Capital Small Finance Bank Limited was commenced operations as India's first small finance bank in 2016 pursuant to RBI's approval dated March 4, 2016. They offer a range of banking products on the asset and liability side, in all the states they operate in, i.e., Punjab, Haryana, Delhi, Rajasthan, Himachal Pradesh and Union Territory of Chandigarh. As of September 30, 2023, they were present in five States and one Union Territory with 173 branches and 175 ATMs with 76.30% of the branches located in rural and semi-urban areas covering 24 districts and 75.75% of the total customers (both credit and deposit). They plan to continue to expand the business. The asset products primarily include agriculture loans (Rs 2,266.93/- Cr), MSME and trading loans (Rs 1,153.36/- Cr) (working capital, machinery loans etc.) and mortgages (Rs 1,528.81/- Cr) (housing loans and loans against property). Company targets to be the primary banker to the customers and endeavour to achieve this objective through a mix of (i) suite of the product offerings; (ii) customer service orientation; (iii) deeply entrenched physical branch network; and (iv) evolving digital channels of service delivery. They generate fee income from products and services such as forex and money transfer, outward remittances, safe-deposit lockers, distribution of life insurance and general insurance products, 3-in-1 demat and trading account and other ancillary services. As on September 30, 2023 and March 31, 2023 respectively, 99.85% and 99.82% of the loan book was secured with 84.26% and 85.16% of the loans secured by immovable properties. Further, they have strategically focused on building a granular loan book. Since Fiscal 2021, the loans with ticket size of up to Rs 2.5 million have increased from 62.88% of the total loan book to 67.80% in Fiscal 2023 and stood at 67.44% as on September 30, 2023. For the periods FY21, FY22, FY23 and upto Q2 FY24, the gross NPA of Bank was 2.08%, 2.50%, 2.77% and 2.73% respectively and the net NPA was 1.13%, 1.36%, 1.36% and 1.36% respectively. So asset quality is average. The cost of funds was 5.11% and 5.68% for Fiscal 2023 and for the period ended September 30, 2023, respectively. They are the lowest interest paying SFB where-in the rate of interest for retail term deposits inches up to only 7.60% whereas others offer a higher rate across some of the tenors in retail deposits. They offer saving bank deposit rate of 3.50% irrespective of the amount of saving deposit as compared to other banks which have different saving bank deposit rates for various buckets. Further, they have the lowest cost of deposit amongst comparable SFBs. As of March 31, 2023, they had lowest cost of deposit (4.94%) followed by AU SFB (5.48%) and Ujjivan SFB (6.00%). They have leveraged the technological capabilities to increase the scale of digital interactions and digital transactions with the customers. The digital transition has helped to effect a wider outreach to the customers which resulted in Rs 10.39 million digital transactions during Fiscal 2023, increasing from Rs 2.87 million in Fiscal 2021. Further, the digital transactions share in non-cash transactions increased from 54.48% in Fiscal 2021 to 81.32% in Fiscal 2023 and was approximately 84.03% during the six months ended September 30, 2023. As per financial performance, Capital Small Finance Bank Limited has posted total income / net profits of Rs 557.27 Cr / Rs 40.78 Cr (FY21), Rs 632.40 Cr / Rs 62.57 Cr (FY22), Rs 725.48 Cr / Rs 93.60 Cr (FY23) and Rs 415.22 Cr / Rs 54.39 Cr (Q2 FY24). So as per previous financials data, company has shown good growth. Company has an average EPS of Rs 21.68 and average RoNW of 13.22% for last three fiscals. Issue is priced at a P/BV of 2.32 as per NAV of 201.34 as on 30.09.23. If we attribute latest earnings of FY22, FY23, TTM and annualised FY24 on fully diluted equity post issue, then asking price is at a P/E of around 33.69, 22.52, 19.72 and 19.38 respectively, which looks aggressively priced. As per RHP, comparison between listed peers is shown in above table. On BRLM's front, three lead managers are associated with this IPO, and have handled around 54 IPOs in last three fiscals. Nuvama Wealth Management Limited : This is 20th Main Board IPO from this BRLM. From last 10 Main Board IPOs, two opened below issue price and remaining opened above issue price on the day of listing. As of now, from last 10 Main Board IPOs, two are trading below issue price and remaining are trading above issue price.( As on 02.02.2024 ) DAM Capital Advisors Limited : This is 20th Main Board IPO from this BRLM. From last 10 Main Board IPOs, four opened below issue price and remaining opened above issue price on the day of listing. As of now, from last 10 Main Board IPOs, three are trading below issue price and remaining are trading above issue price. ( As on 02.02.2024 ) Equirus Capital Private Limited : This is 17th Main Board IPO from this BRLM. From last 10 Main Board IPOs, two opened below issue price and remaining opened above or at par issue price on the day of listing. As of now, from last 10 Main Board IPOs, two are trading below issue price and remaining are trading above issue price.( As on 02.02.2024 ) As per financials, Capital Small Finance Bank Limited has shown good growth, RoNW is 15.33% and P/E is respectively 33.69, 22.52, 19.72 and 19.38 as per FY22, FY23, TTM and annualised FY24 earnings. So, issue looks aggressively priced and asset quality is also average. Company is a small finance bank. There is good growth opportunity and performance of BRLM is good. So, we give NEUTRAL rating for this IPO. Readers must consult a qualified financial advisor prior to making any actual investment decisions.
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