Equitas Small Finance Bank IPO comprises of fresh issuance of Equity Shares upto ₹ 280Cr and Offer for saleof up to 72,000,000 Equity Shares by promoters. Equitas Small Finance Bank is the wholly-owned subsidiary of NBFC Equitas Holding. , will open its initial public offering (IPO) on October 20, 2020.
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Equitas Small Finance Bank IPO Details
| Issue Period | Tue, , 20th October- Thu 22nd October, 2020 |
| Anchor Bidding | 19th October, 2020 |
| Issue Details | Fresh Issue of Equity Shares upto ₹ 280Cr |
| + Offer for Sale of up to 72,000,000 Equity Shares | |
| Issue Size (₹ Cr) | ₹ 510 Cr – ₹ 518 Cr |
| Price Band | ₹ 32 – 33 |
| Bid Lot | 450 Shares |
| Employee Reservation | up to ₹1 Cr |
| Reservation for EHL Shareholders | Equity Shares a up to ₹ 51 Cr |
| Issue Structure : | |
| QIB | 50% of the net offer |
| NIB | 15% of the net offer |
| Retail | 35% of the net offer (~ -49,381,819 Shares- ₹ 163 Cr) |
| Applications for 1x Retail | 109737 |
| BRLMs | JM Financial, Edelweiss Financial, IIFL Securities |
| Registrar | KFin Technologies Pvt. Ltd. |
About Equitas Small Finance Bank
- Equitas Small Finance Bank (“ESFB”) is the largest SFB in India in terms of number of banking outlets, and the 2nd largest SFB in India in terms of Assets under Management (“AUM”) and total deposits in Fiscal 2019.
- ESFB offers a range of banking products and services to customers with a focus on serving the financiallunserved and underserved customer segments in India. ESFB ‘s strength lies in promoting financial inclusion within these segments, with their group beginning operations in 2007 as an NBFC providing microfinance loans.
- The Bank has been providing housing finance since 2011 through EHFL.It has also been providing vehicle finance and MSE finance through the Erstwhile NBFC.
- As of June 30, 2020, its distribution channels comprised 856 Banking Outlets and 322 ATMs across 17 states and union territories in India.
- Equitas Small Finance Bank also distributes products through digital channels, and leverage technology to identify opportunities to better serve
- As of March 31, 2019, Equitas Small Finance Bank had the third largest number of employees among SFBs in India (Source: CRISIL Report). As its products comprise small ticket loans and retail deposits, the operations require a large number of employees in the field to generate volumes for this business.
- As of March 31, 2019, the bank was third among SFBs in India in terms of advances made per employee and fourth in terms of deposits collected per employee.
Equitas Small Finance Bank: Financials
| Particulars/ Rs. Cr | Q1FY21 | Q1FY20 | 2020 | 2019 | 2018 |
| Deposits as stated | 11,787.13 | 9,133.42 | 10,788.41 | 9,006.74 | 5,603.97 |
| Deposits Growth (%) | 29.05% | – | 19.78% | 60.72% | – |
| Gross Advances | 14,388.62 | 12,023.30 | 13,747.24 | 11,593.57 | 7,706.03 |
| Advances Growth (%) | 19.67% | – | 18.58% | 50.45% | – |
| Interest Earned | 721.31 | 603.39 | 2,645.44 | 2,111.93 | 1,531.69 |
| Interest Earned Growth (%) | 19.54% | – | 25.26% | 37.88% | – |
| EBITDA | 93.13 | 111.79 | 447.39 | 415.52 | 136.02 |
| EBITDA (%) | 12.91% | 18.53% | 16.91% | 19.67% | 8.88% |
| Profit Before Tax | 73.68 | 88.75 | 350.94 | 323.74 | 48.51 |
| Net Profit | 57.67 | 57.06 | 243.64 | 210.57 | 31.83 |
| Net Profit Margin | 8.00% | 9.46% | 9.21% | 9.97% | 2.08% |
| Net Interest Margin | 2.16% | 2.22% | 9.11% | 8.55% | 9.02% |
| Gross NPAs | 416.67 | 334.3 | 417.32 | 295.71 | 212.53 |
| Net NPAs | 213.37 | 187.21 | 228.63 | 167.43 | 112.51 |
| EPS (₹) | 0.55 | 0.57 | 2.39 | 2.09 | 0.32 |
| RoNW (%) as stated | 2.07% | 2.48% | 8.92% | 9.40% | 1.57% |
| Net Asset Value (₹) | 26.47 | 22.85 | 25.92 | 22.28 | 20.18 |
| Equity Share Capital | 1,053.40 | 1,005.94 | 1,053.40 | 1,005.94 | 1,005.94 |
| Reserves | 1,735.14 | 1,292.16 | 1,677.47 | 1,235.10 | 1,024.53 |
| Net worth | 2,788.54 | 2,298.10 | 2,730.87 | 2,241.04 | 2,030.47 |
| Equity Post IPO | 1138.25 | ||||
| Post issue BV | 27.1 | ||||
| FV | 10 | ||||
| IPO Price | 33 | ||||
| EPS (Post IPO) FY20 | 2.14 | ||||
| PE FY20 | 15.42 | ||||
| P/BV | 1.22 | ||||
| Market Cap | 3756 |
Pros
- The Bank is among the largest SFBs in India with a well-diversified asset portfolio.
