Apply or Wait? The Utkarsh Small Finance Bank IPO Explained

A look at the key information of Utkarsh Small Finance Bank IPO, along with the bank’s strengths and threat factors.

• Utkarsh Small Finance Bank IPO is now open between 12 July 2023 and 14 July 2023

• The bank has registered strong performance in key financial numbers

• It has a concentration risk in customer base and market presence

• Its valuation has made it an attractive IPO

As the name suggests, Utkarsh Small Finance Bank Limited is an Indian Small Finance Bank (SFB) which was incorporated in 2016. This SFB caught the attention of market watchers by garnering the second-highest AUM (asset under management) growth in 2022, among SFBs with more than Rs 50 billion in AUM. It achieved the same feat on the other side of the pandemic in 2019.

Utkarsh Small Finance Bank – Key IPO Details

• IPO is open between 12 July 2023 and 14 July 2023, 

• Allotment - 19 July 2023, 

• Refunds - 20 July 2023, 

• Credit to Demat - 21 July 2023, 

• Listing - 24 July 2023

• Price band – Rs 23 to 25 per share

• Lot size – 600 shares

• Total issue size – Rs 500 crore

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The Positives So Far

Utkarsh Small Finance Bank plans to utilise the IPO proceeds to expand its Tier-1 capital base and address its future capital requirements. 

• The SFB has a market capitalisation of Rs 2739.76 crores

• Its price-earnings ratio is 6.78 and its earning per share is 4.52

• The return on net worth is 20.22%, three-year average return on equity is 12.3%

• It has a decent three-year average net interest margin of 8.8%

• In the last three years, the company’s net interest income has grown annually at 35%. Deposits and advances during this period have also grown by 26% and 35% respectively

• Cost of funds has decreased from 8.27% to 6.96% (last two years), with growth in deposits and current and savings accounts

• The liquidity coverage ratio of 357.8% is head and shoulders above the regulatory requirement of 90%

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Utkarsh Small Finance Bank: Words of Caution

• The company is dependent on its Bihar and UP market, which contributes 55% of its loan portfolio

• The bank’s top 20 borrowers account for 20% of the borrowings

• Almost 67% of its loans are unsecured, including micro-baking and retail loans

• The debt-equity ratio is a steep 8.03

These are some of the factors that the company, and its investors, should be wary of.

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Should You Invest in Utkarsh Small Finance Bank IPO?

While there are points to be cautious about, and the company is operating in a highly competitive field, analysts are positive about the IPO. The valuation is attractive, at 0.8 times its book value. Its lending book has significantly increased in the last few years. It can emerge as a popular lender in the low and middle-income customer category. Its deposit profile is improving, as are its asset quality and profitability.

IPO and early retail investors will find these factors attractive. However, close attention must be paid to its dependency on UP and Bihar, unsecured loans and high-value borrower repayments.

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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.