The last small finance bank to make its debut on the secondary market was Utkarsh Small Finance Bank in July 2023. By listing at a premium of roughly 52%, it generated spectacular returns for its backers. Another small finance bank IPO, ESAF Small Finance Bank IPO, will hit the D-street on Friday, 3 November 2023 as we enter the penultimate month of this year.

A household name in the banking industry of India is ESAF Small Finance Bank. The bank has become well-known for its commitment to helping the underprivileged gain access to banking services. Explore the financials, strengths, weaknesses, issue size, projected listing date, and other facts of the ESAF Small Finance Bank IPO by reading on.

An Overview of ESAF Small Finance Bank

ESAF Small Finance Bank is a microfinance institution in India that caters to the needs of the country’s rural poor who lack access to traditional banking services. Debit cards, credit cards, mobile banking, microloans, MSME loans, retail loans, financial institution loans, and agricultural loans are all part of the bank’s offerings. South India, particularly the states of Tamil Nadu and Kerela, is where the majority of these services are provided.

As of 30 June 2023, ESAF Small Finance Bank has an extensive branch and ATM network consisting of 700 locations. Additionally, the bank has 767 customer care centers, 22 business correspondents, 2116 banking agents, 525 business facilitators, and 559 automated teller machines. More than 7.15 million Indians in 21 states and 2 union territories can take advantage of the service.

Key Strengths of the Company

ESAF Small Finance Bank identified many positives in its Draft Red Herring Prospectus (DRHP) filed with the Securities and Exchange Board of India (SEBI). They are as follows:

• It has a thorough understanding of its target audience, which is India’s unbanked or underbanked populace.
• It has emerged as a key player in the microloan market.
• Banking franchise presence in both rural and semi-urban locations
• The technology-driven business model has boosted expansion and penetration.
• With customer-centric products and a strong support system, it is able to keep the majority of its clients.

Key Risks or Weaknesses Highlighted

ESAF Small Finance Bank has the following risks or vulnerabilities (as mentioned in the DRHP):

• Most of India’s economic activity is located in the southern states of Kerala and Tamil Nadu. The company needs to expand into new areas.
• The Reserve Bank of India (RBI) mandates its compliance. This compromises its capability to operate on its own.
• Non-Performing Asset (NPA) can be a problem. Loss of income owing to unpaid bills from clients.
• Repo rate rises and other policy moves by the RBI carry risks.

Core Financials of the Compan

The financials of a business can be examined for clues as to how successful it will be in the future. Here are the headline numbers for the last three full fiscal years at ESAF Small Finance Bank IPO. Information is as published on the SEBI website in the RHP dated October 28, 2023:

*Amount in Crores

The accompanying table shows that the company has had consistent growth over the past three fiscal years. Income, however, has been highly inconsistent on account of interest rate swings and nonperforming assets. In the coming years, the company will be a major player if it can keep its NPAs under control and expand into new markets.

Details of the IPO

On Friday, November 3, 2023, the public subscription period for shares of ESAF Small Finance Bank will commence, and on Tuesday, November 7, 2023, it will close. There would be a new share issue of Rs. 390.70 cr and a secondary sale of Rs. 72.30 cr in this transaction. Details about the IPO are listed in the table below.

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To conclude

In India, ESAF Small Finance Bank is a household name. But before investing in an IPO, make sure you undertake thorough research and consult a financial expert.

The post ESAF Small Finance Bank IPO: Check Issue Size, Date and Price Band appeared first on Republic Aeon.

Airtel Payments Bank does not fit the profile of a small financing bank, Biswas remarked on August 21. In addition, Biswas mentioned that the company is expanding both its loan process/products and insurance offerings.

Profit for the unlisted Bharti Group company surged by 143% year-on-year, and revenue reached Rs 400 crore, in the first quarter of fiscal year 24. The number of people using Airtel Payments to make purchases every month has risen to 55.4%, while customer deposits have increased to Rs 1,922 crore. Extracted and revised:

Do you have any plans to become a small finance bank?

We have no intention of transitioning into a small financing bank since we do not believe that this business model is suitable for Airtel Payments Bank. Furthermore, we are confident in our ability to create more value and impact if we are restricted to microlending as a payment bank. Our beliefs and actions are consequently shaped by that perspective.

What is your outlook on overall growth for the next financial year?

In the first quarter of FY24, we have seen a very strong rural proposition thanks to our provision of easy access to clients and the establishment of banking facilities in convenient locations. The urban proposal in which we provide a second, secure digital bank account is also on the rise.

