Another small finance bank is coming up with its IPO to list its shares on the stock exchanges in accordance with the RBI’s listing requirements. Utkarsh Small Finance Bank has filed its draft IPO papers with the SEBI. So let us discuss in detail the bank’s business fundamentals.
About the company
Utkarsh Small Finance Bank Limited is one of the most profitable small finance banks in India and among the leading small finance banks in terms of return on assets. It also had the highest return on equity among small finance banks in India in FY20.
The bank is headquartered in Varanasi, Uttar Pradesh. Its operations are spread across India in 18 states and Union territories with 528 banking outlets and 8729 employers as of September 2020. 27.08% of the bank’s banking outlets were located in unbanked rural centers as against the regulatory requirement of 25% as of September 2020.
The bank had 2.74 million customers as of September 2020. The bank’s 4244 employee’s handheld devices/digital services for onboarding 23,070 saving account customers.
Utkarsh Small Finance Bank Limited IPO Details
Following are the details about the bank’s IPO:
- The bank is not yet out with the IPO subscription dates.
- The bank is not yet out with the IPO issue price range.
- The bank will list its shares on the NSE and the BSE.
Objectives of the IPO
Following are the objectives of the company’s IPO:
- The bank’s IPO is a combination of a fresh issue of shares and an offer for sale.
- The bank will use a part of the net proceeds to augment its tier-I capital base to meet its future capital requirements.
- The bank will also use a part of the proceeds towards meeting the offer related expenses.
- Further, the bank aims to enhance its corporate image and credibility by listing its shares on the exchanges.
Following are the key strengths in the bank’s business:
- The bank’s promoters have a deep understanding of the microfinance segment and a strong rural and semi-urban franchise.
- The bank has a fast growing deposit base coupled with a strong retail liability franchise.
- The bank has a diversified distribution network with significant cross-selling opportunities.
- The bank focuses on robust risk management and effective operations resulting in superior asset quality.
- The bank has experienced strong growth led by strong financial and cost efficient operational performance.
- The bank has high standards of corporate governance with experienced leadership team.
Following are the key risks that the bank faces in its business:
- The bank is subject to stringent regulatory and statutory requirements.
- Advances to the micro banking segment accounted for 87.92% of the bank’s gross loan portfolio. This poses a concentration risk.
- The bank’s business is vulnerable to interest rate risk and asset-liability mismatch.
- The bank has primarily advanced loans to customers based in Uttar Pradesh and Bihar. Any adverse event or regulation in these states could affect the company’s business operations.
- The bank has a limited operating history as a small finance bank.
- A majority of the bank’s advances in the microfinance segment are unsecured, thus posing an operational risk.
- The Indian banking industry is very competitive in nature, which may dent the bank’s net interest margins.
- The bank and its promoters have been involved in certain legal proceedings in the past. Any adverse outcome in relation to this could disrupt the company’s business and might increase its cost of funds.
- The bank will be required to reduce the promoter shareholding in accordance with the RBI guidelines. Any such share sales in the future can affect the bank’s stock price.
Fundamentals of the company
Following are the fundamental details about the company:
- The bank’s total income increased from ₹1.3 crores in FY18 to ₹2.98 crores in FY20.
- The bank posted a loss of ₹0.4 crore in FY18, which turned into a profit of ₹0.1 crore in FY20.
- The bank’s net asset value stood at ₹44.58 as of FY20.
- The bank’s earnings per share stood at ₹20.39 as of March 2020.
- The bank’s reserves and surplus increased from ₹0.11 crore in FY18 to ₹0.22 crore in FY20.
- The bank’s CASA ratio stood at 14.46% at the end of September 2020.
- The bank’s cost-to-income ratio stood at 52.41% at the end of September 2020.
According to its IPO prospectus, Utkarsh Small Finance Bank counts Equitas Small Finance Bank, Ujjivan Small Finance Bank, Bandhan Bank Limited, CreditAccess Grameen Limited, Spandana Sphoorty Financial Limited, and AU Small Finance Bank Limited among its peer group. Utkarsh Small Finance Bank’s return on net worth stood at 18.32% as of FY20, which was better than that of its competitors.
Following were the details about Utkarsh Small Finance Bank Limited. The bank is not yet out with its IPO subscription dates and the IPO price. Investors should do their own due diligence before subscribing to the bank’s IPO.