Ujjivan Small Finance Bank's Rs 750 crore initial public offering opened for subscription today. The IPO has a price band of Rs 36-37 per share and closes on December 4. The proposed issue will see promoter shareholding falling to 85 percent post the IPO.
Here's everything you need to know:
About the bank
Ujjivan Small Finance Bank Limited (USFB), incorporated in 2017, is a mass-market focused Small Finance Bank (SFB). USFB Bank is promoted by Ujjivan Financial Services Limited (UFSL) which commenced operations as an NBFC in 2005. Ujjivan Small Finance Bank serves over 49 lakh customers through 552 branches spread across 232 districts in 24 states and union territories of India.
The portfolio of products and services offered by Ujjivan Small Finance Bank, which had started operations on February 1, 2017, include loans to micro-banking customers that include group loans and individual loans, agriculture and allied loans, MSE loans, affordable housing loans, financial institutions group loans, personal loans, and vehicle loans. In addition, it also provides non-credit offerings comprising ATM-cum-debit cards, Aadhaar enrolment services and distributes third-party insurance products.
The lender's gross loan book stands at Rs 12,864 crore and the deposit base at Rs 10,130 crore as of September 30, 2019. The Net Interest Margin (NIM) of USFB in FY18 and FY19 was 10.3 percent and 10.9 percent, respectively, and 10.6 percent in the six months ended September 30, 2019.
Its gross NPA was the lowest among the SFBs at 0.85 percent of gross advances and the provision coverage ratio (PCR) was high at 72 percent in FY19.
The share of current and savings account (CASA) deposits, which are a low-cost funding option, improved to 11.9 percent from 1.6 percent in March 2017. Total income was Rs 1,430 crore and net profit was Rs 187 crore in the six months to September 2019.
Small Finance banks are a type of niche banks in India, mainly focused on providing financial inclusion, catering to the needs of unserved segments of the society.
The ability of SFBs to take deposits gives them an edge of having a lower cost
of funds compared to that of NBFCs and MFIs. The loan book of SFBs is expected to grow by 23-25 percent CAGR over FY19-21 and deposit base expected to increase by around 70 percent in the same period.
Enhanced priority sector lending norms along with capping on ticket size will help SFBs to maintain a healthy asset quality in the long run.
Purpose of IPO
As per small finance bank (SFB) listing guidelines, USFB is required to list its equity shares on the stock exchanges within three years from the date of commencement of business by the bank, which is on January 31, 2020. The bank proposes to utilize the net for augmenting its Tier-1 capital base to meet its future capital requirements and towards meeting the expenses in relation to the Issue.
The IPO will comprise a fresh issue of equity shares aggregating up to Rs 750 crore. A portion of the issue aggregating up to Rs 75 crore is set apart for eligible Ujjivan Financial Services shareholders, on a proportionate basis.
Bids can be made for a minimum 400 equity shares and in multiples of 400 shares thereafter.
Karvy Fintech Private Limited is the registrar of the Ujjivan Small Finance Bank issue while Kotak Mahindra Capital Company Ltd, IIFL Securities Ltd and JM Financial Ltd are the book running lead managers to the issue.
Limited operating history as a small finance bank, competition from other SFBs, NBFCs, MFIs and cooperative banks, and lack of collateral back up in case of some MSE loans are its top risks, as per Geojit Financial Services.
Valuation and rating
At the upper price band of Rs 37, USFB is available at P/BV of 2.5x FY19, which is at a significant discount to its peers and Geojit Financial Services has a ‘subscribe' rating with a long-term perspective.
Apart from having a strong presence in the country’s microfinance sector, the bank has started focusing on the retail loan segment. Given its high asset quality, diversified loan book across regions, strong management team, and a reasonable valuation, analysts are bullish on the IPO.
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First Published: IST