IPO watch: Equitas SFB is no match to listed & unlisted peers

New Delhi: After a couple of stellar primary market listings, Equitas Small Finance Bank has hit the primary market this week. With a price band of Rs 32-33 per share, the bank intends to raise up to Rs 518 crore to augment its Tier-I capital base. Equitas SFB had earlier planned to raise Rs 1,000 crore through the issue.

The current book-building IPO will include fresh issue of shares aggregating up to Rs 280 crore and an offer for sale (OFS) of 72 million shares aggregating up to Rs 237.6 crore.

Considering the lower return ratios and less provision coverage, analysts are advising long-term retail investors to stay away from the issue and wait for fair price discovery post listing.

Even the grey market is signalling a cautious approach on the issue. The premium on the SFB’s unlisted shares in the unofficial market declined to near zero, as the issue opened for subscription on Tuesday.

Equitas Small Finance Bank has two comparable peers: Ujjivan Small Finance Bank in the listed space, and Suryoday Small Finance Bank in the unlisted space.

Challenges in the listed space
“While the SFB may look attractive on the valuation front, we believe Ujjivan has a better product portfolio and good control on asset quality,” said Vinit Bolinjkar, Head of Research at Ventura Securities.

“Asset quality is the prime concern for the banking sector. Ujjivan is better placed than Equitas on this front,” he said. "Both have equal growth opportunities, but We prefer Ujjivan over Equitas."

Ujjivan Small Finance Bank was listed in December 12, 2019 at Rs 58, registering a 56.76 per cent premium over the issue price of Rs 37. Ujjivan SFB traded around Rs 32 on Tuesday with price-to-book value of 1.78.

In comparison, the Equitas SFB is asking for an adjusted price to book value (P/BV) of 1.26 times after considering the fresh issue.

Ujjivan hit Rs 23 on March 24, 2020 during the Covid-induced market mayhem and has since been struggling to shrug off the pandemic woes.

Competition in unlisted space
Suryoday Small Finance Bank is seeing good demand in the unlisted space and trades at Rs 270-280. The stock has surged some 15 per cent in last quarter. Off-market dealers see another 25-30 per cent upside in the stock.

Dinesh Gupta of UnlistedZone, a Delhi-based firm that deals in unlisted securities, said considering the valuations and asset quality, along with growth prospects, Suryoday SFB looks like a better bet.

Suryoday SFB did a private placement to key investors in March 2019 at a Rs 180 a share. That placement was done at a P/BV multiple of 1.68 times.

Cost of funds for Suryoday SFB declined to 8.8 per cent in FY19 from 9.9 per cent a year ago. Suryoday, too, is eyeing a listing this financial year.

Ratings
Choice Broking has an 'avoid' rating on the Equitas Small Finance Bank IPO. Emkay Global Financial Services has a ‘buy' recommendation on the issue. Quantum Securities has a ‘subscribe' rating.