The initial public offering (IPO) of Chennai-based Five Star Business Finance opened for subscription on Wednesday. The three-day initial share sale would conclude on November 11. The issue attracted bids for 7,21,742 crore equity shares against the IPO size of 3,04,88,966 shares -- subscribed merely 2 per cent on the first day of bidding.
Retail individual investors' and qualified institutional buyers' portions got 3 per cent subscription, respectively, by 5 pm, while the non-institutional investors' category attracted 1 per cent of the total bids on Day 1.
The non-banking financial company (NBFC) has fixed the IPO price band at Rs 450-474 per share. Investors can bid for a minimum of 31 shares and in multiples of 31 shares, thereafter. The shadow lender has mobilised Rs 588 crore from anchor investors ahead of its IPO.
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The issue is purely an offer for sale (OFS) by existing institutional investors. Also, the individual promoter isn't selling any shares as part of the OFS.
Grey market premium
Market participants said Five Star Business IPO grey market premium (GMP) is around Rs 10. It implies that the grey market is expecting the lender to list around Rs 484 (Rs 474 + Rs 10), which is more than 2 per cent higher than the IPO's upper band price of Rs 474 per equity share.
"The company has performed significantly well. NIMS (Net interest margins) for FY22 were at 17.68 per cent, while GNPA and NNPA remained very controlled. On the valuation front, the issue looks attractively priced based on the price at the upper band the asking P/B (price-to-book) valuation is 3.58x (based on June, 22 book value)," Manan Doshi, UnlistedArena.com, told Business Today.
Samco Securities said Five Star Business operates in a highly underpenetrated segment and has sufficient legroom to grow. This, it said, is evident from the fact that the company has been growing its book at a very good pace.
"The company has created a niche for itself and is able to generate an impressive ROA of 7-8 per cent. Despite generating a high ROA and NIMs, the company’s GNPA has been below 1.5 per cent, which makes this business model value-generating and unique. Considering the improving macro environment, systemic credit growth of the country, strong underwriting of the company, and the ability to generate high return ratios, we recommend our investors to 'Subscribe' to the IPO," the brokerage said.
Swastika Investmart said, "The NBFC has the fastest gross term loan growth among its peers and a continuous track record of financial growth with increasing revenue and profit. The issue is reasonably priced at a P/B valuation of 3.6 when compared with its peers. However, high competition and rising interest rates are big threats to this. The issue is a complete offer for sale, and some of its peers are available at a better price in the secondary market."
The brokerage recommended an 'Avoid' rating for the issue.
ICICIdirect said the NBFC has shown healthy fundamental performance and robust growth in the fast-growing small business finance market. At the upper end of price band, the IPO is valued at 3.7 times FY22 BV (post-issue). The brokerage, however, didn't rate the IPO.
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