ESAF Small Finance Bank IPO: How Its Valuation Compares With That Of Listed Peers

ESAF Small Finance Bank Ltd.'s public issue will open for subscription on Friday.

The three-day offer, priced in the range of Rs 57 to Rs 60 per share, will conclude on Nov. 7.

The initial public offering comprises fresh issuance of equity shares worth Rs 390.7 crore and an offer for sale of up to Rs 72 crore, aggregating to Rs 463 crore.

The Kerala-based lender proposes to utilise the proceeds of the fresh issue to augment its Tier-1 capital base. Raising of funds also helps them to ensure compliance with regulatory requirement on capital adequacy.

ESAF Financial Holdings Pvt. and Kadambelil Paul Thomas are the promoters of the bank. Currently, promoters collectively hold 31.2 crore equity shares, equivalent to 69.40% of the pre-offer issued, subscribed and paid-up equity share capital of the bank.

The bank has focused on unbanked and underbanked customer segments, especially in rural and semi-urban centres.

Between March 31, 2021, and the same period in 2023, the bank's assets under management grew from Rs 8,426 crore to Rs 16,331 crore, with a compound annual growth rate of 39%. Its net interest margin stood at 9.68% in the previous financial year, from 7.64% in fiscal 2022.

Its fully diluted earnings per share was Rs 6.71 in the financial year ended March 31, 2023, according to the company's red herring prospectus.

Valuation Snapshot

Based on the upper end of the share price band, the issue presents a market capitalisation of Rs 3,088 crore, with a price-to-equity ratio at 8.94 times, based on the EPS for the previous fiscal.

At a higher price band, the stock is valued at 1.46 times the price-to-book value, with current book value per share of Rs 40.92, LKP Securities in a note.

The brokerage said ESAF Small Finance Bank is worth subscribing, factoring the superlative return ratio—1.6% return on assets and 19.4% return on equity.