Suryoday Small Finance Bank IPO analysis!

Suryoday Small Finance Bank IPO analysis!

Last updated: 17 Mar, 2021 | 08:36 am

Suryoday Small Finance Bank IPO analysis!

Suryoday Small Finance Bank is set to raise up to Rs 581 crore via IPO which opened on 17th March, Wednesday. Here are the details:

About Suryoday Small Finance Bank

  • Suryoday Small Finance Bank Ltd was incorporated on November 10, 2008. It is among the leading SFBs (Small Finance Banks) in India in terms of net interest margins, return on assets, yields and deposit growth and had the lowest cost-to-income ratio among SFBs in India in Fiscal 2020.
  • The bank started microfinance operations in 2009 and have since expanded the operations across 13 states and UTs. As of December 31, 2020, the bank had around 1.45 million and the employee base comprised of 4,770 employees and they operated 554 Banking Outlets including 153 Unbanked Rural Centres (“URCs”).
  • The bank is serving customers in the unbanked and underbanked segments in India. 
  • Currently, the bank offers several products including loans to joint liability group customers, commercial vehicle loans, affordable housing loans, micro business loans, and small and medium enterprise loans.
  • Their investors include a mix of development finance institutions such as IFC and DEG, private equity investors such as Gaja Capital India AIF Trust (represented by its trustee, Gaja Trustee Co. Pvt. Ltd.), TVS Entities, ASK Pravi Private Equity Opportunities Fund and Lok Capital Growth Fund and institutional investors including HDFC Holdings Ltd., HDFC Life Insurance Co. Ltd., IDFC FIRST Bank Ltd and Kotak Mahindra Life Insurance Co. Ltd.


  • Suryoday Small Finance Bank operates in a very competitive space. 
  • According to its offer documents, the bank has shown Ujjivan SFB, CreditAccess Grameen, Spandana Sphoorty, Bandhan Bank and AU SFB as its listed peers.
  • The table below shows a comparison between the different Small Finance Banks.
  • Suryoday SFB has reported lower Return Ratios in FY20 as compared to peers.
  • CASA ratio of the bank remained lowest amongst the peers at 13% (Ujjivan at 18% and Equitas at 25%).


  • Suryoday SFB’s gross loan portfolio increased from Rs 1,717.78 cr in FY18 to Rs 3,710.84 cr in FY20, at a CAGR of 47%.
  • Deposits have grown at a CAGR of 95%, from Rs 749.52 cr in FY18 to Rs 2,848.71 cr in FY20. 
  • The Net Interest Income (differential between the rate at which the bank borrows and lends) grew by 44% YoY in FY20 to Rs 490.9 crore. 
  • The gross NPAs have been in the range of 1.8-3.6% in the last three years, while the Net NPAs have been in the range of 0.5%-1.85% in the period. If the bank had classified borrower accounts as NPA after August 31, 2020, the Bank’s gross NPA ratio as on December 31, 2020 would have been 9.28%. Net NPAs would have been 5.38%, on a proforma basis. The asset quality of the bank deteriorated due to high stress in the MFI portfolio (which constitutes more than 70% of loan book).
  • The net profit has also grown by over 11 times from Rs 11 cr in FY18 to 111 cr in FY20.
  • As of December 31, 2020, retail deposits comprised 72.40% of total deposits. Within retail deposits, CASA as a percentage of overall deposits was 13.32%, as of December 31, 2020.
  • While there has been good growth in the last three year period, the company’s business has been impacted due to Covid-19. 
  •  For the last three fiscals, the bank has posted an average RoNW of 9%.
  • About 73% of the bank’s deposits came from Maharashtra and Tamil Nadu alone. This could pose some concentration risks.

INDmoney Recommendation

At the higher end of the price band, Suryoday Small Finance Bank is aggressively priced at a  P/E of around ~29.10 times FY20 EPS (on a post-issue fully diluted basis). Considering annualised 9MFY21 earnings, the P/E ratio comes to around 44.27 against the industry average of 25.15. Suryoday SFB has lower return ratios as compared to its listed peers. 

On the positive front, the bank has posted robust growth in its topline and bottomline over the last three years and is confident of achieving good growth over the next few years.

However, investing in SFBs calls for a higher risk tolerance due to higher asset quality stress, concentration risk, and volatile profitability. Peers with better financial profiles (Equitas, Ujjivan) are available at cheaper valuations.  Considering these factors, we remain ‘Neutral’ on the prospects of the issue.