scorecardresearchUtkarsh Small Finance Bank IPO: Why should you subscribe? Check subscription

Utkarsh Small Finance Bank IPO: Why should you subscribe? Check subscription status, GMP and other details

Updated: 13 Jul 2023, 12:18 PM IST

Utkarsh Small Finance Bank IPO received a stellar response and was oversubscribed on the first day of bidding. Most brokerage firms have assigned a ‘subscribe’ rating to the issue on the back of attractive pricing.

Most brokerage firms have assigned a ‘subscribe’ rating to the issue.

Most brokerage firms have assigned a ‘subscribe’ rating to the issue.

The Initial Public Offering (IPO) of Utkarsh Small Finance Bank opened for subscription on Wednesday, July 12. The IPO received a stellar response and was oversubscribed on the first day of bidding. The price band for the issue, which will close on Friday, July 14, has been set at 23-25 per share.

Subscription status: On the first day of bidding, the issue was subscribed to 4.73 times with the public offer receiving bids for 57.07 crore shares against an issue size of 12 crore units.

Meanwhile, at 11:40 am on the second day of bidding, the issue was subscribed to 9.37 times. It received bids for 103 crore shares against 12 crore shares on offer.

The part reserved for retail investors was subscribed the most, 25.34 times, followed by the portion reserved for the non-institutional investors (NII), which saw bids 14.56 times. Meanwhile, the employee quota witnessed a subscription of 6.32 times and qualified institutional buyers' (QIB) reservation was subscribed 1.56 times.

GMP: Ahead of the IPO, the company's shares in the grey market are trading at a healthy premium of 15.

However, one must note that grey market premium is only an indicator of how the company's shares are performing in the unlisted market and can change quickly.

About the issue: The offer entirely constitutes of fresh issue of equity shares worth 500 crore. Post-issue, the promoter and promoter group stake in the company will decline to 68.28 percent from of 84.75 percent currently.

Objective: The net proceeds from the issue will be utilised towards augmenting its Tier-I capital base to meet its future capital requirements.

Anchor investors: A day ahead of its IPO, Utkarsh SFB allocated 8.91 crore equity shares to 20 anchor investors at an issue price of 25 apiece to garner 222.75 crore. SBI Mutual Fund, ICICI Prudential, Kotak Mahindra Trustee, Aditya Birla Sun Life Trustee, Goldman Sachs, SBI Life Insurance, Edelweiss Trusteeship, Founders Collective Fund and AG Dynamics Funds participated in the anchor book.

About the company: Utkarsh Small Finance Bank recorded the second fastest AUM growth between Fiscal 2019 and Fiscal 2022 among SFBs with an AUM of more than 5000 crore. After receiving in-principal approval from the Reserve Bank of India (RBI) in October 2015 to establish a small finance bank, promoter Utkarsh CoreInvest incorporated Utkarsh Small Finance Bank as a wholly-owned subsidiary in April 2016, which commenced its operations in January 2017.

The Varanasi-headquartered lender has operations across 26 states and Union Territories with 830 banking outlets and 15,424 employees as of March 31, 2023. It had a 3.59 million customer base majorly located in rural and semi-urban areas primarily in Bihar and Uttar Pradesh.

Financials: Utkarsh SFB’s NII grew at 35 percent CAGR over FY21-23 led by 29 percent CAGR in gross loan portfolio. Its PPoP/Net Profit grew much faster at 41 percent and 90 percent CAGR, respectively, during the same period. Meanwhile, its CASA ratio stood at 20.9 percent while retail deposits formed 61.6 percent of the total deposits over FY21-23. The bank also has a healthy asset quality with its GNPA/NNPA at 3.2 percent/0.4 percent at the FY23 end.

Book-running managers: ICICI Securities and Kotak Mahindra Capital Company are the book-running lead managers to the issue, while Kfin Technologies has been appointed as the registrar to the issue.

