The initial public offering (IPO) of Equitas Small Finance Bank (SFB) opened today, with the company planning to raise Rs 280 crore through a fresh issue and sell 7.2 crore existing shares for a total issue size pegged at Rs 510-518 crore. The company’s listing date is expected to be November 2.
The IPO will see promoter holding fall from 95.49 percent to 82.05 percent has a steep timeframe to reduce stake further to 40 percent by September 2021 (and 30 percent and 26 percent respectively by September 2026 and 2028 respectively). The company hopes to achieve this through options such as OFS, mergers or reverse merger with holding company.
Following the fundraising, the stock is expected to be valued at about 1.1x price-to-book. Equitas SFP is also planning to apply for a universal banking license.
A glance at the company’s break-up shows significant contribution from small business loans and vehicle finance.
| Loan break up | Rs cr | % of loans |
| Small business loans | 6,484.22 | 41.64 |
| Small biz loans | 5,152.00 | 33.08 |
| Housing Finance | 628.64 | 4.04 |
| Agri Loans | 703.58 | 4.52 |
| Micro Finance | 3,617.86 | 23.23 |
| Vehicle Finance | 3,776.49 | 24.25 |
| Used CV | 2,627.63 | 16.87 |
| New CV | 1,148.86 | 7.38 |
| MSE Finance | 711.80 | 4.57 |
| Corporates | 772.10 | 4.96 |
| Others | 210.44 | 1.35 |
Equitas SFP IPO: Here’s a SWOT Analysis
Strength
Healthy NIM enables the company to have a strong topline growth
Retail deposits are at 57% of deposits & growing healthily
Asset quality has remained steady for last 3 years
Weakness
54.3% of the book is in Tamil Nadu & 68% of the book is in the south; making it vulnerable to geographic risk
No presence in the eastern part of the country
Opportunities
Universal banking license will provide opportunities to reduce sector concentration risk
Average ticket size is Rs 0.4 million. It scater largely to unorganized market; thus providing huge untapped potential.
Threats
Continued dilution is a big overhang
Asset quality post Q3FY21