As a result, there appears to be considerable forward momentum. Our first quarter with 400 million rupees in sales.

What kind of projects are in the pipeline to keep up this momentum?

We are increasing our banking presence and offering a debit card as part of our rural proposition.

Second, we are releasing enhanced digital interfaces and experiences that will culminate in a whole new digital banking proposal in the fiscal year of 2019–20. Third, we’re extending our lending and insurance processes and offerings to cover more of these categories.

What’s the status of your IPO plan?

The next two to three years are unplanned. It will depend on so many variables, including market timing, market conditions, etc., that I am unable to specify a specific year. Undoubtedly, the bank will eventually go public. The timeline will be difficult to estimate.

Why have payment banks not been able to survive?

The low cost per user and low revenue per user of this approach should be made abundantly evident. The only way to reduce user fees at this moment is to onboard a very large number of people and invest that much time and effort over many years. The approach was effectively put on hold since some payment banks were unwilling to comply. Players that understood the situation well invested that time, and today everyone is making money.

Also Read : India, ASEAN to begin review of FTA in goods, conclude it by 2025

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India is in a favourable position, especially in terms of initial public offers (IPOs), while the rest of the world feels the sting of an impending recession and soaring inflation. Eighty enterprises, including both large corporations and smaller businesses, have been listed on the BSE and NSE thus far in 2023. 

The number of initial public offerings (IPOs) in 2023’s first half increased by 33% compared to the same period in 2022. There are expected to be many more initial public offerings (IPOs) throughout the remainder of 2023, so this trend is likely to continue. You can increase your wealth by taking part in the next IPO market as India Inc. eagerly awaits new offerings.

IPOs to Watch Out For

With a mixture of established giants and promising startups vying for public attention, India’s IPO landscape promises to provide numerous investment opportunities for those seeking to ride the tide of growth and profitability. The following initial public offerings (IPOs) have generated considerable excitement among India Inc. and investors:

• Tata Technologies

The Securities and Exchange Board of India (SEBI) recently gave the green light to the first initial public offering (IPO) from the illustrious Tata Group in nearly two decades. When everything is said and done, the initial public offering (IPO) of Tata Technologies would involve the sale of almost 23.60 percent of the company’s paid-up share capital. Tata Technologies is a technology services provider that specialises in providing digital engineering solutions and product development to manufacturers. 

Market experts speculate that the IPO’s size could be as high as Rs. 4,000 crores, albeit this is still uncertain. Half of the initial public offering (IPO) will go to QIBs, with the remaining 50% split between retail and non-institutional investors (NIIs, or “small investors”). One of 2023’s most anticipated IPOs is Tata Technologies.

• SBFC Finance Limited

SBFC Finance Limited is a non-banking financial company (NBFC) whose first public offering (IPO) has also received a lot of attention from India Inc. and investors. On August 3, 2023, investors will be able to put money into an initial public offering with the goal of raising Rs. 1,200 crores. The last day to purchase shares is August 7, 2023.

There will be a new issuance of shares worth up to Rs. 750 crores and a sale of shares for up to Rs. The wholesale price has been set at 35%, with QIBs receiving 50% and NIIs receiving 15%. The company’s assets under management (AUM) have expanded at a CAGR of 40% from the 2019 fiscal to 2022, making it one of the leading NBFCs in India with a concentration on micro, small, and medium enterprises. 

• Mukka Proteins

Mukka Proteins initially submitted its red herring prospectus draught to SEBI in March 2022. The initial public offering (IPO) of the company consists of a new issue of shares having a face value of Rs. 1. The business intends to invest up to Rs. 10 crores in its partner using the proceeds and use the remaining Rs. 120 crores to cover its working capital needs. 

Qualified institutional investors can purchase up to 50% of the IPO, while retail investors can purchase up to 15%. Retail investors can bid on 35% of the issue. The Marine Products Export Development Authority has recognised the company as a leader in the export of fish proteins from India..

• Fincare Small Finance Bank

Fincare Small Finance Bank is the latest small finance bank to go public. The bank has filed a draught red herring prospectus with the SEBI, indicating that it intends to raise Rs. 625 crores through its initial public offering (IPO). Included in the transaction price is equity worth Rs. 1.7 crores. Each equity share capital has a face value of Rs. 10. As a small financing bank that prioritises digital services, the bank meets the needs of underbanked and unbanked consumers.

