The 520 crore IPO of Equitas Small Finance Bank opens today and the issue closes on October 22. The share price band has fixed at 32- 33 per equity share. Chennai-based Equitas Small Finance Bank provides credit to unserved and underserved segments of the economy and its portfolio includes agri-loans, housing loans, LAP, micro lending and vehicle loans.

                        

Equitas Small Finance Bank commenced operations as a small finance bank (SFB) in 2016 after receipt of the RBI’s final approval. Prior to that, the company was operating as a NBFC offering vehicles finance and MSE finance business as a wholly owned subsidiary of promoter Equitas Holdings Limited.

Equitas Small Finance Bank's IPO comprises fresh issue of 85 million shares and offer for sale of 72 million shares mainly to meet the RBI’s listing norms. After the IPO, the stake of Equitas Holdings Limited, the holding company of Equitas Small Finance Bank, will fall to about 82%.

Lot size

Bids can be made for a minimum of 450 equity shares and in multiples of 450 equity shares thereafter.

KFin Technologies Private Limited is the registrar of the issue and will manage share allocation and refund. JM Financial Limited, Edelweiss Financial Services Limited, IIFL Securities Limited are the book running lead managers to the offer.

Expected share allocation and listing dates

Shares of Equitas Small Finance Bank are expected to get listed on November 2. The share allocation in Equitas Small Finance Bank IPO is likely to get finalised on October 27.

A portion of the issue (about 10%) is reserved for this category but to qualify for this category you need to hold at least one share of Equitas Holdings as on the RHP filing date (October 11th).

According to RBI norms, the promoter of a small finance bank must reduce their shareholdings in the bank to 40% from five years of operations. Equitas Small Finance Bank will complete its five years of operations in September 2021.

The management has indicated that two routes are under consideration for reduction of Equitas Holdings stake in the bank: merger and acquisition and block sale of shares by the holding company. It has also said Equitas Small Finance Bank may also also apply for a universal banking license at an appropriate time.

Financials

Net profit of Equitas Small Finance Bank increased to 243 crore in FY20, from 210 crore in FY19. Net income rose to 1,777 crore in FY20.

"Equitas has rightfully reduced its portfolio concentration in microfinance to 23% from 46% in FY17, given the risks and volatility associated with this business, while it has well-diversified into non-MFI loans encompassing vehicle, housing and SME segments being the key drivers of growth. The bank has also now ventured in to the secure gold loan business. However, it also needs to work toward geographic diversification given the sizeable exposure to its home state," Emkay Global said in a note.

The brokerage has a subscribe rating to the issue, saying that other risks include promoter stake dilution and higher-than-expected NPA formation.