.30% 1.43% 1.29% [0.64%]
Net Profit as a Percentage of Average Shareholders’ Equity 6.75% 1.57% 9.85% 9.23%  [4.61%]

Objects of the Equitas Small Finance Bank IPO:

The IPO Size of 517.60 Crores and the same will be used for augmenting Bank’s Tier I capital base to meet the Bank’s future capital requirements. OFS = 72,00,00,00 Shares Fresh Issue = 280 Crores

Equitas Small Finance Bank IPO Details:

Open Date: Oct 20 2020
Close Date: Oct 22 2020
Total Shares: 156848485
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Building
Issue Size: 517 .60 Cr.
Lot Size: 450 Shares
Issue Price: ₹ 32-33 Per Equity Share
Listing At: NSE,BSE
Listing Date: Nov 02 2020

Promoters And Management:

(i) Arun Ramanathan is the Part-time Chairman and Non-Executive Independent Director of our Bank. He holds a bachelor’s degree in science from the University of Madras, a master’s degree in nuclear physics from Andhra University, a master’s degree in business administration from the University of Madras, and a master’s of philosophy degree in economics and politics of development from the University of Cambridge. Further, he is an associate member of the Institute of Cost and Works Accountants of India. (ii) Vasudevan Pathangi Narasimhan is the MD and CEO of the Bank. He holds a bachelor’s degree in science (physics) from the University of Madras. He is a qualified company secretary from the Institute of Company Secretaries of India. He has extensive experience in the financial services sector and had served as the executive vice president and head of consumer banking group in Development Credit Bank Limited, for more than one and a half years. He has also worked for about two decades in Cholamandalam Investment and Finance Company Limited, part of the Murugappa Group, where he joined as a management trainee and resigned as the vice president and head of vehicle finance.

Financials of Equitas Small Finance Bank IPO:

Particulars (in Crs) 3MFY20 2020 2019 2018
Deposits 11,787.00 10,788.00 9,006.74 5,603.97
Net Advances 14,388.00 13,747.00 11,595.00 7,706.69
Net Interest Income (NII) 721.00 2,645.00 2,111.93 1,531.69
Non-Interest Income 29.6 282.3 282.9 241.26
Operating Profit/(Loss) 429.4 1465.4 1,103.44 650.58
Provisions and Contingencies (Other than tax) 84.3 353.43 215.58 188.81
Net Profit /(Loss) 57.6 243.6 210.57 31.83
Key Performance Indicators
Earnings per share 0.55 2.39 2.09 0.32
Book value per share 26.6 26.05 22.41 20.32
Net Interest Margin% 10.35% 11.80% 11.93% 12.84%
Cost-Income Ratio% 67.20% 66.40% 70.30% 79.97%
D/E 6.18 5.8 5.76 5.28
GNPA 2.68% 2.72% 2.53% 2.68%
NNPA 1.48% 1.66% 1.44% 1.46%
ROA 0.28% 0.30% 1.43% 1.38%

Comparison With Peers:

Ujjivan Small Finance Bank is the peer of the Equitas. At present, the Ujjivan Small Finance Bank is trading at a P/B of 1.68x.

Recommendation on Equitas Small Finance Bank IPO:

Review and Recommendation of InvestorZone are 3/10 1. The Equitas Small Finance Bank is coming with an IPO as they have regulatory compliance. Otherwise, this is not the right time to bring IPO, especially for the financial service company as their business is most hit due to rampage created in the economy due to COVID-19. 2.Equitas Small Finance bank has raised money in the Pre-IPO round at Rs. 52 per share. Now, they are coming up with an IPO at Rs.33 per share. This shows the market is not willing to give good value to Equitas SFB. 3. Post-IPO, the Promoters holding will stand at ~82%. As per RBI regulations, they have to reduce it to 40% before Sept-2021. That means massive dilution on cards. We have seen how Bandhan Bank stock fell from highs of 700 to 350 when they were finding it difficult to reduce the promoter holding. So, in near terms, no upside will be seen in stock price. 4. The listing gain of Rs.2-3 is possible. 5. D/E is very high for Equitas Small Finance Bank. It is at 6.18% as on 30.06.2020.

Lead Manager of Equitas Small Finance Bank IPO:

  1. JM Financial Consultants Private Limited

Registrar of Equitas Small Finance Bank IPO:

  1. Kfin Technology Private Limited

Discussion on Equitas Small Finance Bank IPO:

    *LISTING UPDATE*

    *EQUITAS LISTING*

    *BSE Scrip Code – 543243*

    *SYMBOL – EQUITASBANK*

    *Listing Dt. 02-11-2020*

    *ISIN No. INE063P01018*

    *ISSUE PRISE – 33/-*

    I have allotted 1259 shares of Equitas in IPO. Should I retain it for 2-3 months or sell on 2nd November 2020 I.e. on the date of listing

      In my opinion even if it lists at premium it wont be more than 2rs per share…
      Not worth the risk…bcz the chances of listing in discount is higher..
      If someone is looking for a long term holding then I’m not sure … may be better to buy in open market after listing

      It will. List at discount
      So for long term
      Buy from open market

      Better banks and opportunities available in open market

    Post-IPO

    1. Net-Worth would be = 3081 Crores

    2. Total Shares outstanding = 1053402000 + 84848484.85 (New shares) = 113.8250485 Crores.

    3. Book Value = 27.06

    4. P/B = 1.22x

    1. EHL Shareholder Reservation Portion of up to Equity Shares aggregating up to ₹51 Crores.
    2. It means approximately 1.5454545 Crores shares are reserved for shareholders’ quota.

    Equitas Small Finance Bank has recently done Pre-IPO Placement at Rs.52 per share. And now. they are coming up with an IPO at around 33-35 price band. This shows the market is not willing to give more value to the financial companies post COVID-19.