IPO Size: Rs. 500 cr 

• Entirely Fresh Issue, to augment capital. Listing is essentially to meet RBI norms (mandating listing within 3 years of achieving Rs. 500 cr net worth).
• Promoter Utkarsh CoreInvest’s 84.75% holding in the bank will fall to 69% post IPO. RBI Regulations require promoter to dilute holding to 26%, on or prior to 15 years from commencement of business (i.e. from 23.1.2017).

Price band: Rs. 23-25 per share  

• 75% reserved for institutions, and only 10% for retail investors

M cap: Rs. 2,740 cr, implying 18% dilution

IPO Date: Wed 12^th Jul to Fri 14^th Jul 2023, Listing Mon 24^th Jul 2023

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

Varanasi Headquartered Micro-Finance Focused Lender

Utkarsh Small Finance Bank (SFB), India’s first scheduled commercial bank headquartered in the Hindi-speaking heartland, has 830 branches across 26 states, serving 36 lakh customer, with a loan book of of Rs. 13,957 cr, of which, 57% is from underpenetrated states of Uttar Pradesh and Bihar. Utkarsh’ 66% of loan book comprises microfinance loans, leading to 19.9% yield in FY23. With cost of funds below 7%, as low-cost current and savings account (CASA) deposits ratio was 21% of Rs. 13,710 cr deposits, net interest margin (NIM) is healthy at 9.6%.

Growing Book, with Healthy Asset Quality

Since FY21, bank’s loan book has grown at 29% CAGR, while net NPA has reduced to 0.39%, as of 31.3.23, from 2.31% YoY. FY23 net interest income stood at Rs 1,529 cr, leading to an EPS of Rs. 4.5. Based on Rs. 2,000 cr net worth as of 31.3.23, historic book value per share (BVPS) is at Rs. 22.3.

11% Discount to FY24E BVPS

At upper price band of Rs. 25 per, post-money PBV multiple of Utkarsh is 1.1x and at a historic PE multiple of 5.5x. On expected BVPS of about Rs. 28, as of 31.3.24, IPO is priced at a 11% discount to current year expected book value, which is very attractive.

Microloan lender Suryoday SFB, with a smaller book size of Rs. 6,100 cr advances, similar NIM of 9.5% but a ‘poorer’ asset quality of 1.55% net NPA, is trading at historic PBV multiple of 1.2x. Larger peer Ujjivan SFB, with Rs. 24,000 cr AUM and just 0.04% net NPA, is ruling at historic PBV multiple of 2x and PE of 7x. Even Fusion Microfinance, with Rs. 9,300 cr AUM and 0.9% net NPA is ruling at a PBV multiple of 2.5x. Thus, Utkarsh SFB with a decent-sized loan book, healthy growth rates and well-managed bad loans, is priced at a discount to peers.  

Pricing has ‘Left Money on the Table’

Bank had raised Rs. 150 cr from some institutional investors at Rs. 31.80 per share in Aug-Sep 2021. Current IPO price is at a 21% discount to the last transaction price, after almost 2 years, when covid-stress is behind it (and the sector) as well as AUM has grown 66% and PAT 3x. Some ESOPs too have been allotted at a higher price, of Rs. 27 per share, making IPO price attractive for prospective investors.