Utkarsh Small Finance Bank IPO Debut: Surges 60% on Launch

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Utkarsh Small Finance Bank IPO Debut, Surges 60% on Launch

Utkarsh Small Finance Bank’s Initial Public Offering (IPO) made a remarkable entry into the market, witnessing a staggering 60% premium over the issue price on its listing day, July 21. The bank’s IPO had garnered strong subscription numbers and benefited from the bullish market conditions, coinciding with the benchmark indices reaching historic highs, with the Nifty touching the 20,000 mark.

At the National Stock Exchange (NSE), the stock began trading at Rs 40 per share, a significant increase from the issue price of Rs 25 per share. On the Bombay Stock Exchange (BSE), the listing price was Rs 39.95.

During the subscription period from July 12 to July 14, the IPO of Utkarsh Small Finance Bank saw the second-highest subscription numbers in the current calendar year, subscribing 101.91 times. Qualified institutional buyers led the way, buying shares 124.85 times the allotted quota, followed by high net worth individuals and retail investors, who bid 81.64 times and 72.11 times the reserved portion, respectively. Even the bank’s employees showed strong interest, subscribing 16.58 times their allocated quota.

Investors showed confidence in Utkarsh Small Finance Bank due to its attractive valuations, robust financial performance, improved asset quality, and reduced exposure to the unsecured micro banking segment.

The Varanasi-based bank successfully raised Rs 500 crore, earmarked for strengthening its Tier-1 capital base to meet future capital requirements arising from advances growth. The offer price ranged from Rs 23 to Rs 25 per share.

The IPO received a “subscribe” rating from most brokerages, who considered it to be fairly valued.

Utkarsh Small Finance Bank is a leading player in India’s rapidly growing Small Finance Bank (SFB) sector. With a strong focus on underserved segments of the population, the bank is well-positioned to capitalize on the sector’s expansion. According to Swastika Investmart, the company has a solid track record of growth, and its financial performance has been consistently improving in recent years.

Over the period from FY18 to FY23, the bank’s gross loan portfolio grew at a Compound Annual Growth Rate (CAGR) of 34%, reaching Rs 13,957 crore, while total deposits increased at a CAGR of approximately 44%, amounting to Rs 13,710 crore. The growth can be attributed to the bank’s outlet expansion, post-Covid recovery, diverse product offerings, and customer acquisitions.

In FY23, Utkarsh Small Finance Bank reported a remarkable 558% increase in profit, reaching Rs 405 crore compared to the previous year. Net interest income also surged by 44%, reaching Rs 1,529 crore, and the net interest margin improved from 8.8% in FY22 to 9.6% in FY23.

Regarding asset quality, gross non-performing assets (NPA) as a percentage of gross advances declined from 6.1% in FY22 to 3.2% in FY23, while net NPA dropped from 2.3% in FY22 to 0.4% in FY23. These improvements were attributed to the normalization of business activities post-pandemic.

Analysts from Swastika Investmart stated that the IPO is reasonably priced, and the bank possesses a strong balance sheet. However, they cautioned about potential risks related to the competitive landscape and asset quality. Despite these risks, they believe the IPO provides an excellent opportunity for investors looking to gain exposure to the growing SFB sector.

Geojit Securities also assigned a subscribe rating to the IPO, considering Utkarsh Small Finance Bank’s resilient performance post-COVID, consistent growth in loan book and deposits, healthy return ratios, best cost to income ratio, pan India presence, and promising industry outlook. The bank outperformed its peers on various fronts over the FY21-23 period, boasting a significant valuation discount compared to peers, with a Price to Book Value per Share (P/B) of 1.1x FY23 post-issue BVPS. Nirmal Bang recommended subscribing to the issue, anticipating growth and healthy profitability for the microfinance sector, including Utkarsh, as it recovered from the crisis of 2020-22.

About Utkarsh Small Finance Bank:

Utkarsh Small Finance Bank Limited is a provider of banking services in India. The bank offers a wide range of services, including checking accounts, deposits, money market accounts, investment opportunities, insurance products, mortgage and term loans. Additionally, the bank provides card facilities, remittance services, and Internet banking options to its customers.

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