The Rs 410-crore IPO comprised a fresh issue of Rs 24 crore and offer for sale of 1.97 crore shares.
CSB Bank, formerly Catholic Syrian Bank, made a strong debut on markets on December 4, with the share price rallying 57.4 percent over the issue price of Rs 195 on the listing day.
The bumper listing was along expected lines, said experts, citing overwhelming response to the Rs 410-crore public issue that was oversubscribed 87 times and the new strong promoter, which infused capital that helped the company improve earnings performance in 2019.
The stock opened at Rs 275 on the BSE, a 41 percent premium over its issue price of Rs 195 per share and touched an intraday high of Rs 307.
At the time of publishing this copy, it was trading at Rs 300.05, up 53.87 percent over the IPO price. On the NSE, it was quoting at Rs 300.1, 53.9 percent higher than the offer price.
The impressive performance saw experts suggest booking profits.
"Book profit around Rs 260 and anything above that would be a bonus," said Rajesh Agarwal, Head of Research at AUM Capital, who had expected a listing price of around Rs 250-260 per share.
Mona Khetan, Banking Analyst at Reliance Securities, also recommended to book profits as the bank would take time to deliver even a 1 percent return on assets (RoA) amid a weak operating environment, with higher exposure to the MSME segment.
"Granular deposit base along with healthy CASA ratio of 28 percent, high advances growth on a small base, and decline in cost-income ratio should aid its RoA, going forward. However, its current profitability remains weak, with annualised RoA at 0.5 percent in the first half of FY20. The bank reported losses of over FY17-19. Moreover, its PCR (excluding technical write-offs) remains low at 32 percent, which could drag its RoAs in the near-to-medium term," she said.
The stock has already surpassed analysts' 6-12 months' target of around Rs 290-300 that raised valuations to premium levels and that could be the reason experts suggested booking profits.
Analyst at Emkay Global Financial Services also said the same.
"Bank will get growth capital and will lead to balance sheet strengthening, but profit and loss will remain weak due to lower provision coverage ratio (PCR) for a prolonged period. Premium valuations versus other listed peers like Federal Bank and so on looks unsustainable," it said.
Astha Jain, Senior Research Analyst at Hem Securities, too, advised booking profits but partially and holding the rest for the long-term.
CSB Bank has strong channel network and is a trusted brand in South India, with strong capital base post investment by Fairfax India through FIH Mauritius Investments Ltd (FIHM).
The bank has a well-established SME (small-to-med-size enterprise) business with retail offering driven by a strong gold loan portfolio and lower operational costs.
However, Prashanth Tapse, AVP Research, Mehta Equities, had a different view. Tapse advised allotted investors to hold on to the counter and be invested for more short to medium-term gains.
The bank has a good scope of growth and is a favourable investment opportunity focused on SME and gold-loan portfolio for short-term investors, he said.
Tapse said there is an ample scope for CSB Bank to get re-rated at higher multiples of P/BV considering the turnaround performance and focus on implementation of strategic changes in business model to function as a full-service private bank.
When to buy?
Experts are divided on price level if one wants to buy the stock now.
Astha Jain and Prashanth Tapse said if the stock is available at around Rs 215-240, then one can buy the stock on the listing day. Other analysts, however, advised looking for other better opportunities in the banking space.
Rajesh Agarwal said there were better opportunities in both private and public banking space based on valuation. It would be better to buy shares of other bank with more established RoA such as the Federal Bank, RBL Bank or DCB, which were trading at a discount to CSB Bank, Mona Khetan said.
Emkay Global Financial Services also said one could buy in to peers like Federal Bank or other good IPOs coming in the BFSI space which could provide reinvestment opportunity.
The bank is working on technological front, with the increasing acceptance of digital transactions and upgrading infrastructure. It posted turnaround results in first half of FY20 and has improved its operational and financial performance.
Gold loans constituted a major part of the bank's advances, contributing 33.17 percent to total advances as on September 30, 2019. Its gold loan book grew from Rs 2,026.3 crore in March 2017 to Rs 3,781.8 crore on September 30, 2019.
The bank manages risk by ensuring that its advances are adequately secured. As on September 2019, 94.85 percent (i.e. Rs 10,815.5 crore) of the advances were secured.
Its efforts to strengthen risk management have improved asset quality. Its gross non-performing assets decreased to 2.86 percent as of September 2019, from 4.87 percent in March 2019 and net NPAs decreased to 1.96 percent from 2.27 percent in the same period.
A strong risk management framework and a softening interest-rate cycle coupled with the government's focus on the ailing sectors such as infrastructure, power and iron and the RBI’s monitoring of asset quality will benefit the bank in the long run, said Rajesh Agarwal.
The CBS Bank public issue was open for subscription from November 22 to November 26. It comprised a fresh issue of Rs 24 crore and offer for sale of 1.97 crore shares.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.