Varanasi-based Utkarsh Small Finance Bank will likely see a stellar debut on the bourses on July 21, given the robust IPO subscription numbers and positive equity market conditions, analysts said.
Reasonable valuations, healthy financial performance with improving asset quality, and strong growth potential in the small finance bank industry are other reasons that backing the expected strong listing price, the analysts added. Most of them expect 60 percent listing premium over final issue price of Rs 25 per share.
The Rs 500-crore initial public offering of Utkarsh Small Finance Bank received robust response from investors, getting subscribed 101.91 times during July 12-14. This is the second public issue in current year, getting more than 100 times subscription after Ideaforge Technology.
Qualified institutional buyers provided the maximum support to the offer, bidding 124.85 times the allotted quota. High networth individuals and retail investors bought 81.64 times and 72.11 times the reserved portion, while the part set aside for employees was booked 16.58 times.
"The expected listing price for Utkarsh Small Finance Bank is around Rs 40, which is around 60 percent higher than the IPO price of Rs 25 per share. This is based on the current grey market premium, which is supported by the strong response this IPO received," said Anubhuti Mishra, equity research analyst at Swastika Investmart.
The small finance bank also traded with a massive 60 percent premium in the grey market, analysts said. The grey market is an unofficial platform for trading in IPO shares which can be bought and sold till the listing.
"The company has a strong track record of growth, and its financial performance has been improving in recent years. Utkarsh SFB is well-positioned to benefit from the growth of the SFB sector, as it has a strong focus on underserved segments of the population," Anubhuti Mishra said.
Astha Jain, senior research analyst at Hem Securities as well as Abhishek Jain, head of research, Arihant Capital Markets also expect Utkarsh Small Finance Bank to list at 60 percent premium to issue price.
"The bank has sound understanding of microfinance segment and presence in rural and semi-urban areas. Bank’s growing deposits with focus on retail deposits & diversified distribution network with significant cross-selling opportunities helps it in showing decent financial performance," Jain said.
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Given the FY23 book value per share of Rs 22.82 on post issue basis, the stock is available at price-to-book value (P/BV) of 1.1x with a market capitalisation of Rs 2,739.8 crore , which is at a significant discount to its peers Ujjivan Small Finance Bank (2x), AU Small Finance Bank (6.28x) and Equitas Small Finance Bank (2.7x), and CreditAccess Grameen (3.9x).
"Utkarsh is favorably placed with presence in low ticket segments having strong industry tailwinds," Jehan Bhadha and Archi Jain of Nirmal Bang said.
Utkarsh has managed to reduce its exposure to the unsecured micro banking segment from 82 percent in FY21 to 66 percent in FY23 which has de-risked its business model. Analysts expect this trend to continue.
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Over the FY21-23 period, Utkarsh has outperformed its peers on all fronts - loan growth, return ratios and asset quality. Considering that the micro finance industry has come out of severe crisis over 2020-22, with most of the bad loans having weeded out of the system, analysts at Nirmal Bang expect growth and healthy profitability to resume for the sector as well as for Utkarsh.
Utkarsh has recorded a 44 percent year-on-year growth in net interest income at Rs 1,529 crore in the year ended March FY23, and its profit grew by 558 percent to Rs 405 crore compared to previous year, while its assets increased by 27 percent to Rs 19,117.5 crore during the same period.
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The operations of Utkarsh Small Finance Bank, which has registered a gross loan portfolio growth at a CAGR of 34 percent during FY18-FY23 and stood at 13,957 crore as on FY23, are spread across India with presence in 26 States and Union Territories with 830 banking outlets and 15,424 employees, as of March 2023.
Its deposits grew at a CAGR of 44 percent during FY18-23 and stood at Rs 13,710 crore as of FY23. Post the clean-up of asset quality over FY21-22, return on assets and return on equity have recovered sharply to 2.4 percent and 22.8 percent respectively in FY23, Nirmal Bang said.
Utkarsh is led by its MD & CEO Govind Singh, who has over 25 years of experience in the banking and financial services sector and in particular the microfinance industry.
The public issue mainly comprised a fresh issuance of shares worth Rs 500 crore. The issue proceeds, excluding issue expenses, will be utilised for augmenting its Tier - 1 capital base to meet its future capital requirements. The price band for the offer was Rs 23-25 per share.
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