ESAF Small Finance Bank booked 15.7x; issue closes for bidding today

The initial public offering (IPO) of ESAF Small Finance Bank continued to see a strong response from the investors during the third and final day of the bidding process. The issue was overall subscribed 1.75 times on the first day of the bidding and ended day two with a subscription of 8.3 times.

Kerala-based ESAF Small Finance Bank is offering its shares in the range of Rs 57-60 apiece with a lot size of 250 equity shares and its multiples. The private lender is looking to raise Rs 463 crore via primary markets, which includes an offer-for-sale (OFS) portion of up to 6.51 crore equity shares by selling shareholders and fresh issue of Rs 72.30 crore.

According to the data, the investors made bids for 90,64,09,000 equity shares, or 15.70 times, compared to the 5,77,28,408 equity shares offered for the subscription by 12.25 pm on Tuesday, November 7. The three-day bidding kicked off on Friday, November 3 and will conclude today.

The portion reserved for non-institutional investors (NIIs) saw a subscription of 43.09 times, while the allocation for retail investors was subscribed 11.40 times. However, the quota set aside for qualified institutional bidders (QIBs) was booked 4.57 times, while  the allocation for employees was 3.34 times of the same time.

Incorporated in 1992, Thrissur-headquartered ESAF Small Finance Bank, focuses on providing loans to rural and semi-urban customers, providing financial solutions such as micro loans, retail loans, MSME loans, loans to financial institutions and agricultural loans to the customers.

Brokerage firms tracking the IPO are mostly positive on the IPO and have a subscribe rating for it. Analysts are positive on its sound fundamentals, growing business attractive valuations and strong hold in the markets of Southern India. However, some suggest limited business in North India and risky microlending as key concerns for the business.

Among MSME-focused NBFCs, ESAF has one of the highest assets under management growth and has also witnessed healthy deposit growth, at a CAGR of 28 per cent FY21-FY23. The retail deposits of the banks grew at 23.07 per cent CAGR. At the upper price band, IPO is priced at P/BV of 1.6 times based on FY23 with ROA of 1.63 per cent, said IDBI Capital with a 'subscribe' rating.

ESFA SFB enjoys healthy market share in the south with robust financials and healthy return ratios. The issue is priced at 1.8 times FY23 BV,, which seems comfortable. Given the current buoyancy in the micro finance sector, we believe that ESAF is attractively priced, thus recommending 'subscribe' rating, said Motilal Oswal Finance Services.

ESAF Small Finance Bank raised Rs 135.15 crore from 11 anchor investors as it allocated 2,25,24,998  shares at Rs 60 per equity share on Thursday. DAM Capital Advisors, ICICI Securities and Nuvama Wealth Management are the lead managers to the issue, while Link Intime India has been appointed as the registrar to the issue. Shares of the lender will be listed at both BSE and NSE.

ESAF has the best asset quality among compared peers. It is favorably placed with portfolio share of 63 per cent from rural and semi-urban, which is the highest among the comparable. It has managed to improve its Non MFI mix from 15 per cent in FY21 to 25 per cent in FY23 which has derisked its business model and expect this trend to continue, said Nirmal Bang Securities.

Over FY21- 23 period, ESAF has reasonably done well on all fronts - loan growth, return ratios and asset quality. Considering that the micro finance industry has come out of severe crisis over 2020-22, with most of the bad loans having weeded out of the system, we expect growth and healthy profitability to resume for the sector as well as for ESAF, it added with a 'subscribe' rating.

 

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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