EQUITAS SMALL FINANCE BANK IPO
|
BASIC DETAILS ABOUT IPO (20-22 October 2020) |
|
|
Price
Band |
32-33 |
|
Bid
Lot |
450 |
|
Fresh
Issue AT Upper Band shares cr |
8.49cr |
|
Fresh
Issue amount- cr |
280.0 |
|
OFS
(Amount)- AT Upper Band |
237.6 |
|
OFS
(Shares)- Cr |
7.2 |
|
Total
issue amount- AT Upper Band |
517.6 |
|
Post
issue Implied Market Cap Cr |
3756 |
|
Post
issue (Shares) Cr |
113.825 |
|
Book Running Lead Manager: JM Financial, Edelweiss, IIFL Securities and KFintech(Registrar) |
|
|
BASIC
FINANCIALS (P&L) |
|||
|
(Amount in cr) |
FY20 |
FY19 |
FY18 |
|
Net Interest Income |
1495.2 |
1151.7 |
860.6 |
|
Growth |
29.8% |
33.8% |
- |
|
Net Interest Margin |
9.1% |
8.6% |
9.0% |
|
PAT (Inc- Other Op. Income) |
243.6 |
210.6 |
31.8 |
|
Margin |
8.3% |
8.8% |
1.8% |
|
PAT (Ex- Other Op. Income) |
47.6 |
26.6 |
-126.4 |
|
Margin |
1.6% |
1.1% |
-7.1% |
|
Operating expense as % of Revenue |
40.3% |
42.1% |
49.7% |
|
Provision for NPA/Standard Assets % revenue |
5.0% |
4.1% |
9.9% |
|
Other Income as % of Revenue |
9.6% |
11.8% |
13.6% |
|
Revenue Bifucation |
|||
|
(in cr)- Revenue from |
FY20 |
FY19 |
FY18 |
|
Interest on Advances |
2420 |
1824 |
1331 |
|
% of Total Revenue |
91.5% |
86.3% |
86.9% |
|
Interest from Investment |
158 |
258 |
181 |
|
% of Total Revenue |
6.0% |
12.2% |
11.8% |
|
Interest on balance with RBI |
68 |
30 |
19 |
|
% of Total Revenue |
2.6% |
1.4% |
1.3% |
|
Other Income Bifurcation |
|||
|
Miscellaneous income |
258 |
261 |
244 |
|
% of Total Other Income |
91.5% |
92.3% |
100.0% |
|
BASIC
FINANCIALS (Balance sheet & Cash Flows) |
|||
|
(Amount in cr) |
FY20 |
FY19 |
FY18 |
|
Advances |
13747 |
11594 |
7706 |
|
% of Total assets |
71.2% |
73.6% |
57.9% |
|
Investments |
2343 |
2344 |
3857 |
|
% of Total Assets |
12.0% |
15.0% |
29.0% |
|
Balance with Bank, Money at call and short Notice |
2156 |
858 |
825 |
|
% of Total Assets |
11.2% |
5.4% |
6.2% |
|
Deposits |
10788 |
9007 |
5604 |
|
% of Total Assets |
55.9% |
57.1% |
42.1% |
|
Borrowing |
5135 |
3973 |
5177 |
|
% of Total Assets |
26.6% |
25.2% |
38.9% |
|
Advances/Deposits |
1.27 |
1.29 |
1.38 |
----------------------------------------------------------------------------------------------------------------------------------------------------------------
PEER COMPARISION
|
Name |
PEER COMPARISION |
||||||||
|
Company |
PE TTM |
RONW |
PB |
NNPA |
Advance Growth 31.03.18 To 31.03.20 |
Deposits Growth 31.03.18 To 31.03.20 |
Current Moratorium Book |
CASA Ratio |
Capital Adequacy |
|
Equitas Small Finance Bank |
14.1 |
8.9% |
1.3 |
1.48% |
78% |
93% |
36% |
19.9% |
22.0% |
|
AU Small Finance Bank Ltd |
32.9 |
15.5% |
5.3 |
0.6% |
103% |
230% |
11% |
16.0% |
21.7% |
|
Ujjivan Small Finance Bank |
15.0 |
11.7% |
1.8 |
0.18% |
91% |
185% |
47% |
14.0% |
28.7% |
|
Credit Access Gramin |
32.5 |
12.4% |
3.5 |
BASED ON PEERS,
STOCK VALUATION IS NOT CHEAP. |
|||||
|
SpandanaSphoorty |
10.5 |
13.4% |
1.4 |
||||||
MANAGEMENT/Shareholding
NOTE:
· RBI granted license to promoter EHI (Equitas Holding Limited) in June 2016 to establish Small Finance bank, According to the SFB Licensing guidelines companies equity shares were required to be mandatorily listed till 4 Sep 2019 which company could not do and RBI later granted extension of timeline for listing and hence now IPO.
