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Published on 19/10/2020 1:54:44 PM | Source: Religare Broking Ltd

IPO Note - Equitas Small Finance Bank Ltd Ltd By Religare Broking

Posted in IPO Reports| #IPO #Religare Broking Ltd

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About the Company

Equitas Small Finance Bank is the largest small finance bank (SFB) in India in terms of number of banking outlets, and the second largest SFB in India in terms of assets under management and total deposits in FY19. It offers a range of banking products and services to customers with a focus on serving the financially unserved and underserved customer segments in India. Its focus customer segments include individuals with limited access to formal financing channels on account of their informal, variable and cash-based income profile. Its asset products are suited to a range of customers with varying profiles. These include provision of 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. On the liability side, its target customers comprise mass and mass-affluent individuals to whom we offer current accounts, salary accounts, savings accounts, and a variety of deposit accounts. Its distribution channels comprised 856 Banking Outlets and 322 ATMs across 17 states and union territories in India.

 

Objects of the Issue

* To utilize the net proceeds from the offer towards augmenting the bank’s Tier I capital base to meet its future capital requirements

 

Valuation

SFBs have registered a strong growth of 26% CAGR in terms of AUM over FY16-19 led by rising credit penetration, customized product offerings and cross selling of other product and services. Moreover, the top 3 SFBs accounts for 64% of total SFB AUM as compared to 53% in FY16 and they have outperformed the industry by reporting CAGR of 34%. The growth momentum is likely to continue led by significant market opportunity in the rural segment, new product offerings, higher presence of informal credit, access to low cost funds, and geographical diversification.

Equitas SFB fundamental track has been quite encouraging with total income growth of 29%, deposits and disbursements growth of 39% and 31% CAGR over FY18-20. The asset quality has remained healthy for the SFB with gross NPA and Net NPA at 2.72% and 1.66%. This has been led by its strong retail liability portfolio, customized credit assessment procedures, strategic distribution network and customer centric approach. We believe the growth momentum can continue to remain healthy for the company led by positive industry growth prospects coupled with its strong focus on leveraging its existing network and deepening penetration, strong liability franchise and drive operational efficiencies by leveraging data for analytics and focus on digital products. However, some of the key risks include slowdown in loan growth and potential rise in NPAs due to COVID-19 and change in regulatory norms. On the valuation front, the company is valued at ~16x post issue FY21 annualized EPS.

 

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