The ₹832-crore Tamilnad Mercantile Bank (TMB) IPO will be open for public subscription from September 5 to 7, 2022. Tamilnad Mercantile bank ltd is old and leading bank with history of 100 years with sound financial performance. The bank, which provides banking and financial services to retail customers, micro, small, and medium enterprises (MSMEs), intends to use IPO proceeds to augment its tier-I capital base to meet future capital requirements as well as to meet offer issue expenses. 

Bidding date5th – 7th Sep 2022
Issue Size  (₹ Cr)₹ 792 – 832 Cr
Issue Size  (Shares)1,58,40,000
Face Value10
Bid Lot shares28
Price Band₹  500 – 525
Issue Structure :
QIB75%
NIB15%, 2,376,000 shares
Retail10%, 1,584,000 shares
Appl. for 1x Retail0.57 Lac
Tamilnad Mercantile Bank IPO Review: Video in Presentation form

About Tamilnad Mercantile Bank

  • Tamilnad Mercantile Bank is one of the oldest private sector bank headquartered at Thoothukudi, Tamil Nadu.
  • The bank was incorporated as Nadar Bank in 1921 and name was changed to Tamilnad Mercantile Bank in the year 1962.
  • The bank has a network of 509 branches, 12 administrative offices, 1,141 ATMs, 282 cash recycler machines (CRMs), and 101 E-lobbies.
  • Out of these 509 branches, 76 branches are in metropolitan areas, 80 branches are in urban areas, 247 branches are in semi-urban areas, and 106 branches are in rural areas.
  • Bank has wide presence in south India and further diversifying branches in other states of India, with 90 branches located in the states of Maharashtra, Gujarat, Karnataka and Andhra Pradesh respectively.
  • About 5.08 million customers with 80% of customers have been associated for a period of more than five years.

Anchor Book: Tamilnad Mercantile Bank IPO

Tamilnad Mercantile raised ₹364 crore from 21 anchor investors , mostly insurance companies. Bajaj Allianz Life Insurance, Nomura Singapore, Max Life Insurance etc.
Some select Investors:

Salient Points

  • The Offer is mainly an issue of fresh equity shares.
  • Raised Rs. 110 cr in May 2022 via pre-IPO placement at Rs. 290.
  • Malabar and IIFL funds participated in it. IPO now priced at Rs. 220 (at upper end)
  • From the fresh issue proceeds: Rs. 403cr will be used to fund the capital expenditure. Rs. 131.6cr will be utilized for funding the working capital.
  • Currently operating at 75-85% utilization.
  • 45% revenue of Syrma come from Exports.
  • The company operates in B2B space.
  • 16 customers of Syrma have been there for more than 10 years.

Tamilnad Mercantile Bank IPO: Financials

Particulars / (₹ Cr)FY22FY21FY20
Interest income383436093466
Interest expenses201920722147
NII181515381320
Other income823644526
Net total income263821821846
Operating expenses1111980851
Operating profit15271202995
Provisions402404410
PBT1125798585
Tax provisions303195177
Net Profit822603408
Adj BV (Rs)346277244
Post Issue share Cap158.35
FV in Rs.10
IPO price525
EPS  post IPO51.9  
PE10.1
P / adj BV1.52
Market Cap Rs. Cr.8313

Tamilnad Mercantile Bank: Salient Points

  • Tamilnad Mercantile Bank is one of the oldest private sector bank headquartered at Thoothukudi, Tamil Nadu.
  • The bank was incorporated as Nadar Bank in 1921 and name was changed to Tamilnad Mercantile Bank in the year 1962.
  • The bank has a network of 509 branches, 12 administrative offices, 1,141 ATMs, 282 cash recycler machines (CRMs), and 101 E-lobbies.
  • Out of these 509 branches, 76 branches are in metropolitan areas, 80 branches are in urban areas, 247 branches are in semi-urban areas, and 106 branches are in rural areas.
  • Bank has wide presence in south India and further diversifying branches in other states of India, with 90 branches located in the states of Maharashtra, Gujarat, Karnataka and Andhra Pradesh respectively.
  • About 5.08 million customers with 80% of customers have been associated for a period of more than five years.

