Equitas Small Finance Bank ₹518 crore IPO opens for subscription — Here’s what brokerages have to say

Equitas Small Finance Bank ₹518 crore IPO opens for subscription — Here’s what brokerages have to say
Equitas Small Finance Bank
  • The ₹518 crore IPO of Equitas Small Finance Bank will remain open for subscription until October 22.
  • The public offering from the SFB comprises a fresh issue of shares worth ₹280 crore, and an offer for sale of 7.2 crore equity shares by the promoter.
  • Analysts are optimistic on long-term fundamentals but remain cautious given near-term headwinds.
The mass-market focused Equitas Small Finance Bank (ESFB) ₹518 crore IPO opened today (October 20). The company has set the price band for the IPO at ₹32-33 per share.

The ₹518 crore IPO will remain open for subscription until October 22, and the shares are likely to list on both the stock exchanges— BSE and NSE on November 2.

Here’s what analysts have to say about the IPO

The public offering from the SFB comprises a fresh issue of shares worth ₹280 crore, and an offer for sale of 7.2 crore equity shares by the promoter. This is the third attempt by Equitas SFB, which was originally supposed to come out with an IPO in 2019. Due to technical difficulties, it was deferred to March 2020. It got held earlier this year due to weak market sentiment and has now opened at a much lower issue size.
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Most analysts have recommended a ‘Subscribe’ for the IPO.

Brokerage on Equitas SFB IPORecommendation
ICICI DirectSubscribe
Angel BrokingNeutral
EmkaySubscribe
QuantumSubscribe
Axis CapitalNot rated

Here’s all you need to know about Equitas Small Finance Bank IPO

What works: Stronger track record than its peers

The company has a track record of successfully diversifying its loan portfolio and significantly reducing their dependence on the microfinance business as compared to other microfinance companies that have converted to SFBs.
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According to Axis Capital as of March 31, ESFB had the largest network of banking outlets among all SFBs in India and as of June 30, their distribution channels comprised 856 banking outlets and 322 ATMs across 17 states and union territories in India. The company is the largest SFB in India in terms of the number of banking outlets, and the second largest in terms of Assets under Management (“AUM”).

Equitas Small Finance Bank ₹518 crore IPO opens for subscription — Here’s what brokerages have to say

What works: Sector deemed to grow

As per Crisil, the SFB industry is expected to grow advances at a compound annual growth rate of 25% in fiscal year 19-22E to touch ₹1.4 lakh crore. And, Equitas Small Finance Bank will be among the most beneficial companies as its deposits grew at 39% CAGR in FY18-20 to ₹10788 crore. “A deep understanding of the market enables it to cater to customers leading to 39.1% CAGR in AUM in FY18-20 to ₹15367 crore,” the ICICI Direct report quoted.
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Equitas Small Finance Bank ₹518 crore IPO opens for subscription — Here’s what brokerages have to say

The concerns: Risk of non-performing asset

According to ICICI Direct, for Equitas Small Finance Bank, new products and entry in new geography pose a risk of non-performing assets. Currently, the company has a 55% concentration of loan portfolio in Tamil Nadu and nearly 13% in Maharashtra.


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Equitas Small Finance Bank ₹518 crore IPO opens for subscription — Here’s what brokerages have to say

Although the sector is deemed to grow, what remains challenging is the nature of the business. According to Angel Broking, the fresh formation of bad loans from moratorium books would keep provisions high and return ratios compressed, and could pose a concern for Equitas SFB.

“We believe investors should wait for price discovery before making any investment decision,” they added.


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