Utkarsh Small Finance Bank will launch on July 21: Is it going to be a great catalogue?
According to analysts, shares of Utkarsh Small Finance Bank were trading on the grey market at a significant premium of sixty percent.
Utkarsh Small Finance Bank, headquartered in Varanasi, is scheduled to make its IPO debut on the bourses on July 21. Analysts predict that the bank, thanks to strong IPO subscription numbers and buoyant equities market circumstances, would do very well.
The analysts also cite reasonable valuations, excellent financial performance with rising asset quality, and robust growth prospects in the small finance bank business as further factors for the anticipated favourable listing price. A majority of them anticipate a 60% listing premium over the Rs. 25 issue price.
Utkarsh Small Finance Bank's initial public offering (IPO) of 500 million rupees was subscribed for 101.91 times during the period of July 12-14, indicating strong interest from investors. This is the second public offering of the year, and it has already received more than 100 times as many subscriptions as Ideaforge Technology did.
Qualified institutional purchasers supported the offer to the fullest extent, bidding 124.85 times the quota. The share set aside for employees was booked 16.58 times, while the portion earmarked for high net worth individuals and retail investors was booked 81.64 times and 72.11 times, respectively.
Utkarsh Small Finance Bank is likely to list for roughly Rs 40, or 60% more than its initial public offering price of Rs 25 per share. According to Anubhuti Mishra, equities research analyst at Swastika Investmart, "this is based on the current grey market premium, which is supported by the strong response this IPO received."
Analysts also reported a significant 60 percent premium on the grey market for the tiny finance bank. IPO shares can be purchased and sold on the grey market, an unofficial trading venue, up until the listing.
The company has a proven track record of expansion, and its financial results have been trending upward in recent years. Because of its emphasis on marginalised populations, Utkarsh SFB is ideally positioned to reap the rewards of the SFB industry's expansion, as argued by Anubhuti Mishra.
A senior research analyst at Hem Securities and the head of research at Arihant Capital Markets, both named Jain, agree that Utkarsh Small Finance Bank will list at a premium of 60% over its IPO price.
"The bank is well-versed in the microfinance sector and is present in both largely rural and somewhat urban areas. "The bank has been able to post respectable financial results thanks to its expanding deposit base, which has been mostly comprised of retail deposits, and its diverse distribution network, which provides enough potential for cross-selling.
Compared to its competitors Ujjivan Small Finance Bank (2x), AU Small Finance Bank (6.28x), Equitas Small Finance Bank (2.7x), and CreditAccess Grameen (3.9x), the stock is currently trading at a price-to-book value (P/BV) of 1.1x with a market capitalization of Rs 2,739.8 crore.
According to Jehan Bhadha and Archi Jain of Nirmal Bang: "Utkarsh is favourably placed with presence in low ticket segments having strong industry tailwinds."
Utkarsh has successfully de-risked its business model by lowering its exposure to the unsecured micro banking segment from 82% in FY21 to 66% in FY23. Experts anticipate this trend will carry on.
Utkarsh's performance during FY21–FY23 was superior to those of its competitors in terms of loan growth, return ratios, and asset quality. As the microfinance business emerges from a severe crisis in 2020-22, with most of the bad loans having been weeded out of the system, Nirmal Bang analysts anticipate growth and robust profitability for the sector and for Utkarsh.
Utkarsh's net interest income surged by 44% year-on-year to Rs 1,529 crore in the fiscal year ending in March FY23, while profit jumped by 558% to Rs 405 crore and assets expanded by 27% to Rs 19,117.5 crore.
As of March 2023, Utkarsh Small Finance Bank had a presence in 26 States and Union Territories across India, with 830 banking outlets and 15,424 employees. The bank's gross loan portfolio grew at a CAGR of 34% between FY18 and FY23, and it stood at 13,957 crore.
The company's deposits increased at a CAGR of 44% between FY18–FY23, reaching Rs 13,710 crore by FY23. Return on assets and return on equity have rebounded strongly to 2.4% and 22.8% in FY23, respectively, after the clean-up of asset quality over FY21-22, as stated by Nirmal Bang.
Govind Singh, Utkarsh's MD & CEO, has worked in the banking and financial services industry for over 25 years, specialising in the microfinance sector.
Shares with a face value of Rs 500 crore were issued for the public offering. The net proceeds from the offering, after deducting issuance costs, will be used to strengthen the company's Tier 1 capital structure in preparation for any capital needs in the future. The range for the offer price was Rs 23–25 per share.
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