About Utkarsh Small Finance Bank Ltd IPO

Utkarsh Small Finance Bank Ltd was incorporated in the year 2016 as an SFB (Small Finance Bank). It has an AUM of Rs5,000 crore and it is one of the fastest growing SFBs in India between the fiscal years FY19 and FY22. The small finance bank broadly caters to the individuals and to businesses to assist them with their financial needs and offer them solutions. The bank offers accounts and deposits, cards, insurance and investments, and loans. The bank offers a very simple and hassle-free process for opening and operating their bank accounts and the bank also offers loans up to Rs50 crores with a maximum tenure of up to 30 years. The SBF offers loans to eligible salaried and self-employed individuals.

While the bank offers a very diverse product portfolio, its main bread-and-butter business will remain its microfinance franchise, where it has built expertise over the years. Some of the asset products offered by Utkarsh Small Finance Bank include microfinance loans (both individual and joint), unsecured retail loans, secured retail loans, short term wholesale loans, long term wholesale loans, loans for affordable housing as well as loans for the purpose of purchase of commercial vehicles (CV), construction equipment etc. The company also offers gold loans through its vast network. The issue will be lead managed by ICICI Securities Ltd and Kotak Mahindra Capital Company Ltd. KFIN Technologies Ltd will be the registrar to the issue.

Highlights of the IPO issue of Utkarsh Small Finance Bank Ltd

The Utkarsh Small Finance Bank Ltd IPO will be totally a fresh issue and there will not be any offer for sale (OFS) component to the IPO. The price band for the book built IPO has been set between ₹23 and ₹25. The shares have a face value of ₹10. The fresh issue will entail the issue of 2,00,00,000 shares (2 crore shares), which at the upper end of the price band at ₹500 amounts to a fresh issue size of ₹500 crore. Since there is no OFS component, the total IPO of Utkarsh Small Finance Bank Ltd will also be worth ₹500 crore only. Post listing, the stock will be traded on the NSE and the BSE.

The company was promoted by Utkarsh Corel Invest Ltd. Currently the promoters hold 84.75% of the company, which will get diluted post the IPO to 69.28%. The fresh portion of the IPO will be used for augmenting the Tier-1 capital base of the bank and to meet future capital requirements. Banks need to constant expand capital to grow their loan books. The minimum lot size for retail applications is 600 shares and retail investors can invest up to a maximum of 13 lots. Here is the detailed break up of lot sizes applicable to different categories.

As per the terms of the offer, the specific quotas for the retail, HNI / NII and the QIB portion have already been delineated as under. Utkarsh Small Finance Bank Ltd will be listed on the NSE and also on the BSE. Being a fresh issue of equity, the IPO will result in dilution of equity and EPS. Even the promoter stake gets diluted as the ratio of their shareholding to total share capital falls.

It must be remembered here that the allocations for QIBs are decided on maximum while the allocations for HNI/NII and retail are decided based on minimum

Key dates for Utkarsh Small Finance Bank Ltd IPO and how to apply?

The issue opens for subscription on 12th July 2023 and closes for subscription on 14th July 2023 (both days inclusive). The basis of allotment will be finalized on 19th July 2023 and the refunds will be initiated on 20th July 2023. In addition, the demat credits are expected to happen on 21st July 2023 and the stock will list on 24th July 2023 on the NSE and the BSE. Let us now turn to the more practical issue of how to apply for the IPO of Utkarsh Small Finance Bank Ltd.
Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Utkarsh Small Finance Bank Ltd

The table below captures the key financials of Utkarsh Small Finance Bank Ltd for the last 3 completed financial years. These include the fiscal years FY23, FY22 and FY21.

Data Source: Company RHP filed with SEBI

There are few key takeaways from the financials of Utkarsh Small Finance Bank Ltd which can be enumerated as under
    a) In the last 2 years, the revenues have grown at a rapid clip. However, the profit growth has been erratic in the last 3 years. The net margins for the company have been fairly steady at around 14.42% in the latest year, but due to erratic profits, even this margin as also the RONW are erratic. 

    b) The valuations would largely depend on whether the latest year RONW and the PAT margins can be sustained. That would be a more important factor in determining the post-listing performance.

    c) Small Finance Banks have had a mixed performance in the past if you look at the likes of Ujjivan and Equitas. While the listing was positive, the stocks have tended to taper later on. In both cases, the trigger came from the reverse merger.

While pricing of the IPO will matter here, it is relatively attractive if you compare with the other SFBs in India. A P/E ratio in the range of 4-5 times earnings is not too steep and can leave something in the table for the investors. However, the regulatory landscape for these banks is still evolving and they face competition from existing banks as well as the NBFCs and fintech players. On the positive side, the stock is very attractively priced and that could work in favour of the IPO. Investors with a longer term perspective and ability to higher risk would be advised to consider this IPO.