Ujjivan Small Finance Bank (USFB) got listed today at Rs 58.75, a significant premium to its issue price of Rs 37. Interestingly, USFB is the second entity to be listed from its parent, Ujjivan Financial, for effectively the same business.
According to the Reserve Bank of India (RBI) regulations, an SFB has to list within three years of commencement of business. This guideline required the bank to be listed separately despite the business value being already captured in the listed parent company which has no other significant operation.
As per RBI’s regulation, the promoters of Ujjivan SFB also need to reduce their holding in the small finance bank to 40 percent in a phased manner from the current 83.3 percent. The management has mentioned that they would prefer to go in for a reverse merger of the holding company with the bank to achieve this, the regulator permitting, as it will also resolve the dual listing issue. The USFB management is also on record that it intends to bring down the promoter stake to 0 percent over the next few years.
Post the listing, the big question on everyone’s mind is what’s in store for investors in the already listed entity.
Ujjivan Financial's price after USFB's listing
Ujjivan SFB's market cap stands at Rs 9,500 crore. The promoter holding in the company is 83.3 percent. At this valuation, the promoter stake is valued at Rs 7,914 crore. Going by the holding company discount seen in certain other cases the listed value could be far lower.
Holding company's discount analysis (possible scenarios).
When IDFC Bank got listed, the holding company discount given to IDFC Ltd was 50 percent. If the same discount is applied to Ujjivan Finance, its fair value works out to around Rs 326 per share.
Ujjivan SFB’s book value post fund raising is at Rs 17 per share which gives a book value per share at 3.4 times the per share price. A quick comparison of Ujjivan SFB with its peers reveals that the bank enjoys superior net interest margin (NIM), return on equity (RoE) and return on asset (RoA).
However, in terms of valuations it is neither the cheapest, nor the most expensive. It would help the investors to wait for the initial demand-supply tussle to settle before considering any investment.
Peer comparison on ratios.
Peer valuation comparison.
First Published: IST