Equitas Small Finance Bank IPO opens tomorrow. Should you subscribe?

MUMBAI: Analysts are divided on whether investors should subscribe to Equitas Small Finance Bank’s (SFB) Rs 518 crore initial public offer (IPO) that kicks off on Tuesday. The price band for the issue is fixed at Rs 32-33 per share, and the issue closed on Thursday. The offer from the unit of Equitas Holdings will comprise a fresh issue of shares worth Rs 280 crore, and an offer for sale of 7,20,00,000 shares by the parent company.Equitas Small Finance Bank (SFB) is the largest SFB in India in terms of the number of banking outlets, and the 2nd largest SFB in terms of Assets under Management (AUM) and total deposits.Emkay Global Financial Services recommended investors to subscribe to the IPO. The brokerage said it has a ‘buy’ rating on the holding company Equitas Holdings Ltd with target price of Rs 64 for its superior asset diversification, reasonable liability profile, better management pedigree, healthy return ratios and reasonable valuations.The current target price for the holding company implies a per share value of Rs 40 for Equitas SFB, assuming a 40 per cent holding company discount.KR Choksey said it has a long-term positive view on the stock, and recommended investors to subscribe to the issue.“Strong fundamental performance and adequate liquidity position provides an opportunity to grow business in future,” the brokerage said, adding that the bank is being issued at valuation of around 1.23 times P/BV at upper price band of Rs 33 as on Q1FY21.There were also concerns that the IPO may not lead to robust listing gains.According to Quantum Securities, in case of Equitas SFB, as the SME/MFI businesses face various challenges at operating level in wake of current pandemic and the interest waiver issue for which PIL (public interest litigation) has been filed in the Supreme Court (SC), listing gains look difficult.“So based on expectation of improvement in performance from FY22E onwards, we recommend investors to ‘Subscribe’ to the issue from a long term perspective,” Quantum Securities said in a note.Not all were so optimistic though.Angel Broking pointed that at the upper end of the price band, Equitas SFB demands adjusted P/BV of 1.26 times post considering fresh issue.“Though the bank has a diversified loan book and the best CASA ratio among SFBs, the return ratios are subdued with GNPA above 2.5 per cent for last 3 years. Our concern for Equitas SFB is fresh formation of bad loans from moratorium book that would keep provisions high and return ratios compressed,” said Jaikishan Parmar, senior equity research analyst, Angel Broking.“We believe investors should wait for price discovery before making any investment decision,” said Parmar, recommending a neutral rating for the IPO. Under the offer, Qualified Institutional Buyers (QIB) will get to bid for 50 per cent of the offer, while retail investors will bid for 35 per cent of the offer, leaving Non-institutional Investors (NII) with 15 per cent of the offer to bid for. Investors can bid for a lot of 450 equity shares and multiples thereof.While the company earlier planned to hit the market with a Rs 1,000 crore IPO, the issue size was recently cut by nearly 50 per cent, as the company was reasonably comfortable on capital adequacy ratio, and also due to the choppy market conditions, PN Vasudevan, MD & CEO of Equitas Holdings, had said last week.
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