Incorporated in 2008, Suryoday Small Finance Bank Ltd (Suryoday SFB) is a Rs. 4,000 Cr loan book-sized Small Finance Bank (SFB) in India. It started offering SFB services in 2017 before which it operated as an NBFC. They serve customers in the unbanked and under banked segments. Suryoday SFB focuses predominantly on the micro-finance segment with an average loan ticket size of Rs. 25,000. 77% of its loan book predominantly flows from Tamil Nadu, Maharashtra, and Odisha. While unsecured loans still constitute 74.6% of the bank’s loan portfolio as of December 2020.
Suryoday Small Finance Bank Ltd. (SSFBL) is among the leading SFBs in India in terms of net interest margins, return on assets, yields, and deposit growth and had the lowest cost-to-income ratio among SFBs in India in Fiscal 2020 and has for over a decade been serving customers in the unbanked and under banked segments in India and promoting financial inclusion.
Mr. Baskar Babu Ramachandran, Mr. T. Surendra Pal, and Mr. P.S Jagdish, and Mr. G.V. Alankara are the company promoters with the pre-issue share holding of 30.35%.
Public Issue Details:
Offer for sale: Fresh issue size of approx 19,093,070 Equity Shares of Rs 10, aggregating up to Rs 582.34 Cr and up to 10,943,070 Equity Shares, aggregating up to Rs333.76 Cr of OFS.
Total IPO Size: Rs 582.34Cr
Price band: Rs303 to Rs305
Objective: To finance business working capital requirements and meet general corporate purposes.
Bid qty: minimum of 49 shares (1 lot)
Offer period: 17th March 2021 –19th March 2021
Date of listing: 30th March 2021
Also read: Should you invest in SME IPOs?
- Diversified product portfolio with products like MFI loans, Vikas loans, Shopkeeper loans, and more
- A proven track record in the industry and strong financials
- Offers digital banking, NPCI payment services, and mobile banking solutions
- Strong customer base through branch banking and digital banking solutions
- Quality management and good backing from institutional investors
- A fall in collections is a key risk, as most of the collections are still cash-based and require a physical presence by its representatives. Collection efficiency in three states, Tamil Nadu, Maharashtra, and Odisha, is key as most of the bank’s lending business comes from here.
- The fall in collection efficiency would directly lead to a fall in asset quality
- While many borrowers had opted for the moratoriums available and most of the customers started paying instalments after the moratorium period was over, there can be no assurance that customers impacted due to COVID-19 will continue to make payments on a continuing basis
Subscribe or avoid?
Suryoday Small Finance Bank is the leading small finance bank in India which has been growing since their conversion as an SFB and are currently in a robust financial position that will enable them to expand their business quickly. The bank’s operations are also funded by growth capital provided by a diverse group of investors, including development finance institutions, private equity investors, institutional investors, and family offices such as Kiran Vyapar Ltd. and Polaris Banyan Holding Pvt. Ltd. On the financial side, the bank has shown superior growth over the years with a strong recovery ratio and has reported a net profit of Rs 111.19 Cr, Rs90.39 Cr and Rs 11.49 Cr in the FY20, FY19, and FY18 respectively. In the last 9 months from March 2020 to Dec 2020, the bank has reported a net profit of Rs 54.86 Cr. The bank is valued at 2.6 times its book value as per 9months FY21. Listed peers such as Ujjivan Small Finance Bank and Equitas Small Finance Bank, trade at a similar valuation. For the last 3 years average EPS of Rs 11.33, the P/E ratio is 27x, and on the upper price band of Rs 305 and EPS of Rs 13.3 for FY20, the P/E ratio works out to be 23x. If we annualize last 9 months EPS for FY21 P/E works out to be 38x. Means, the company asking price of Rs 305 of the upper price band in the P/E range of 23x to 38x. The issue when compared to its peer seems to be fully priced. Considering all the above factors and the growth prospects of the company, we recommend “SUBSCRIBE” for Moderate to High risk Investors in the current Bull Run and the conservative investors can give it a miss.