Utkarsh Small Finance Bank IPO: Check Issue Size, Date and Price Band
Introduction:
Recently, several Initial Public Offerings (IPOs) have been launched in the Indian stock markets. Some of them, including ideaForge Technology and Cyient DLM Limited, attracted heavy bidding from investors, with the former providing around 93% listing gains. Another company – Utkarsh Small Finance Bank – is due to launch its IPO in July 2023.
Utkarsh Small Finance Bank IPO opens for subscription from retail investors on Wednesday, 12 July 2023 and closes on Friday, 14 July 2023. But before you subscribe for this IPO, let’s take a deep dive into the details and determine whether it would be profitable.
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About the Utkarsh Small Finance Bank:
Incorporated in 2016, Utkarsh Small Finance Bank started operating in 2017 and catered mostly to unserved people in rural and semi-urban regions of India. The company has a distinct focus on microfinance business. It also offers common banking facilities, such as opening a savings account, current account, recurring accounts, fixed deposits, and locker provisions.
As of 31 March 2023, Utkarsh Small Finance Bank had 3.59 million customers in Uttar Pradesh and Bihar. The company operates across 26 Indian states and Union Territories with 830 branches and 15,424 employees. The company’s headquarter is located in Varanasi, Uttar Pradesh.
Key strengths of Utkarsh Small Finance Bank:
- Deep expertise in microfinance business
- The retail deposit business of the company is growing tremendously
- Diversified distribution network across India with considerable cross-selling
- Boasts a robust credit assessment and risk management framework
- Positive growth post-COVID-19 pandemic coupled with cost-effective operations
Risks associated with Utkarsh Small Finance Bank:
- A significant portion of customers belong to Uttar Pradesh and Bihar
- The majority of loans given by the company are unsecured
- Operates in a highly competitive industry
- Presence of some big competitors including Equitas, Ujjivan, Bandhan Bank, and AU Small Finance Bank
- Regulated by the Reserve Bank of India’s guidelines
- Changes in the interest rate can hamper a company’s business
Financials Of Utkarsh Small Finance Bank:
The company boasts a strongly growing revenue portfolio for the last three fiscals. It recorded the third-fastest gross loan portfolio growth among small finance banks in India. After the end of the financial year 2022-23, Utkarsh Small Finance Bank’s loan portfolio stood at around Rs. 60 billion.
The company's net worth increased to Rs. 2,000 crores on 31 March 2023 from Rs. 1,368 crores on 31 March 2021. The net profit for FY 2023 stood at Rs. 405 crores as against Rs. 61 crores a year ago. The company’s net Non-Performing Assets (NPA) have also improved to 0.39% from 2.31% during this period.
The table below reflects the company’s financials as per the preliminary papers filed with the market regular SEBI:
| Particulars | As of and For FY Ending March 31 | ||
| 2023 | 2022 | 2021 | |
| Net Worth | Rs 2,000 | Rs 1,572 | Rs 1,368 |
| Gross Loan Portfolio | Rs 13,957 | Rs 10,631 | Rs 8,416 |
| Total Income | Rs 2,804 | Rs 2,034 | Rs 1,706 |
| Net Interest Income | Rs 1,529 | Rs 1,061 | Rs 839 |
| Profit After Tax | Rs 405 | Rs 61 | Rs 112 |
| Net Interest Margins | 9.75% | 8.75% | 8.20% |
| Net NPA | 0.39% | 2.31% | 1.33% |
| Earnings Per Share (Diluted) | Rs 4.51 | Rs 1 | Rs 1 |
| Return on Equity (%) | 23% | 4% | 10% |
| Return on Average Assets | 2.42% | 0.48% | 1.05% |
*Amount in Crores
Details of the IPO:
Utkarsh Small Finance Bank IPO will open for public subscription on 12 July and closes on 14 July. The IPO will be a 100% fresh issue worth Rs. 500 crores. 75% of the issue will be reserved for Qualified Institutional Buyers (QIBs), 15% is reserved for Non-Institutional Buyers (NIBs), and the remaining 10% is reserved for retail investors.
The allotment of shares is expected to be finalised on 19 July, and shares will be credited to investors’ Demat account on 20 July. The company's stocks are expected to be listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) on 24 July.
Earlier, the bank had filed a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) in July 2021 to raise Rs. 1,350 crores. However, in August 2022, it filed new draft papers after cutting the issue size by 63% to raise Rs. 500 crores through its IPO.
With the proceeds from the IPO, the bank plans to augment its Tier I capital base to meet its future capital requirements and carry out general corporate works.
What to Check Before Investing?
Before investing in any IPO, you must analyse a few factors – the financials of the company, its performance in the last three years, Grey Market Premium (GMP), future growth prospects, and the prevailing market conditions. All these parameters paint a positive picture if we talk about the Utkarsh Small Finance IPO. You can take this as a green signal to subscribe for this IPO. However, you need to be wary of the associated risks.
In case you don’t have a Demat account to subscribe for the IPO, you can open it for free with Motilal Oswal.
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