IPO Alert: Equitas Small Finance Bank Opens Today

IPO Alert: Equitas Small Finance Bank Opens Today

Last updated: 20 Oct, 2020 | 01:49 pm

IPO Alert: Equitas Small Finance Bank Opens Today

About Equitas Small Finance Bank

  • Equitas Small Finance Bank Ltd (ESFBL) is the largest small finance bank in India considering banking outlets and the 2nd largest small finance bank considering assets under management and total deposits. The bank was incorporated in 1993 and is a subsidiary of Equitas Holdings Ltd.
  • The Bank is engaged in retail banking business with focus on micro-finance, commercial vehicle finance, home finance, loan against-property, corporate finance, and providing financing solutions for individuals and micro and small enterprises (MSEs) that are underserved by formal financing channels while providing a comprehensive banking and digital platform for all.

Financial Performance

The table below sets forth certain performance metrics of the the company for the periods as indicated:

  • “Backed with explosive growth in advances, Net profit of Equitas SFB  has risen approximately 7.5x from ₹32 crore in FY2018 to ₹244 crore in FY20.”
  • As can be seen, disbursements sharply plunged in June 2020 when compared to June 2019 because of Covid19 led slowdown.
  • Asset quality has remained steady with GNPA ratio at 2.7% and NNPA ratio at 1.5% as of June 2020.
  • Continued focus on the needs of the market has led to a 39.1% CAGR in AUM in FY18-20 to 15,367 ₹crore.

Product Mix

  • Small Finance Banks(SFBs)  have a high share of microfinance in their portfolio as eight out of 10 SFBs were MFIs initially. 
  • However, the share of microfinance in their portfolio has been decreasing due to increased focus on other segments to drive expansion of the customer base and focus on higher ticket size loans.
  • “Equitas has successfully diversified its loan portfolio and significantly reduced its dependence on microfinance business compared to other MFI players who have converted to SFB.”

Moratorium Numbers

  • While the proportion of books under moratorium has come down sharply from 51.17% in June 2020 to 36.24% in August 2020, concerns still remain on the quality and repayment of these loans.
  • Collection efficiency - calculated as the aggregate EMI amounts collected in the relevant period divided by the total amount due for collection in such period has also recovered to 83% in August from the April low of mere 10%. In March 2020 this was 78%, while in June, July the number was 49.38% and 60% respectively.

Issue Details 

  • Issue open:  20 Oct - 22 Oct 2020 
  • Price band ₹32-₹33
  • Issue Size: ₹510 - ₹518 Cr.
  • Reservation for QIB - Max 50% , NII At least 15% , Retail At least 35%
  • Bid Size - Multiples of 450 shares

INDmoney Recommendation: Subscribe(Apply)

  • SFBs have grown at a CAGR of 26% from Fiscal 2016 to Fiscal 2019, in terms of assets under management (AUM), it is expected that the loan portfolio of SFBs will grow at a CAGR of approximately 25% in the coming years. 
  • The issue is attractively valued at 1.2x Price to Book value with listed peers such as Ujjivan Small Finance Bank and AU Small Finance Bank trading at 1.8 and 5.44 times their book values.
  • The most significant risk is the continuing impact of the pandemic which may affect the business negatively. Retail, MSME’s and MFI’s have been the ones which have most affected. Also, regional dependencies and unfulfilled regulatory requirements, promoter reputation risk are few areas of concerns. 
  • Also, it is expected to list on November 2, a day before the US elections, when the markets may be highly volatile. Thus, listing gains, if any, are likely to depend on the overall market sentiment.
  • Given the high growth potential of this industry with opportunities in the rural segment, a speedy economic recovery would be beneficial for SFBs, with its diverse portfolio, market understanding and efficient network, Equitas SFB can be a good bet from the long term perspective. However, it may face some pressure in the short term due to near term headwinds.