Missed out investing in IdeaForge and Cyient DLM? Looking for another great IPO? Utkarsh Small Finance Bank’s IPO might be just what you need. With a focus on serving the low-income segment in rural and semi-urban areas, Utkarsh Small Finance Bank has quickly grown since its inception in 2016. Now, it is offering its IPO to investors like you and me. Let’s explore why this IPO holds great potential for both short term and long term gains.
If you just want to know whether you should apply for Utkarsh SFB IPO or not - We are definetly buying this IPO. Keep reading further if you are cusious to know why the company may generate great returns for its investors.
Utkarsh Small Finance Bank IPO Details
| Issue Date | 12th July, 2023 to 14th July, 2023 |
| Listing Date | 24th July, 2023 |
| Issue Price (Rs.) | Rs. 23 to Rs. 25 |
| Lot Size | 600 shares |
| Issue Size (Rs. Crore) | 500 Crore |
| Total No. of Shares Issued | 20 Crore shares |
About Utkarsh SFB
Utkarsh Small Finance Bank is a Varanasi based small finance bank that was incorporated in 2016. With a focus on serving the low-income segment in rural and semi-urban areas, the bank has successfully expanded its operations to 26 states and Union Territories through approximately 830 outlets.
As of March 31, 2023, Utkarsh Small Finance Bank boasted 3.59 million customers, both in deposits and credit, primarily concentrated in Bihar and Uttar Pradesh. The company has been recognized as the third fastest-growing small finance bank between Fiscal 2019 and Fiscal 2023, based on its gross loan portfolio of Rs. 6,000 crore, according to a CRISIL report.
Industry Overview:
Utkarsh Small Finance Bank operates in the small finance banking sector, catering to the needs of low-income individuals. This sector is projected to grow at an impressive rate, with a compound annual growth rate (CAGR) of approximately 22% in its loan portfolio between Fiscal 2023 and Fiscal 2025, according to industry experts.
Promoters:
Utkarsh Small Finance Bank is backed by Utkarsh CoreInvest Limited, a strong and experienced promoter holding an 84.75% stake in the bank. With a management team led by Govind Singhji, a banking and financial services veteran, the bank is in good hands.
Objectives of the Issue:
The main objective of Utkarsh Small Finance Bank’s IPO is to raise funds to enhance its Tier-1 capital base. This will ensure that the bank has enough capital to meet its future requirements and continue its growth trajectory.
Key Performance Indicators:
Utkarsh Small Finance Bank boasts impressive key performance indicators:
- Earnings Per Share (EPS) for FY 2022-23: ₹4.52
- Return on Net Worth (RoNW) for FY 2022-23: 20.22%
- Price-to-Earnings (P/E) Ratio: 5.53 (based on EPS for 2022-23)
Utkarsh SFB Financials
| Particulars (in Million Rs) | As at March 31, 2023 | 2022 | 2021 |
|---|---|---|---|
| Capital | 8,959.05 | 8,955.22 | 8,483.34 |
| Net worth* | 20,003.21 | 15,722.97 | 13,683.53 |
| Net asset value per Equity Share** | 22.33 | 17.56 | 16.13 |
| Total borrowings | 23,494.75 | 25,719.35 | 26,078.25 |
| Total Income | 28,042.86 | 20,336.46 | 17,058.36 |
| Net Profit / (Loss) | 4,045.02 | 614.62 | 1,118.15 |
| Earnings per Equity Share*** (Basic) | 4.52 | 0.70 | 1.46 |
| Earnings per Equity Share*** (Diluted) | 4.51 | 0.70 | 1.46 |
Positive Aspects of Utkarsh Small Finance Bank:
- Attractive Valuation: Utkarsh Small Finance Bank offers an appealing valuation. With a low P/E ratio of 5-6x compared to the sector’s average of 20x, there is an excellent opportunity for potential listing gains. A similar bank in the sector, AU Small Finance Bank, is currently trading at a P/E ratio of 20x, indicating the potential for substantial upside.
- Strong Loan Portfolio Growth: Utkarsh Small Finance Bank is one of the top three banks in terms of gross loan portfolio growth. This demonstrates the bank’s ability to expand its lending activities and gain market share effectively.
- Robust Financial Performance: Over the past three years, Utkarsh’s net worth has nearly doubled, showcasing its strong financial foundation. Additionally, the bank has witnessed significant growth in Profit After Tax (PAT) during this period.
- Market Potential: Utkarsh Small Finance Bank has ample room for growth. Although the bank currently holds just an 8% market share in industry advances as of December 31, 2022, it has a vast potential for expansion nationwide. With a significant portion of its advances originating from Bihar and Uttar Pradesh, Utkarsh can tap into untapped markets and increase its market share.
- Strong Promoter and Management: Utkarsh Small Finance Bank benefits from the expertise and experience of its strong promoter, Utkarsh CoreInvest Limited, and its capable management team led by Govind Singhji.
Risks Associated with Utkarsh Small Finance Bank:
- Concentration Risk: More than 50% of the bank’s advances are concentrated in Bihar and Uttar Pradesh. Any adverse changes in the economic conditions or regulatory environment in these regions could have a significant impact on the bank’s business.
- Profitability Volatility: The bank has witnessed fluctuations in profitability over the past few years, primarily due to high provisions. While this may be attributed to the impact of the COVID-19 pandemic, investors should consider the bank’s ability to maintain consistent growth in the future.
- Low CASA Ratio: Utkarsh Small Finance Bank has a relatively low CASA (Current Account and Savings Account) ratio, indicating a higher cost of borrowing. This could impact the bank’s net interest margin and overall profitability.
- Peer Comparison: Ujjivan Small Finance Bank, a competitor in the same sector, is currently trading at a P/E ratio of 7-8x. Investors should consider this comparison while evaluating Utkarsh Small Finance Bank’s valuation.
Final words
Utkarsh Small Finance Bank’s IPO offers a promising investment opportunity for both short-term and long-term gains. We can expect listing gains of 40% to 60% with this IPO.
With its strong financial performance, impressive loan portfolio growth, and experienced management team, the bank is well-positioned for future success. However, investors should be aware of the risks associated with regional concentration, profitability volatility, and the bank’s lower CASA ratio. By carefully evaluating these factors, investors can make an informed decision and potentially benefit from the bank’s growth potential in the thriving small finance banking sector.
