ESAF Small Finance Bank plans to launch an IPO on November 3, 2023. ESAF Small Finance Bank primarily focuses on providing loans to customers in rural and semi-urban areas. Banks have experienced strong revenue growth in recent years. This article provides ESAF Small Finance Bank IPO details, IPO size, Gray Market Premium (GMP), positive aspects, risk factors, and reviews.
ESAF Small Finance Bank IPO – Issuance Details
| IPO start date | November 3, 2023 |
| IPO deadline | November 7, 2023 |
| IPO listing date | November 16, 23 |
| Type of problem | Book Built Issue IPO |
| face value | 10 rupees per share |
| IPO price range | 57 rupees to 60 rupees per share |
| lot size | 250 shares |
| Exhibition location | BSE and NSE |
| Total issue size | Rs. 463 million |
| Latest issue | Rs. 390.7 million |
| OFS | Rs. 72.3 billion yen |
| employee discount | 5 rupees per share |
About ESAF Small Finance Bank Limited
ESAF is a small finance bank that primarily focuses on providing loans to customers in rural and semi-urban areas.
The Bank’s product portfolio consists of:
(a) microloans;
(b) retail loans;
(c) MSME financing.
(d) Loans to financial institutions.and
(e) Agricultural financing.
As of March 2023, ESAF Small Finance Bank has a network of 700 stores, 743 customer service centers, 20 business correspondents and 481 business facilitators.
The bank has 581 ATMs across 21 states in India.
Financial overview of ESAF Small Finance Bank Limited
| Fiscal year end/period end (amount in billions) | ||||
| Period ends | March 31, 2021 | March 31, 22 | March 31, 23 | June 30, 2023 |
|---|---|---|---|---|
| assets | 12,338.65 | 17,707.56 | 20,223.66 | 20,795.94 |
| revenue | 1,768.42 | 2,147.51 | 3,141.57 | 991.78 |
| Profit after tax | 105.40 | 54.73 | 302.33 | 129.96 |
| net worth | 1,352.06 | 1,406.80 | 1,709.13 | 1,839.09 |
| reserves and surplus | 902.59 | 957.32 | 1,259.66 | 1,389.62 |
| Total loan amount | 1,694.00 | 2,952.83 | 3,354.20 | 2,739.13 |
Target of IPO
The IPO size is Rs 463 crore and comprises both OFS and fresh issue.
#1 – Offering price (OFS) – Rs 7,230 crore – Under OFS, that money would be sold to shareholders and the company would receive nothing.
#2 – New issue of Rs 390.7 million – Proceeds will be used for the following purposes:
- The net proceeds will be utilized to strengthen the Bank’s Tier-I capital base to meet the Bank’s future capital requirements, which are expected to arise primarily from the growth of the Bank’s assets such as the Bank’s loans/advances and investment portfolio. is proposed. To ensure compliance with regulatory requirements regarding capital adequacy prescribed by RBI from time to time.
- The Bank expects to benefit from listing its shares on a stock exchange.
ESAF Small Finance Bank IPO Price Evaluation
The IPO price range is between Rs 57 and Rs 60 per share.
- Considering last year’s FY23 EPS was Rs 6.71, the P/E ratio is 9x.
- Considering the weighted EPS of Rs 4.47 over the last three years, the P/E ratio is 13x.
- Listed peers such as Spandana Sforty Financial have a P/E ratio of 471x (highest) and Ujjivan Small Finance Bank has a P/E ratio of 9.8x (lowest), while the industry average P/E ratio is 94.7x. Therefore, an IPO price range of 9x to 13x P/E is reasonable.
Positive aspects of ESAF Small Finance Bank IPO
- The bank’s understanding of the microloan space has enabled it to grow its business outside of its home state of Kerala. Its main focus is on rural and semi-urban banking franchise, which has contributed to the company’s faster growth.
- The bank has shown strong growth in its retail deposit portfolio.
- Revenue and profits have increased significantly over the past three years.
ESAF Small Finance Bank IPO Risk Factors
- OFS’ IPO proceeds will go to selling shareholders, leaving the company with nothing.
- As of June 30, 2023 and March 31, 2023, 2022, and 2021, 74.70%, 75.04%, 81.16%, and 84.80% of the company’s advance under management (AUM) were microloans. .
- As of June 30, 2023 and March 31, 2023, 56.52% and 63.66% of our assets under management were microfinance loans and 18.18% and 11.38% were other microfinance loans.
- A decrease in demand for microloans could have an adverse effect on the Company’s business, financial condition, results of operations and cash flows.
- As of June 30, 2023 and March 31, 2023, 2022 and 2021, 75.15%, 75.35%, 83.59% and 85.50% (net of reserves) of the advances were unsecured advances. If we are unable to collect these unsecured advances on a timely basis, our financial condition, results of operations and cash flows could be adversely affected.
- The company’s operations are concentrated in southern India, particularly in Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Telangana and the Union Territory of Puducherry.
- As of June 30, 2023, the majority of the company’s banking outlets, advances and deposits originate from South India, primarily in the states of Kerala and Tamil Nadu. Economic adversity in southern India, particularly in the states of Kerala and Tamil Nadu, could adversely affect our financial condition, results of operations and cash flows.
- These are subject to regular inspections by the RBI, and violations have been confirmed in the past.
- They are currently grappling with certain material observations by the RBI, and unresolved matters could lead to sanctions and penalties and have a material impact on their reputation, business, financial condition, results of operations and cash flows.
- Investors should read all internal and external risk factors. ESAF Small Finance Bank RHP.
ESAF Small Finance Bank IPO – Should you subscribe or not?
ESAF Small Finance Bank focuses on providing loans to customers primarily in rural and semi-urban areas of South India. The bank has a strong financial performance in terms of both revenue and profits. The IPO price is set at a reasonable valuation.
On the other hand, the majority of loans are unsecured microloans. Failure to recover these unsecured microloans can have significant financial implications. Additionally, the bank’s exclusive focus on southern India also poses risks.
Investors who understand both these pros and cons can consider investing in such IPOs.
Suresh KP is the founder of Myinvestmentideas. He is a NISM Certified Investment Advisor and he is a NISM Certified Research Analyst. He has been analyzing financial markets for the past 20 years. He can be reached at suresh@myinvestmentideas.com.