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In Conclusion

Positive market attitudes have been sustained by India Inc.’s rapid recovery since the COVID outbreak. Market sentiment is optimistic as the Sensex and Nifty both hit all-time highs. Companies have a hopeful outlook on the future because of the favourable environment produced by the strong economic development, foreign direct investment (FPI), and aggressive steps taken by the RBI to control inflation.

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The analysts also cite reasonable valuations, excellent financial performance with rising asset quality, and robust growth prospects in the small finance bank business as further factors for the anticipated favourable listing price. A majority of them anticipate a 60% listing premium over the Rs. 25 issue price.

Utkarsh Small Finance Bank’s initial public offering (IPO) of 500 million rupees was subscribed for 101.91 times during the period of July 12-14, indicating strong interest from investors. This is the second public offering of the year, and it has already received more than 100 times as many subscriptions as Ideaforge Technology did.

Qualified institutional purchasers supported the offer to the fullest extent, bidding 124.85 times the quota. The share set aside for employees was booked 16.58 times, while the portion earmarked for high net worth individuals and retail investors was booked 81.64 times and 72.11 times, respectively.

Utkarsh Small Finance Bank is likely to list for roughly Rs 40, or 60% more than its initial public offering price of Rs 25 per share. According to Anubhuti Mishra, equities research analyst at Swastika Investmart, “this is based on the current grey market premium, which is supported by the strong response this IPO received.”

Analysts also reported a significant 60 percent premium on the grey market for the tiny finance bank. IPO shares can be purchased and sold on the grey market, an unofficial trading venue, up until the listing.

The company has a proven track record of expansion, and its financial results have been trending upward in recent years. Because of its emphasis on marginalised populations, Utkarsh SFB is ideally positioned to reap the rewards of the SFB industry’s expansion, as argued by Anubhuti Mishra.

A senior research analyst at Hem Securities and the head of research at Arihant Capital Markets, both named Jain, agree that Utkarsh Small Finance Bank will list at a premium of 60% over its IPO price.

“The bank is well-versed in the microfinance sector and is present in both largely rural and somewhat urban areas. “The bank has been able to post respectable financial results thanks to its expanding deposit base, which has been mostly comprised of retail deposits, and its diverse distribution network, which provides enough potential for cross-selling.

Compared to its competitors Ujjivan Small Finance Bank (2x), AU Small Finance Bank (6.28x), Equitas Small Finance Bank (2.7x), and CreditAccess Grameen (3.9x), the stock is currently trading at a price-to-book value (P/BV) of 1.1x with a market capitalization of Rs 2,739.8 crore.

According to Jehan Bhadha and Archi Jain of Nirmal Bang: “Utkarsh is favourably placed with presence in low ticket segments having strong industry tailwinds.”

Utkarsh has successfully de-risked its business model by lowering its exposure to the unsecured micro banking segment from 82% in FY21 to 66% in FY23. Experts anticipate this trend will carry on.

Utkarsh’s performance during FY21–FY23 was superior to those of its competitors in terms of loan growth, return ratios, and asset quality. As the microfinance business emerges from a severe crisis in 2020-22, with most of the bad loans having been weeded out of the system, Nirmal Bang analysts anticipate growth and robust profitability for the sector and for Utkarsh.

Utkarsh’s net interest income surged by 44% year-on-year to Rs 1,529 crore in the fiscal year ending in March FY23, while profit jumped by 558% to Rs 405 crore and assets expanded by 27% to Rs 19,117.5 crore.

As of March 2023, Utkarsh Small Finance Bank had a presence in 26 States and Union Territories across India, with 830 banking outlets and 15,424 employees. The bank’s gross loan portfolio grew at a CAGR of 34% between FY18 and FY23, and it stood at 13,957 crore.

The company’s deposits increased at a CAGR of 44% between FY18–FY23, reaching Rs 13,710 crore by FY23. Return on assets and return on equity have rebounded strongly to 2.4% and 22.8% in FY23, respectively, after the clean-up of asset quality over FY21-22, as stated by Nirmal Bang.

Govind Singh, Utkarsh’s MD & CEO, has worked in the banking and financial services industry for over 25 years, specialising in the microfinance sector.

Shares with a face value of Rs 500 crore were issued for the public offering. The net proceeds from the offering, after deducting issuance costs, will be used to strengthen the company’s Tier 1 capital structure in preparation for any capital needs in the future. The range for the offer price was Rs 23–25 per share.

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