ESAF Small Finance Bank Limited is a small finance bank with a focus on unbanked and under-banked customer segments, especially in rural and semi-urban centres. As at June 30, 2023, the gross advances to the customers in rural and semi-urban centres (combined) accounted for 62.97% of the gross advances and 71.71% of the banking outlets were located in rural and semi-urban centres (combined). The advances comprise: (a) MicroLoans, which comprises Micro-finance Loans and Other Micro Loans; (b) retail loans, which includes gold loans, mortgages, personal loans, and vehicle loans; (c) MSME loans; (d) loans to financial institutions; and (e) agricultural loans. The AUM grew from Rs 84,259.30 million to Rs 163,312.65 million as at March 31, 2021 and 2023, respectively, registering a CAGR of 39.22%, and increased to Rs 172,039.68 million as at June 30, 2023, an increase of 5.34%. The deposits grew from Rs 89,994.26 million to Rs 146,656.25 million as at March 31, 2021 and 2023, respectively, registering a CAGR of 27.66%, and increased to Rs 156,558.54 million as at June 30. 2023, an increase of 6.75%. The services includes safety deposit lockers, foreign currency exchange, giving customers access to the Bharat Bill Payment System, money transfer services and Aadhaar Seva Kendra services. They also distribute third-party life and general insurance policies and Government pension products. Company has a network of 700 banking outlets (including 59 business correspondent-operated banking outlets), 767 customer service centres (which are operated by the business correspondents), 22 business correspondents, 2,116 banking agents, 525 business facilitators and 559 ATMs spread across 21 states and two union territories, serving 7.15 million customers as at June 30, 2023. While the operations are spread out across India, the business is concentrated in South India, particularly in the states of Kerala and Tamil Nadu. As at June 30, 2023, 62.43% of the banking outlets are located in South India (including 43.43% in Kerala and 13.86% in Tamil Nadu), 73.09% of the gross advances are from customers in South India (including 43.45% from Kerala and 22.14% from Tamil Nadu) and 86.90% of the deposits are from banking outlets in South India (including 80.04% from Kerala and 3.36% from Tamil Nadu). Company has a dedicated in-house innovation team, consisting of 47 members, as on June 30, 2023, that drives end-to-end ideation and execution of new products launches. This team collaborates with large ingredient suppliers to co-create formulations. For manufacturing, they have set up an asset-light contract manufacturing model. As of June 30, 2023, the brand agnostic, integrated supply chain comprises of 13 warehouses spread across seven districts in Bharat. Of these 13 warehouses, three warehouses are directly managed by them while management of the remaining warehouses is outsourced to third-party partners. The main warehouse, which is based in Pataudi, Haryana, acts as a central hub and distributes products to the regional warehouses in other parts of the country. As per financial performance, ESAF Small Finance Bank Limited has posted total income / net profits of Rs 1,768.42 Cr / Rs 105.39 Cr (FY21), Rs. 2,147.50 Cr / Rs 54.73 (FY22), Rs 3,141.57 Cr / Rs 302.33 Cr (FY23) and Rs 991.77 Cr / Rs 129.96 Cr (Q1 FY24). So as per previous financials data, company has shown good growth. Company has an average EPS of Rs 4.17 and average RoNW of 11.44% for last three fiscals. Issue is priced at a P/BV of 1.47 as per NAV of 40.92 as on 30.06.23. Also Net NPA for FY21, FY22, FY23 and Q1 FY24 is respectively 3.88%, 3.92%, 1.13% and 0.81% respectively. 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 56.41, 10.21, 9.46 and 5.94 respectively, which looks fairly priced. As per RHP, peers comparison is shown in above table. On BRLM's front, three lead managers are associated with this IPO, and have handled around 72 IPOs in last three fiscals. ICICI Securities Limited : This is 42th IPO from this BRLM. From last 10 IPOs, two opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, all are trading above issue price or at par. (As on 31.10.2023) DAM Capital Advisors Limited : This is 17th IPO from this BRLM. From last 10 IPOs, four opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, three are trading above issue price or at par. (As on 31.10.2023) Nuvama Wealth Management Limited : This is 16th IPO from this BRLM. From last 10 IPOs, two opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, three are trading below issue price and remaining are trading above issue price or at par. (As on 31.10.2023) As per financials, ESAF Small Finance Bank Limited has shown good growth, RoNW is 17.69% and P/E is respectively 56.41, 10.21, 9.46 and 5.94 as per FY22, FY23, TTM and annualised FY24 earnings. So, issue looks fairly priced. Company is a small finance bank operating in rural and semi-urban centres, mostly in South India. Performance of BRLM is good. So, we give SUBSCRIBE rating for this IPO. Readers must consult a qualified financial advisor prior to making any actual investment decisions.
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