It was a day of disappointing market debuts on March 26 as Suryoday Small Finance Bank share price corrected 11 percent intraday despite strong market conditions on March 26. It opened with a 3.9 percent loss on the BSE, which was attributed to a tepid IPO subscription and asset quality concerns. Earlier, Kalyan Jewellers had a forgettable start, with the share price falling 16 percent.
Suryoday Small Finance Bank was trading at Rs 282, down 7.54 percent from the issue price of Rs 305, at the time of publishing this copy. It hit hitting a low of Rs 271.15 and a high of Rs 295.95.
Suryoday Small Finance Bank Rs 583-crore IPO was subscribed by 2.37 times. A sharp increase in the non-performing assets amid COVID-19 crisis was the reason for the tepid response to the IPO, say experts .
"The bank predominantly makes MFI loans which was among the worst impacted segments due to the COVID-19 crisis," Jyoti Roy, DVP - Equity Strategist at Angel Broking said.
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While reported gross NPAs and net NPA stood at 0.8 percent and 0.3 percent at the end of Q3FY21, proforma gross NPA and net NPA stood at 9.3 percent and 5.4 percent, respectively.
"At the current market price, the stock is trading at P/BV of 2.25x fully diluted post issue book value of Rs 136 per share. While valuations were reasonable, asset quality issues will remain a drag on the stock for a few more quarters," said Roy. The brokerage had a "neutral" rating on the stock during the IPO and has maintained it following asset quality issues.
"While we are positive on the long-term prospects of the company, we would recommend investors with a medium-term outlook to exit the stock and wait for more clarity on asset quality issues," he said.
Investors with a two or three-year horizon can look at holding on to their position given reasonable valuations, he said.
Suryoday is among the leading small finance banks in India in terms of net interest margins, return on assets, yields and deposit growth and had the lowest cost-to-income ratio among SFBs in India in FY20. The company has over a decade of experience in serving customers in the unbanked and under-banked segments and promoting financial inclusion.
Over the years, it has diversified its loan portfolio to include non-micro banking loans, thereby reducing dependence on micro-banking business. Suryoday posted strong growth in net interest income of 72.1 percent CAGR between FY18-20 though 9MFY21 numbers were adversely impacted due to the COVID-19 pandemic.
The bank will utilise fresh issue proceeds for augmenting Tier – 1 capital base to meet capital requirements.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.