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Motilal Oswal's IPO Report
ESAF Small Finance Bank launched its initial public offering on November 3, 2023 and the issue will close on Nov 7. The company has set a price band in the range of Rs 57 to Rs 60 per equity share. The minimum order quantity is 250.
Rs 460 crore IPO consists of both fresh issue of Rs 390 crore and offer for sale of 1.2 crore shares by promoters and investors: PNB MetLife and Bajaj Allianz.
The promoter stake post stake sale would reduce to 62.6%. The market cap post listing would stand at Rs 380 crore. Proceeds from the fresh issue will be utilized to meet future capital requirements in bank's tier–I capital base.
Financials:
ESAF's net interest income grew at 41% compound annual growth rate over FY21-23, while net profit grew faster at 69% per annum current account and savings accounttt ratio stood at 18.2% while retail deposits formed 89% of the total deposits as on Q1 FY24.
ESFA has healthy asset quality with its gross/net non-performing asset at 2.5%/1.1% while provision coverage ratio stood at 56.7% at FY23 end.
View:
ESAF SFB enjoys healthy market share in the south with robust financials and healthy return ratios. The issue is priced at 1.8 times FY23 book value (on fully diluted basis), which seems comfortable. Given the current buoyancy in the micro finance sector, we believe that ESAF is attractively priced, thus recommend 'Subscribe'.
Risk and concerns
~57% of AUM is from the micro loan segment. Any decrease in demand for our micro loans could adversely affect business, financial condition, results of operations and cash flows.
~75% of advances are unsecured which, if unable to recover, could adversely affect the business operation.
~62% of business is concentrated in South India, particularly in the states of Kerala and Tamil Nadu. Any adverse change in the economy of South India, could have an adverse effect on the financial condition of the bank.
Click on the attachment to read the full IPO report:
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