Ujjivan Small Finance Bank, the subsidiary of microfinance lender Ujjivan Financial Services started its first trade at Rs 58 on the Bombay Stock Exchange on December 12.
The stock listed with a premium of 56.75 percent over the issue price of Rs 37 per share.
The premium was warranted considering the tremendous response to the Rs 750-crore public issue and improvement in earnings along with asset quality in April-September 2019 against previous years, experts feel.
"Premium listing was justified as the issue was well priced with attractive valuation when compared to other listed small bank peers which are trading higher price-to-book value, leaving something on table to the IPO investors. Better asset quality and experienced management with pan-India presence provided comforts to investors at the time of subscription," Prashanth Tapse, AVP Research at Mehta Equities told Moneycontrol.
At the time of publishing this copy, the stock was trading at Rs 62.45, up 68.78 percent on the BSE while it was up 68.51 percent at Rs 62.35 on the National Stock Exchange.
In terms of volumes, Ujjivan traded with 2,40,85,448 shares on the NSE.
At current price, its market capitalisation stood at Rs 10,758.19 crore, which is far higher than its parent company Ujjivan Financial Services' Rs 4,151.67 crore.
The public issue saw hefty subscription of nearly 166 times during December 2-4. The company would use its fresh issue proceeds towards increasing its Tier – 1 capital base to meet the future capital requirements.
Experts remain bullish on the stock considering likely growth going ahead compared to other lenders.
"We believe Ujjivan SFB should continue with its growth trajectory in the near to mid-term. Among several strategies to drive growth, the company is focused on diversifying its product portfolio which is currently concentrated on micro banking loans and MSE loans," Narendra Solanki, Head Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares & Stock Brokers said.
Also, the company's focus on growing retail deposit base for stable, low-cost source of funding, expanding its distribution network and continued investments in technology creates further optimism and room for growth, he added.
As of September 2019, percentage of gross NPAs to gross advances was 0.85 percent and net NPAs to net advances was 0.33 percent, compared to 1.88 percent and 0.29 percent, respectively, in the previous year period.
He expects the loan portfolio of small finance banks will grow at a CAGR of approximately 25 percent in the near term due to support from (i) significant market opportunity especially in the rural segment (ii) presence of high informal credit channels, (iii) geographic diversification, (iv) ability to understand local markets, (v) access to low cost funds, and (vi) loan recovery and control on NPAs.
In the next couple of years, SFBs are expected to focus on gradually building up their banking business and complying with more stringent regulatory norms whereas access to stable and granular public deposits over the long run will bring down their cost of funds, he said.
The IPO of Ujjivan Small Finance Bank was primarily as an effort by the management to meet with the listing norm of the Reserve Bank of India (RBI) that calls for listing a small finance bank within three years of the launch of operations.
Also, the RBI norms requires the promoter Ujjivan Financial Services to reduce its stake in Ujjivan SFB to 40 percent within a period of five years (i.e. by January 2022) from the date of commencement of business operations and thereafter required to further reduce its stake to 30 percent and 26 percent within a period of 10 years (i.e. by January 2027) and 12 years (i.e. by January 2029), respectively.
Notably, post IPO, the promoter’s stake will reduce to about 84 percent from 94.4 percent.