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13 January 2024

ESAF Small Finance Bank IPO: Nurturing Financial Inclusion for a Brighter Tomorrow

Introduction:

ESAF Small Finance Bank IPO, a book-built issue of Rs 463.00 crores, represents a synergy of a fresh issue of 6.51 crore shares amounting to Rs 390.70 crores and an offer for sale of 1.2 crore shares totaling Rs 72.30 crores. The IPO bidding phase, spanning from November 3, 2023, to November 7, 2023, concluded with allotments finalized on Wednesday, November 8, 2023. ESAF Small Finance Bank shares debuted on BSE and NSE on November 10, 2023.

Financial Highlights:

With a price band of ₹57 to ₹60 per share, the IPO entails a minimum lot size of 250 shares, requiring a retail investor to invest a minimum of ₹15,000. As of January 12, 2024, the stock closed at ₹71.55, showcasing resilience in the market.

Key IPO Metrics:

- IPO Duration: November 3, 2023, to November 7, 2023
- Listing Date: November 10, 2023
- Face Value: ₹10 per share
- Price Band: ₹57 to ₹60 per share
- Lot Size: 250 Shares
- Total Issue Size: 77,166,667 shares, aggregating up to ₹463.00 Cr
- Fresh Issue: 65,116,667 shares, aggregating up to ₹390.70 Cr
- Offer for Sale: 12,050,000 shares of ₹10, aggregating up to ₹72.30 Cr
- Employee Discount: ₹5 per share
- Issue Type: Book Built Issue IPO
- Listing At: BSE, NSE

Equity Dynamics:

Before the IPO, ESAF Small Finance Bank Limited held 449,473,798 shares, which increased to 514,779,858 post-issue.

Reservation Dynamics:

The IPO reserved 2,283,653 shares for employees, offered at a discount of ₹5 to the issue price. The distribution included 29.11% for Anchor Investors, 19.41% for QIB, 14.56% for NII, 2.95% for employees, and 33.97% for Retail investors.

IPO Timeline Highlights:

- IPO Open Date: Friday, November 3, 2023
- IPO Close Date: Tuesday, November 7, 2023
- Basis of Allotment: Wednesday, November 8, 2023
- Initiation of Refunds: Wednesday, November 8, 2023
- Credit of Shares to Demat: Thursday, November 9, 2023
- Listing Date: Friday, November 10, 2023
- Cut-off time for UPI mandate confirmation: 5 PM on November 7, 2023

Lot Size Landscape:

Investors could bid for a minimum of 250 shares and in multiples thereof. The table below outlines the investment parameters for retail investors and HNIs:

Application	Lots	Shares	Amount
Retail (Min)	1	250	₹15,000
Retail (Max)	13	3250	₹195,000
S-HNI (Min)	14	3,500	₹210,000
S-HNI (Max)	66	16,500	₹990,000
B-HNI (Min)	67	16,750	₹1,005,000

Promoter Holding Perspective:

The promoters of ESAF Small Finance Bank are Kadambelil Paul Thomas and ESAF Financial Holdings Private Limited. The pre-issue shareholding of 74.43% decreased to 59.74% post-issue.

Company Profile:

Established in 1992, ESAF Small Finance Bank is a key player in small finance, with a strategic focus on lending to rural and semi-urban customers. The bank's diverse lending portfolio includes microcredit, retail loans (gold loans, mortgages, personal loans, and vehicle loans), MSME loans, loans to financial institutions, and agricultural loans. With a robust network comprising 700 banking outlets, 767 customer service centers, and 559 ATMs across 21 states and two Union Territories, ESAF serves 7.15 million customers as of June 30, 2023.

Financial Performance Snapshot:

As of June 30, 2023:

- Assets: ₹20,795.94 Crores
- Revenue: ₹991.78 Crores
- Profit After Tax: ₹129.96 Crores
- Net Worth: ₹1,839.09 Crores
- Reserves and Surplus: ₹1,389.62 Crores
- Total Borrowing: ₹2,739.13 Crores

Key Financial Indicators:

- RoNW: 17.69%
- EPS (Rs): 6.73
- P/E (x): 8.94 (Pre-IPO) / 5.94 (Post-IPO)

Objects of the Issue:

The net proceeds from the IPO are intended to augment the bank's Tier-I capital base to meet future capital requirements arising from the growth in assets, particularly loans/advances and the investment portfolio. This move aligns with regulatory requirements on capital adequacy set by the RBI. The bank anticipates deriving benefits from listing its equity shares on the stock exchanges.

Expert Analysis:

The issue, based on annualized FY24 earnings, appears attractively priced. Investors are advised to consider this IPO for potential medium to long-term rewards.

IPO Subscription Status:

As of November 7, 2023, the ESAF Small Finance Bank IPO witnessed robust subscription at 77.00 times. The QIB category subscribed 182.66 times, NII category at 88.81 times (96.51 times for bids above ₹10L and 73.41 times for bids below ₹10L), and the retail category at 17.86 times. Employee subscription stood at 4.59 times.

Note: All financial figures are in INR (Indian Rupees), and market-related data is as of January 12, 2024.

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