Akash Jha
Investor interest in the Utkarsh Small Finance Bank IPO was high, and the offer was subscribed 18.78 times by AM on the last day of bidding. There were bids for 226 billion equity shares, but the IPO was only for 12.05 billion.
Employees have subscribed for their portion of the offer at a rate of 10.29%, while retail investors have purchased 41.82 times their allotment.
Twenty lakh shares, or one percent of the total size, have been set aside by the Varanasi-based small finance bank for its workers in the IPO, with the remaining 75 percent earmarked for qualified institutional purchasers and 15 percent for high net worth people.
Qualified institutional purchasers also demonstrated strong interest in the IPO, with bookings 3.90 times the reserved portion at a price range of Rs 23-25 per share. The percentage booked by non-institutional investors (high net worth individuals) was 33.80 times the restricted portion.
On July 12, Utkarsh Small Finance Bank opened its first public issue, which consisted entirely of a new issuance, with the goal of raising Rs 500 crore. All of the money, minus the cost of the offering, will be put towards increasing its Tier – 1 capital to ensure it can meet any future needs for funding.
The issue has been approved by the majority of brokerages since it is priced lower than similarly listed peers. Their opinion is supported by a number of factors, including a positive financial performance, an increase in the quality of their assets, and a decrease in their exposure to the unsecured micro-banking category.
Nirmal Bang remarked, “Utkarsh is advantageously situated with presence in low ticket segments having strong industry tailwinds.”
Utkarsh has also de-risked its business model by decreasing its exposure to the unsecured micro banking segment from 82% in FY21 to 66% in FY23. This is a pattern that we anticipate will hold. Utkarsh has surpassed its competitors in loan growth, return ratios, and asset quality over the fiscal years 21–23, according to the brokerage.
Utkarsh has 830 branches in 26 Indian states and Union Territories with a loan portfolio of Rs 13,957 crore as of the end of FY23. The remaining 34 percent of loans are made up of mortgages, vehicle loans, gold loans, LAPs (loans against property), unsecured personal loans, wholesale loans, and other types.
In addition, the company counted 13 business correspondents (BC) and 321 DSAs (direct sales agents).
Its peers, including Ujjivan Small Finance Bank, Equitas Small Finance Bank, CreditAccess Grameen, and Fusion Microfinance, are valued at 2.0x, 2.7x, 3.9x, and 2.6x, respectively, while its P/B valuation is at a considerable discount at 1.1x FY23 post-issue BVPS. We anticipate growth and robust profitability to return to the sector and to Utkarsh as a whole now that the microfinance industry has emerged from a severe crisis over 2020-22. We highly suggest you subscribe to this issue,” Nirmal Bang remarked.
Also read: Utkarsh Small Finance reports an oversubscription due to optimistic growth projections.
For the long haul, Reliance Securities suggests subscribing to this issue because Utkarsh Small Finance Bank is always working to enhance its business through a better understanding of consumer trends and the creation of specialised products for its various clientele.
It plans to expand by supplying more products to a wider range of customers and expanding into new markets with the use of advanced tools for processing and analysing data. The brokerage noted that growth in profitability has been high due to the increase in NIMS and the falling trend in NPA over the last three years.
For the fiscal year ending in March FY23, the small finance bank reported a profit of Rs 404.5 crore, a tremendous increase of 558 percent from the previous year, thanks to a decline in provisions and contingencies and robust net interest income. The net interest margin increased to 9.57 percent from 8.75 percent, leading to a 44 percent year-over-year increase in net interest income to Rs 1,529 crore in FY23.
Gross non-performing assets (NPA) as a proportion of gross advances fell to 3.23 percent in FY23 from 6.1 percent in FY22, and net NPA similarly fell to 0.39 percent from 2.31 percent during the same time period, indicating an improvement in asset quality.
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