Equitas Small Finance Bank IPO: Opens today; Key details of the issue

Equitas Small Finance Bank's (SFB) Rs 518 crore initial public offer (IPO) will kick off on Tuesday, October 20, 2020. The price band for the issue is fixed at Rs 32-33 per share. The issue will remain open for three days between October 20, 2020, and October 22, 2020.

Bids can be made for a minimum of 450 equity shares and in multiples of 450 equity shares thereafter.

The public offering comprises fresh issue of 8.5 crore shares worth Rs 280 crore and offer for sale of 7.2 crore shares by Equitas Holdings Limited, the holding company of Equitas Small Finance Bank (valued at Rs 237.6 crore at the upper price band), taking the total issue size to Rs 517.6 crore.

JM Financial, Edelweiss Financial Services and IIFL Securities are the book running lead managers to the issue.

Equitas Small Finance Bank is the wholly-owned subsidiary of NBFC Equitas Holdings. Post the IPO, the stake of Equitas Holdings Limited will decline to about 82 per cent from 95.49 per cent earlier. The shares are expected to list on BSE and NSE on October 30, 2020. Originally, the company had planned Rs 1,000 crore issue, which has now been reduced to half.

Equitas Small Finance Bank will use the IPO proceeds to augment its Tier I capital base to meet future capital requirements such as organic growth and expansion and to comply with the regulatory requirements for enhanced capital base, as may be prescribed in the future. However, the bank will not receive the proceeds from the offer for sale (OFS) as this proceed will go to Equitas Holdings.

This IPO is going to be the first public issue in October after 8 IPOs, which were launched in September 2020. At the same time, Equitas Small Finance Bank's IPO would be the third small finance bank to come out with IPO after AU Small Finance Bank and Ujjivan Small Finance Bank.

Market outlook and valuation: At the upper end of the price band, Equitas SFB demands Adj. PB of 1.26x post considering the fresh issue. Though the bank has a diversified loan book and the best CASA ratio among SFBs, the return ratios are subdued with GNPA above 2.5% for the last 3 years.

Mr Jaikishan Parmar- Sr. Equity Research Analyst, Angel Broking Ltd says, "Our concern for Equitas SFB is the fresh formation of bad loans from moratorium book that would keep provisions high and return ratios compressed. We believe investors should wait for price discovery before making any investment decision. Considering the above factors, we recommend a NEUTRAL rating for the IPO."

Equitas Small Finance Bank was incorporated in Chennai in 1993, as a micro-finance institution. It provides microfinance loans, housing finance and vehicle finance. And unlike other micro-finance institutions, Equitas Small Finance also sells mutual fund products and third-party insurance products and opens savings accounts.

Equitas Small Finance Bank was the largest SFB in India in terms of a number of banking outlets in FY19. It is also the second-largest small finance bank in India in terms of assets under management and total deposits, CRISIL says. It had a market share of 16 per cent in terms of assets under management in India.