Salient features of the IPO:
* Equitas Small Finance Bank Limited (ESFB) is a south-India based small finance bank providing credit to unserved and underserved segments of the economy.
* ESFB credit portfolio include agri loans, housing loans, LAP, micro lending through JLR, used and new CV loans and NBFCs lending.
Key competitive strengths:
* Customer centric organization with a deep understanding of the unserved and underserved customer segments
* Among the largest SFBs in India with a well-diversified asset portfolio
* Strong retail liability portfolio with a strategic distribution network
* Customized credit assessment procedures for effective credit risk management
* Technology as an enabler to drive operating procedures
* Professional management, experienced leadership and trained employee base
Valuation: At higher price band of Rs33, ESFB stock is valued at P/BV of 1.2x on post issue BVPS of Rs27.1.
Below are few key observations of the issue: (continued in next page)
* ESFB commenced operations as a small finance bank (SFB) on Sep 5’ 2016 pursuit to receipt of the RBI’s final approval. Prior to SFB, the company was operating as a NBFC offering vehicles finance and MSE finance business as a wholly owned subsidiary of promoter EHL.
* Public issue is brought mainly to comply the RBI’s regulation to list SFB within three years of the commencement of banking operations i.e. Sep 4 2019. Though the bank was remained unable to meet the guideline due to which RBI’s put penalties on the bank. ESFB has timeline till Nov 2020 to list shares on exchanges.
* EHL, subsequent to obtaining RBI’s approval for carry on business, transferred its entire business to ESFB and started operations as a SFB in Sep 2016. Post issue, due to OFS of 75 mn shares by EHL and fresh issue of Rs2,800, promoter (EHL) stake will reduce to 82%. Holding company (EHL) will have to reduce stake to 40% within five years of the commencement of SFB operations.
* With 856 banking outlets, 322 ATMs and 15,843 employees, ESFB provides banking products & services to 3.6 mn customers across 17 states and union territories in India.
* Since holding company EHL was the established micro financier serving unserved and underserved regions, micro & small ticket loans compromises a major portion of the advances book. Though the bank diversified its loan book significantly through increased lending to housing finance, MSE working capital finance vehicles & corporate finance. Share of high yielding microfinance book reduce to 23% by Q1FY21.
* The bank strategized to further reduce the concentration of micro loans and diversify the book across the products. NIM is expected to decline further from 8.6% with the diversification and increase in ticket size. ESFB planned to continue focus on low- and moderateincome segment in unserved and underserved areas in line with its expertise for increasing credit portfolio.
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