- Equitas Small Finance Bank has focus on increasing its retail base to further improve cost of funds.
- Strong retail liability portfolio with a strategic distribution network
- Equitas Small Finance Bankr deposits have grown at a CAGR of 38.75% from ₹5,603.97 crore as of March 31, 2018 to ₹10,788.41 crore as of March 31, 2020.
- As of March 31, 2019 its CASA ratio was the 2nd highest among the SFBs in the country.
- The retail deposits to total deposits ratio was the 3rd highest among SFBs in India as per the CRISIL Report.
- As of June 30, 2020, the CASA ratio and retail deposits to total deposits ratio was 19.97% and 37.13% respectively.
- The Banks certificate of deposits programme has been rated CRISIL A1+ by CRISIL Ltd and the long-term borrowings and non-convertible debentures/ subordinated debt have both been rated CRISIL A+/Stable.
Cons
- Equitas Small Finance Bank has experienced decline in collections as a good portion of its collections is cash-based and involves physical presence of their employees,
- Disbursements may decline due to reduced economic activity.
- There may be a significant increase in the NPA levels.
- The bank may not be able to unertake reduction in borrowing costs in-line with the reduction in policy rates.
Equitas Small Finance Bank IPO: Assessment
- ESFB has been able to successfully diversify their loan portfolio and significantly reduce its dependence on the microfinance business as compared to other microfinance companies that have converted to SFBs.
- Equitas Small Finance Bank share of AUM is almost same as Ujjivan for FY2019
- The annualized EPS on post-issue equity capital of Rs 1138.25 crore works out to Rs 2.1 for FY2020. At the price band of Rs 32 to Rs 33, P/E is 15.0-15.4x of its Fy20 EPS.
- Post-issue, the book value (BV) of Equitas Small Finance Bankwill be Rs 27.1. The adjusted BV (ABV) net of net NPA for the Bank works out to Rs 25.2 per share.
- Equitas small finance bank is thus demanding a Adjusted BV multiple of 1.3x
- Its peer SFBs like AU Small Finance Bank are commanding t P/Adj BV multiple of 5.1x and another listed peer Ujjivan Small Finance Bank is commanding P/Adj BV of 1.8x.
- Equitas Small Finance Bank vehicle finance book is prone to defalts and thus a lower P/Adj BV compared to its nearest peer Ujjiva Samll Finance Bank is justified.
- In terms of PE, Equitas Small Finance Bank is being offred almost around the PE of Ujjivan Small Finance Bank which stands at 15.2x.
- The fancy for small finance banks hasalmost vanished and after normalacy is restored, the banks could feel the pressure from theiri aggressive larger peers.
- Of late IPO issues have seen tepid listing.Some degree of caution is needed for this IPO as the IPO market is facing considerable headwinds. I am yet to decide whether to apply for this IPO or not as listing gains chances are not very bright. Shall decide based on QIB demand on Day 3. However there are more chances that I will aviod this IPO.
- Do check this page for any last minute updates
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.