Encouraging past, uncertain future.
Stiff competition, easing of interest rates and COVID-19 pandemic can play spoilsport as micro finance banking field is getting overcrowded.
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SURYODAY SMALL OFFER AT A GLANCE |
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Offer Type |
Book Built |
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Platform |
Main Frame |
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Fresh Issue |
Rs 249 Cr |
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Offer for Sale |
Rs 334 Cr |
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Face Value |
Rs 10 |
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Price Band |
Rs 303 – 305 |
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Mkt/Bid Lot |
49 Nos. |
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Implied M-Cap |
Rs 3,237 Cr |
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Implied Eq-Cap |
Rs 106.13 Cr |
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Implied Free Float |
71.98% |
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Lead Manager |
Axis Cap, ICICI Sec, IIFl Sec, SBI Cap |
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Registrar |
KFin Technologies |
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Listing At |
BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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Opening : 17-Mar-2021 |
Closing : 19-Mar-2021 |
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Allotment : 24-Mar-2021 |
Refunding : 24-Mar-2021 |
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Demat Credit : 25-Mar-2021 |
Trading : 30-Mar-2021 |
Lineage
The 2008-registered Suryoday Micro Finance has undergone many changes since its incorporation. Not only the company’s name has changed to Suryoday Small Finance Bank post RBI approval for a small finance bank in 2016, two original signatories to the memorandum (Ganesh Rao and V. L. Ramakrishnan) relinquished their promoter-status and three new people (P. Surendra Pai, P. S. Jagdish and G. V. Alankara) came in and occupy the position along with Baskar Babu Ramachandran. Also, the company’s registered office has been changed from Chennai to Navi Mumbai.
The original promoter and managing director, Baskar Babu Ramachandran (51) has several years of experience in the banking and finance sector. Prior to co-founding Suryoday, he was associated with various companies including GE Capital Transportation Financial Services and HDFC Bank. Co-promoter P Surendra Pai,(78) had earlier associated with Wipro (Consumer Care and Lighting) as the vice-chairman and executive officer and the Murugappa Corporate Board (advisory board) as the executive chairman. Another co-promoter, P. S. Jagdish (54) has experience in electrical engineering industry. He was earlier associated with Indo Tech Transformers Lied as executive director. The third co-promoter G. V. Alankara (60) reportedly has several years of experience in financial services. He is currently associated with Old Bridge Capital Management as a director.
Suryoday’s present IPO has been made out of RBI’s compulsion. The shares were required to be mandatorily listed on the stock exchanges within three years from the date of reaching a net worth (i.e. tier I capital as defined by the RBI) of Rs 500 cr (which in Suryoday’s case was November 30, 2017), i.e., on or prior to November 29, 2020. The company had applied to the RBI for an extension of this timeline till May 31, 2021 and RBI has by its letter dated December 8, 2020 stated that request for extension of timeline for listing of shares of the bank cannot be acceded to and has advised the company to complete the listing process at the earliest.
Suryoday has got financial backing from some popular names. In 2012 it received investment from HDFC Holdings and HDFC Standard Life Insurance Company. In 2014 IFC came in as investor. The company received investment from DWM (International) Mauritius in 2015. Investment by IDFC FIRST Bank came in 2016. Investments by Kotak Mahindra Life Insurance Company and Teachers Insurance and Annuity Association of America were received in 2020. As on March 31, 2020 the bank’s gross loan portfolio stood at Rs 3,711 cr and, on that date, it had 477 branches and 14.6 lakh customers.
Stakeholders
Currently, the bank has a capital base of about Rs 98 cr which is held by 2147 shareholders. The four promoters collectively hold 30.35%, single largest being Surendra Pai (13.71%) followed by Baskar Babu (12.52%). Among the non-promoter shareholders Gaja Capital has 5.77% followed by DWM International (5.32%), IFC (4.45) and others.
Business Model
Suryoday commenced operations as an NBFC and for over a decade has been serving customers in the unbanked and under-banked segments. Post-RBI approval, it started operations as a small finance bank (SFB) on January 23, 2017. Suryoday claims to be among the leading SFBs in India in terms of net interest margins, return on assets, yields and deposit growth. It reportedly had the lowest cost-to-income ratio among SFBs in India in Fiscal 2020. Prior to the operations as an SFB, Suryoday operated as a NBFC–MFI carrying out microfinance operations and operated the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active women belonging to weaker sections. Over the years, it has diversified the loan portfolio to include non-micro banking loans thereby reducing the dependence on micro banking business.
