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Company Overview

ESAF Small Finance Bank has a focus on unbanked and under-banked customer segments, especially in rural and semi urban areas. The AUM grew from ?84.26 billion to ?163.2 billion as at March 31, 2021 and 2023, respectively, registering a CAGR of 39.22%, which was the highest CAGR among peers. The bank’s deposits grew from ?90 billion to ?146.6 billion as at March 31, 2021 and 2023, respectively, registering a CAGR of 27.66%. The Retail Deposits Ratio as of FY23 end was 90.8%, which was the highest among peers. As at March 31, 2023, the bank’s gross advances to customers in rural and semi-urban areas (combined) accounted for 62.84% of gross advances and 71.71% of banking outlets were located in rural and semiurban areas (combined). The asset products comprise: (a) Micro Loans (75% of book) (b) retail loans, which includes gold loans, mortgages, personal loans, and vehicle loans, (16% of book); (c) MSME loans (1% of book); (d) loans to financial institutions (3.8% of book); and (e) agricultural loans (4.2% of book). The liability products comprise current accounts, savings accounts, term deposits and recurring deposits. As at March 31, 2023, the bank had 6.48 million deposit accounts. The total deposits were ?146.7 billion, ?128.1 billion and ?90 billion as at March 31, 2023, 2022 and 2021, respectively. The bank has an extensive network of 700 banking outlets (including 59 business correspondent-operated banking outlets), 743 customer service centres (which are operated by the business correspondents), 20 business correspondents, 2,023 banking agents, 481 business facilitators and 528 ATMs spread across 21 states and two union territories, serving 6.83 million customers as at March 31, 2023. The bank uses business correspondent entities to source and service customers for Micro Loans. The business correspondents also source customers for mortgage loans, vehicle loans, MSME loans, agricultural loans and select deposit products.

The Bank is led by Mr. Kadambelil Paul Thomas, Managing Director and Chief Executive Officer, who has over 27 years of experience in the banking/microfinance industry in India. The Board comprises individuals having diverse experience across industries and our Independent Directors provide strategic guidance to help improve and grow the operations. The senior management team has significant experience in the banking and financial services industry. The bank had 5,034 employees as at March 31, 2023.

Offer Summary

The promoter (74.43% Pre-IPO) and other shareholders (25.57% Pre-IPO) of ESAF SFB are executing OFS of 12.2mn shares with an offer size of ~?723mn and fresh issue of ?3907mn. Post IPO the total number of shares would be ~515mn. The issue price band stands at ?57 – ?60. The issue opens at 3rd Nov – 2023 and closes on 7th Nov – 2023. The implied post issue market cap stood at ~?30bn.

Outlook and Valuation

At higher price band (?60), the stock is valued at 1.46(x) P/BVPS with current book value per share of ?40.92. Factoring the superlative return ratios, FY23 ROA/ROE of 1.6%/19.4%, we believe that ESAF Small Finance Bank Limited is worth subscribing. Thus we recommend to SUBSCRIBE.

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