IPO Note - Suryoday Small Finance Bank Ltd By LKP Securities
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Company Overview:
SURYODAY SFB commenced operations as an NBFC and for over a decade has been serving customers in the unbanked and under-banked segments in India and promoting financial inclusion. Pursuant to receipt of the RBI Final Approval, it started operations as a “Small Finance Bank” on January 23, 2017.
The bank is among the leading SFBs in India in terms of Net Interest Margins, Return on Assets, Yields and deposit growth and had the lowest Cost-to-Income ratio among SFBs in India in Fiscal 2020. Prior to the operations as an SFB, it operated as an NBFC– MFI carrying out microfinance operations and operated the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active women belonging to weaker sections.
Over the years, the bank has diversified the loan portfolio to include non-micro banking loans thereby reducing the dependence on micro banking business. Their average “priority sector” loans, as a percentage of average Adjusted Net Bank Credit (“ANBC”) for Fiscal 2018, 2019 and 2020 and 9MFY21 was 99.08%, 112.10%, 103.67% and 114.09%, respectively. As of December 31, 2020, their customer base was 1.44 million and the employee base comprised of 4,770 employees and they operated 554 Banking Outlets including 153 Unbanked Rural Centres (“URCs”).
The bank currently offers a variety of asset and liability products and services designed for inclusive finance and general banking customers. The bank’s asset products consist of a) Inclusive finance portfolio (comprising loans to JLG customers) b) Commercial vehicle loans c) Affordable housing loans d) Micro business loans e) Unsecured micro and small enterprise f) Small and medium enterprise loans, secured business loans, financial intermediary group loans and Other various loans. The bank’s Gross Loan Portfolio has grown at a CAGR of 46.98% from ₹17.18bn as on 31st March 2018 to ₹37.11bn as on 31st March 2020 and stood at ₹39.08bn as on 31st December 2020.
Offer Summary:
The promoter (30% Pre-IPO) and other shareholders (70% Pre-IPO) of Suryoday SFB are executing OFS of 10.9mn shares with an offer size of ~₹3338n and fresh issue of ₹2486mn. Post IPO the total number of shares would be 106.1mn. The issue price band stands at ₹303 – ₹305. The issue opens at 17th March – 2021 and closes on 19th March – 2021. The implied post issue market cap stood at ~₹3230mn.
Outlook and Valuation:
At higher price band (₹305), the stock is valued at 2.28(x) P/BVPS with current book value per share of ₹133.5. Factoring the good return ratios, FY20 ROA/ROE of 11.3%/2.5%, we believe that Suryoday Small Finance Bank Limited is worth subscribing. Thus we recommend SUBSCRIBE.
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