Equitas Small Finance Bank IPO Analysis - 2010.2020
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Equitas Small Finance Bank IPO
Equitas Small Finance Bank IPO
This would be the third small finance bank to come out with IPO after AU Small Finance Bank and Ujjivan Small Finance Bank.
Equitas Small Finance Bank, the wholly-owned subsidiary of NBFC Equitas Holdings, will open its initial public offering (IPO) on October 20.
The anchor investors' book will open for a day on October 19 while the issue will close on October 22.
This would be the third small finance bank to come out with IPO after AU Small Finance Bank and Ujjivan Small Finance Bank.
JM Financial, Edelweiss Financial Services and IIFL Securities are the book running lead managers to the issue.
1) Public issue
The maiden public issue consists a fresh issue of Rs 280 crore and an offer for sale of up to 7.2 crore equity shares by promoter Equitas Holdings (EHL).
The offer includes a reservation up to Rs 51 crore for subscription by eligible EHL shareholders and a reservation up to Rs 1 crore for subscription by eligible employees.
Bids can be made for a minimum of 450 equity shares and in multiples of 450 equity shares thereafter.
2) Price Band
The company in consultation with merchant bankers has fixed price band for the offer at Rs 32-33 per equity share.
3) Funds Raising
Equitas Small Finance Bank is aimed to raise Rs 510.4 crore at lower price band and Rs 517.6 crore at upper price band.
4) Objects of the Issue
The objects of the offer are to augment bank's Tier – 1 capital base to meet future capital requirements such as organic growth and expansion and to comply with the regulatory requirements for enhanced capital base, as may be prescribed in the future.
But the bank will not receive any proceeds from the offer for sale as OFS money will go to Equitas Holdings.
5) Company Profile
Equitas Small Finance Bank, in FY19, was the largest 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, CRISIL says. It had a market share of 16 percent in terms of assets under management in India.
The company 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 strength lies in promoting financial inclusion within these segments. It has been providing housing finance since 2011 through Equitas Housing Finance, while it has also been providing vehicle finance and MSE finance through the erstwhile NBFC that received its asset finance license in 2012, primarily to economically disadvantaged households.
In addition, the company also provides non-credit offerings comprising ATM-cum-debit cards, third party insurance, mutual fund products, and issuance of FASTags.
6) Strengths
a) Customer centric organisation with a deep understanding of the unserved and underserved customer segments;
b) Among the largest SFBs in India with a well-diversified asset portfolio;
c) Strong retail liability portfolio with a strategic distribution network;
d) Customized credit assessment procedures for effective credit risk management;
e) Technology as an enabler to drive operating procedures;
f) Professional management, experienced leadership and trained employee base;
7) Strategies
a) Leveraging on existing network for deepening penetration and driving operational efficiency;
b) Strengthen liability franchise and focus on increasing retail base to further improve cost of funds;
c) Leverage data for analytics to drive operational efficiency;
d) Continue to focus on digital products and technology to grow operations;
e) Continue to diversify product offerings and leverage cross-selling opportunities;
f) Increasingly focus on non-interest income sources;
8) Financials
Equitas Small Finance Bank has reported net profit at Rs 57.67 crore for the quarter ended June 2020, rising from Rs 57.06 crore in same period last year. In FY20, profit stood at Rs 243.63 crore, rising from Rs 210.56 crore in FY19. Net interest income jumped to Rs 1,495.3 crore in FY20 from Rs 1,151.7 crore, whereas in June quarter 2020, the same rose to Rs 404.28 crore, from Rs 337.16 crore YoY.
It reported a gross advances at Rs 15,366.94 (including IBPC issued) crore in FY20, increasing from Rs 11,702.85 crore in FY19, while the same increased to Rs 15,572.91 crore as of June 2020. Its deposits have grown at a CAGR of 38.75 percent during FY18-FY20.
Its certificate of deposits programme has been rated A1+ by CRISIL and long-term borrowings and non-convertible debentures/ subordinated debt have both been rated A+/ Stable.
Its CASA ratio was 29.23 percent, 25.25 percent, 20.47 percent and 19.97 percent as of FY18, FY19, FY20 and June quarter 2020, respectively. As a result, cost of funds (calculated as interest expense divided by average interest-bearing liabilities) were 8.13 percent and 7.97 percent in FY19 and FY20, respectively.
As of June 2020, its gross NPAs were Rs 416.66 crore, or 2.68 percent of gross advances (including IBPC issued), and net NPAs were Rs 213.37 crore, or 1.48 percent of net advances.
As of June 2020, its distribution channels comprised 856 banking outlets and 322 ATMs across 17 states and union territories
in India.
9) Management
Arun Ramanathan is the Part – time Chairman and Non - Executive Independent Director of Equitas Small Finance Bank. He is also an independent director on the board of promoter Equitas Holdings.
Vasudevan Pathangi Narasimhan is the MD and CEO of Equitas Small Finance Bank, while Nagarajan Srinivasan, Arun Kumar Verma, Narayanaswamy Balakrishnan, Navin Avinashchander Puri, Sridhar Ganesh, Narasimhan Srinivasan, Tabassum Abdulla Inamdar and Vinod Kumar Sharma are the Non-Executive Independent Directors on the board.
Vasudevan Pathangi Narasimhan, the MD and CEO, is a qualified company secretary from the Institute of Company Secretaries of India. He has extensive experience in the financial services sector and had served as the executive vice president and head of consumer banking group in Development Credit Bank, for more than one and half years. He had also worked for about two decades in Cholamandalam Investment and Finance Company, part of the Murugappa Group. He was also the chairman of the managing committee of the South India Hire Purchase Association for Fiscal 2006. He joined erstwhile Equitas Finance, now the bank in July 2016 and prior to joining Equitas Small Finance Bank, he was the Managing Director of Equitas Holdings.
10) Promoter and Shareholding
Equitas Holdings is the promoter of the bank, currently holding an aggregate of 1,00,59,43,363 equity shares which represented 95.49 percent of the pre-offer paid-up equity share capital of the bank, while the rest 4.51 percent stake is held by public.
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