Utkarsh Small Finance Bank IPO subscribed 101x as QIBs make a beeline for it

• The IPO received stellar response from QIBs on the last day of the issue
• Retail and non-institutional investors also showed extensive interest in the issue.
• The bank plans to use the net proceeds towards augmenting its tier-I capital base to its future capital requirements.

Utkarsh Small Finance Bank’s ₹500 crore IPO was subscribed 101 times over on the last day of the issue on Friday.

The IPO received a stellar response from QIB on the last day as their portion was subscribed 125 times over the shares on offer.

Non-institutional and retail investors too showed strong interest in the issue.

Utkarsh Small Finance Bank had fixed a price band of ₹23-25 a share for its public issue, which will close on July 14. It plans to use the net proceeds towards augmenting its tier-I capital base for its future capital requirements.

Source: BSE

Healthy growth in loans and deposits

Utkarsh commenced operations in 2017. It operates across 26 states and Union Territories with 830 banking outlets serving 3.6 million customers majorly located in rural and semi-urban areas primarily in Bihar and Uttar Pradesh.

Its total income was at ₹2,804 crore in FY23, which grew by 37% over the year before. Its FY22 net profit however was a blip and fell to ₹61 crore, even as it recovered in FY23 to ₹404 crore.

The bank's gross loan portfolio grew to ₹13,957.11 crore as of March 31, 2023, from ₹8,415.66 crore as of March 31, 2021. Its disbursements increased to ₹12,442.89 crore in fiscal 2023 from ₹5,914.01 crore in fiscal 2021. Also, deposits surged to ₹13,710.14 crore from ₹7,507.57 crore during the period.

The bank said in its RHP that it is subject to inspections by regulatory authorities, including by the Reserve Bank of India (RBI) and non-compliance or adverse observations may have a material adverse effect on its business, financial condition, results of operation or cash flows.

Incidentally, its former auditors, Haribhakti & Co. LLP, have been debarred by the RBI from undertaking audit assignments for entities regulated by them for two years, with effect from April 1, 2022.

The bank also received a showcause notice from markets regulator Securities and Exchange Board of India (SEBI) regarding alleged non-compliance of provisions of Companies Act 2013.

Hold or sell after listing?

Most analysts recommend subscribing to the issue on account of attractive valuations as compared to its peers but are divided on how long investors should hold on to it.

“At the upper price band, the company is valued at a P/B of 1.39x with a return on net worth of 20.22%. We believe that the company is fairly priced and recommend a Subscribe-Long term rating to the IPO,” said Anand Rathi.

SBI Securities also admits that it’s fairly priced compared to its close peers on similar valuation parameters. “We recommend investors to subscribe the IPO for listing at cut-off price,” it says.

“Considering its 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, we assign a “Subscribe” rating on a short to medium-term basis,” says an IPO note by Geojit.