CSB Bank's initial public offering (IPO) will open for subscription on November 22 and has a price band of Rs 193 to Rs 195 per share. At the higher end of the price band, the CSB Bank IPO aims to raise around Rs 410 crore. The IPO closes on November 26.
Analysts said the bank has become adequately capitalised after investments from Fairfax India Holdings, which acquired 51 percent in CSB Bank in February 2019. Canadian billionaire Prem Watsa's Fairfax India, through FIH Mauritius Investments (FIHM), pumped around Rs 1,207.68 crore to buy the stake in the bank, formerly known as Catholic Syrian Bank.
Emkay Research in a note said, "The bank has done reasonably well in its first phase of transformation over the past 2-3 years, reducing the influence of unions, rationalizing branches and turning it from a capital-starved bank into a capital-excess bank after onboarding investor-cum-promoter Fairfax."
At the upper price band of Rs 195, the CSB IPO is priced at valuations of 2.4x Sep’19 adjusted book value for a sub-par RoA/RoE of 0.5%/3% compared to some of its close peers such as South Indian Bank and Federal Bank that are trading in the range of 0.6 percent to 1.4 percent, noted Emkay Research.
"However, we believe that the second phase of the transformational journey to take the bank to new growth phase will be challenging, particularly given current stressed scenario and rising competitive intensity, where even established and promising banks have slipped," according to Emkay Research.
Lalitabh Shrivastawa, deputy vice president of fundamental research, Sharekhan, said the long-term prospects of the bank look promising. "CSB Bak has a credible pedigree post the Fairfax India Holdings acquiring the majority stake in the bank. The asset quality is showing an improving trend and CSB successfully turned its operations in the last six months and with healthy capitalization levels, the long term prospects look promising," he said.
Among the key risks, IIFL Securities said the bank’s future financial performance could be materially and adversely affected if it s unsuccessful in controlling or reducing its impaired loans.
The CSB Bank IPO comprises a fresh issue of shares worth Rs 24 crore and an offer for sale (OFS) of 1.97 crore shares worth Rs 385 crore by existing investors. Following the fresh issue of shares, promoter entity Fairfax India Holdings' stake in CSB Bank will fall to 49.73 percent from the present 50.09 percent
Following the fresh issue of shares, promoter entity Fairfax India Holdings' stake in CSB Bank will fall to 49.73 percent from the present 50.09 percent. The promoter, which , has five years to reduce holding to 40 percent and 15 years to go down to 15 percent in compliance with RBI requirements.
CSB has a strong base in Kerala along with a significant presence in Tamil Nadu, Karnataka, and Maharashtra. As on September 30, the bank has 412 branches and serves 1.3 million customers.
"Any adverse change in the economic, political, or geographical conditions of Kerala and other states in southern India can impact its results of operations," said IIFL.
As of September 30, the advances were Rs 11,297.8 and the yield on advances was 10.22 percent. The gross NPAs was 2.86 percent and the net NPAs was 1.96. The total NPA provisioning was Rs 55.63 crore and total write-offs were Rs 214.88 crore, together amounting for ₹ 270.51 crore.
The non-interest income was Rs 84.42 crore, however, excluding profit on sale of investments the non-interest income was Rs 71.46 crore and the cost to income ratio is 71.54 percent as of September 30.
Axis Capital and IIFL Securities are the book-running manager for the CSB Bank IPO. Link Intime India is the registrar.
The stock will be listed on the BSE and the NSE.