Well-dispersed loan book
When Equitas Holding, the parent company of the SFB listed in 2016, MFI loans accounted for 75 per cent of the total portfolio - lowest among SFBs with MFI operations. Since then, it has steadily cut its dependence on MFI loans to 23 per cent as of June 30, 2020 (Q1 FY21). At present, 42 per cent of the bank’s books comes from small business loans, while vehicle loans account for 24 per cent of the book. The bank is in early stages of building home (4 per cent) and corporate loan (7 per cent) books. Its ability to harness deposits has also been impressive. While the share of low-cost current account – savings account (CASA) may have reduced from 29 per cent in FY18 to 20 per cent in Q1'FY21, the bank’s CASA ratio is the best among comparable peers like AU SFB and Ujjivan SFB. Its retail deposits stood at 76 per cent. At 7.6 per cent cost of funds and 19 per cent yield on assets in Q1, the bank’s performance has bettered peers on both fronts.
The diverse loan base allowed the bank to disburse more loans in Q1 (up 5 per cent), and the overall loan growth improved by 19 per cent year-on-year. Net interest margin at 8.5 per cent, may seem lower to MFI-SFB peers (9 – 12 per cent), though that is because of a diverse loan book. As cost to income ratio improves from 67.3 per cent in Q1 (down from 70 per cent in FY19) as branch operations post lockdown normalise and the loan book matures, it leaves scope for an improvement in overall profitability.
At 2.7 per cent gross non-performing assets (NPA) ratio in Q1, Equitas SFB
may seem to be a disappointment. However, unlike the MFI business where 1 per cent or less gross NPA ratio is easy to achieve, other businesses such as vehicle finance and small business loans carry higher NPA (1.5 – 3 per cent) in the initial years of product roll out. Equitas’ non-MFI book is still unseasoned and seen from that perspective, its asset quality is within acceptable limits. Analysts at Emkay Research say, Equitas SFB’s asset quality is manageable. In fact, IPO valuations also reflect the nascent nature of the bank’s loan book. How the 36 per cent loan book under moratorium till August (down from 51 per cent in June) behaves in the coming quarters is critical. While the overall collection efficiency touched 83 per cent in August, the small business loan segment at 40 per cent efficiency may need restructuring support.
Post the IPO, promoter’s stake in the bank would be 82 per cent and regulations require promoters to reduce stake to 40 per cent in the next three years. Equitas SFB
is exploring inorganic growth for this purpose, failing which the secondary market may be flooded with the bank’s shares (similar to Bandhan Bank) to reduce stake. While equity dilution would be inevitable for investors, secondary sales could limit the upside potential for a long time.
Kalyan Jewellers gets green light to float Rs 1,750-cr IPO
Kalyan Jewellers India has received capital markets regulator Securities and Exchange Board of India’s go-ahead to raise an estimated Rs 1,750 crore through an initial share-sale.
The IPO comprises issuance of fresh equity aggregating up to Rs 1,000 crore and an offer for sale worth Rs 750 crore. The proceeds from the issue of shares would be utilised for working capital requirements. PTI