Past track, present profitability and future prospects justify IPO valuation.
|
TMB OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 831.60 Cr |
| Fresh Issue | 1,58,40,000 equity shares |
| Offer for Sale | Nil |
| Face Value | Rs 10 |
| Price Band | Rs 500 – 525 |
| Mkt/Bid Lot | 28 Nos. |
| Implied M-Cap | Rs 8313 Cr |
| Implied Equity Cap | Rs 158.35 Cr |
| Free Float | 100% |
| Lead Managers | Axis Cap, Motilal Oswal and SBI Cap |
| Registrar | Link Intime |
| Listing | BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
| Opening : 05-Sep–2022 | Closing : 07-Sep–2022 |
| Allotment : 12-Sep–2022 | Refunding : 13-Sep–2022 |
| Demat Credit : 14-Sep–2022 | Trading : 15-Sep–2022 |
The Offer
Having battered by decades of controversies, the century old Tamilnad Mercantile Bank Ltd (TMB) is finally entering the Indian capital market with a maiden public issue of about Rs 832 Cr. The IPO is a fresh issue of 1,58,40,000 equity shares. The offer is being made through the book-building route with a price band of Rs 500-525 for Rs 10 paid-up share.
Applicants should bid for a minimum lot of 28 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on September 15, 2022. Axis Capital, Motilal Oswal Investment and SBI Capital Markets have been roped in as managers to the offer. Link Intime will be acting as registrar to the issue. The bidding opens on Monday, September 5 and closes on Wednesday, September 7, 2022.
The bank proposes to utilize the net proceeds towards augmenting its Tier–I capital base in order to meet its future capital requirements.
Lineage
Headquartered in the southern port city of Thoothukudi, TMB was originally conceived as a community bank. It was incorporated under the name and style of Nadar Bank Ltd on May 11, 1921. M.V. Shunmugavel, A.R.A.S. Arumugasamy Nadar, K.A.M.A. Kaliappa Nadar, A.M.M. Sinnamani Nadar, P.K.S.A. Arumuga Nadar, A.R.A. Shenbaga Nadar, M.V.E. Ratnasamy Nadar, M.V.E. Kasisamy Nadar, W.P.A. Marimuthoo Nadar and T.V. Balagurusamy Nadar were the initial signatories to the Memorandum of Association.
The bank commenced its business on November 11, 1921. The name of the bank was changed to ‘Tamilnad Mercantile Bank in 1962.
TMB has been one of the most profitable old generation private banks in the country for a long time. No wonder many had tried to take over the bank in the past. In fact, the controversies surrounded the attempted takeovers kept the bank in news for decades. Despite the unwarranted battering that the bank had to face from outsiders, it has fared exceedingly well on the performance front.
Key Management
TMB, which has no identifiable promoter, is managed by professionals. The term of the current MD & CEO of the bank, K.V. Rama Moorthy, is due to end on September 3, 2022 and for his place retired banker Krishnan Sankarasubramaniam has been approved by the RBI with effect from September 4, 2022 for a term of three years. He holds a bachelor’s degree in commerce and, prior to joining the bank, he was associated with Indian Bank, Syndicate Bank (which has now been merged into Canara Bank) and Punjab and Sind Bank.
Stakeholders
TMB’s present equity capital of Rs 142.51 Cr is widely held by 22431 shareholders. Its major shareholders are as follows:
|
Sr.No |
Shareholder Name | Shares |
% of equity |
|
1 |
Robert and Ardis James Company Limited |
7,054,080 |
4.95 |
|
2 |
Starship Equity Holdings Limited |
6,727,500 |
4.72 |
|
3 |
Subcontinental Equities Limited |
6,617,709 |
4.64 |
|
4 |
East River Holdings Limited |
5,305,089 |
3.72 |
|
5 |
Swiss Re Investors (Mauritius) Limited |
5,072,124 |
3.56 |
|
6 |
FI Investments (Mauritius) Limited |
2,704,899 |
1.90 |
|
7 |
C.S. Rajendran |
2,111,000 |
1.48 |
|
8 |
Hibiscus Enterprises LLP |
1,994,982 |
1.40 |
|
9 |
Investor Education and Protection Fund Authority |
1,912,168 |
1.34 |
|
10 |
Meenakshi R |
1,899,792 |
1.33 |
|
11 |
Senthil G.M. |
1,735,181 |
1.22 |
|
12 |
Asok Kumar P.C.G. |
1,599,504 |
1.12 |
Shareholding of Directors/Key Managerial Personnel
| Sr.No. | Director/KMP | Shares | (%) |
|
1 |
Asok Kumar P.C.G. |
1,599,504 |
1.12 |
|
2 |
Nirranjan Kani D.N. |
1,053,727 |
0.74 |
|
3 |
Niranjan Sankar A. |
84,168 |
0.06 |
|
4 |
S.R. Ashok |
47,595 |
0.03 |
|
5 |
Balakrishnan Prabaharan |
14,523 |
0.01 |
|
6 |
Vijayadurai B. |
14,023 |
0.01 |
|
7 |
Nagarajan.K. |
10,506 |
0.01 |
|
8 |
Ezhil Jothi S. |
1,000 |
0.00 |
Industry Standing
TMB is one of the oldest and leading old private sector banks in the country. It offers a wide range of banking and financial services primarily to micro, small and medium enterprises, agricultural and retail customers. As of March 31, 2022, it had 509 branches, of which 106 branches are in rural, 247 in semi-urban, 80 in urban and 76 in metropolitan centres. Its overall customer base is approximately 50.8 lakh of which nearly 80% have been associated with the bank for a period of more than five years and have contributed Rs 35,014 Cr or 78% of the deposits, and account for Rs 21,902 Cr or 65% of the advances portfolios.
