CSB Bank IPO opens today; should you subscribe?

Representative Image

The initial public offering (IPO) of Kerala-based CSB Bank, one of the oldest private sector banks in he country, will open for subscription on November 22.

The issue will close on November 26.

Equity shares are proposed to be listed on the BSE, as well as the National Stock Exchange on December 4. The book running lead managers to the issue are Axis Capital and IIFL Securities.

The IPO consists of a fresh issue aggregating up to Rs 24 crore and an offer for sale of up to 1,97,78,298 equity shares by the selling shareholders.

The price band has been set at Rs 193-195 per share. Bids can be made for a minimum lot of 75 equity shares and in multiples of 75 equity shares thereafter.

The bank aims to raise Rs 405.72 crore at the lower end of the price band and Rs 409.68 crore at the higher band.

The market capitalisation of the bank at the current issue price band stood at Rs 3,348 – 3,382 crore.

Read more: CSB Bank IPO to open on November 22; 10 things you need to know

Strength of the company

The company's biggest strength is its strong channel network and its value as a brand in South India. CSB Bank provides its products and services primarily through an extensive physical network of branches and ATMs.

The strong capital base for growth is also a strong point for the bank, many brokerages highlight. CSB’s capital position has been significantly strengthened post FIHMs investment.

Well established SME business, stable and granular deposit base, professional and experienced management with strong and independent board and streamlined risk management controls, policies and procedures also add strength to the company.

What brokerages recommend

Brokerage firm BP Equities recommends subscribing to the issue.

"CSB has posted turnaround results in six months of FY20 and has improved its operational and financial performance. We believe the bank should do well with the recent capital raise and its strong risk management frameworks. We give subscribe rating to the IPO," said the brokerage firm.

"On the valuation front, at the upper end of the price band, CSB is valued at 2.31 times P/BV and 25.31 times P/E. Taking into account huge growth prospects and its comfortable asset quality, the stock looks attractive for investment," said BP Equities.

Brokerage house IndiaNivesh also recommends subscribing to CSB IPO.

"CSB Bank has seen a remarkable turnaround after the new promoter took charge of its affairs in FY19. At the upper end of the issue price, it is available at P/BV of around 2.19 times on ‘TTM’ basis. We expect CSB Bank to embark on a growth trajectory of over 20 percent on business and profitability for the next couple of years. There is ample scope for it to get re-rated at higher a multiple of 2.5 times to 2.7 times P/BV after listing," said IndiaNivesh.

Brokerage firm Ajcon Global Services also suggests subscribing to the issue.

"At the upper end of the price band of Rs 195, the issue is valued at a P/BV of 2.2 times which we believe is at a premium as compared to other listed small private Banks," said Ajcon Global Services.

Risks

Experts say a lot will depend on how the strategy of the bank works in the near future.

As per HDFC Securities, the bank's business and financial performance could suffer if it is unable to effectively manage the level of its NPAs.

"Although CSB Bank is making efforts to improve collections and to foreclose on existing impaired loans in a timely manner, there cannot be any assurance that it will be successful in its efforts or that the overall quality of its Bank’s loan portfolio will improve or will not deteriorate in the future," HDFC Securities said.

Issued notices and initiated various recovery proceedings against defaulting borrowers under the SARFAESI Act are also among key concerns, HDFC Securities said.

Moreover, CSB’s funding requirements are primarily met through customer deposits. If it fails to sustain or achieve growth of its deposit base, including its current and savings account deposit base, its business may be adversely affected, HDFC Securities said.

Also, CSB has limited access to credit and other financial information on borrowers than banks in other economies, which may decrease the accuracy of its assessment of credit risks and thereby increase the likelihood of borrower defaults.

Besides, volatility in the market price of gold may adversely affect the financial condition of the bank.

(Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions)