ESAF Small Finance Bank shares list at 20% premium over IPO price

Shares of ESAF Small Finance Bank made a strong debut on the stock exchanges on Friday, in an otherwise weak broader market. The share price of the small finance bank listed at ₹71.90 on the BSE, a premium of 19.8% against the issue price of ₹60 per share. On the NSE, the stock opened at ₹71 per share, up 18.3% over the IPO price.

Post listing, ESAF Bank shares gained as much as 24.5% to hit a high of ₹74.7 on the BSE, while it touched a high of ₹74.8 on the NSE.

At the time of reporting, the stock was trading 14.75% higher at ₹68.85 apiece on the BSE, with a market capitalisation of ₹3,541.7 crore.

The positive listing of ESAF Bank was in line with Street estimates as the ₹463-crore initial public offering (IPO) of the private lender received strong response from investors. The company had set price band at ₹57-60 per share and lot size was 250 equity shares and in multiples thereafter.

“ESAF Small Finance Bank has debuted at ₹71.90, i.e., 20% above its issue price. It has a major operation in the microloan segment, with a main focus on rural areas. The company has a strong presence in southern India. And it has a growing retail deposit portfolio. If we look at its financials, the company has reported strong growth in top- and bottom-line numbers,” says Shivani Nyati, Head of Wealth, Swastika Investmart Ltd.

“The issue is coming at a P/BV of 1.5x, which seems fairly priced. Thus, considering this valuation and its better performance in terms of its CIR, NNPA, and NIM, So, allottees who applied for the public offering for listing premium are advised to maintain their stop loss at 60 and wait for further upside, whereas those who have a medium- to long-term perspective can also hold the stock,” Nyati adds.

The IPO of the small finance bank, which was a mix of fresh issuance of equity shares and an offer for sale by existing shareholders, was subscribed 73.15 times on the final day of bidding. The public offer garnered overwhelming response from qualified institutional buyers (QIBs) as the quota reserved for them booked 173.52 times, while the portion set aside for non-institutional investors (NIIs) and retail investors were subscribed 84.37 times and 16.97 times, respectively. The quota for employees, received 4.36 times bids against its reserved portion.

As per the document filed with the capital market regulatory SEBI, the company had reserved half of the issue for QIBs, up to 15% for NIIs, and remaining 35% for retail individual bidders. The company had reserved shares worth ₹12.5 crore for employees at a discount of ₹5 per share to the final issue price.

The bank intends to use capital raised from fresh issues mainly for augmenting its Tier 1 capital base to meet its future capital requirements. A part of the fund will be also used to meet general corporate purposes.

Established in 1992, ESAF is a small finance bank mainly focusing on unbanked and under-banked customer segments, especially in rural and semiurban centres with 72% branches operating in these regions. The bank offers micro, retail, MSME, and agricultural loans, as well as loans to financial institutions. It also distributes third-party life and general insurance policies and government pension products.

As of June 30, 2023, the bank had a network of 700 banking outlets (including 59 business correspondent-operated banking outlets), 767 customer service centers (operated by its business correspondents), 22 business correspondents, 2,116 banking agents, 525 business facilitators, and 559 ATMs spread across 21 states and two union territories, serving 7.15 million customers.

In the financial year 2023, ESAF SFB reported robust growth of 452.39% in its profit after tax (PAT) at ₹302.33 as compared to ₹54.73 crore in the year ago period. The revenue increased by 46.29% to ₹3,141.57 crore in FY23 from ₹2,147.51 crore in FY22. For the June quarter of FY24, the bank posted ₹129.96 crore profit, while revenue stood at ₹991.78 crore.

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