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Equitas Small Finance Bank IPO: Should you subscribe?

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Equitas Small Finance Bank IPO: Should you subscribe?

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Most analysts recommend a ‘Subscribe’ rating on the issue with a long-term view given the bank's well-diversified advances, strong capital ratio, steady asset quality adequate liquidity position and vast opportunity for business as it serves unserved and underserved customers.

Equitas Small Finance Bank IPO: Should you subscribe?
The initial public offering (IPO) of Equitas Small Finance Bank, the subsidiary of Equitas Holdings, opened for bidding on Tuesday.
The issue price is fixed in the price band of Rs 32-Rs 33 per share. The public issue consists a fresh issue of Rs 280 crore (8.5 crore shares) and an offer for sale of 7.2 crore equity shares by Equitas Holdings (valued at Rs 237.6 crore at the upper price band), taking the total issue size to Rs 517.6 crore.
The issue closes for subscription on Thursday, October 22 and the listing of shares is expected on November 2.
Equitas Small Finance Bank is a mass-market focused small finance bank (SFB), providing banking products and services to an unserved and underserved segment. It is the largest SFB in India in terms of a number of banking outlets and second-largest SFB in India in terms of AUM and total deposits as on FY19.
Most analysts recommend a ‘Subscribe’ rating on the issue with a long-term view given the bank's well-diversified advances, strong capital ratio, steady asset quality adequate liquidity position and vast opportunity for business as it serves unserved and underserved customers.
Here’s what brokerages say:
ICICI Direct
Equitas Small Finance Bank had strong advances growth along with maintaining asset quality. Unserved and underserved customers as target offer a vast opportunity for business growth. We have a Subscribe recommendation on the stock. At Rs 33, the stock is available at ~1.2x Q1FY21 P/BV (post fresh issue) and at ~16.3x P/E at Q1FY21 PAT (annualised basis).
KR Choksey
Strong fundamental performance and adequate liquidity position provide an opportunity to grow business in future. The bank is being issued at a valuation of around 1.23x P/BV at an upper price band of Rs 33 as on Q1FY21. We have a long term positive view on the stock and recommend subscribe for the issue.
Emkay Global
The current target for Equitas Holdings implies a per-share value of Rs 40 for Equitas Small Finance Bank (assuming a 40 percent holding company discount), implying a decent upside to the issue price. Thus, we recommend subscribing to SFB IPO.
Equitas SFB is well capitalized with capital adequacy ratio at around 21.6 percent (against 15 percent required), including CET 1 at 20.6 percent. After the fresh capital infusion, it will improve to around 24 percent (including CET 1 at 23 percent).
Angel Broking
At the upper end of the price band, Equitas SFB demands Adj. PB of 1.26x post considering the fresh issue. Though the bank has a diversified loan book and the best CASA ratio among SFBs, the return ratios are subdued with GNPA above 2.5 percent for the last 3 years.  Our concern for Equitas SFB is the fresh formation of bad loans from moratorium book that would keep provisions high and return ratios compressed. We believe investors should wait for price discovery before making any investment decision. Considering the above factors, we recommend a NEUTRAL rating for the IPO.
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