Among the old generation private banks, in terms of deposits collected and advances disbursed, TMB ranks seventh. However, in terms of net profit made, TMB ranks second, only after Federal Bank. In terms of growth during FY2020-22, TMB ranks third in deposits, and second in both advances and net profit. Nonetheless, in CASA to Total Deposits, it is ahead of only DCB.
|
FY2022 : Advances – Deposits – Net Profit |
FY2020-22 CAGR % |
||||||
| Bank | Deposits
(Rs Cr) |
CASA/ Deposits (%) |
Advances (Rs Cr) |
Net Profit |
Deposits |
Advances |
Net Profit |
| TMB |
44933 |
30.5 | 33492 | 822 | 10.5 | 9.9 |
42.0 |
| City Union |
47690 |
32.6 | 40359 | 760 | 8.1 | 9.1 |
26.3 |
| Catholic Syrian |
20188 |
33.7 | 15815 | 458 | 13.1 | 18.0 |
0.0 |
| DCB |
34692 |
26.8 | 29096 | 288 | 6.9 | 7.1 |
-7.8 |
| Federal |
181701 |
36.9 | 144928 | 1890 | 9.2 | 8.9 |
10.7 |
| Karur Vysya |
68676 |
34.8 | 55335 | 673 | 7.8 | 9.6 |
69.3 |
| Karnataka |
80387 |
33.0 | 56783 | 509 | 5.8 | -0.2 |
-6.6 |
| RBL |
79007 |
35.3 | 60022 | -75 | 16.9 | 1.7 |
0.0 |
| South Indian |
89142 |
33.2 | 59993 | 45 | 3.6 | -3.5 |
-34.4 |
| CASA – Current Account Savings Account | |||||||
In terms of asset quality, TMB’s Gross NPA of 1.7% is the lowest among the industry peers. In Net NPA, only Catholic Syrian’s (0.7%) is better than TMB (1%). In provision coverage ratio too TMB is the second best in the industry.
|
Asset Quality and PCR (FY2022) |
|||||||
| Name of the Bank |
GNPA (Rs Cr) |
GNPA (%) | NNPA (Rs Cr) | NNPA (%) |
PCR (%) |
||
| TMB |
571 |
1.7 | 318 | 1.0 |
87.9 |
||
| City Union Bank |
1933 |
4.7 | 1191 | 3.0 |
64.0 |
||
| Catholic Syrian Bank |
290 |
1.8 | 107 | 0.7 |
89.7 |
||
| DCB |
1290 |
4.3 | 573 | 2.0 |
67.8 |
||
| Federal Bank |
4137 |
2.8 | 1393 | 1.0 |
65.5 |
||
| Karur Vysya Bank |
3431 |
6.0 | 1261 | 2.3 |
80.3 |
||
| Karnataka Bank |
2251 |
3.9 | 1377 | 2.4 |
73.5 |
||
| RBL |
2728 |
4.4 | 807 | 1.3 |
70.4 |
||
| South Indian bank |
3648 |
5.9 | 1778 | 3.0 |
69.6 |
||
| GNPA – Gross Non-Performing Asset | NNPA – Net Non-Performing Asset | ||||||
| PCR – Provision Coverage Ratio | |||||||
Though TMB’s cost of deposits is second highest in the industry, its cost to income is the second best in the industry which has enabled TMB to achieve the highest NP margin (17.7%) among the peers.
|
FY2022: Operating Margin (%) |
|||||
| Name of the Bank |
Yield on Advances |
Cost of Deposits | Net Int. Margin | Cost to Income |
N P Margin |
| TMB |
9.5 |
4.9 | 4.1 | 42.1 |
17.7 |
| City Union Bank |
9.4 |
4.7 | 4.0 | 40.4 |
15.6 |
| Catholic Syrian Bank |
11.2 |
4.3 | 5.3 | 50.5 |
17.6 |
| DCB |
10.7 |
6.1 | 3.6 | 55.4 |
7.3 |
| Federal Bank |
7.9 |
4.3 | 3.2 | 59.9 |
12.0 |
| Karur Vysya Bank |
8.5 |
4.3 | 3.7 | 53.2 |
10.6 |
| Karnatak Bank |
8.8 |
4.7 | 3.2 | 52.6 |
7.2 |
| RBL |
12.2 |
4.8 | 4.4 | 56.9 |
-0.1 |
| South Indian bank |
8.7 |
4.8 | 2.6 | 64.1 |
0.1 |
TMB’s Return on Assets, Return on Equity and Capital Adequacy Ratio are the second best among the peer group.
