While the operating environment remains challenging amid the COVID-19 pandemic, recent collection efficiency and moratorium position signal an improving trend, Anand Rathi has said.
The public issue of Equitas Small Finance Bank had been subscribed 67 percent around noon on October 21, the second day of bidding. The Rs 518-crore IPO received bids for 7.8 crore equity shares against an offer size of 11.58 crore shares, data available on the exchanges showed.
The mentioned offer size excludes the anchor-book portion. The company raised Rs 140 crore from 12 anchor investors on October 19.
The portion reserved for retail investors has subscribed 1.4 times and that of non-institutional investors 5.2 percent while qualified institutional investors' portion subscribed 5.4 percent.
The portion set aside for employees has seen a 97 percent subscription and that of shareholders of Equitas Holdings 24 percent.
The public issue consists a fresh issue of Rs 280 crore and an offer for sale of 7.2 crore equity shares by promoter Equitas Holdings. The price band for the issue, which closes October 22, has been fixed at Rs 32-33 per share.
"At the upper price band of Rs 33, the IPO is priced at 1.25 times post-issue FY20 book value (BV). Valuation looks attractive when compared with peers like AU Small Finance Bank (5.35x FY20 BV) and Ujjivan Small Finance Bank (1.89x). While the operating environment remains challenging amid the COVID-19 pandemic, recent collection efficiency and moratorium position signal an improving trend," Anand Rathi said.
The brokerage remains positive on Equitas Small Finance Bank given its diversified loan portfolio, well-managed asset quality, strong capital position, extensive distribution network and healthy growth prospects of the SFB industry. It has recommended 'subscribe' with a long-term horizon for this IPO.
LKP Securities, too, said that compared with peers like AU Small Finance Bank and Ujjivan Small Finance Bank, Equitas SFB was lucrative. It recommended 'subscribe' only for long term.
The IPO of Equitas Small Finance Bank comes primarily as an effort by the management to meet with the Reserve Bank of India's norms that call for a mandatory listing of small finance banks within three years from the date of reaching a net worth of Rs 500 crore. For Equitas Small Finance Bank, it was three years from the date of commencement of operations as an SFB, i.e., on or prior to September 4, 2019, as the combined net worth of the erstwhile NBFC, EMFL and EHFL was in excess of Rs 500 crore.
The company was unable to meet the deadline and the RBI, on its request, gave it until the first week of November 2020 to comply. Also, the promoter Equitas Holdings is required to reduce its shareholding in Equitas Small Finance Bank to 40 percent of its paid-up equity share capital within five years from the date of commencement of its business as an SFB and further reduce it to 30 percent and 26 percent within 10 years and 12 years, respectively, from the date of commencement of business.
After the IPO, the promoter's stake will reduce to 82.1 percent from 95.5 percent.The offer-for-sale money will go to Equitas Holdings, the promoter, while the fresh issue proceeds will be used for augmenting its Tier – 1 capital base to meet future capital requirements.