Suryoday Small Finance Bank IPO opens Wednesday, should you subscribe?

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Suryoday Small Finance Bank IPO will open on Wednesday, March 17, along with Nazara Technologies and it will close on March 19, Friday. Suryoday SFB plans to raise ₹ 582.34 crore by selling shares in the price band of ₹ 303-305 per share. Eligible employees will receive a discount of Rs 30 per share if they apply for the IPO.

The initial public offering size of Rs 582 crore contains fresh issues of Rs 249 crore and Rs 333.76 crore of offer for sale(OFS) scrips. Retail individual investors are given a quota of 35% in the issue size. They can buy shares in lot sizes of 49 shares up to a maximum of 13 lots. At the higher price band, one lot of Suryoday Small Finance Bank will cost ₹ 14,945.

Suryoday SFB was incorporated in 2008 as Suryoday NBFC and it operated as a micro-finance institution carrying out microfinance operations and operated the joint liability group lending model for providing collateral-free, small ticket-size loans to economically active women belonging to weaker sections.

Later in 2017, it started commercial operations as per the RBI’s guidelines as Suryoday Small Finance Bank. As of December 31, the bank had a customer base of 14.4 lakh, with 4,770 employees and 554 banking outlets. And, as of July 31, 2020, the bank had 482 branches and a customer base of 14.3 lakh in the urban and semi-urban areas.

The bank will use the capital raised from the IPO to strengthen its tier-1 capital base.

Brokerage view

Anand Rathi – Subscribe

The company is placed at a little bit higher valuation as compared to its peers. However, it is expected that the company is going to get benefited from the overall growth in demand of commercial vehicle loans and affordable housing finance which results in an improvement in overall return ratios. Additionally, we also expect operating parameters to improve further at a healthy rate owing to improvement in NIM, asset quality. Hence considering the differentiated business model and with the current financials, we recommend a “Subscribe (LongTerm)” rating for this IPO.

LKP Securities – Subscribe

At a higher price band (₹305), the stock is valued at 2.28(x) P/BVPS with a current book value per share of ₹133.5. Factoring the good return ratios, FY20 ROA/ROE of 11.3%/2.5%, we believe that Suryoday Small Finance Bank Limited is worth subscribing. Thus we recommend SUBSCRIBE.

Marwadi Shares and Finance – Subscribe

Considering adjusted book value of Rs 135.64 per share on a post-issue basis., the company is going to list at a P/B of 2.25 times while its peers such as AU Small Finance Bank is trading at 8.44 times P/B. We recommend to “Subscribe” this IPO as the company has a diversified asset portfolio with a focus on retail operations and the company is offering its shares at a reasonable valuation compared to its peers. Diversified asset portfolio with a focus on retail loan advances and retail granular liability franchisee which is healthy in the long run are the key competitive strengths.