Suryoday Small Finance Bank Limited

Incorporated in 2008, Suryoday Small Finance bank is the the leading SFBs 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. Over a decade, The company have been serving for customers in the unbanked and underbanked segments in India and promoting financial inclusion. Pursuant to receipt of the RBI Final Approval, company started operations as an SFB on January 23, 2017. The company were included in the second schedule to the RBI Act, as a scheduled bank pursuant to a notification dated July 24, 2017, issued by the RBI and published in the gazette of India dated September 2, 2017. Prior to commencement of operations as an SFB, company operated as an NBFC – MFI carrying out micro finance operations and operated the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active women belonging to weaker sections. The company commenced company's micro finance operations in 2009 and have since expanded company's operations across 13 states and union territories, as of December 31, 2020. As of December 31, 2020, company's customer base was 1.44 million and company's employee base comprised 4,770 employees and company operated 554 Banking Outlets including 153 Unbanked Rural Centres (“URCs”). The company have set up 661 customer service points (“CSPs”) as additional service or touch points during April 1, 2020 and January 31, 2021 and intend to continue to expand company's reach through the CSP model. Company's delivery platform also includes partnering with business correspondents (“BCs”) for sourcing both asset and liability business and have expanded company's network and presence through their reach to promote financial inclusion. The company have arrangements with various payment banks in India and have been able to leverage company's relationship with such payment banks to grow company's deposit base. Company's distribution network also comprises company's ATMs, phone banking, mobile banking, tablet banking, unified payment interface, CSPs, and internet banking services. As per financial performance, SSFB has posted total income/net profits of Rs. 324.92 cr. / Rs. 11.49 cr. (FY18), Rs. 597.02 cr. / Rs. 90.39 cr. (FY19) and  Rs. 854.13 cr. / Rs. 111.19 cr. in FY20. For upto Q3 of FY21, it has reported net profit of Rs. 54.86 cr. on total revenue of Rs. 689.27 cr. So company has posted consistent high growth over last couple of years. Company has posted an average EPS of Rs. 11.45 and average RoNW of 8.99% for last three fiscals. Issue is priced at a P/BV of 2.28 as per NAV of 133.54 on 31.12.20. As per FY20 earnings, P/E is around 29. If we attribute latest annualised earnings of FY21 on fully diluted equity post issue, then asking price is at a P/E of around 44. So issue looks fully priced. As per RHP, comparison between the listed peers are shown in above table.  On BRLM's front, four BRLMs are associated with this IPO, and have handled around 26 IPO in last three fiscals. From last 10 IPOs, 3 are opened below issue price and remaining are opened above issue on the day of listing. As of now, 1 is trading below issue price and remaining are trading above issue price. ( As on 13.02.2021) As per financials, results of Suryoday are good, RoNW is 8.99% for last three fiscals and as per FY20 earnings issue is priced at P/E of 29.11 and for annualised FY21 earnings P/E is 44.25 on fully diluted equity post issue. Company is trading at P/B of 2.28, so IPO price looks fully priced. Small Finance banking sector is high growth sector with high competition and company may also continue to show high growth, but next 6-8 months may be very challenging due to pandemic situation. Performance of BRLM is good, So we give NEUTRAL rating to this IPO.

• 1 BASKARBABU RAMCHANDRAN
• 2 P. SURENDRA PAI
• 3 P.S JAGDISH
• 4 G.V. ALANKARA