IPO Size: Rs. 523 cr 

• Fresh Issue Rs. 450 cr for growth capital
• Offer for sale (OFS) Rs. 73 cr by PE investors Oman India and Amicus Capital (14% combined stake to drop to ~8%)

Price band: Rs. 445-468 per share  

M cap: Rs. 2,181 cr, implying 24% dilution

IPO Date: Wed 7^th Feb to Fri 9^th Feb 2024, Listing Wed 14^th Feb 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Punjab based Small Finance Bank (SFB)

A local area bank in its previous avatar, Capital SFB has 173 banking outlets in 6 North Indian states, with a loan book of Rs. 5,784 cr, as of 30.9.23, all secured, comprising 40% towards agri loans, 26% mortgage and 20% MSME loans. However, recently, growth in advances has slowed down to 6.6% in H1FY24 from 17% in FY23. While H1FY24 yield on advances stood at 11.1%, net interest margin of 4% is lower than SFB peers’ 7-9%. Also, due to higher share of agriculture loans, net NPA is elevated at 1.4%, and has actually risen from 1.1% as of 31.3.21.

Low Cost Deposits

Capital SFB’s deposits are at Rs. 7,000 cr, bearing cost of 4.9%, the lowest among listed SFBs’ 5.5-6.7%. High CASA ratio of 41% with maximum savings account interest of 3.5% keeps cost of deposits low. However, mobilization of deposits has not been easy for the bank, an industry-wide challenge, with deposits up only 6.7% in H1FY24.  

Expensive Valuation

Net interest income stood at Rs. 171 cr in H1FY24, with PAT of Rs. 54 cr, EPS of Rs. 15 and net worth of Rs. 712 cr. Based on expected book value per share of Rs. 260 as of 31.3.24, PBV multiple is 1.8x on FY24E basis.

This leaves nothing on the table for prospective investors and is rather on the higher side, for the asset quality (1.4% net NPA), 16% RoE and small size of balance sheet (Rs. 8,400 cr).

• Another SFB IPO, which is parallelly open - Jana SFB, is priced at PBV of 1.3x on higher NIM of 7.8% and better asset quality of 0.9% net NPA for a bigger loan book of Rs. 21,000 cr.
• ESAF SFB with Rs. 17,500 cr AUM, 1.2% net NPA and 11% NIM is trading at PBV 1.6x
• Equitas SFB with Rs. 33,000 cr AUM, 1.1% net NPA, 8.4% NIM is quoting at 2x.
• Larger bank IDFC First is at 1.8x on Rs. 1.9 lakh cr advances, 6.4% NIM and 0.7% net NPA.

Past Transaction

In June 2023, company raised Rs. 50 cr at Rs. 468 per share from Max Life Insurance. IPO price is same as the 8 months old transaction price, but this is in line with secondary markets, wherein most banking stocks have had share prices being flat. IPO will dilute promoter holding of 24% to 18% post IPO.