Equitas Small Finance Bank IPO opens next week; check price band, lot size, other details

Adding to the list of initial public offerings (IPO) in recent months, Equitas Small Finance Bank today announced the launch of its public issue, which will open for subscription on October 20. At a price band of Rs 32-33 per share the issue size translates to Rs 518 crore, at the upper end. The issue includes a fresh issue of Rs 280 crore and an offer for sale for the remaining. The promoters, Equitas Holdings Limited will be selling 7.2 crore equity shares. Equitas Small Finance Bank, will be the ninth IPO to enter the primary market in recent months. So far all the public issues have been oversubscribed by retail investors.

Issue details

Investors can bid for the units of Equitas Small Finance Banks between October 20 and October 22 with the possible listing just one day ahead of the US Presidential Elections. According to the offer, Qualified Institutional Buyers (QIB) will get to bid for 50% of the offer, while retail investors will bid for 35% of the offer, leaving Non-institutional Investors (NII) with 15% of the offer to bid for. Investors can bid for a lot of 450 equity shares and multiples thereof. At the upper price band, bidding for a single lot of Equitas Small Finance Bank units will cost investors Rs 14,850. 

The listing is aimed to help the lender follow the Reserve Bank of India’s guidelines for banks, which mandates them to list equity shares on the stock exchanges within three years from the date of commencement of business. The net proceeds from the issue will be used towards augmenting the bank’s Tier-I capital base to meet future capital requirements. Currently the promoter and promoter group of Equitas Small Finance Bank holds 95.49% stake in the bank, according to the RBI’s rules promoter shareholding must be brought to 40% within first five years, and which should be further brought down to 30% within 10 years and further to 26% within 12 years from the commencement of operations. Post issue the shareholding of the promoters will only come down by 7%.

Industry watch

Equitas Small Finance Bank has a 16% small finance market AUM, being the second largest player in the industry behind AU Small Finance Bank. It was the largest small finance bank in India in terms of a number of banking outlets in Fiscal 2019, as per a CRISIL report. At the rate of Rs 35 Equitas SFB is demanding a valuation in the range of 1.3x of Q1FY21 Book value. “Peers are trading at a higher valuation, Ujjivan 1.8x and AU SFB at 4.9 x of Q1FY21 Book value. We believe Equita SFB valuation in the range of 1 -1.2x will garner healthy interest from investors,” said Jaikishan Parmar – Sr. Equity Research Analyst, Angel Broking.

The small finance industry has seen gross NPAs come down from 2.2% in 2018 to 1.6% in 2019, however, risks post the coronavirus pandemic remain. Among the small finance banks, Capital SFB has the highest CASA ratio of 38.39% followed by the Equitas at 28.34%. The Bank has the third highest proportion of retail deposits in total deposits at 58.38%. Between the financial year 2018 to 2020, Equitas Small Finance Bank’s net profit has gone from Rs 31.8 crore to Rs 243.6 crore.