ESAF Small Finance Bank IPO: Latest Subscription Status, GMP; Should You Bid Or Not?

ESAF Small Finance Bank IPO: The 463 crore IPO received full subscriptions on the very first day of its launch. The IPO which was launched on November 3rd, will continue to be available for bidding till November 7th. The majority of experts have recommended subscribing the IPO on long-term basis.

November 6th will be the second day of the IPO for bidding. At around 10.10 am, the IPO had oversubscribed by 2.56 times with more bids coming in. The IPO received bids of 14,79,60,500 equity shares against the offered size of 5,77,28,408 equity shares. Strong demand was seen from retail and high-net-worth investors.

The portion reserved for Non-Institutional Investors (NII) and Retail Individual Investors (RIIs) oversubscribed by 4.41 and 2.83 times respectively. However, the Qualified Institutional Buyers (QIBs) category subscribed 92% of the reserved portion for them.

As per the Investor Gain website, the grey market premium of the IPO is Rs 20 per share. With a price band of 60.00, ESAF Small Finance Bank IPO's estimated listing price is Rs 80 (cap price + today's GMP). The expected percentage gain/loss per share is 33.33%.

On Day 1 (November 3rd), as per the data on NSE, the IPO received bids of 10,02,26,500 equity shares against the offered size of 5,77,28,408 equity shares, fully subscribing by 1.74x.

The IPO comprises of fresh issue worth Rs 390.7 crore and an offer for sale of up to Rs 72.3 crore. The 100% book building has a price band of Rs 57 to Rs 60 per share. The bid lot size is 250 Equity Shares and in multiples thereof.

The proceeds from the fresh issue will be utilized towards the augmentation of its Tier-1 capital base, increasing its onward lending business, and ensuring compliance with regulatory requirements on capital adequacy.

Should You Subscribe to ESAF Small Finance Bank IPO?

According to Motilal Oswal, ESFA SFB enjoys a healthy market share in the south with robust financials and healthy return ratios. The issue is priced at 1.8x FY23 BV (on a fully diluted basis), which seems comfortable. Given the current buoyancy in the microfinance sector, the brokerage believes that ESAF is attractively priced, thus recommends Subscribe.

In its IPO note, LKP Securities said, "At a higher price band (₹60), the stock is valued at 1.46(x) P/BVPS with current book value per share of ₹40.92. Factoring the superlative return ratios, FY23 ROA/ROE of 1.6%/19.4%, we believe that ESAF Small Finance Bank Limited is worth subscribing to. Thus we recommend to SUBSCRIBE."

While StoxBox in its note said, "As the lender will utilise the net proceeds of the fresh equity shares issue to augment its Tier-I capital base, its capital adequacy will enhance and lead to a stable leverage position. At the current P/BV multiple of 1.6x, we believe the company is attractively valued and advise investors to "Subscribe" from a medium to long-term perspective."

ESAF SFB's products and services are designed to meet the various lifecycle needs of customers such as home loans, clean energy product loans, loans for agricultural activities, loans against property, personal loans, education loans, gold loans and vehicle loans.

However, StoxBox note also highlighted three risks for the company. These are:

1. ) ESAF SFB faces challenges in the rural-focused Microfinance Loan business, including the high cost of reaching customers, potential customers' lack of financial and product awareness and vulnerability of household's income to local developments, which could adversely affect the business and financial condition, results of operations and cash flows.

2.) The SFB does not have much of a presence in Bihar, Uttar Pradesh, West Bengal, Odisha or Rajasthan, which are among the top 10 states for Microfinance Loan advances under management for the industry as at June 30, 2023. They do not have any customers in Jammu and Kashmir, Himachal Pradesh, and Manipur, which are three of the top five most underpenetrated states as at June 30, 2023.

3.) If the lender cannot secure funding on acceptable terms and at competitive rates when needed, it could adversely affect the business, financial condition, results of operations and cash flows.

Meanwhile, brokerage Swastika in its note said, "ESAF Small Finance Bank has a major operation in the microloan segment, with a main focus on rural areas. The company has a strong presence in southern India. And it has a growing retail deposit portfolio. If we look at its financials, the company has reported strong growth in top- and bottom-line numbers."

However, Swastika's note also said, there are some concerns, like geographical concentration and intense competition in the industry. Overall, the brokerage said, "The issue is coming at a P/BV of 1.5x, which seems fairly priced. Thus, considering this valuation and its better performance in terms of its CIR, NNPA, and NIM, we will give a subscribe rating to this IPO."

Also, HEM Securities said, "Company is bringing the issue at price band of Rs 57-60 per share at p/b multiple of 1.4x on FY23 basis." It explained that the company's understanding of the micro loan segment, has enabled it to grow its business outside of Kerala, company's home state. Company's main focus on rural and semi-urban banking franchise along with growing retail deposits portfolio & customer connections driven by its customer-centric products and processes and other non-financial services for Micro Loan customers.

Following this, HEM's note said, "we recommend "Long Term Subscribe" on issue."

Brokerage Geojit has also recommended subscription for long-term basis. In its note, Geojit said, "At the upper price band of ₹60, ESFBL is available at a P/BV of 1.8x (FY23), which appears reasonably priced compared to its peers. The huge market opportunity in the rural segment, increased focus on diversifying their portfolio and expanding their reach, access to low-cost funds, & huge cross-sell opportunities augur well for the small finance banking sector. With consistent growth in loan books and deposits, healthy return ratios, and an increasing pan-India presence, we assign a "Subscribe" rating on a medium- to long-term basis."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.