Equitas SFB IPO: Retail portion fully booked, overall subscription at 64% so far; check grey market trend

The 518-crore Equitas Small Finance Bank initial public offer (IPO) has been subscribed 64 per cent so far on day 2 of the three-day bidding process. The IPO received bids for over 7 crore equity shares against an offer size of 11.58 crore shares, according to the data available on the exchanges. Earlier this week, Equitas Small Finance Bank raised around Rs 140 crore from 12 anchor investors and finalised allotment of 4.23 crore equity shares at upper price band of Rs 33 per equity share. The stock is trading with nil or zero premium in the secondary market on the back of thin interest in the IPO.

Manan Doshi, an independent dealer in unlisted shares, said that investors are concerned about valuations as better alternatives are available in both, listed and unlisted space. Furthermore, investors are cautious due to anticipated stake sales in Equitas Small Finance Bank by the holding company to bring down its stake to 40 per cent by September 2021, as per the Reserve Bank of India’s (RBI) norms. Doshi believes that this may act as a resistance to stock price.

Sandip Ginodia, CEO of Abhishek Securities & Altius Investech Pvt Ltd, who too deals in unlisted shares, said that there was hardly any premium in Equitas SFB due to a very few trades. Ginodia termed Equitas Small Finance Bank IPO as a lacklustre IPO. 

The portion reserved for retail investors has been fully subscribed with 1.36 times application. Non-institutional investors subscribed their portion 5 per cent while employee subscribed to 91 per cent of their portion. Qualified institutional investors (QIB) have only bid for 5% of their quota. 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 Anand Rathi Financial Services has subscribe rating with long term horizon to this IPO. At upper price band of Rs 33, the IPO is priced at 1.25 times post issue FY20 book value (BV). The brokerage firm said that valuation looks attractive when compared with peers like AU Small Finance Bank (5.35x FY20 BV) and Ujjivan Small Finance Bank (1.89x).

Analysts at Geojit Financial Services said that based on FY20 P/BV the issue seems fully priced while the outlook for FY21 is slightly weak given the ongoing interest waiver litigation filed in Supreme Court. “In spite of short to medium term concerns, we expect these concerns to normalize by FY22E and so recommend ‘subscribe’ with a long-term perspective,” it said.

On the other hand, Jaikishan Parmar, Senior Equity Research Analyst at Angel Broking Ltd, has given a ‘neutral’ rating to the IPO. Though the bank has a diversified loan book and the best CASA ratio among SFBs, the return ratios are subdued with GNPA above 2.5% for the last 3 years. “Our concern for Equitas SFB is the fresh formation of bad loans from moratorium book that would keep provisions high and return ratios compressed,” Parmar said.