Started in 1993, Madras based Equitas Small Finance Bank Ltd (ESFBL) in Fiscal 2019 was the largest small finance bank in India considering banking outlets and the 2nd largest small finance bank considering assets under management and total deposits. Unlike other microfinance companies, it has a diversified loan portfolio and less dependence on microfinance business. With the main focus on financially unserved and underserved customers, the bank offers a wide range of banking products and services. The company provides microfinance loans promoting financial inclusion, housing finance, vehicle finance, and MSE finance. Equitas Small Fin Bank offers financial products according to customers' income profile, type of security available and nature of business. Apart from this, the bank also provides current accounts, salary accounts, savings accounts, other deposit accounts, ATM-cum-debit cards, mutual fund products, third party insurance, and issuance of FASTags. ESFBL follows credit assessment procedures through a risk management framework which is analyzed by its Risk Management Committee. As on 30th Sep 2019, it has the largest distribution channel among Small Finance Banks (SFBs) including 853 Banking Outlets and 322 ATMs in India across 15 states and union territories. As of September 30, 2019, the deposit base of Rs 100,250.86 million represented 70.11% of the overall funding profile. The retail deposits represented 34.21% of the total deposits as of March 31, 2017, 24.30% of the total deposits as of March 31, 2019 and was 33.53% of the total deposits as of September 30, 2019. The CASA ratio has improved from 17.25% as of March 31, 2017 to 25.25% as of March 31, 2019 and was 22.43% as of September 30, 2019. As a result, the cost of funds were 8.36% and 8.13% in Fiscal 2018 and 2019, respectively, and was 8.11% (annualized)/ 4.06% (unannualized) in the six months ended September 30, 2019. As per financial performance, SBI Cards has posted total income/net profits of Rs. 3471.04 cr. / Rs. 371.42 cr. (FY17), Rs. 5370.19 cr. / Rs. 599.34 cr. (FY18) and Rs. 7286.83 cr. / Rs. 859.59 cr. For upto Q3 of FY20, company has posted profit of Rs 1161.21 Cr on total revenue of Rs 7240.16 Cr. So company has shown exceptional performance. SBI Cards has posted an average EPS of Rs. 7.97 and average RoNW of 24.67% for last three fiscals. Issue is priced at a P/BV of 14.6 as per NAV of 51.73 on 31.12.19. As per FY19 earnings, P/E is around 82. If we attribute latest earnings of FY20 on fully diluted equity post issue, then asking price is at a P/E of around 46. As per RHP, there is no listed peer available in market. On BRLM's front, for Axis Capital Limited, DSP Merrill Lynch Limited, Kotak Mahindra Capital Company Limited, HSBC Securities and Capital Markets (India) Private Limited, Nomura Financial Advisory and Securities (India) Private Limited and SBI Capital Markets Limited, have handled around 74 IPOs in last three fiscals, and from last 10 IPOs, 3 opened below issue price and remaining opened above issue price on the day of listing. As of now, from last 10 IPOs, three are trading below issue price and remaining seven above issue price. ( As on 24.02.2020 ) As per financials, results are very good, RoNW is 24% for last three fiscals and issue looks fully priced with respect to current earnings. This industry is growing at around 35.6% rate and it's expected to grow at same rate in upcoming years and being largest player in market SBI is expected to grow above industry average. Performance of BRLMs are good. So we give "RECOMMEND" rating to this IPO for long term investment.
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