The initial public offering (IPO) of Tamilnad Mercantile Bank (TMB) opens today, September 5. The issue, which closes on September 7, has set a price band of ₹500-525 per share.
At the upper end of the price band, the bank is expected to raise ₹831.6 crore through the IPO.
The IPO will be a fresh issue of 1.58 crore equity shares.
About the firm: Tamilnad Mercantile Bank is one of the oldest private sector banks in the country with a history of almost 100 years. It offers a wide range of banking and financial services primarily to Micro, Small and Medium Enterprises (MSMEs), agricultural and retail customers.
As of March 2022, the bank has 509 branches, of which, 106 branches are in rural, 247 in semi-urban, 80 in urban and 76 in metropolitan centres. It had a customer base of around 5.08 million as of March 2022. Of these, nearly 80 percent comprised customers who were associated with the bank for more than five years.
Reservation: The company said that 75 percent of the issue has been reserved for qualified institutional investors, 15 percent for non-institutional investors and the remaining 10 percent for retail investors.
Book managers: Axis Capital Limited, Motilal Oswal Investment Advisors Limited and SBI Capital Markets Limited are the bookrunning lead managers to the public issue. The equity shares are proposed to be listed on BSE and NSE.
Objective: The Tuticorin-based bank proposes to utilise the proceeds from the issue for augmenting its Tier–I capital base to meet future capital requirements.
Anchor investors: Ahead of the IPO, the lender has garnered a little over ₹363crore from anchor investors. The company has decided to allocate 71.28 lakh equity shares to anchor investors at ₹510 apiece, aggregating the transaction size to ₹363.53 crore.
Societe Generale, Nomura Singapore, Bajaj Allianz Life Insurance Company, Max Life Insurance Company, Kotak Mahindra Life Insurance Company and Moneyewise Financial Services are among the anchor investors.
Financials: The financial track record has been good for the company with total income and PAT growth of 7.99 percent and 41.99 percent CAGR over FY20-22. Its net interest margin has improved from 3.64 percent in FY20 to 4.1 percent in FY22. Its deposits and advances have grown at a healthy pace of 10.5 percent and 9.9 percent CAGR over FY20-22. On the valuation front, Tamilnad is valued at 1.4x pre-issue FY22 Price to Book Value.
Most market experts have a subscribe rating for the IPO in the long term on the back of healthy fundamentals and reasonable valuations. Consistent financial performance and healthy asset quality are also some key positives for the lender, they said.
Let's take a look at what the brokerages have to say:
ICICI Direct: The brokerage has a 'subscribe for long-term rating on the IPO. "TMB is one of the oldest private sector banks in India with consistent financial performance and healthy asset quality. At the upper end of the price band, the bank is valued at ~1.35x P/BV (post issue) as on March 31, 2022, which looks reasonable. However, a change in management and pending legal proceedings in relation to shareholding remain risks," said the brokerage.
Yes Securities: The brokerage has a 'subscribe' call on the stock. Settling into a healthy and stable return ratio profile makes the IPO valuation attractive, it said.
"We rate the upcoming IPO of Tamilnad Mercantile Bank (TMB) a SUBSCRIBE due to the following key reasons: (1) We find the asset quality outcomes of TMB have reached a stage which can be regarded as stable and benign (2) We find the loan growth performance and outlook of TMB as reasonable (3) We find the operating expense control outcomes to be reasonable as well and (4) While the cost of deposits is relatively on the higher side, the net interest margin outcome is healthy," explained the brokerage.
It further noted that TMB has delivered an RoA of 1.7 percent and an RoE of 16.6 percent. Importantly, given the business model of TMB, the brokerage does not see these return ratios as volatile, going forward. Consequently, it finds the IPO valuation for TMB eminently attractive.
Nirmal Bang: The brokerage also has a 'subscribe' rating on the issue. TMB has demonstrated a strong track record of successfully growing and managing a granular portfolio with superior asset quality metrics. It stands out among the old generation private banking peers on most metrics, noted the brokerage.
Although pending legal issues regarding the bank’s share capital shall continue to be a hangover; considering the quality of business, top quartile earnings profile in the banking industry and reasonable valuations, we rate the issue as ‘Subscribe’, it said.
Religare Broking: The brokerage is also bullish on the issue. It said the bank is well placed to capitalise on growing industry trends given the strong growth potential in geographies where the company is present. “Moreover, the firm would focus on improving technology which would help them achieve higher operational efficiency and improved drive customer experience,” it added.
Ventura Securities: The brokerage also has a 'subscribe' rating on the issue. It believes the lender's net advances are expected to grow at 12.3 percent CAGR over FY22-25E and NII is expected to grow at 11.4 percent CAGR over FY22-25E. PPoP and Net income are expected to grow at 9.0 percent and 9.5 percent CAGR, respectively, over FY22-25E, it added.