Equitas Small Finance Bank IPO opens Oct 20: Check grey market trend; should you subscribe?

The Rs 518-crore Equitas Small Finance Bank initial public offer (IPO) will open for subscription on Tuesday, October 20, 2020. The company has fixed a price band of Rs 32-33 per share and the issue will close for subscription on October 22. The total issue size includes an offer for sale (OFS) of up to 7.20 crore equity shares by promoter Equitas Holdings Ltd. and fresh issue of up to 8.5 crore equity shares at Rs 33 per share of which Rs 1 crore is reserved for employee portion and Rs 51 crore reserved for EHL shareholder portion. Emkay Global Financial Services has a ‘buy’ rating on Equitas (Holding company) for superior asset diversification, reasonable liability profile, healthy return ratios and reasonable valuations. It’s target price of Rs 64, for Equitas Holdco implies a per share value of Rs 40 for Equitas SFB implying a decent upside to the issue price. “Thus, we recommend ‘subscribe’ to SFB IPO,” it said.

The IPO pricing (Rs32-33) has been reasonable valuing the bank at 1.3x P/ABV TTM (post-IPO money), compared to close peer Ujjivan SFB trading at 1.8x P/ABV TTM, Emkay added. “Equitas SFB is well capitalized with CAR at 21.6% (vs.15% required), including CET 1 at 20.6%,” it said.

Equitas SFB is the largest small finance bank in India in terms of the number of banking outlets, and the second-largest SFB in India in terms of Assets under Management (AUM) and total deposits in fiscal 2019, according to CRISIL report.

Investors can bid for a lot of 450 equity shares and multiples thereof. At the upper price band, investors will need to shell out Rs 14,850 to bid for a single lot of Equitas SFB unit. The lead managers of the for the initial public offer are Edelweiss Financial Services, IFL Holdings and JM Financial Consultants, while KFintech Private Limited is the registrar to the issue.

Research and brokerage firm Quantum Securities says that as the SME/MFI businesses face various challenges at the operating level in wake of the current pandemic and the interest waiver issue for which PIL has been filed in SC, listing gains look difficult in Equitas SFB. “So, based on the expectation of improvement in performance from FY22E onwards, we recommend investors to ‘Subscribe’ to the issue from a long term perspective,” it said.

Share market volatility hits grey market premium

Meanwhile, the share market volatility has hit the premium of Equitas Small Finance Bank in the secondary market. “The grey market premium in Equitas Small Finance Bank has vanished as of now, which was quoting Rs 4-5 last week,” Abhay Doshi, Gujarat based independent dealer in unlisted shares, told Financial Express Online. The investors in the primary market have turned cautious after the underperformance of recent IPOs. Doshi further added that Equitas SFB’s peer Ujjivan SFB, listed last year, is now trading below the issue price. The tentative listing date of Equitas SFB is November 2, a day before US elections. Moreover, the pending Supreme Court verdict on interest waiver for the loan moratorium period is making investors wary of risk.