Equitas Small Finance Bank debuts on November 2: Will it see a good listing premium?

Equitas Small Finance Bank, the wholly-owned subsidiary of Equitas Holdings, will list on bourses on November 2, with the company fixing the issue price at Rs 33 per share.

The Rs 518-crore public issue was subscribed 1.95 times during October 20-22. Given the tepid response to the public issue and the weak market conditions, most analysts do not expect a premium listing of Equitas Small Finance Bank.

“Equitas Small Finance Bank is expected to have flat or little lower listing as we find issue not so attractive when we compare to peers. Also, the present volatility in the markets can also affect the listing,” Astha Jain, Senior Research Analyst at Hem Securities told Moneycontrol.

Samir Bahl, CEO of Anand Rathi Advisors, also said given the level of subscription against other IPOs, a premium listing looked unlikely.

“However, one can’t really predict such events. Fundamentally existing as well as potential investors should consider the fact that as per RBI norms, promoter holding will have to be further brought down post-listing. This could create a potential pricing pressure on the stock,” Bahl said.

The IPO was primarily as an effort by the management to meet the RBI norma that mandates listing of small finance banks within three years from the date of reaching a net worth of Rs 500 crore.

Promoter Equitas Holdings is required to reduce its shareholding in Equitas Small Finance Bank to 40 percent of its paid-up equity share capital within five years from the date of commencement of its business as an SFB and further reduce it to 30 percent and 26 percent within 10 years and 12 years, respectively, of the date of commencement of business.

The bank has witnessed significant growth and in FY19 it had a market share of 16 percent in terms of assets under management in India. Its gross advances (including IBPC issued) grew from Rs 7,937.05 crore as of March 2018 to Rs 15,572.91 crore as of June 2020. The bank’s deposits have grown at a CAGR of 38.75 percent from Rs 5,603.97 crore as of March 2018 to Rs 10,788.4 crore million as of March 2020.

Manali Bhatia, Head-Research at Rudra Shares & Stock Brokers, was optimistic about the listing. The stock could list at Rs 34-35, a decent premium of 3-6 percent over the issue price, she said.

“On the back of fears of a second wave of pandemic effect on the SFB’s disbursements and a possible rise in the NPA levels (due to deterioration in the credit quality) affected the premium,” she said.

The public issue consisted a fresh issue of Rs 280 crore and an offer for sale of 7.2 crore shares by promoter Equitas Holdings.

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