Risky bet, aggressively priced: Should you subscribe to Suryoday SFB IPO?
Analysts seem to have mixed views on the issue, with some pointing to the significant risks that it carries.
By Shubham Raj, ETMarkets.com | Updated:
Agencies
NEW DELHI: The initial public offering (IPO) of Suryoday Small Finance Bank opened for bidding on Wednesday alongside the issue of Nazara Technologies. Analysts seem to have mixed views on the issue, with some pointing to the significant risks that it carries.
The company seeks to raise Rs 581 crore. The primary purpose of the IPO is to meet RBI’s listing requirement within three years of starting banking operations. Unfortunately, it’s being forced to launch its issue amid a pandemic that has left it with more than a few chinks in the armour.
Rajiv Mehta, Lead Analyst for Institutional Equities at Yes Securities, said he does not have a positive view on this IPO for various reasons. He said the company’s asset quality has been impacted severely by Covid-19 and the overall stress remains inadequately addressed. At the same time, its loan-assets diversification is not credible enough, he said.
According to Mehta, limited success on CASA mobilisation and reduction of funding costs, volatility in profits, asking valuation at par with stronger listed franchisees like Equitas SFB and Ujjivan SFB -- when all of these are adjusted for franchise and execution capabilities, the issue becomes unattractive.
The bank has already undertaken a pre-IPO placement of 5,208,226 shares, where have been issued at Rs 291.75 to SBI Life Insurance, Axis Flexi Cap Fund, Axis Equity Hybrid Fund and Kiran Vyapar to garner Rs 152 crore.
“At the upper of the price band at Rs 305, the issue is valued at 2.6 times pre-IPO placement and 2.2 times December 2020 P/ABV post-IPO, adjusted for pro-forma NNPAs and RSA. In comparison, larger listed SFBs like Ujjivan is valued at 2.6 times ABV and Equitas at 2.4 times,” said Anand Dama, analyst at EMkay Global, assigning a ‘sell’ rating.
“We feel the bank would continue to face challenges in the near term. However, its medium- to long-term outlook remains bright. Going ahead, the bank's focus remains on growing secured portfolios in non-MFI such as commercial vehicles and housing loans, also expanding distribution channels as well as increasing geographical presence will remain their top priorities. Investors can subscribe to the issue for the long term,” said Nirvi Ashar of Religare Broking.
Ajit Kumar Kabui of LKP Securities said factoring in the good return ratios, FY20 ROA of 11.3 per cent and ROE of 2.5 per cent, Suryoday Small Finance Bank is worth subscribing to.
The IPO is clashing with the issue of Nazara, which is expected to break all subscription records.
It will be interesting to see how much appetite the Street will be left with for the Suryoday SFB issue. Given the current level of enthusiasm in the primary market, chances are the issue will be garner enough number of investors to help it sail through.
The company seeks to raise Rs 581 crore. The primary purpose of the IPO is to meet RBI’s listing requirement within three years of starting banking operations. Unfortunately, it’s being forced to launch its issue amid a pandemic that has left it with more than a few chinks in the armour.
Rajiv Mehta, Lead Analyst for Institutional Equities at Yes Securities, said he does not have a positive view on this IPO for various reasons. He said the company’s asset quality has been impacted severely by Covid-19 and the overall stress remains inadequately addressed. At the same time, its loan-assets diversification is not credible enough, he said.
According to Mehta, limited success on CASA mobilisation and reduction of funding costs, volatility in profits, asking valuation at par with stronger listed franchisees like Equitas SFB and Ujjivan SFB -- when all of these are adjusted for franchise and execution capabilities, the issue becomes unattractive.
The bank has already undertaken a pre-IPO placement of 5,208,226 shares, where have been issued at Rs 291.75 to SBI Life Insurance, Axis Flexi Cap Fund, Axis Equity Hybrid Fund and Kiran Vyapar to garner Rs 152 crore.
“At the upper of the price band at Rs 305, the issue is valued at 2.6 times pre-IPO placement and 2.2 times December 2020 P/ABV post-IPO, adjusted for pro-forma NNPAs and RSA. In comparison, larger listed SFBs like Ujjivan is valued at 2.6 times ABV and Equitas at 2.4 times,” said Anand Dama, analyst at EMkay Global, assigning a ‘sell’ rating.
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“We feel the bank would continue to face challenges in the near term. However, its medium- to long-term outlook remains bright. Going ahead, the bank's focus remains on growing secured portfolios in non-MFI such as commercial vehicles and housing loans, also expanding distribution channels as well as increasing geographical presence will remain their top priorities. Investors can subscribe to the issue for the long term,” said Nirvi Ashar of Religare Broking.
Ajit Kumar Kabui of LKP Securities said factoring in the good return ratios, FY20 ROA of 11.3 per cent and ROE of 2.5 per cent, Suryoday Small Finance Bank is worth subscribing to.
The IPO is clashing with the issue of Nazara, which is expected to break all subscription records.
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It will be interesting to see how much appetite the Street will be left with for the Suryoday SFB issue. Given the current level of enthusiasm in the primary market, chances are the issue will be garner enough number of investors to help it sail through.
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