The biggest banking IPO issue by Bandhan Bank opens today to raise Rs. 4473 crore. Started as a microfinance institution the company started its banking operations after RBI approval in August 2015. So, while with the offer, you have yet another option in the primary market space, here is a breakdown on the key essentials which should be noted beforehand.
1. Issue details:
The issue will comprise a fresh share issue of 977 lakh equity worth upto Rs. 3663 crore. Existing shareholders including International Finance Corporation and IFC FIG Investment Company will offload their existing stake in the bank worth Rs. 811 crore. After the IPO, promoter equity will reduce to 82.3% against the current 89.6%.
The price band for the issue is Rs. 370-375 of face value of Rs. 10 per equity. The issue remains open until March 19, 2018.
Before the issue on March 14 the bank raised Rs. 1342 crore through anchor investment by selling shares to some 65 anchor investors that include Nomura Fund, Abu Dhabi Investment Authority, Amansa Holdings, ICICI Prudential, Blackrock India Equities (Mauritius) etc.
The lead managers to the issue are Kotak Mahindra Capital Company, JM Financial, and JP Morgan India, Goldman Sachs (India) Securities and Axis Capital
The proceeds from the issue will improve the bank's tier I capital to manage future capital needs. As per the prospectus, the main objective with which the issue is being floated is to achieve the benefit of listing equity shares on stock exchanges and also to comply with RBI's licensing guidelines.
3. Company profile:
The Kolkata based-bank is the biggest microfinance institution in India that caters primarily to the underbanked regions of East and North east India. As on December 2017, the bank's loan book amounts to over Rs. 24,364 crore while its CASA deposits has also improved to 33.2% during the period. The bank enjoys benefits of priority sector lending.
With focus on the underpenetrated and underbanked markets, the bank's NIM has stood at the highest of 9.9% in December 2017. Also, the cost to return ratio of the bank are well managed in comparison to other peers. Return on equity at 25.6% is also the highest in comparison to other banks. Also, the bank's asset quality is strong with a GNPA rising to 1.67% in December 2017 mainly due to demonetisation. The bank posted a net profit of Rs. 331 crore in the quarter ended September of the current FY.
Brokerages are of the view that the Bandhan Bank issue is steeply priced at a price-book value (P/B) multiple of 4.9. Large established players in the retail banking space including HDFC and IndusInd Bank are available at similar valuations with a P/B multiple of 5. So, investors subscribing to the issue will not be able to lap up listing gains. At the upper end of the price band, the issue is valued at 8.3x 3QFY18 book value.
However, investors with higher risk appetite and long-term horizon can still subscribe to the issue as the high valuations are well supported by healthy return of over 25% RoE and focused management team.