Equitas SFB IPO : Apply or Avoid???

About The Company

• Equitas Small Finance Bank Ltd. (ESFB) is one of the largest SFB in India in terms of number of banking outlets
• Second largest SFB in India in terms of assets under management and total deposits in Fiscal 2019
• Diversified Portfolio and reduce its dependence on micro-finance business as compared to other micro-finance companies that have converted to SFBs.
• ESFB offers a range of banking products and services to customers with a focus on serving the financially un-served and under-served customer segments in India
• ESFB's distribution channels comprised 856 Banking Outlets and 322 ATMs across 17 states and union territories in India

Business Areas

The companies main bushiness comes from majorly following three areas :

• Small business loans which compromises of 41% of its business.
• Micro-Finance which compromises of 23% of its business.
• Vehicle loans compromise approximately 25% of the business

Competitive Strengths

• A customer-centric organization with focus on financially un-served and under-served customer
• A well diversified portfolio as a SFB.
• Strong retail liability portfolio.
• Credit assessment procedures.
• Professional management, experienced leadership and trained employee base

Company Promoters 

• EQUITAS HOLDINGS LIMITED

Objective of the IPO 

The bank proposes to utilize net Proceeds from the fresh issue offer towards augmenting the banks Tier-1 capital base to meet the future capital requirement.

IPO Issue Details

• This Initial Public Issue Equity Shares of Rs.10 each for cash at a price of Rs. 32-33 per equity share aggregating to Rs. 517.60 Crore.
• Fresh Issue: aggregating up to Rs. 280.00 Cr
• Offer for Sale : aggregating up to Rs. 237.60 Cr

Company Financials

• They have witnessed significant growth in their business, and in Fiscal 2019 had a market share of 16% in terms of assets under management in India (Source: CRISIL Report).
• Their Gross Advances (including IBPC issued) have grown from Rs.62,583.62 million as of March 31, 2017 to Rs.117,042.88 million as of March 31, 2019 and was Rs.132,072.87 million as of September 30, 116 2019.
• Of their Gross Advances (including IBPC issued), secured advances constituted 53.16% as of March 31, 2017 and increased to 70.71% as of March 31, 2019 and further increased to 73.91% as of September 30, 2019.

COMPARISON WITH LISTED PEERS

As per offer documents, ESFB has shown AU SFB, Ujjivan SFB, DCB Bank, City Union Bank, Bandhan Bank, Shriram City Union Fin., Shriram Transport Fin., Cholamandalam Inv., Mah & Mah Financial Services, Sundaram Finance, CreditAccess Gramin and Spandana Sphoorty Fin. as its listed peers. They are currently quoting at a P/Es of around 33.07, 24.8, 6.99, 23.56, 18.65, 6.02, 7.71, 17.51, 16.17, 19.82, 35.91 and 11.99 (as of October 15, 2020 closing). However, they are not strictly comparable on an apple to apple basis.

Personal View

- Seems Okayish IPO. Neutral or minimal listing gains.

- On the higher side expecting maximum 5-7% returns on Investment if everything goes well.

- Based on Q1 FY21 earnings, the issue appears aggressively priced

- Moratorium issue can give set back.

- Looking at the current economic situation if applying then strictly do for listing gains only.

- Long Term view not recommended from our Perspective.

Dos & Don'ts

- Apply only one lot as the IPO is going to be highly oversubscribed and even if you apply 10 lots you will be allotted only 1 lot at listing.

- Do not apply from different Demat accounts linked with same PAN Details, your subscription will likely get rejected.

- You can apply from different Demat accounts linked with different PAN e.g from your family members account so as to get more chances of allotment