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ESAF Small Finance Bank lists at 20% premium but below grey market expectations

ESAF Small Finance Bank lists at 20% premium but below grey market expectations
  • The stock listed at ₹71.9 as compared to its issue price of ₹60.
  • The issue was subscribed 73x with good interest from institutional investors.
  • It intends to use the net proceeds to augment its tier-1 capital base and more.
ESAF Small Finance Bank made its D-street debut at a 20% premium on Friday. This is lower than what the grey market had predicted, which was expecting 33% listing gains.

The stock closed at ₹69.05 per share, slightly below its listing price, ending at a premium of 15.08% over the IPO price.

The stock listed at ₹71.9 per share as compared to its issue price of ₹60. Its market cap is ₹3,701 crore according to Bombay Stock Exchange.

Prashanth Tapse, senior VP of research at Mehta Equities had pegged the listing gains anywhere between 20-30%. “We believe the premium listing is justified on the back of investor friendly pricing and reasonably IPO valuations when compared to peers. Hence we recommend allotted investors to look for booking profits and post listing we expect limited upside,” he added.

The ₹463 crore issue was subscribed 73 times the shares on offer with outsized interest from qualified institutional buyers (QIBs). This quota was subscribed a whopping 173 times. It also received good interest from non-institutional and retail investors.

It has raised ₹135.15 crore from anchor investors, like BNP Paribas Arbitrage, Kotak Mahindra Life Insurance, Edelweiss Tokio Life Insurance, ICICI Prudential Life Insurance and more.

The listing performance of recent D-street debuts have been mixed. The last issue to list Mamaearth parent Honasa Consumer gave muted 4% listing gains but Cello World gave a good 22% gains.

Here are the listing gains of the last few market debuts
Company


Listing gains


Honasa Consumer

4%

Cello World

22%

Blue Jet Healthcare

14.4%

IRM Energy

-5%

Plaza Wires

48%

Updater Services

-5.3%



ESAF SFB fixed a price band of ₹57-₹60 per equity share for its issue. The IPO is a combination of fresh issue and offer for sale, and intends to use the net proceeds from fresh issue to augment its Tier – I capital base and meet future capital requirements.

ESAF SFB has 700 banking outlets, 559 ATMs across 21 states and two union territories. Its primary products include advances and deposits. It mainly focuses on rural and semi-urban banking franchises. It provides MSME loans, agricultural loan business and retail loan business.

Its deposits grew from ₹89,994.26 million to ₹146,656.25 million between FY21-23 registering a compounded annual growth rate (CAGR) of 27.66%. Its CASA ratio dropped from 22.84% in FY22 to 21.39% in FY23.

Its gross NPA (non performing assets) and net NPA stood at 2.49% and 1.13% respectively in Q1FY24. Despite having a nationwide presence, the bank's primary business operations are concentrated in South India, specifically in the states of Kerala and Tamil Nadu.

“As of now, its operations are limited to South India with a lower presence in North India. Hike in RBI’s interest rate will result in compression of NIMs (net interest margins) from current levels. Increase in stress on assets specially on small ticket items will affect the future cash flows which will lead to increase in NPA,” said a report by Religare elucidating its key risks.

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