On the final day of bidding, Utkarsh Small Finance Bank IPO received strong investor interest, with the offer being subscribed 101.91 times in the morning. Bids for 1,228.47 crore equity shares have been received against the IPO size of 12.05 crore shares.
Retail investors, who will get 10 percent of the offer, have bought 72.11 times the allotted quota, while the portion set aside for employees has been subscribed 16.58 times.
The Varanasi-based small finance bank has reserved 20 lakh shares or 1 percent of the offered size for its employees, while there is a 75 percent reservation for qualified institutional buyers and 15 percent for high networth individuals in the IPO.
Qualified institutional buyers also showed good interest in the IPO which has a price band of Rs 23-25 per share, buying 124.85 times the reserved portion, while the part of non-institutional investors (high networth individuals) was booked 81.64 times.
Utkarsh Small Finance Bank aims to mop up Rs 500 crore via maiden public issue that was opened on July 12, comprising only a fresh issue. The entire proceeds, barring issue expenses, will be utilised for augmenting its Tier - 1 capital base to meet future capital requirements.
Most brokerages have given a thumbs up to the issue as it is available at a discount to listed peers. Also, healthy financial performance with improving asset quality, and lowering exposure to unsecured micro-banking segment are other key reasons supporting their view.
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"Utkarsh is favourably placed with presence in low ticket segments having strong industry tailwinds," Nirmal Bang said.
Further, Utkarsh has managed to reduce its exposure to the unsecured micro banking segment from 82 percent in FY21 to 66 percent in FY23 which has derisked its business model. "We expect this trend to continue. Over FY21-23 period, Utkarsh has outperformed its peers on all fronts - loan growth, return ratios and asset quality," the brokerage said.
Utkarsh operates across 26 states and Union Territories in India with 830 banking outlets with a total loan portfolio of Rs 13,957 crore as of FY23. Micro banking constitutes 66 percent of total loans with the balance constituting housing, auto, gold, LAP (loan against property), unsecured personal, wholesale and others.
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Moreover, it had 13 business correspondents (BC) and 321 direct selling agents (DSA).
Its valuation on a P/B basis is at a significant discount compared to peers, at 1.1x FY23 post-issue BVPS, while its peers Ujjivan Small Finance Bank, Equitas Small Finance Bank, CreditAccess Grameen, and Fusion Microfinance are available at 2.0x, 2.7x, 3.9x, and 2.6x. "Considering that the microfinance industry has come out of severe crisis over 2020-22, with most of the bad loans having weeded out of the system, we expect growth and healthy profitability to resume for the sector as well as for Utkarsh. We recommend subscribing to the issue," Nirmal Bang said.
Reliance Securities also recommended subscribing to this issue for the long term, as Utkarsh Small Finance Bank is in constant efforts to improve its business with deeper insights into customer trends, and develop customized products for its customer segments.
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"It intends to further the growth through diversification of product offerings, customer segments and geography supported by technology, process and data analytics. With improvement in NIMS’s and NPA’s in declining trend over the last three years, growth in earnings remains strong," the brokerage said.
The small finance bank has recorded a massive 558 percent growth in profit for the financial year ended March FY23 at Rs 404.5 crore compared to previous year, with fall in provisions and contingencies and healthy net interest income. The net interest income jumped 44 percent year-on-year to Rs 1,529 crore in FY23, with net interest margin expanding to 9.57 percent from 8.75 percent.
Asset quality also improved with the gross non-performing assets as a percentage of gross advances declining to 3.23 percent in FY23, from 6.1 percent and net NPA, too, dropped to 0.39 percent from 2.31 percent in the same period.
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