Investing in Equitas Small Finance Bank IPO: A Comprehensive Analysis

Equitas Small Finance Bank Limited (ESFBL) has created a significant footprint in the small finance banking sector in India. With its market presence and diversified product offerings, it seems like an interesting investment opportunity. However, not all IPOs are created equal, and it is essential to scrutinize the IPO thoroughly before making any investment decisions. In this article, we will delve into the details of the Equitas SMB IPO and provide a comprehensive analysis to help you decide whether investing in this IPO is a good idea.

About the Company

Equitas Small Finance Bank has been providing financial services in India since 1993, making it one of the largest small finance banks based in Chennai. In Fiscal 2019, they were the largest small finance bank in India in terms of the number of banking outlets, with a total of 856 banking outlets and 322 ATMs across 17 states and union territories. Here's a closer look at their business areas:

Small Business Loans: 41% of their business is sourced from small business loans. Micro-Finance: 23% of their business is from micro-finance activities. Vehicle Loans: Approximately 25% of their business comes from vehicle loans.

Equitas has a customer-centric approach, focusing on the financially un-served and under-served segments. This unique perspective allows it to offer a wide range of banking products and services, fostering a diversified portfolio and reducing its dependency on micro-finance business, which other micro-finance companies have transitioned into.

Competitive Strengths and IPO Details

Equitas Holdings Limited, one of the company's promoters, aims to augment the bank's Tier-1 capital base through the IPO proceeds. The bank is offering Equity Shares of Rs.10 each for cash at a price of Rs. 32-33 per equity share, aggregating to Rs. 517.60 Crore. The IPO details are as follows:

Fresh Issue: up to Rs. 280.00 Crore Offer for Sale: up to Rs. 237.60 Crore

The important dates and key information are also outlined. The company's financials reveal significant growth in their business. For instance, their Gross Advances, including IBPC issued, have grown from Rs.62583.62 million in March 31, 2017, to Rs.117042.88 million in March 31, 2019, and further to Rs.132072.87 million as of September 30, 2019.

Personal View

My analysis of the Equitas SMB IPO suggests a neutral or minimal listing gain, with an expected maximum of 8-10 returns on investment. The IPO appears aggressively priced based on Q1 FY21 earnings, and a moratorium issue could set back potential gains. With the current economic situation, a long-term investment perspective is not recommended.

Do's and Don'ts

Do apply only one lot: Due to high demand, applying multiple lots may not benefit you, as you might receive only one allotment. Don't apply from different Demat accounts if they are linked with the same PAN details: This could lead to your subscription being rejected. Do apply from different Demat accounts linked with different PAN details: By applying from different accounts, you increase your chances of getting allotted shares.

For more updates and analysis on such investment opportunities, you can join my Telegram channel, OptionsTraders.