Arihant Capital IPO report on Suryoday Small Finance Bank
Suryoday Small Finance Bank is coming with an IPO of INR 582 cr which includes fresh issue of INR 249 cr and OFS of 1.09 shares by shareholders at price band of INR 303-305. The primary purpose of the IPO is to comply with RBI’s norm of listing the bank within 3 years of commencement. The bank has a strong capital position with CAR at 41.2% including Tier 1 capital at 36.9% as of Dec’20. Unlike Ujjivan/Equitas SFB, Suryoday does not have any holding company structure to meet promoter holding norms.
Valuation and Outlook
At an upper price band of INR 305, Suryoday SFB has been valued at 2.7x P/BV (post issue) which is at premium as compared to its peers (Ujjjvan / Equitas). We recommend investor to Avoid this issue, given the weak liability profile (lowest CASA amongst peers), asset quality risk due to high share of MFI portfolio (Proforma GNPA at 9.3% vs. 4.2-4.8% for peers) which could pose the risk to the growth and return ratios in the near to medium term.
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