NEW DELHI: The Rs 518 crore initial public offer (IPO) by
Equitas Small Finance Bank (
SFB) was subscribed 48 per cent on Day 2 of the bidding process so far while the retail quota was fully subscribed. The issue was subscribed 39 per cent by the end of the first day.
By 11.47 am, the IPO had received bids for 5,58,34,200 shares compared with the issue size of 11,58,50,001 shares. Bidding was seen by retail individual investors (RIIs), whose quota was subscribed 1.04 times at the time of writing this report.
The offer included a fresh issue of shares worth Rs 280 crore and an offer for sale of 7,20,00,000 shares by the parent company. The IPO is being sold in the price band of Rs 32-33 per share and at the upper limit of this price band, the IPO is asking for an adjusted price to book value P/BV of 1.26 times, post considering fresh issue.
Equitas Small Finance Bank IPO: All you need to know
IPO alert
The Rs 500 crore IPO by Equitas Small Finance Bank (ESFB) will open for subscription on Tuesday. Here’s all you must know about the issue before subscribing:
Company background
Equitas Small Finance Bank (ESFB) was originally incorporated as ‘V.A.P. Finance Private Limited’ on June 21, 1993. The bank promoter, Equitas Holdings (EHL), was granted RBI’s final approval on June 30, 2016, to establish a small finance bank (SFB). Subsequently, the bank was converted into an SFB and they commenced operations on September 5, 2016. The bank has sought in-principle approval from the RBI to undertake a merger of EHL with the bank such that the merger would be effective from September 4, 2021. It has also sought principle approval from the RBI to permit the dilution of EHL’s shareholding in the bank pursuant to such merger.
IPO details
The company has fixed the price band for its over Rs 500 crore initial public offering (IPO) at Rs 32-33 per equity share. The IPO consists of a fresh issue aggregating up to Rs 280 crore and an offer for sale of up to 7.2 crore equity shares by Equitas Holdings, the holding company of the bank. The offer opens on October 20 and closes on October 22. Post this offer, Equitas Holdings share in the bank will come down to 82-83 per cent from 95.49 per cent.
Fund utilisation
The bank’s Managing Director and CEO P N Vasudevan said, “We will be using the funds raised as growth capital. We are adequately capitalised as of now and this adds to our capital ratio which supports our growth going forward.” At present, the bank’s capital adequacy ratio is around 21 per cent and post the issue it will improve to 22 per cent, he told PTI.
The bank had earlier planned to raise Rs 1,000 crore through IPO but later reduced the size due to comfortable capital adequacy ratio and also on account of the present market conditions, Vasudevan said.
Business size
ESFB has the largest network of banking outlets among all SFBs in India. As of June 30, 2020, the bank’s distribution channels comprised 856 banking outlets and 322 ATMs across 17 states and union territories in India. It also distributes products through digital channels and leverages technology to identify the target customer segment. To this end, the company has introduced facial recognition features for transaction authentication in their mobile banking application.
Most analysts are recommending a ‘subscribe’ on the issue with a long-term view.
ICICI Securities said the company had strong advances growth along with maintaining asset quality. “Unserved and underserved customers as targets offer a vast opportunity for business growth. We have a ‘Subscribe’ recommendation on the stock,” said the broker.
Some analysts, however, believe you should skip the issue if you are looking for listing gains.
Quantum Securities noted that the SME/MFI businesses are facing various challenges at operating level in wake of the current pandemic and the interest waiver issue for which a PIL (public interest litigation) has been filed in the Supreme Court (SC). It, thus, ruled out listing gains.
“So based on expectation of improvement in performance from FY22E onwards, we recommend investors to ‘Subscribe’ to the issue from a long term perspective,” Quantum said in a note.
Emkay Global Financial Services recommended investors to subscribe to the IPO. The brokerage said it has a ‘buy’ rating on the holding company Equitas Holdings Ltd with target price of Rs 64 for its superior asset diversification, reasonable liability profile, better management pedigree, healthy return ratios and reasonable valuations.