TMB: Operational Metrics

Metric202220212020
Total Business78,681.2572,511.4565,061.21
Deposits44,933.1140,970.4236,825.03
Credit to deposit ratio74.54%75.83%75.26%
Cost of deposits4.91%5.49%6.27%
Net advances33,491.5431,069.6027,715.76
Yield on advances9.45%9.65%10.19%
Credit cost0.63%1.37%1.51%
Net interest income1,815.231,537.531,319.51
Net interest margin4.10%3.77%3.64%
Operating profit1,526.771,202.23995.03
Net profit821.91603.33407.69
Net worth5,335.714,579.983,979.65
Return on assets1.66%1.34%0.99%
Return on equity16.58%14.10%10.73%
CASA / total deposits30.50%28.52%25.85%
Cost to income ratio42.12%44.90%46.10%

Key Figures and Ratios

  • Return ratios: In FY22, RoA of 1.66% ; RoE of 16.58%
  • Asset quality: Net NPA ratio 0.96%.
  • Provision coverage ratio: PCR including write offs 88%; excluding write off 45-50%
  • Restructured book: 2.84% of loan book; slippage from the restructured book recently has amounted to Rs 0.18bn.
  • Operating expenses: cost to income ratio for FY22 is 42%, down from 46%.
  • share of digital transactions is 85%, up from 75%.
  • Net interest margin: improved from 3.64% to 4.1%.
  • Management stated that bank would be able to maintain NIM in the 3.85-4%
  • Miscellaneous income rose in FY22 on back of recovery from written off accounts amounting to Rs 2.21bn.

Concerns & Controversies

  • Involved in several ongoing legal proceedings following disputes among or in relation to share transfer.
  • These primarily are arising out of a transfer of 95,418 Equity Shares on May 13, 2007, subsequent transfers of Equity Shares on December 26, 2011 and June 11, 2012 and a bonus issuance on May 26, 2016 in the ratio of 1:500.
  • Legal proceedings include challenges to the validity of the transfers, allegations of mismanagement on the part of Bank in connection with such transfers, allegations that the transferees were not fit and proper persons, and that the transfers were effected in the absence of requisite approvals from the RBI or were done in contravention of approvals received.
  • 37.73% of paid up equity share capital or 53.76 million Equity Shares are subject to outstanding legal proceedings which are pending at various forums
  • in this connection with proceedings against Bank have been initiated by various regulatory authorities, including the RBI, the Directorate of Enforcement, some of whom have imposed and sought to impose penalties on them in the past.
  • Earlier in nineties Essar had bought about 2/3rd stake in Bank and there was a long drawn battle.
  • regional concentration
  • legal matters
  • 38% shareholding is disputed
  • Prospective Investors will not, without prior RBI approval, be able to acquire more than 5% share capital of the bank.

Tamilnad Mercantile Bank IPO: Assessment

  • Healthy financial performance
  • Healthier than its other Private Peers
  • diversified loan book,
  • strong asset quality
  • Strong legacy, loyal customer base
  • Focus on improving servicing framework:
  • For the period 2020-22:
  • TMB’s deposits increased at CAGR of 10.46% ( peer median:7.90%)
  • Advances increased at a CAGR of 9.93% ( peer median: 8%).
  • Current account and savings account deposits to total deposits at 30.50%.
  • Net profits increased at a CAGR of 41.99%.
  • Anchor allocation at lower price of Rs. 510/-.
  • Pending legal issues regarding the bank’s share capital continue to be a hangover.
  • In past RBI imposed about 10 cr penalties for violations in share allotment and imposed some restrictions on bank.
  • RBI has stated to review branch opening embargo post listing. 
  • The CEO who had joined TMB for a period of 3 years initially in 2017 and later agreed for a 3 year extension is departing.
  • Otherwise Banks performance and base looks good and offer is at reasonable valuations. I would apply on Day 3 only if there is good QIB response

Tamilnad Mercantile Bank IPO: Apply or Not

Risk  :  Moderate to Low

Expected Reward   : Low Profit  to Low Loss

Listing Gains  :   Possible but low nos.  Current GMP Rs. 5-10 or Nil

Hold for Medium/ Long Term:  Performance good but Legal overhang

Subscription  :  Expected to be Moderate

I may apply in this IPO on Day 3 provided there is good response from QIBs.

Above are my views only. Please do your own diligence.

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.

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