Equitas Small Finance Bank IPO: Key things!

19 Oct 2020  Read 688 Views

Money is the blood of business. It helps a business breathe, eat, sleep; basically, it is the lifeline. FY20 has been tough due to the pandemic, and hence this blood supply seems to have been cut off.

During these times, the American Credit Rating Agency, Fitch has given a rating of B.B.B.- to India, it shows that the outlook is negative. When the ratings sink low, the investors get very sceptical about investing. Companies need these investors to invest in order to raise capital. Forget about F.I.I.s; even D.I.I.s are sceptical about investing due to the economic slowdown.

And here is where an IPO creates magic. When private investors step back and do not invest in companies and debt is a no-no; then the company issues IPO as its final resort.

It is a method by which private companies become publicly-traded companies by giving a portion of shares to the general public for the very first time to raise capital. A private company that has few shareholders shares its possession by going public through commercializing its shares.

Investing in IPOs can be a smart move if you are an informed investor. If you are looking to apply in an IPO? Click here to know how.

The IPO by Equitas Small Finance Bank (ESFB) of Rs. 500 crores will open for subscription on Tuesday. Let us know more about this 'blood donation'.

Equitas Small Finance Bank Background

Equitas Small Finance Bank (ESFB) was originally incorporated as 'V.A.P. Finance Private Limited' on June 21, 1993. The bank promoter, Equitas Holdings (E.H.L.) was granted RBI's approval on June 30 2016, to establish a small finance bank (S.F.B.). 

Subsequently, the bank converted into an S.F.B., and they commenced operations on September 5, 2016. The bank has explored in-principal permission from the RBI to embrace a merger of E.H.L. with the bank to such an extent that the merger would be effective from September 4, 2021. 

It has additionally sought principal approval from the R.B.I. to allow the weakening of E.H.L.'s shareholding in the bank according to the merger.

ESFB Business Size

ESFB has the largest network of outlets among all SFB.s in India. As of June 30, 2020, the bank's distribution channels consisted of 856 banking outlets and 322 ATMs across 17 states and UTs in India. 

It also distributes products through digital channels and leverages technology to recognize the target customer segment. To this end, the company has launched facial recognition features for transaction authentication in their mobile banking application.

Equitas Small Finance Bank IPO Details

IPO Date

Oct 20, 2020 - Oct 22, 2020

Issue Type

Book Built Issue IPO

Issue Size

Equity Shares of Rs.10 totalling up to Rs.517.60 Crore

Fresh Issue

Equity Shares of Rs.10 totalling up to Rs.280 Crore

Offer for Sale

7,20,00,000 Equity Shares of Rs.10 totalling up to Rs.237.60 Crore

Face Value

₹10 per equity share

IPO Price

₹32 to ₹33 per equity share

Retail Discount

₹0

Employee Discount

₹0

Market Lot

450 Shares

Min Order Quantity

450 Shares

Listing At

BSE, NSE

The Equitas SFB IPO is set to open for public subscription on October 20, 2020, and will remain open till October 22 2020. At present, the company is looking to raise about Rs 518 crore with the upcoming Equitas S.F.B. Ltd I.P.O. 

The latest issue aggregates up to Rs 280 crore and an offer of sale up to 72,000,000 equity shares by E.H.L.The Equitas Small Finance Bank Ltd share price band is set at Rs. 32 to Rs. 33 per equity share.

The lot size of the Equitas Small Finance Bank Ltd I.P.O. is set at 450 equity shares, with a minimum order quantity of 1 lot size. After the first lot, the bids can be made in multiples of 450, with a maximum order quantity of 13 lots.

The 50% of the offer for the Equitas S.F.B. Ltd I.P.O. is open to Qualified Institutional Buyers, while 35% of the offer is reserved for retail investors. And 15% is reserved for Non-institutional investors. It is also reserving 10% of its offer for its shareholders. 

Invested recently in an IPO? Read this : Psychology of IPO investment

Utilization of Funds

The funds raised will add to the capital ratio, which will support higher growth. ESFB Ltd proposed to utilize the net proceeds towards boosting its Tier I capital base to meet its future capital requirements.

Strength of Equitas Small Finance Bank 

  • ESFB is a customer-centric organization with a deep understanding of underserved customer segments.
  • It is among the massive S.F.B.s in India with a well-diversified asset portfolio.
  • Strong retail liability portfolio with a strategic distribution network.
  • Customized credit assessment steps for effective credit risk management.
  • Equitas leverages technology to drive operating strategy.

Business Update

Particulars

For the year/period ended (All amounts in INR Crore)

 

30-Jun-20

31-Mar-20

31-Mar-19

31-Mar-18

Total Assets

20892.14

19314.55

15762.69

13301.15

Total Revenue

750.97

2927.80

2394.83

1772.90

Profit After Tax

57.67

243.64

210.57

31.83

The gross advances of the S.F.B. have grown to Rs 15,572.91 crore as of June 30 from Rs 15,366.94 crore as of March 31, 2020, and Rs 11,702.85 crore as of March 31, 2019. Secured advances constituted 75.75% as of June 30 compared with 75.39% as of March 31 and 70.72% as of March 31, 2019.

Deposit for the bank rose at a compounded annual growth rate of 38.75% to Rs 10,788.41 crore in FY20 from Rs 5,603.97 crore in FY18. As of June 30, the CASA ratio and retail deposits to total deposits ratio were at 19.97% and 37.13%, respectively.

COVID-19 Impacts and Other Risk Factors

  • ESFB experienced a significant decline in collections as a major proportion of its collection is cash-based and involves the physical presence of its employees. This may continue.
  • Related revenue from processing fees and documentation charges has and may continue to decline. There may be a significant increase in the N.P.A. levels due to possible deterioration in the credit quality of its customers.
  • The bank is subject to stern regulatory requirements and prudential norms and its incapability to obey such laws, regulations, and norms might have an adverse effect on its business, consequences of operations, financial condition, and cash flows.
  • The business of Equitas S.F.B. is vulnerable to Interest rate risk and any volatility in interest rates could adversely affect its net interest margins, income from treasury operations, business, financial conditions, results of operations, and cash flows.
  • A major portion of the bank's advances are towards customers located in the state of Tamil Nadu, and any antagonistic changes in the conditions affecting the region can adversely impact its business, financial condition, results of operations, and cash flows.
  • The bank's deposits depend on a limited number of customers, and a loss of such customers could materially and adversely affect its deposit portfolio, funding sources, financial condition, results of operations, and cash flows.

You can refer this Youtube video

Conclusion

While these Equitas Small Finance Bank Ltd I.P.O. subtleties can surely assist you with settling on the best investment decision going ahead, the initial move towards reasonable investment is to adjust yourself with the right platform.

About the Author: Ishita Jha | 21 Post(s)

Ishita Jha is an MBA Finance student of BIMTECH, now a blogger; trying to survive the pandemic recruitments. She can be found researching, exercising, and binging to balance life. She finds her happy place in writing.

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