Tamilnad Mercantile Bank incorporated on May 11, 1921, is one of the oldest and leading old private sector banks in India, with a history of close to 100 years. It offers a wide range of banking and financial services primarily to MSME, agricultural and retail customers. TMBL primarily offers various loan products to its MSME customers operating in the manufacturing, trading, and services sector. During the Fiscals 2020, 2021 and 2022 MSMEs contributed 37.92%, 39.08%, and 37.38% respectively to its total advances with a CAGR of 8.55% from March 31, 2020, to March 31, 202, and It also TMBL primarily offers loan products to individual farmers, group of farmers and agricultural corporates. During the Fiscals 2020, 2021 and 2022 agricultural customers contributed 24.77%, 27.41%, and 29.70% respectively to its total advances with a CAGR of 19.70% from March 31, 2020, to March 31, 2022.
As on March 31, 2022, the bank had a network of 509 branches, 12 administrative offices, 1,141 ATMs, 282 CRMs, and 101 E-lobbies. Out of these 509 branches, 76 branches are in metropolitan areas, 80 branches are in urban areas, 247 branches are in semi-urban areas, and 106 branches are in rural areas. It has a wide presence in south India and further diversifying its branches in other states of India, with 90 branches located in the states of Maharashtra, Gujarat, Karnataka, and Andhra Pradesh respectively.
Promoters & Shareholding:
TMB is a professionally managed bank and does not have identifiable promoters.
Public Issue Details:
Offer for sale: Fresh issue of approx. 15,840,000 equity shares at Rs. 10, aggregating up to Rs. 831.60 Cr.
Total IPO Size: Rs. 831.60 Cr.
Price band: Rs. 500 – Rs. 525.
Objective: To utilize the Net Proceeds towards augmenting its Tier–I capital base to meet its future capital requirements.
Bid qty: minimum of 28 shares (1 lot) for Rs. 14,700 and maximum of 13 lots.
Offer period: 5th Sep 2022 – 7th Sep 2022.
Date of listing: 15th Sep 2022.
∙ One of the oldest and leading old private sector banks in India.
∙ The bank has a strong legacy, a loyal customer base, and a focus on improving the servicing framework.
∙ Strong presence in Tamil Nadu with a focus to increase presence in other strategic regions.
∙ Bank’s deposits have grown at a healthy pace of 8% CAGR.
∙ Strong asset quality, underwriting practices, and risk management policies and procedures.
∙ Professional and experienced management team.
∙ Concentrated business hence any political/economic instability in the state can disrupt the business.
∙ The bank operates in a very competitive environment.
∙ Any increase in NPAs will adversely affect the portfolio of the bank.
∙ The bank is subject to stringent regulatory requirements and prudential norms and the inability to comply with such laws, regulations, and norms may harm its business.
Subscribe or avoid?
Sectorial outlook – The Reserve Bank of India (RBI), which is the country’s central banking authority, regulates and supervises the banking sector. Over the years, the banking sector has undergone several reforms aimed at promoting a diversified, efficient, and competitive financial market, besides giving operational freedom to the bank and these measures have cumulatively strengthened the banking system, engendered confidence in depositors, and aided overall financial stability. The Indian banking sector is significantly under-penetrated, which provides immense opportunities for banks and other financial institutions. The domestic bank credit-to-private sector as % to GDP stood at 55% as of 2020. The banking sector enjoyed a healthy deposit compound annual growth rate (CAGR) of ~10% between fiscals 2016-21. Banking credit to the retail segment recorded a 15% CAGR between fiscals 2016 and 2021. All of these factors provide immense opportunities for banks and financial institutes to grow.
The financials (revenue and net profit) are shown in the graph below:
Valuation – For the last 3 years average EPS is Rs. 47.72 and the P/E is around 11x on the upper price band of Rs. 525. The EPS for FY22 is Rs. 57.67 and the P/E is around 9x. It has South Indian Bank Limited (27.71x), RBL Bank Limited (16.64x), Karnataka Bank Limited (3.36x), Karur Vysya Bank Limited (8.97x), Federal Bank Limited (9.61x), etc. as listed peers as per the RHP. The company P/E is between 11x and 9x. CASA – 30.50, GNPA – 1.69, NNPA – 0.95, NIM – 4.10.Recommendation – TMB has a strong portfolio with a loyal customer base and has generated strong revenue and margin growth in the last 3 years. After considering all the factors the listing still seems fairly valued with good prospects hence we would recommend “Subscribe” to this IPO for investors in a medium to long-term perspective.
This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in