Utkarsh Small Finance Bank Limited is an SFB in India and recorded the third fastest Gross Loan Portfolio growth between Fiscal 2019 and Fiscal 2023 among SFBs with Gross Loan Portfolio of more than Rs 60 billion. Company's Promoter, Utkarsh CoreInvest Limited, commenced its operations as a NBFC in Fiscal 2010 and was focused on providing microfinance to unserved and underserved segments and in particular in the states of Uttar Pradesh and Bihar. They have the headquarters located in Varanasi, Uttar Pradesh. On October 7, 2015, Utkarsh CoreInvest Limited received the RBI In-Principle Approval to establish an SFB, following which it incorporated Utkarsh Small Finance Bank Limited as a wholly-owned subsidiary on April 30,2016. Utkarsh CoreInvest Limited transferred its business of providing microfinance, as a going concern to the Bank, which commenced its operations from January 23, 2017. They were included in the second schedule to the RBI Act as a scheduled commercial bank pursuant to a notification dated October 4, 2017 issued by the RBI and published in the Gazette of India (Part III - Section 4) dated November 7, 2017. Company's operations are spread across India and are present in 26 States and Union Territories with 830 Banking Outlets and 15,424 employees, as of March 31, 2023. As of March 31, 2023, 27.35% of the Banking Outlets were located in Unbanked Rural Centres ('URCs') as against the regulatory requirement of 25%. The operations are focused in rural and semi-urban areas and as of March 31, 2023, they had 3.59 million customers (both deposit and credit) majorly located in rural and semi-urban areas primarily in the states of Bihar and Uttar Pradesh that, in Fiscal 2022, are among the states with the best asset quality but with low and moderate credit penetration. As of March 31, 2023, these states constituted 30.88% and 25.98% of the total Gross Loan Portfolio (based on location of the Banking Outlet), respectively. As of March 31, 2023, they had tie-ups with 13 BCs to source customers and 321 DSAs to grow the asset portfolio. As of March 31, 2021, 2022 and 2023, the CRAR was 21.88% (Tier I capital of 19.98%), 21.59% (Tier I capital of 18.08%) and 20.64% (Tier I capital of 18.25%), respectively. Bank’s provisioning and write-off policy is more stringent than norms prescribed by the RBI. As of March 31, 2021, 2022 and 2023, the gross NPAs were Rs 3,152.89 million, Rs 6,481.57 million and Rs 4,315.04 million, respectively, and accounted for 3.75%, 6.10% and 3.23% of the Gross Advances, respectively. The net NPAs were Rs 1,088.14 million, Rs 2,357.92 million and Rs 505.12 million, and accounted for 1.33%, 2.31% and 0.39% of the Net Advances, as of March 31, 2021, 2022 and 2023, respectively. As per financial performance, Utkarsh Small Finance Bank Limited has posted total income / net profits of Rs 1,705.84 Cr / Rs 111.82 Cr (FY21) and Rs 2,033.65 Cr / Rs 61.46 (FY22) and Rs 2,804.29 Cr / Rs 404.50 Cr (FY23). So as per last three years data, company has shown good growth. As per RHP document there are procedural lapses and non-compliance issues. Company has posted an average EPS of Rs 2.73 and average RoNW of 20.22% for last three fiscals. Issue is priced at a P/BV of 1.12 as per NAV of 22.33 as on 31.03.23. If we attribute latest earnings of FY22 on fully diluted equity post issue, then asking price is at a P/E of around 44.58 and as per FY23 earnings P/E is around 6.77, which looks attractively priced. As per RHP, peers comparison is shown in above table . On BRLM's front, two lead managers are associated with this IPO, and have handled around 65 IPOs in last three fiscals.ICICI Securities Limited : This is 36th IPO from this BRLM. From last 10 IPOs, 4 opened below issue price and remaining opened above issue price or at par on the day of listing. As of now, from last 10 IPOs, only one is trading below issue price and remaining are trading above issue price or at par. ( As on 12.07.2023 ) Kotak Mahindra Capital Company Limited : This is 31st IPO from this BRLM. From last 10 IPOs, 3 opened below issue price and remaining opened above issue price or at par on the day of listing. As of now, from last 10 IPOs, two are trading below issue price and remaining are trading above issue price or at par. ( As on 12.07.2023 ) As per financials, Utkarsh Small Finance Bank Limited has shown good growth, RoNW is 20.22% and P/E is respectively 44.58 and 6.77 as per FY22 and FY23 earnings, also P/B ratio is 1.12 which looks attractively priced. Company is an SFB ( Small Finance Bank ) in Bharat. This sector has good growth opportunities as Bharat is under penetrated in terms of Banking. Performance of BRLM is good. So, we give SUBSCRIBE rating for this IPO for listing gains as well as for long term. Readers must consult a qualified financial advisor prior to making any actual investment decisions.
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