Bandhan Bank Limited IPO - Should you subscribe?
Bandhan Bank Limited is going to enter the primary market in mid - March 2018. This is 8th mainstream IPO of 2018 and has all the guts to oversubscribe by more than 10 times. In June 2017, its peer AU Small Finance Bank hit the market and proved to be one of the successful IPOs of 2017. It has given an impressive return to its shareholders so far. However, things have changed. The present market scenario is very bearish and the same amount of success can not be expected by Bandhan Bank Ltd especially when there is a big banking fraud is the hot topic of discussion for the nation.
Well, Bandhan Bank doesn't need to resort to IPO to garner money. It's already a cash rich company. There is a RBI New Bank Licensing Guidelines, and as per that, the Equity Shares of the Bank are required to get listed on the stock exchanges within three years from the date of commencement of business of the Bank. Bandhan Bank Limited was incorporated on December 23, 2014 and began operations on August 23,2015. So, it has to get listed on or before August 22, 2018. In light of the above, the Bank is undertaking this Issue.
Issue Details :
As we can see from the above table that this IPO is a mix of Offer For Sale and Fresh Issue. Its two investor shareholders namely IFC and IFC FIG have participated in the Offer for sale and have put 1,40,50,780 shares and 75,65,804 shares respectively under this arrangement. Its promoter BFHL (Bandhan Financial Holding Ltd) is not selling a single share.
Object of the issue :
Offer for Sale : The Selling Shareholders will be entitled to the respective portion of the proceeds of the Offer for Sale net of their proportion of Issue related expenses. The Bank will not receive any proceeds from the Offer for Sale.
Fresh Issue : (1) In terms of the RBI New Bank Licensing Guidelines, (2) to augment the Bank’s Tier-I capital base to meet the Bank’s future capital requirements. (3) The Bank expects to receive the benefits of listing the Equity Shares on the Stock Exchanges.
Overview of the Bank:
BBL is a commercial bank focused on serving underbanked and underpenetrated markets in India. It has a banking license that permits it to provide banking services pan-India across customer segments. It currently offers a variety of asset and liability products and services designed for micro banking and general banking, as well as other banking products and services to generate non-interest income.
The company was incorporated on December 23, 2014 and began operations on August 23, 2015 when Bandhan Financial Services Limited (“BFSL”), its ultimate parent company, transferred its entire microfinance business to BBL and it simultaneously commenced general banking activities. By the time BFSL transferred its microfinance business to BBL, it was India’s largest microfinance company by number of customers and size of loan portfolio. It believes that the “Bandhan” brand is instrumental to its success.
The Bank's strength lies in microfinance, including a network of 2,022 doorstep service centers (“DSCs”) and 67.7 Lakh micro loan customers that BFSL transferred to it, which it has grown to 2,633 DSCs and over 98.6 Lakh micro loan customers as of December 31, 2017. To complement its micro loan business, since obtaining its banking license it has also focused particularly on creating a strong general banking business. To this end, it launched its general banking business on August 23, 2015 by opening a greenfield network of 501 bank branches and 50 automated teller machines (“ATMs”), which as of December 31, 2017 it has grown to 887 bank branches and 430 ATMs, together serving over 21.3 Lakh general banking customers. Its distribution network is particularly strong in East and Northeast India, with West Bengal, Assam and Bihar 385 together accounting for 56.37% and 57.58% of our branches and DSCs, respectively, though its focus is to expand across India.
Pricing of the share :
The company has set the price between Rs. 370 - Rs. 375 per share. EPS (Basic & Diluted) as on March 31,2017 was Rs. 10.75. At upper and lower price band, PE ranges between 36.45 - 36.95. As evident from the handsome profit figures, the company has been growing exponentially since it started its operation in August 2015. Having seen the speed at which the company is growing, the share price seems reasonable. The NAV as on December 31, 2017 was Rs. 49.35. The company and selling shareholders have asked the price which is 7.50 - 7.60 times of its book value (NAV), it is little on higher side. The share seems expensive.
Peer comparison:
Its peer has big names viz. ICICI Bank, HDFC Bank, IndusInd Bank, Yes Bank, Axis Bank, Kotak Mahindra. Actually, all these peers scale of operations are way more than Bandhan Bank Limited.
I would rather consider IDFC Bank, RBL Bank, AU Small Finance Bank, Equitas Holding, Ujjivan Finacial services, Bajaj Finance and Gruh Finance Ltd as its core peers. By and large, they have parallel scale of operations.
IDFC, Equitas and Unnivan are trading at much cheaper price than Bandhan Bank. While RBL Bank, AU Small Finance Bank, Bajaj Finance and Gruh Finance are trading at higher price. It should be noted that RoNW of Bandhan Bank is very impressive i.e. 25.01%. Its peer like AU and Gruh Finance has registered RoNW more than 25%, however, but both are trading at 56 PE and 71.57 PE, and at 9.39 PB and 19.1 PB respectively.
Revenue & Profitability
As of December 31, 2017, its deposits and Gross Advances (including IBPC/Assignment) stood at 25,293.96 Crore and 24,364.39 Crore, respectively. For the nine months ended December 31, 2017 and 2016, it had net interest margins (“NIMs”) of 9.86% and 10.34%, return on equity (“RoE”) of 25.55% and 27.88% and return on assets (“RoA”) of 4.07% and 4.39%, respectively (each on an annualized basis). For FY 2017 and FY 2016, it had Total Income of 4,320.12 Crore and 1,731.25 Crore and profit after tax as restated of 1,111.952 Crore and 275.25 Crore, respectively. As it only began operations on August 23, 2015, figures for FY 2016 include its micro banking and general banking operations only for the period from August 23, 2015 to March 31, 2016, and accordingly, its FY 2016 financial statements are not comparable with its FY 2017 financial statements.
Competitive strength of Bandhan Bank
1. Operating model focused on serving underbanked and underpenetrated markets
2. Consistent track record of growing a quality asset and liability franchise
3. Extensive, low cost distribution
4. Customer - centric approach
5. Consistent financial performance and robust capital base
6. Experienced and professional team
Few negative points
1. The company has not declared any dividend so far
2. A substantial portion of its operations are located in East and Northeast India
Conclusion:
The IPO seems attractive but current bearish sentiments may badly affect the subscription figures and listing gain.
Thank you for reading....Jai Hind
CA Prashant Seta
(Note : I write reviews based on my knowledge and understanding. The reader of this article should do his/her own research before applying)
This year bumper Job vacancies has announced for Bandhan Bank Recruitment 2018 for filling total 5000 posts in Bandhan Bank.
ReplyDeleteThe Bandhan Bank Recruitment 2018 has released notification for filling total 5000 posts in Bandhan Bank.
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