Capital Small Finance Bank IPO to open on Feb 7; price band and other details

The initial public offering (IPO) of Capital Small Finance Bank (Capital SFB) opens for bidding on Wednesday, February 7, 2024 and can be subscribed till Friday, February 9, 2024. The Jalandhar-based lender is selling its shares in the price band of Rs 445-468. Investors can apply for a minimum of 32 equity shares and its multiples thereafter.

Incorporated in 1999, Capital Small Finance Bank became the first non-NBFC microfinance entity to receive the SFB license from the Reserve Bank of India in 2015. Capital SFB has a strong presence in semi-urban and rural areas with a branch-based operating model.

The Rs 523,07 crore-IPO of Capital SFB includes a fresh share sale of Rs 450 crore. Existing investors including Oman India Joint Investment Fund, Amicus Capital, Amicus Capital Partners India Fund and others will offload up to 15,61,329 equity shares from their stake via offer-for-sale (OFS).

The net proceeds from the fresh stake sale shall be utilized towards augmenting the Bank's Tier-I capital base to meet its future capital requirements; meeting the expenses in relation to the offer. The lender expects to receive the benefits of listing the equity shares on the stock exchanges.

Capital SFB raised Rs 156.92 crore through its anchor book as it finalised allocation of 33,53,013 equity shares to anchor investors at a price of Rs 468 apiece. Anchor book included Nippon Life India, Ashoka India Equity Investment Trust, Whiteoak Capital, Ananta Capital Ventures Fund and LC Pharos Multi Strategy Fund among others.

Capital Small Finance Bank targets middle-income customer segments. It has expanded its SFB operations in northern states of India such as Punjab, Haryana, Rajasthan, Himachal Pradesh and union territories including Delhi and Chandigarh. It had a total of 172 branches and 174 ATMs as of June 30, 2023,

Capital SFB has reserved 50 per cent of the net offer for qualified institutional investors (QIBs), while non-institutional investors (NIIs) will have 15 per cent of shares reserved for them. Retail investors will have 35 per cent of the net issue reserved for them.

For the period ended on June 30, 2023, the lender reported a net profit of Rs 30.10 crore with a revenue of Rs 202.29 crore. Its net profit came in at Rs 93.60 crore with a revenue of Rs 725.48 crore for the financial year ended on March 31, 2023.

Nuvama Wealth Management, DAM Capital Advisors (formerly IDFC Securities) and Equirus Capital are the book running lead managers of the Capital Small Finance Bank IPO, while Link Intime India is the registrar for the issue. Shares of the lender shall be listed at both BSE and NSE with February 14, Wednesday as the tentative date of listing. Here's what analysts say about the issue:

Anand Rathi Research
Rating: Subscribe for long term
Capital Small Finance Bank is Retail focused liability franchise with a high share of CASA. It has a Secured and diversified advances portfolio. Their credit assessment processes, and risk management practices enable them to maintain good asset quality and low delinquencies, said Anand Rathi Research.

They have gained an understanding of their market and customer base over the years, enabling them to meet the financial requirements of their existing and potential customers. "The lender company is valued at P/B of 2.01 times, with a return on net worth of 15.33 per cent. We believe that valuations of the company are fairly priced," it said with a subscribe for long-term rating.

Marwadi Financial Services
Rating: Subscribe
Capital SFB is going to list at a P/B of 1.81 times with a market cap of Rs 2,108 crore whereas its peers namely IDFC First Bank, AU SFB, Equitas SFB, Suryoday SFB, Ujjivan SFB are trading at a P/B of 2.11 times, 3.82 times, 2.25 times, 1.09 times and 2.72 times, respectively, said Marwadi Financial Services.

"We assign 'subscribe' rating to this IPO as the company has a consistent track record of growth with constantly improving operational and profitability metrics. Also, it is available at a reasonable valuation as compared to its peers," it added.

Sushil Finance
Rating: Subscribe with Caution
Capital SFb intends to continue to grow the loan book organically with focus on secured lending. It intends to leverage technology and data analytics for scalability and profitable growth. However, the lender has generated negative cash flows in the past.

"The lender stands to gain with strong penetration of banking and micro-finance services expected in the rural and semi urban areas. It is required to abide by various regulatory requirements; any kind of non-compliance may lead to adverse effects on the business," it added. "Keeping all the factors in mind cash rich investors may apply for the IPO with long term visibility."

StoxBox by BP Equities
Rating: Subscribe
Capital SFB's PPOP has grown from Rs 71.49 crore in FY21 to Rs 148.70 crore in FY23 and stood at Rs 75.38 crore as of six  months ended September 30, 2023. As the lender will utilize net proceeds of the fresh equity  issue to augment its Tier-I capital base, its capital adequacy will enhance and lead to a stable  leverage position, said StoxBox by BP Equities.

"xAt the current P/BV multiple of 2.3 times based on book value as on September 2023, we believe the company is reasonably valued and advise investors to 'subscribe' to  the issue from a medium to long-term perspective," it said.

Ventura Securities
Rating: Subscribe
Ventura Securities has a 'subscribe' rating on Capital SFB citing its retail focused liability franchise with a high share of CASA; secured and diversified advances portfolio; streamlined credit assessment processes and risk management practices; and customer centric approach and understanding of target customers.

However, the brokerage firm has cited the matter to settle with Sebi on allotment of equity shares to 49 investors, regulatory compliances,  certain contingent liabilities and stiff competition in the Indian small finance bank sector as the key risks to the lender.

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.

Also read: Nykaa shares rally 6% as net profit doubles in Q3; brokerages slash target prices