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Equitas Small Finance Bank (Equitas SFB) listed on Monday at a discount of about 6 per cent to its issue price. The stock made its debut at ₹31 against its issue price of ₹33 a share on the BSE. The stock touched an intra-day high of ₹32.65, and an intra-day low of ₹30.1.
Moratorium blues
At its issue price, Equitas SFB was valued at about 1.2 times its (post issue) book value as at the end of June 2020 quarter.
Its listed peers — AU SFB and microfinance lender Bandhan Bank — currently trade at 4.8 and 3.1 times their book value respectively. But both these banks are much bigger in size when compared to Equitas SFB. Their loan book is more than double that of Equitas SFB. Basis the loan book size, Ujjivan SFB, a comparable listed peer — currently trades at 1.72 times its book value per share.
The weak listing of Equitas SFB can be attributed to uncertainties over post-covid impact on the bank’s asset quality (owing to the standstill in asset classification during the moratorium period). Even a comfortable 2.7 per cent GNPA ratio (as of June 2020 quarter) and 94 per cent collection efficiency (in September and October 2020) have not helped investor sentiment for the IPO.
Another plausible risk perceived by the investors, is the likely dilution in the shareholding of Equitas SFB, following the RBI’s mandate to reduce the promoter stake in the bank. However, the management is contemplating several possibilities to bring down the promoter holding in a less dilutive manner (for existing shareholders) - such as merger with the group’s housing finance arm.
These factors seem to have overshadowed the bank’s positives such as diversified loan book, healthy deposit accretion and strong capital ratios. Another positive is the bank’s lower exposure to the riskier microfinance segment (23 per cent), compared to 76 and 51 per cent respectively in Ujjivan SFB and Bandhan Bank.
Tepid HNI interest
Given the investors’ concerns over uncertainties about the bank’s asset quality, the Equitas SFB IPO was subscribed only 1.95 times (compared to other recent IPOs that garnered subscriptions of 50-156 times). The IPO size was ₹518 crore, comprising a fresh issue of about 8.5 crore shares.
A trend observed in recent IPOs is that the listing day gains surged for IPOs that witnessed massive subscriptions, particularly in the non-institutional investor category (NII). Take for instance the IPOs of Chemcon Speciality Chemicals, Mazagon Dock Shipbuilders, Happpiest Minds Technologies and Route Mobiles that saw subscriptions of more than 100 times in the NII category. The above mentioned IPOs saw healthy listing gains (in the range of 49-116 per cent).
In the case of Equitas SFB, the HNIs demonstrated weak interest with the NII category being subscribed by only 0.22 times. Similar to Equitas SFB, the IPOs of Angel Broking and UTI AMC also saw weak interest in the NII category — 0.69 and 0.93 times, respectively. Both these IPOs also listed at a discount —10 and 12 per cent respectively — to their respective issue prices.
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