Subscribe to ESAF Small Finance Bank: Geojit

Geojit has come out with its report on ESAF Small Finance Bank. The research firm has recommended to “ Subscribe ” the ipo in its research report as on November 02 2023.

Broker Research

November 03, 2023 / 12:10 IST

IPO

Geojit IPO report on ESAF Small Finance Bank

ESAF Small Finance Bank Ltd. (ESFBL) established in 2016 is a south-centric small finance bank targeting unbanked and underbanked customers, primarily in rural and semi-urban areas. The bank offers micro loans, retail loans, MSME loans, loans to financial institutions, and agricultural loans. ESFBL serves 7.15 million customers through its 700 banking outlets out of which 502 banking outlets are in rural and semi-urban centres , across 21 states and two union territories, as of June 30, 2023. Advances under management (AUM) for small finance banks industry saw a 29% CAGR from March 2018 to June 2023, and CRISIL MI&A projects a 22-24% CAGR increase in AUM between June 2023 and March 2025. ESFBL's Net Interest Income (NII) grew to ₹1,529cr at a CAGR of 41% between FY21-23, while net interest margin (NIM) improved to 9.7% in FY23 from 8.5% in FY21. The RoA improved from 0.9% to 1.6% over FY21–23, while the RoE improved from 8.7% to 19.4% over the same period, which is impressive within the industry. ESFBL recorded a net profit of ₹130cr on a total income of ₹992cr in Q1FY24, with net interest income rising by 30% to ₹585cr. Moreover, the bank saw a significant improvement in asset quality, with gross NPAs decreasing to 1.7% from 6.2% and net NPAs declining to 0.81%. At the upper price band of ₹60, ESFBL is available at a P/BV of 1.8x (FY23), which appears reasonably priced compared to its peers. The huge market opportunity in the rural segment, increased focus on diversifying their portfolio and expanding their reach, access to low-cost funds, & huge cross-sell opportunities augur well for the small finance banking sector.

Valuation and Outlook

With consistent growth in loan books and deposits, healthy return ratios, and an increasing pan-India presence, we assign a “Subscribe” rating on a medium- to long-term basis.

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