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Suryoday Small Finance Bank Ltd IPO

Incorporated in 2008, Suryoday Small Finance Bank Ltd is a leading Small Finance Bank (SFB) in India. The company started offering SFB services in 2017. They serve customers in the unbanked and underbanked segments. Before SBF, the company operated as an NBFC.

Suryoday Small Finance Bank Ltd commenced microfinance operations in 2009 and has since expanded operations across 13 states and union territories, as of December 31, 2020.

As of December 31, 2020, our customer base was 1.44 million and our employee base comprised 4,770 employees and operated 554 Banking Outlets including 153 Unbanked Rural Centres (“URCs”).

The company has set up 661 customer service points (“CSPs”) as additional service or touch points during April 1, 2020, and January 31, 2021, and intend to continue to expand our reach through the CSP model.

The delivery platform also includes partnering with business correspondents (“BCs”) for sourcing both asset and liability business and have expanded our network and presence through their reach to promote financial inclusion.

The company has arrangements with various payment banks in India and has been able to leverage our relationship with such payment banks to grow our deposit base.

The distribution network comprises ATMs, phone banking, mobile banking, tablet banking, unified payment interface (UPI), CSPs, and internet banking services. The company’s operations are predominantly in urban and semi-urban locations due to greater income earning capabilities and employment opportunities in such areas compared with rural regions.

Gross Loan Portfolio has grown at a CAGR of 46.98% from ₹ 17,177.84 million as of March 31, 2018, to ₹ 37,108.42 million as of March 31, 2020, and was ₹ 39,082.29 million as of December 31, 2020.

Deposits have grown at a CAGR of 94.95% from ₹ 7,495.22 million as of March 31, 2018, to ₹ 28,487.15 million as of March 31, 2020, and was ₹ 33,438.40 million as of December 31, 2020. As of December 31, 2020, retail deposits comprised 72.40% of our total deposits.

Product Portfolio:

    1. Joint Liability (Inclusive Finance)
    2. Commercial Vehicle Loans
    3. Affordable Housing Loans
    4. Secured Business Loans
    5. Micro-business Loans
    6. MSME Loans
    7. Financial Intermediary Group Loans

Strength of the Company:

    • Customer-centric approach with a focus on financial inclusion
    • Diversified asset portfolio with a focus on retail operations
    • Fast evolving granular deposit franchise
    • Leveraging emerging technologies to enhance the digital footprint
    • Strong credit processes and a robust risk framework

Risks relating to business:

    • Any adverse developments  in  the  microfinance  sector including  any  regulatory  changes  could  adversely  affect  business
    • Any volatility in interest rates or inability to manage interest rate risk could adversely affect Net Interest Margins
    • Bank  and  Directors,  are involved in  certain  legal  proceedings,  any  adverse  developments  related  to  which could adversely affect business
    • The company may face asset-liability mismatches,  which could affect liquidity and adversely affect profitability.

IPO Details:

IPO Date March 17th, 2021 to March 19th, 2021
Issue Type Book Built Issue IPO
Issue Size 19,093,070 Eq Shares of ₹10
(aggregating up to ₹582.34 Cr)
Fresh Issue 8,150,000 Eq Shares of ₹10
(aggregating up to ₹248.58 Cr)
Offer for Sale 10,943,070 Eq Shares of ₹10
(aggregating up to ₹333.76 Cr)
Face Value Rs.10 per equity share
IPO Price Rs. 303 to Rs. 305 equity share
Min Order Quantity 49
Listing At BSE, NSE

IPO Objective:

The Bank proposes to utilize the Net Proceeds from the Fresh Issue towards:

  • Augmenting the Bank’s Tier-1 capital base to meet the Bank’s future capital requirements.

Financial Performance:

Particulars For the year/period ended (₹ in Crores)
31-Dec-20 31-Mar-20 31-Mar-19 31-Mar-18
Total Assets 63,50.4 53,64.5 37,61.2 21,55.9
Total Revenue 6,89. 8,54.1 5,97.0 3,24.9
Profit After Tax 54.8 1,11.1 90.3 11.4

Tentative Time Table:

  • IPO Opens on 17 March 2021
  • IPO Closes on 19 March 2021
  • Basis of Allotment Date: Mar 24, 2021
  • Initiation of Refunds: 24Mar, 2021
  • The credit of Shares to Demat Account : 25Mar, 2021
  • IPO Listing Date: 30 Mar 26, 2021

Outlook :

Suryoday SFB is among the leading SFBs in India in terms of net interest margins, return on assets, yields, and deposit growth and had the lowest cost-to-income ratio among SFBs in India in Fiscal 2020. Total assets show consistent growth.

Over the years, it has recorded a CAGR of 47.98%. This can be because of the fact that the gross loan portfolio of Suryoday has shown a CAGR of 46.98% over the past two years, from FY 2018 to FY 2020. The deposits, too, have shown a CAGR of 94.95%. From Rs. 749.52 crores in FY 2018, it has grown to Rs. 2,848.71 crores in FY 2020.

In fact, as of FY 2020, 54.44% of the total deposits came from the retail category. The net profit earned shows an overall increase, but in FY 2017 and FY 2018, the figures show a dip. The CAGR, in this case, is 47.05%. Over the past six years, the company has recorded a positive net cash flow from operating activities in only two years.

The rest of the year is characterized by the increasing negative value of net operating cash flow. This market is dominated by the top three small finance banks – AU, Equitas, and Ujjivan. Together, these three banks accounted for about 63% of the total assets under management in 2020.

Overall, there is significant growth expected in the near future. The deposit base of small finance banks increased by about 48% in FY 2020. A CAGR of 22% is predicted in the loan portfolio in this market. This growth is based on the fact that the Indian economy is focusing on the growth of the banking sector and financial inclusion. There is a significant market opportunity in the rural parts of the country.

Suryoday SFB is showing decent growth in both revenue and profit front whereas there is an improvement on the margin front as well. Over the period FY18-20, Gross Loan Portfolio, and Deposits have grown at a CAGR of 46.98% and 94.95% respectively.

If we talk about valuation then at the upper band the PE ratio works out to be around 23 while the PB ratio is around 2.3 which is in line with peers. This business has good growth potential amid a strong Indian economic growth outlook but it has its own systematic risks. Though valuation is not very lucrative by looking at strong growth in financials.

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