ESAF

IPO Size

`518 Cr

Price Band

`32-33 Per Share

Minimum Lot Size

450 Share

Face Value

`10 Per Share

Employee Discount

NA

Retail Allocation

35%

Issue Open Date

20 Oct 2020

Issue Close Date

22 Oct 2020

Listing Date

02 Nov 2020

About the Company:

Equitas Small Finance Bank is the new age social bank which focuses on expanding the banking horizon to new unbanked/underbanked area. The bank had started its journey in 1992 as a Non-Government Organization with a vision of vision of sustainable and holistic transformation of the poor and the marginalized. After evaluating the contributions and significance of ESAF in the development of rural and unreached segments of the nation, the Reserve Bank of India issued an in-principle license to ESAF Microfinance and Investments Pvt. Ltd. to set up a new Small Finance Bank during October, 2015.

As per the CRISIL report, ESAF, the subsidiary of Equitas Holdings is the largest small finance bank in India considering banking outlets and the 2nd largest small finance bank considering assets under management and total deposits. The microfinance bank provides loans for housing, vehicles and micro and small enterprises. In addition with loan disbursement, the microfinance bank provides facilities of salary accounts, current accounts, mutual fund products, third party insurance and ATM-cum-Debit cards.

Outstanding Litigation:

S.No. 1 - Company 2 - Directors 3 - Promoters
Entity Name By the Company Against the Company By the Director Against the Director By the Promoter Against the Promoter
Criminal cases 1,404.73 - - - - -
Material civil cases - - - - - -
Taxation matters - 20.13 - - - 104.05
Regulatory Procedings - 18.75 - - - -
Amt. (In Million Rs.) 1,404.73 38.88 - - - 104.05

Financial Statements:

Income Statement (In Millions.) Mar'20 Mar'19 Mar'18
Interest Earned 26,454.44 21,119.34 15,316.88
Other Income 2,823.51 2,828.98 2,412.15
Total Income 29,277.95 23,948.32 17,729.03
Interest Expended 11,501.38 9,602.00 6,711.47
Net Interest Income 14,953.06 11,517.34 8,605.41
Operating expenses 11,800.79 10,084.87 8,811.13
Total Expenses 23,302.17 19,686.87 15,522.60
Operating Profit Before Provisions and Contingencies 5,975.78 4,261.45 2,206.43
Provision 3,539.43 2,155.79 1,888.12
Net Profit for the Year 2,436.35 2,105.66 318.31

 

Recommendation

As per CA Ajay Chouhan, SEBI Registered Research Analyst, recommendation is to ‘Subscribe but don’t expect listing gains’. The Equity Small Finance Bank is the largest small finance banks in India with the presence of strong parental control and diversified product portfolio. The bank has strong distribution network which helps in catering the non-penetrated segment of the country. Moreover, the bank has started focusing on non-interest income sources too. On the financials front, the CASA ratio of the bank stands at 29.23%. Gross Non-performing Assets of the bank are 2.68% of Gross Advances or 416.33 crores. At an upper price of Rs. 33, the IPO is demanding a Price-earnings multiple of 13.80x (considering the FY20 earnings), much lower than the Industry P/E multiple of 27.95x.

Promoter of the Company

The promoters of the company are Kadambelil Paul Thomas and ESAF Financial Holdings Private Limited.

Peer Comparison

The IPO belongs to that kind of sector which is full of players with enough potential and strong financials. The microfinance bank will face tough competition after listing and investors should give a second thought on inculcation of the small finance bank in the portfolio. In the listed space, the competitors of the ESAF are Credit Access Grameen Bank, Spandana Spoorthy, AU Small Finance Bank and Bharat Financial Inclusion.

Objectives of the Issue

Offer for Sale

The object of the Offer for Sale is to allow the shareholders to sell an aggregate of up to 7, 20,00,000 Equity Shares held by them. The company will not receive any proceeds from the Offer for Sale. Offer for Sale Size is of 7,20,00,000 Equity Shares having ₹10 aggregating up to Rs.238 Cr at the upper price band of Rs. 33.

Fresh Issue

The company has planned to raise fresh capital comprising an aggregate of 8 crore shares having ₹10 aggregating up to Rs. 280 Cr. The net proceeds from the issue will be utilized for augmenting Bank’s Tier 1 capital base to meet future capital requirement.