Dates: Shares of the lender will list on both BSE and NSE most likely on July 24 (Monday).

Brokerage views

Most brokerage firms have assigned a ‘subscribe’ rating to the issue on the back of attractive pricing, strong balance sheet and robust business fundamentals. Here's what brokerage firms say about the issue:

Motilal Oswal: Subscribe for listing gains

Utkarsh SFB is one of the leading SFBs with robust financials, good asset quality, and healthy return ratios. The issue is priced at 1.1x FY23 ABV (on a fully diluted basis), which seems comfortable. Given the current buoyant market and high interest in SFB stocks, the issue could garner some curiosity. We suggest investors to subscribe for listing gains to IPO.

Risk: Utkarsh SFB NCDs are listed on BSE and in the past, there were certain inadvertent delays by the bank in making certain disclosures and regulatory filings to BSE under the Listing Regulations. It has filed settlement applications before SEBI under show cause notice issued by SEBI on account of such inadvertent delays.

LKP Securities: Subscribe

At a higher price band ( 25), the stock is valued at 1.8(x) P/BVPS with a current book value per share of 18. Factoring the superlative return ratios, FY23 return on average assets (ROAA) and return on average equity (ROAE) of 2.42 percent and 22.84 percent, respectively, we believe that Utkarsh Small Finance Bank is worth subscribing to. We recommend to SUBSCRIBE to the issue.

Nirmal Bang: Subscribe

Utkarsh is favorably placed with a presence in low ticket segments having strong industry tailwinds. Further, Utkarsh has managed to reduce its exposure to the unsecured micro banking segment from 82 percent in FY21 to 66 percent in FY23 which has de-risked its business model. We expect this trend to continue. Over the FY21-23 period, Utkarsh has outperformed its peers on all fronts - loan growth, return ratios, and asset quality. Its valuation on a P/B basis is at a significant discount compared to peers, at 1.1x FY23 post-issue BVPS. Considering that the microfinance industry has come out of a severe crisis over 2020-22, with most of the bad loans having weeded out of the system, we expect growth and healthy profitability to resume for the sector as well as for Utkarsh. We recommend subscribing to the issue.

Geojit Financial Services: Subscribe

At the upper price band of 25, USFBL is available at a P/Bv of 1.4x FY23, which appears reasonably priced compared to peers. Considering its resilient performance post-COVID, consistent growth in loan book and deposits, healthy return ratios, best cost-to-income ratio, pan India presence and promising industry outlook, we assign a “Subscribe” rating on a short to medium-term basis.

Reliance Securities: Subscribe

USFB is in constant efforts to improve its business with deeper insights into customer trends, and develop customized products for its customer segments. It intends to further the growth through diversification of product offerings, customer segments and geography supported by technology, process and data analytics. With improvement in NIMs and NPAs in a declining trend over the last three years, growth in earnings remains strong. On FY23 financials, the IPO is valued at 6.8x P/E and 1.1 times P/BV; we recommend SUBSCRIBE to this issue for the long term.

Anand Rathi: Subscribe for long-term

At the upper price band, the company is valuing at P/B of 1.39 times with a market cap of 2,740 crore post the issue of equity shares and a return on net worth of 20.22 percent. We believe that the company is fairly priced and recommend a 'subscribe- long term' rating to the IPO.

Swastika Investmart: Subscribe

Utkarsh SFB has a strong track record of growth, and its financial performance has been improving in recent years. Utkarsh SFB is well-positioned to benefit from the growth of the SFB sector, as it has a strong focus on underserved segments of the population.

The IPO is priced at a reasonable valuation, and the company has a strong balance sheet. However, there are some risks to consider, such as the competitive landscape and the potential for asset quality problems. Overall, we believe that the IPO is a good opportunity for investors who are looking for exposure to the growth of the SFB sector and we recommend a 'subscribe' rating.


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First Published: 13 Jul 2023, 12:18 PM IST