· Pre Issue Promoter holding was 95.49% and Post issue Promoter holding will be 82.05%
· Company has previously approached RBI to exempt them from dilution requirement if EHI merger with the company but RBI stated that the proposal will be examined after the expiry of lock-in period on 4th September 2021.
· Also promoter is required to reduce its shareholding to 40% on or prior to 4th September 2021.
Equitas Small Finance Bank (“ESFB”) was originally incorporated as ‘V.A.P. Finance Private Limited’ on June 21, 1993. The Bank Promoter, Equitas Holdings Limited (“EHL”) was granted the RBI Final Approval on June 30, 2016, to establish an SFB. Subsequently, the Bank was converted in to an SFB and they commenced operations on September 5, 2016 as an SFB.
VasudevanPathangiNarasimhan(
MD and CEO)
· He holds Bachelor’s degree in science and is a qualified Company secretary
· He has worked for about two decades in Cholamandalam Investment and Finance Company Limited where he joined as MT and resigned as Vice president and head of vehicle finance
ArunRamanathan( Part-time
Chairman and Non-Executive Independent Director )
· Prior to his becoming a Director of the Bank, he has more than 34 years of service in the Indian Administrative Service.
· He has served as a director on the boards of several companies including State Bank of India, IDBI Bank Ltd, ICICI Bank, IDFC, ONGC etc to name some.
· He was a member of the Life Insurance Corporation of India.
· He has served as chairman of the audit committees of Oil and Natural Gas Corporation Ltd and Shipping Corporation of India Ltd.
BUSINESS
As SFB i.e. Small Finance bank name suggests , company is into micro financing , Small business loan, vehicle finance all of small ticket size the segment which big banks could not cater for various reasons as the customers which the company caters could not meet the check list for Big banks.
As on 30 June 2020 Gross Advance Bifurcations was
· 33% small business loan (Ticket size 50k to 20 Lac)
· 4% housing finance loan (Ticket size 3Lac to 12.5 lac)
· 4.5% Agricultural loan
· 23.2% Micro Finance loan (Ticket size 5k to 35K)
· 24.3% Vehicle finance loan (Ticket size 2Lac to 5Lac)
· 11% others
Financials:
·
Company is into the segment
which has grown at a tremendous pace and outlook of the Industry till FY2022P
is a CAGR growth of 25% which could be visible on the company’s growth of
Advances from FY18 to FY20 by 78% which is high but still less than the other 2
major players AU small Finance banks
(103%) &Ujjivan Small Finance Bank (91%) . Top 3 accounts for 64% of
Total AUM in FY19 which was 53% in FY16, which shows big are becoming bigger.
·
Growth clocked by the company
was not with compromising the margins as during the Period from FY18 to FY20
NIM have remained stable (Table above)
reaching to 9.1% for FY20, However reduced to 8.6% in Q1FY21 and expected to be
under pressure for FY21 due to Covid19.
·
Also NII also grew from 860cr
in FY18 to 1495cr in FY20 so in short growth has not come compromising with
margins which shows the opportunities available in Industry.
·
Also GNPA ratio have remain
more or less stable which increased somewhat in FY20 but again came in
companies historical range as on 30 June 2020 similar is the case with Net NPA
to Net Advance.
|
|
30 June 2020 |
31 March 2020 |
31 March 2019 |
31 March 2020 |
|
GNPA Ratio |
2.68% |
2.72% |
2.53% |
2.68% |
|
Net NPA to
Net Advance |
1.48% |
1.66% |
1.44% |
1.46% |
·
What shows strength of company
efficency is just not the Rising Advance or deposit per employee but the rising
difference between Advance and Deposit per employee which reduced for Q1FY21
due to Covid.
|
Rs in Mn |
30 June 2020 |
31 March 2020 |
31 March 2019 |
31 March 2020 |
|
Advance per
Employee |
9.83 |
9.54 |
8.01 |
5.88 |
|
Deposit per
Employee |
7.44 |
6.70 |
6.17 |
4.15 |
|
Difference
per Employee |
2.39 |
2.84 |
1.84 |
1.78 |
·
Spread which is What return you
earn on Advance minus cost of interest of Funds seems reduced somewhat from
FY18 to FY20 but still Pat margin improved mainly due to reduced operating
expense as % of revenue and reduced provisioning as % of Total revenue.
