Punjab & Sind Bank IPO opens; should you subscribe?

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Punjab & Sind Bank IPO opens; should you subscribe?

The 4 crore equity shares initial public offering (IPO) of state-owned Punjab & Sind Bank has opened for subscription. The bank aims to raise at around Rs 452-480 crore through IPO at a price band of Rs 113-120/share.

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The 4 crore equity shares initial public offering (IPO) of state-owned Punjab & Sind Bank has opened for subscription today. The bank aims to raise at around Rs  452-480 crore through IPO at a price band of Rs 113-120 per share.

The issue will close on December 15 for qualified institutional investors (QIB) and on December 16 for other investors. Retail investors and employees will 
get 5% discount to issue price.

Experts as well as brokerage houses are bullish on the IPO and feel the issue to be attractive. Investment Advisor, SP Tulsian and Manish Bhatt of Prabhudas Lilladher advised subscribing the issue even at upper band.

Tulsian said, "At the upper price band of Rs 120, fresh issue is being made at book value, which stood at Rs 119.20 as of 30-09-10. Considering expected EPS of around Rs 30 for FY11, the PE multiple works out to 4 times, again very attractive."

"Empirical data suggests that PSU banks have rewarded, in the long-term. United Bank of India had made its IPO in February 2010 at Rs. 66 per share (at PE  multiple of less than 4x and PBV multiple of 0.7x). Currently United Bank is trading at 106. Bank of Maharashtra had also made its IPO at similar PE and PBV multiples in February 2004, at Rs. 23 per share, which is now close to Rs. 63. Although the PE multiples have increased in case of this IPO, the prospects seem bright. Considering the attractive pricing, the issue is recommended for subscription even at upper band!" he said.

Manish Bhatt said, "The issue is atttractively valued. The bank is also doing very well, which has exposure to North India, including major exposure to 
Punjab and Ludhiana. Its income increased to Rs 9.63 crore per employee in 2010 from Rs 4.67 crore; CAGR stands at 21.10%, book value at Rs 105, EPS Rs 27 (which is likely to be at Rs 30 plus in FY11) and non-performing asset is better than other banks. The bank has good reserves, So it is a good proposition. It should give 20-35% return on listing."

Brokerages' views

According to Anagram Research, "Going ahead, the bank has a plan to open 100 new branches pan India and strengthen its business particularly in the corporate and retail loan segments. Being the smallest PSU bank, it may be a target during the consolidation phase in the sector. From the valuation perspective it is quite attractive as it will trade at 0.9 times of its post issue Book Value at a higher band of Rs 120."