Kolkata-based private sector lender Bandhan Bank launched its Rs 4,473-crore IPO today. The public offer aims to comply with the RBI's new bank licensing norms that need the entity to get listed within three years of start of banking operations. Bandhan Bank was incorporated on December 23, 2014 as a wholly owned subsidiary of Bandhan Financial Holdings, the largest micro finance organisation in India.
On Wednesday, the lender raised Rs 1,342 crore from anchor investors, ahead of its initial share-sale. The anchor investor issue fetched Rs 1341 .91 crore after allotment of 3.57 crore shares to 65 anchor investors at a price of Rs 375 per share.
The price band for the initial public offer (IPO), which will close on March 19, has been fixed at Rs 370-375 per equity share.
The issue is expected to raise Rs 4,473 crore.
Analysts and brokerages have given a thumbs up to the issue in the long term. Let's look at some of the IPO recommendations.
Geojit Financial Services: Subscribe
Bandhan Bank is a newly licensed commercial bank transformed from a microfinance in August 2015. Currently the bank has a network of 887 branches and 430 ATMs, remarkable growth within a short span of time. They are largely focusing on serving underpenetrated and underbanked rural markets of India. As on December 31 FY18, the bank's net advances stood at Rs 22,931 crore against Rs 12,438 crore in FY16.
On the liability side, the bank has built a strong base of current account and savings account deposits with a healthy CASA ratio of 33.2%. The company reported Net Interest Margin (NIM) of 9.9% in December which was one of the best in the industry. Further, Bandhan's Gross and Net NPA stood at 1.7% and 0.8% respectively in December which was relatively better than its peers despite a challenging economic environment. Going forward, the bank is expected to benefit largely from financialisation of household investments especially in the rural and underbanked areas as it has high concentration in the East and Northeast India.
On the valuation front, at upper price band of Rs 375, the issue is priced at 5.6 times on FY17 and 5x on December FY18 adjusted book value (post IPO dilution). However, the valuation are on the higher side, we believe such premium valuations to persist given Bandhan's strong presence in niche customer segments, higher return ratios (RoE of 25.6% and RoA of 4.1% in December 2018) and best in class asset quality. We recommend 'Subscribe' to the issue with a long term horizon.
Bandhan Bank has grown its gross advances and total deposits by 35% and 92% in FY'17. The return on assets has increased from 3% for FY16 to 4% for the nine months ended December 31, 2017 and return on equity has increased from 15.96% for FY 16 to 25.55% for the nine months ended December 31, 2017.
At the upper band of offer price (Rs 375), the issue is being offered at 10 times of FY17 book value. We believe the issue is offered at premium valuations compared to its existing listed peers on account of
a) Bandhan Bank's historical strong operating track record
b) Its differentiated business model with 88% of its net advances as microloans
c) High potential to grow at 30% plus CAGR over the next 3 years given the underpenetrated microfinance segment
d) Superior operating metrics compared to listed peers.
We advise investors with a long term investment horizon to 'SUBSCRIBE' to the issue.
"The bank would likely be able to sustain RoA and RoE near the 4% and 25% mark respectively. We believe long term investors would find post-money valuation at 4.8 times Price to Book Value reasonably attractive. A comparable benchmark for valuation would be the recent IndusInd Bank-Bharat Fin transaction wherein the former valued the latter at 5.2 times FY18 Price to book value," the brokerage said.
Angel Broking: Subscribe
Angel Broking acknowledges valuations are high but sees strength in high growth potential and profitability. At upper end of the IPO price band, Bandhan is valued at 8.3 times 3QFY18 book value (preIPO) and on post dilution basis at 5 times of book value. Though valuations are on the higher side, we expect such premium valuations to persist given
(a) Healthy return ratio (25%+ RoE for FY17 and 9MFY18)
(b) Balance sheet strength (24.8% CAR ratio, CASA - 33.2%)
(c) Experienced and focused management.
Considering the above positives, we recommend SUBSCRIBE on the issue.
Choice Broking: Subscribe with caution
Bandhan Bank is expanding into the retail and SME segments which are not as high yielding as micro segment. With the continuity in full-fledged banking operations, margin of the bank is likely to tilt downward to industry average (NIM:5% ) going forward. The issue is aggressively priced as Bandhan Bank is demanding valuation of Rs 4,47,301.9 million valued at price to adjusted book value at 4.9 times to FY18 annualized adjusted book value of equity per share, making it the 7th most valuable lender.
Valuation is expensive compared to RBL Bank at 3.2 times, Federal Bank at 1.7 times and even higher to well managed banks such as YES Bank at 3.2 times, IndusInd Bank at 4.8 times. Considering all these factors, the brokerage is of the view that the issue is aggressively priced factoring all fundamental positives and leaving limited space for further upside.