ESAF Small Finance Bank IPO opens today; should you subscribe?

ESAF Small Finance Bank will be hitting Dalal Street with its initial public offering (IPO) on Friday, November 3. The Kerala-based lender is offering its shares in the fixed price band of Rs 57-60 per share with a lot size of 250 equity shares. The issue is open for bidding till Tuesday, November 7.

ESAF Small Finance Bank was incorporated in 1992, which majorly 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.

The lender is looking to raise Rs 463 crore via its initial stake sale, which includes a fresh share sale component of 390.70 crore and offer-for-sale (OFS) of up to 1,20 crore equity shares amounting to Rs 72.30 crore by its promoter ESAF Financial Holdings and other investors including PNB MetLife India and Bajaj Allianz Life Insurance Company.

The net proceeds from the issue shall be utilized towards augmentation of the ESAF's Tier-I capital base to meet the bank's future capital requirements and to ensure compliance with regulatory requirements on capital adequacy prescribed by the Reserve Bank of India (RBI), said the lender.

ESAF Small Finance Bank raised Rs 135.15 crore from 11 anchor investors as it finalised allocation of 2,25,24,998 equity shares at Rs 60 per equity share. Anchor book includes ACM Global Fund VCC, Ananta Capital Ventures Fund, Founders Collective Fund, Astorne Capital VCC, BNP Paribas Arbitrage, Copthall Mauritius Investment and Alchemie Ventures Fund.

The Thrissur-based ESAF Small Finance Bank offers convenience banking through various digital services including internet banking, mobile banking, bill payments, SMS alerts and RuPay branded ATM cum debit cards. It had a network of 700 outlets, 743 customer service centers, 20 business correspondents and 481 business facilitators, 581 ATM's located across 21 states of India, as of March 2023.

ESAF Small Finance Bank's eligible employees have reservation for shares worth Rs 12.5 crore, who will get a discount of Rs 6 apiece in the IPO. Of the net offer, 50 per cent shares shall be reserved towards qualified institutional bidders (QIBs) and 15 per cent shares will be allocated to non-institutional investors. Retail investors will have 35 per cent of the net offer allocated for them.

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. Majority of the brokerage firms are positive on the issue. Here's what they say about the IPO of ESAF Small Finance Bank:

Anand Rathi Research
Rating: Subscribe for long term
ESAF SFB provides micro, retail and corporate banking, para-banking activities like debit cards, and third-party financial distribution, in addition to Treasury and permitted foreign exchange business. The bank's assets under management have nearly doubled between March 2021 and 2023 and stand at Rs 17,204 crore as of June 2023, said Anand Rathi.

"The have 700 banking outlets and 767 customer service centres across 21 states and 2 union territories, with 62 per cent of their banking outlets being in southern India. It is valuing at P/B of 1.8 times with a market cap of Rs 3,088 crore post issue of equity shares We believe that company is fairly priced and recommend a 'subscribe for long term' rating to the IPO," it added.

LKP Securities
Rating: Subscribe
ESAF Small Finance Bank is valued at 1.46 times P/BVPS with current book value per share of Rs 40.92 at higher price band. Factoring the superlative return ratios, FY23 ROA and ROE of 1.6 per cent and 19.4 per cent, respectively, said LKP Securities. "We believe that ESAF Small Finance Bank Limited is worth subscribing to. Thus, we recommend 'subscribe' to the issue," it added.

Hem Securities
Rating: Subscribe for long term
Its understanding of the micro loan segment, has enabled it to grow its business outside of Kerala, company’s home state. Its main focus is on rural and semi-urban banking franchise along with growing retail deposits portfolio and customer connections driven by its customer-centric products and processes and other non-financial services for micro loan customers, said Hem Securities with a 'subscribe for long term' rating.

StoxBox by BP Equities
Rating: Subscribe
ESAF posted the fastest AUM CAGR of 39 per cent over FY2021-23 period amongst the SFBs. Its capital adequacy ratio, which is the ratio of capital to risk-weighted assets and current liabilities, as at June 30, 2023, was 20.6 per cent, which is the best asset quality amongst comparable peers as of June 30, 2023, said StoxBox.

"As the lender will utilise the net proceeds of the fresh equity shares issue to augment its Tier-I capital base, its capital adequacy will enhance and lead to a stable leverage position. At the current P/BV multiple of 1.6 times, we believe the company is attractively valued and advise investors to 'subscribe' from a medium to long-term perspective" it added.

Sushil Finance
Rating: Subscribe
ESAF's topline and bottomline both registered growth of CAGR of 32 per cent and 69 per cent respectively from FY21-23.The company is asking for a P/E multiple of 8.94 times on the upper end of the price band over the diluted EPS of FY23 at Rs 6.71 and multiple of 5.19 times over annualized diluted EPS for quarter ended Q1FY23 at Rs 2.89, said Sushil Finance with a 'subscribe' tag.

 

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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