Financial Track
The company’s operations have grown steadily during last five years, from a gross income of Rs 200 cr in FY16 to Rs 854 cr in FY20. However, the bank’s bottom line has fluctuated though it remained positive during the last five years despite stringent provision norms.
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Suryoday Small Finance Bank Standalone Financials (in Cr) |
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Period Ended |
Mar-20 |
Mar-19 |
Mar-18 |
Mar-17 |
Mar-16 |
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Months |
12 |
12 |
12 |
12 |
12 |
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Interest Earned |
766.69 |
530.11 |
286.88 |
253.64 |
188.73 |
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Other Income |
87.45 |
66.92 |
38.04 |
1.15 |
11.28 |
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Gross Income |
854.14 |
597.03 |
324.92 |
254.79 |
200.01 |
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Interest Expended |
275.78 |
189.73 |
121.05 |
115.21 |
94.80 |
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Operating Expenses |
272.12 |
190.74 |
131.38 |
101.79 |
81.45 |
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Provisions & Contingencies |
195.04 |
126.16 |
61.01 |
13.95 |
4.52 |
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Net Profit |
111.20 |
90.40 |
11.49 |
23.85 |
41.81 |
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NPM% |
13.0 |
15.1 |
3.5 |
9.4 |
20.9 |
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Equity (Implied) |
106.13 |
81.58 |
67.50 |
64.06 |
38.34 |
Fiscal 2021 Trend
During the first 9 months of the current fiscal gross income has increased to Rs 689 cr from Rs 626 cr in the corresponding period of last year. But net profit has declined to less than a half of corresponding previous period.
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FISCAL 2021 TREND |
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Period Ended |
Dec-20 |
Dec-19 |
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Months |
9 |
9 |
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Interest Earned |
624.35 |
563.22 |
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Other Income |
64.92 |
63.14 |
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Gross Income |
689.27 |
626.36 |
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Interest Expended |
271.07 |
202.08 |
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Operating Expenses |
231.64 |
188.37 |
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Provisions & Contingencies |
131.70 |
109.23 |
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Net Profit |
54.87 |
126.68 |
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NPM% |
8.0 |
20.2 |
Valuation
Suryoday has fixed a price band of Rs 303-305 for its Rs 10 paid up share which discounts its last full year’s earnings about 27 times. In February this year the company has made a placement of 52.08 lakh shares at a price of Rs 291.75 compared to which the IPO price may not look unreasonable. Nevertheless, when Bandhan and Ujjivan are available at 13 or less P/E multiple, why should one go for Suryoday at a time when the markets are facing uncertainties post-advent of COVID-19?
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Financials |
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(Amount in Cr) |
Suryoday |
Bandhan |
AU |
Equitas |
Ujjivan |
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Market Cap |
2997 |
54060 |
35878 |
6516 |
5686 |
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Interest Earned |
767 |
10885 |
4286 |
2645 |
2704 |
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Interest Expended |
276 |
4562 |
2377 |
1150 |
1070 |
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Operating Expenses |
272 |
2427 |
1418 |
1180 |
1319 |
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Provisions & Contingen |
195 |
1393 |
283 |
354 |
171 |
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Net Profit |
111 |
4053 |
914 |
244 |
466 |
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Equity Cap |
98 |
1610 |
307 |
1138 |
1728 |
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Reserves |
1504 |
13585 |
4073 |
1944 |
1238 |
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Stock Features |
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Current Price (Rs) |
305 |
336 |
1170 |
57 |
33 |
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Face Value (Rs) |
10 |
10 |
10 |
10 |
10 |
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Book Value |
163 |
94 |
143 |
27 |
17 |
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Promoter Stake % |
28.0 |
40.0 |
29.0 |
82.1 |
83.3 |
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Debt/Equity |
2.57 |
4.83 |
8.33 |
5.17 |
4.97 |
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Profitability |
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OPM % |
3.1 |
23.0 |
4.9 |
-1.5 |
5.3 |
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NPM% |
13.0 |
32.6 |
18.3 |
8.3 |
15.4 |
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Earnings Per Share |
11.32 |
25.17 |
29.79 |
2.14 |
2.7 |
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Growth |
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CAGR 3Yr Interest Earned % |
13.1 |
17.9 |
13.3 |
7.8 |
13.9 |
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CAGR 3Yr Net Profit % |
7.2 |
10.4 |
16.4 |
5.0 |
32.8 |
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Return |
|||||
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RONW % |
10.4 |
26.7 |
20.9 |
8.9 |
14.6 |
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Discounting |
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Price/Earnings |
26.95 |
13.34 |
39.26 |
26.75 |
12.2 |
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Price/Book Value |
1.87 |
3.56 |
8.19 |
2.11 |
1.92 |