Operating expenses reduced due to subdued growth in payment to and provision of
employees which accounts for more than 50% of Operating expenses.
|
Rs in Mn |
31 March 2020 |
31 March 2019 |
31 March 2018 |
|
Spread |
10.9% |
11.0% |
12.1% |
|
Pat Margin |
8.3% |
8.8% |
1.8% |
|
Operating Expense as % of Revenue |
40.3% |
42.1% |
49.7% |
|
Payment to and provision for employee as % of Total Revenue |
24.2% |
23.0% |
29.1% |
|
Provision for NPA/Standard Assets % revenue |
5.0% |
4.1% |
9.9% |
·
If other Operating income is
removed PAT margin get reduced considerably which could be seen in above table
but other Operating income is common in the industry company operates while
otherOperating income as % of revenue is
lowest for Equitas small finance bank. Other Operating Income for Equitas Small
Finance bankinclude income from PSLC fee income on account of sale of PSL
certificates which is around 90% of Other income.
·
PSL Certificates = Priority
Sector Lending Certificates are negotiable certificates issued against priority
sector loans of banks and thus helping buyers to meet minimum priority sector
lending.
|
Company |
Other Operating Income as % of Revenue for FY 20 |
|
Equitas Small Finance Bank |
9.6% |
|
Ujjivan Small Finance Bank |
11.6% |
|
AU Small Finance Bank |
16.4% |
·
Company Advances portfolio has
been diversified with more focus on small business loans and reducing Micro
Finance.
|
Particulars |
31 March 2020 |
31 March 2019 |
31 March 2018 |
|
Small Business loan |
32.5% |
31.38% |
26.62% |
|
Housing Finance |
3.93% |
3.22% |
3.41% |
|
Agriculture loans |
4.43% |
4.51% |
3.61% |
|
Micro Finance |
23.53% |
26.23% |
28.44% |
|
Vehicle Loan |
24.47% |
25.22% |
28.20% |
|
Other |
11.14% |
9.44% |
9.72% |
PRO’s
·
Company operated in the segment of Small Finance Banking Industry
which is growing at significant pace and also is expected to grow at a CAGR of
25% till FY22.
·
Company Advances grew by 78% while Deposits grew by 93% from FY18 to
FY20, while NIM also improved and NII grew by 74% thus significant growth have
not come by compromising with margins.
·
Company has been increasing its efficiency which could be seen by
improving difference in (Advance- deposit) per employee from 1.78mn in FY2018
to 2.84mn in FY2020, although reduced for Q1FY21 due to covid.
·
Companies Advances portfolio is well diversified and spread although
reduced marginally but still stands at 10.9% for FY20.
·
Company had 16% market share in terms of AUM in FY19.
·
Companies (19.9%) CASA ratio is highest when compared to AU small
Finance bank(16.0%) and Ujjivan Small Finance Bank (14%).
·
Company has good promoters and experienced management.
CON’s
·
When compared to Peers , Company is not cheap with Industry PE at
16.2 while company’s PE TTM is at 14.0 also valued at PB of 1.3 but growth in
Advances and Deposits was also lower than its immediate peers like AU small
Finance banks &Ujjivan Small Finance and also has lowest RONW , So not much
steam seems to left.
·
Company’s 36% of Book is still under moratorium which could lead to
rise in NPA in coming quarters although
for Ujjivan it is 47%
·
Promoter is required to reduce its shareholding to 40% on or prior
to 4th September 2021, although Company has previously approached
RBI to exempt them from dilution requirement if Equitas Holding Company merger
with the company but RBI stated that the proposal will be examined after the
expiry of lock-in period on 4th September 2021. So if proposal not
accepted by RBI or likely to have a overhung to reduce promoter holding from
82% to 40%.
·
As high as 54.31% of Total Advances are towards the state Tamil Nadu
, thus heavy dependence on single state can be a possible risk.
Comments
Post a Comment