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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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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On the first day of bidding, the offering was 4.73 times oversubscribed, with all tranches selling out.

Utkarsh Small Finance’s loan book grew by more than 30 percent between FY19 and FY23, continuing a trend of healthy expansion over the preceding four years. This expansion is consistent with that of other small financing institutions.

The company’s total revenue increased by 37.9 percent in the most recent fiscal year, reaching Rs 2,804 crore from Rs 2,033 crore in FY22. The bank’s FY22 net profit of Rs 61.5 crore increased to Rs 404 crore.

Utkarsh Small Finance’s administration envisions this expansion trend continuing in the years to come. Microfinance’s resurgence and the creation of new business lines over the past several years are paying off and, according to MD and CEO Govind Singh, are helping fuel the company’s expansion.

According to Singh, the bank’s future expansion would be fueled by the introduction of new business lines. Some of these ventures, including micro, small, and medium enterprises (MSME), lab enterprises, affordable housing, and tiny corporations, were launched when the bank opened for operation in January 2017.

Singh remarked that “gradually, these verticals have become fully developed,” boasting separate groups to handle credit, merchandise, collection, and sales. The company has been around for 14 years. The growth rate in some of our more established niches is only 15% to 20% every year. However, development in emerging markets is more rapid.

Utkarsh is concerned about the bank’s low CASA level of 20.8% despite the fact that the business is growing rapidly. CASA, which stands for the combined deposits in checking and savings accounts, provides banks with access to cheap funds. The bank, according to Singh, is making efforts to raise its CASA ratio. Growth has been slower than expected since money has been transferred from regular deposits to fixed deposits during the past six months.

Even though the CASA ratio isn’t going anywhere anytime soon, it has a safe funding source in the form of non-callable wholesale deposits. That is, they won’t be prone to wild swings.

The bank also has a strong concentration in Bihar and Uttar Pradesh, both of which are trouble spots. However, this is typically the case with more conventional lenders of this type. Financial inclusion and lending options are greatly enhanced in these two regions. The quality of our assets and our portfolio as a whole will be maintained, and we will continue to concentrate on these states,” Singh added.

The quality of the assets has not been a problem up to this point. The gross nonperforming assets (NPAs) for Utkarsh Small Finance were 3.23 percent and the net NPAs were 0.39 percent. The offering price represents a price-to-book value ratio of 1.1 for the company, compared to 2-4.6 for Equitas Small Finance Bank and AU Small Finance Bank, two of its main competitors.

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Subscriptions for the public issue will be accepted beginning on July 12 and closing on July 14. The anchor book auction will take place on July 11.

The fresh issue part of the small finance bank’s initial public offering (IPO) is expected to raise 500 crore rupees. The offer reserved up to Rs 5 crore, or 20 lakh shares, or 1% of the issue size, for its workers.

The net proceeds from the issuance, after deducting issue charges, will be used to increase its Tier-1 capital base to satisfy future capital requirements.

Retail investors can apply for a minimum of 600 equity shares at a price of Rs 15,000 per lot, and their maximum investment would be Rs 1.95 lakh for 13 lots, at an upper price band, as their investment can go above and beyond Rs 2 lakh in any IPO.

Qualified institutional purchasers can purchase up to 75% of the issue size, high net worth individuals 15%, and regular investors 10%.

According to CRISIL, Utkarsh Small Finance Bank, located in Varanasi, grew its gross loan portfolio at the third-fastest rate among SFBs with a gross loan portfolio of more than Rs 6,000 crore between FY19 and FY23.

Utkarsh Small Finance Bank was founded in April 2016 as a wholly-owned subsidiary of promoter Utkarsh CoreInvest, which had received in-principle clearance from the Reserve Bank of India (RBI) to establish a small finance bank in October 2015.

Utkarsh CoreInvest, which received its RBI license in November 2016, has completed the going-concern transfer of its microfinance business to the small finance bank, which opened for business in January 2017.

As of March 2023, Utkarsh SFB had 830 banking outlets and 15,424 employees across 26 states and Union Territories. Of its 3.59 million customers, 30.88 percent were located in rural and semi-urban areas in Bihar and Uttar Pradesh, and 25.98 percent were located in these same areas.

The bank established partnerships with 13 business correspondents and 321 direct selling agents to expand its presence in emerging markets.

After Ujjivan, AU, Equitas, and Suryoday, this would be the sixth small financing bank to be listed on the bourses.

Merchant bankers for the offering include ICICI Securities and Kotak Mahindra Capital Company, with Kfin Technologies serving as the registrar.

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