ESAF Small Finance Bank IPO Commences Today: Insights on GMP, Issue Particulars, and Analysis

The much-anticipated ESAF Small Finance Bank IPO is set to open for subscription tomorrow, November 3. ESAF, a small finance bank, primarily focuses on extending credit to residents in rural and semi-urban areas. Its diverse offerings include retail loans, MSME loans, microloans, financial institution loans, and agricultural loans.

According to the Red Herring Prospectus (RHP), ESAF Small Finance Bank’s core products encompass deposits (liability products) and advances (asset products). These advances are categorized into Micro Loans (including Microfinance Loans and Other Micro Loans), Retail Loans (encompassing Car, Mortgage, Gold, and Personal Loans), MSME Loans, Loans to Financial Institutions, and Agricultural Loans.

As of June 30, 2023, an impressive 71.71% of the bank’s outlets were strategically located in rural and semi-urban areas, accounting for a significant 62.97% of their total gross advances. Serving a substantial customer base of 7.15 million, ESAF Small Finance Bank operates through a robust network of 700 banking locations, 767 customer care centers, 22 business correspondents, 2,116 banking agents, 525 business facilitators, and 559 ATMs, spanning 21 states and two union territories. Notably, the bank’s operations are concentrated in South India, particularly in Tamil Nadu and Kerala.

Financially, ESAF Small Finance Bank has showcased remarkable growth, with its FY23 net profit surging from ₹54.73 crore to ₹302.3 crore. Moreover, the bank’s net interest income (NII) witnessed an impressive 60% year-on-year increase, reaching ₹1,836.3 crore in FY23.

One of the bank’s standout achievements lies in its asset under management (AUM), which experienced the highest compound annual growth rate (CAGR) among its peers. From ₹8,425.93 crore on March 31, 2021, the AUM soared to ₹16,331.26 crore on March 31, 2023, underscoring the bank’s robust financial performance.

Comparatively, ESAF Small Finance Bank’s peers include Suryoday Small Finance Bank Ltd (with a P/E of 22.39), Credit Access Grameen Ltd (P/E: 26.81), Spandana Sphoorty Financial Ltd (P/E: 471.38), Bandhan Bank Ltd (P/E: 16.55), Ujjivan Small Finance Bank Ltd (P/E: 9.81), and Equitas Small Finance Bank Ltd (P/E: 21.51), as stated in the RHP.

Here are key details about the ESAF Small Finance Bank IPO:

• IPO Subscription Dates: The subscription period for the ESAF Small Finance Bank IPO commences on Friday, November 3, and concludes on Tuesday, November 7.
• IPO Price Band: The price band for the IPO has been set at ₹57 to ₹60 per equity share with a face value of ₹10 each.
• Anchor Investors: The allocation for anchor investors is scheduled for Thursday, November 2.
• Lot Size: The IPO lot size comprises 250 equity shares, and multiples of 250 equity shares thereafter.
• IPO Structure: The IPO consists of a fresh issuance of equity shares worth ₹390.7 crore by the company and an offer-for-sale (OFS) of equity shares worth ₹72.3 crore by three shareholders. In the OFS, promoter ESAF Financial Holdings will sell shares worth ₹49.26 crore, while PNB MetLife India Insurance Company and Bajaj Allianz Life Insurance Company will offload shares worth ₹23.04 crore.
• IPO Utilization: The bank intends to utilize the net proceeds from the fresh issue to bolster its Tier – I capital base, ensuring it meets its future capital requirements.
• IPO Reservation: ESAF Small Finance Bank IPO has allocated not more than 50% of the shares for Qualified Institutional Buyers (QIB), at least 15% for Non-Institutional Investors (NII), and a minimum of 35% for Retail Investors. Additionally, eligible employees participating in the employee reserve portion are offered a discount of ₹5 per equity share.
• Lead Manager and Registrar: ICICI Securities, DAM Capital Advisors, and Nuvama Wealth Management serve as the book-running lead managers for ESAF Small Finance Bank IPO, while Link Intime India operates as the IPO registrar.
• Grey Market Premium (GMP): The current grey market premium for ESAF Small Finance Bank IPO stands at +9, indicating that the shares are trading at a premium of ₹9 in the grey market. Considering the upper end of the IPO price band and the current premium, the estimated listing price of ESAF Small Finance Bank shares is anticipated to be ₹69 apiece, reflecting a 15% increase from the IPO price of ₹60.

In a recent review, Dilip Davda, the contributing editor at Chittorgarh, emphasized ESAF Small Finance Bank’s robust growth in both top and bottom lines. He suggested that investors may consider investing for medium to long-term gains, given the attractive pricing of the IPO and the company’s plans for expansion and regulatory ease.

ESAF Small Finance Bank IPO: A Lucrative Investment Opportunity

Introduction About ESAF Small Finance Bank

ESAF Small Finance Bank Ltd. (ESFBL) stands as a beacon of financial prowess, catering to unbanked and under-banked customer segments, especially in rural and semi-urban centers. With a strategic focus on rural empowerment, ESFBL has carved a niche for itself in the southern region of India, particularly in the states of Kerala and Tamil Nadu.

Financial Brilliance in ESAF Small Finance Bank

Amidst its journey, ESFBL has showcased impressive financial growth, evident in its consistent earnings trajectory. For FY21, FY22, and FY23, ESFBL reported a total income/net profit of Rs. 1768.42 cr./ Rs. 105.40 cr., Rs. 2147.51 cr./ Rs. 54.73 cr., and Rs. 3141.57 cr./ Rs. 302.33 cr. respectively. In Q1 of FY24, ending on June 30, 2023, it recorded a net profit of Rs. 129.96 cr. on a total income of Rs. 991.78 cr. This robust financial performance has positioned ESFBL as a formidable player in the banking landscape.

Intriguing Investment Proposition In ESAF Small Finance Bank

With an IPO on the horizon, ESFBL plans to raise Rs. 463.00 cr., offering an intriguing investment opportunity. The IPO, opening on November 3, 2023, and closing on November 7, 2023, boasts a price band of Rs. 57 – Rs. 60 per share of Rs. 10 each. Post allotment, shares will be listed on both BSE and NSE, marking a significant milestone in the bank’s journey.

Strategic Offerings and Growth Prospects with ESAF Small Finance Bank

ESFBL’s diverse product portfolio encompasses Micro Loans, retail loans (including gold loans, mortgages, personal loans, and vehicle loans), MSME loans, loans to financial institutions, and agricultural loans. The bank’s services extend beyond conventional banking, offering safety deposit lockers, foreign currency exchange, Bharat Bill Payment System access, money transfer services, Aadhaar Seva Kendra services, and the distribution of third-party life and general insurance policies, along with government pension products.

Conclusion:

ESFBL’s enticing growth story, coupled with its steadfast commitment to financial inclusion, positions it as an attractive investment option. As investors contemplate their next move, ESFBL’s IPO emerges as a golden opportunity, promising substantial rewards for those with a keen eye for astute investments.

Investment Analyst’s Recommendation:

The esteemed investment analyst, Dilip Davda, offers a resounding endorsement for the ESFBL IPO, urging investors to consider subscribing to this compelling offering.

Stay tuned for more updates on ESAF Small Finance Bank IPO as it unfolds.

Disclaimer:
Investors are reminded that all investment decisions should be made after thorough consultation with a qualified financial advisor. The information provided here is for educational purposes and does not constitute financial advice. Investing in the stock market entails inherent risks, and individuals must exercise due diligence before making any investment decisions.