|
FY2022 Profitability (%) |
|||||||
| Bank |
Credit Cost/Total Assets |
Credit Cost/ Total Assets (FY20-22 avg) | Return on Assets | Return on Assets (FY20-22 avg) |
Return on equity | Return on equity (FY20-22 avg) |
Tier-1 Capital |
| TMB |
0.3 |
0.7 | 1.7 | 1.3 | 16.6 | 13.17 |
20.4 |
| City Union |
1.0 |
1.3 | 1.3 | 1.2 | 12.2 | 10.76 |
19.8 |
| Catholic Syrian |
0.3 |
0.6 | 1.9 | 1.0 | 19.0 | 10.28 |
24.4 |
| DCB |
0.9 |
0.9 | 0.7 | 0.8 | 7.4 | 9.44 |
15.8 |
| Federal |
0.5 |
0.7 | 0.9 | 0.9 | 10.8 | 10.79 |
14.4 |
| Karur Vysya |
0.9 |
1.4 | 0.9 | 0.6 | 9.3 | 6.05 |
17.5 |
| Karnataka |
0.9 |
1.3 | 0.6 | 0.6 | 7.4 | 9.05 |
12.7 |
| RBL |
2.7 |
2.5 | -0.1 | 0.4 | -0.6 | 3.16 |
16.2 |
| South Indian |
1.3 |
1.5 | 0.1 | 0.1 | 0.8 | 1.33 |
13.2 |
Financial Track
TMB’s growth has been consistent. Its gross income has steadily increased from Rs 3,639 Cr in fiscal 2019 to Rs 4,656 Cr in 2022. Its net profit has surged from Rs 295 Cr to Rs 822 Cr during this period. Even on the post-issue capital of Rs 158 Cr, this yields an EPS of more than Rs 50.
|
Tamilnad Mercantile Bank Financials (Rs Cr) |
||||
| Period Ended |
Mar-22 |
Mar-21 | Mar-20 |
Mar-19 |
| Interest Earned |
3834 |
3609 | 3466 |
3224 |
| Other Income |
823 |
644 | 526 |
414 |
| Total Income |
4656 |
4253 | 3993 |
3639 |
| Interest Expended |
2019 |
2072 | 2147 |
1994 |
| Operating Expenses |
1111 |
980 | 851 |
760 |
| Provisions/Contingencies |
705 |
599 | 587 |
626 |
| Net Profit |
822 |
654 | 465 |
295 |
| Equity (Implied) |
158 |
143 | 143 |
143 |
| Reserves (Implied) |
6009 |
4437 | 3837 |
3476 |
| Deposits |
44933 |
40970 | 36825 |
35136 |
| Advances |
33492 |
31070 | 27716 |
26488 |
| Other Liabilities and Provisions |
2590 |
1977 | 1630 |
1778 |
| Cash & Balances with RBI |
2113 |
1680 | 1414 |
1735 |
| Balances with Banks |
1739 |
1025 | 2322 |
1185 |
| Investments |
13035 |
11703 | 9467 |
9107 |
| Fixed Assets |
211 |
137 | 128 |
138 |
| Other Assets |
2269 |
1912 | 1711 |
1880 |
Valuation
TMB’s IPO price discounts the current earnings around 13 times. Though many private sector old banks are having poor P/Es (in single digits), considering TMB’s consistent growth and profitability, the IPO valuation looks reasonable. As a matter of fact, TMB’s reach, efficiency and growth are such that, it will be an ideal choice for any new generation private bank that wants to expand its base in Tamil Nadu through inorganic route.
|
HOW TMB COMPARES WITH PEERS |
|||||||
| Issuer Name |
M-CAP (Rs Cr) |
PRICE | FV | BV | P/BV | EPS |
P/E (X) |
| Federal Bank |
23,942 |
119 | 2 | 92 | 1.3 | 9.22 |
12.9 |
| City Union |
13,893 |
181 | 1 | 89 | 2.0 | 10.28 |
17.6 |
| TMB |
8,313 |
525 | 10 | 389 | 1.4 | 51.90 |
10.1 |
| RBL Bank |
7,454 |
122 | 10 | 209 | 0.6 | -2.77 |
– |
| Karur Vysya |
5,563 |
71 | 2 | 95 | 0.8 | 8.41 |
8.4 |
| CSB Bank |
3,524 |
211 | 10 | 144 | 1.5 | 26.42 |
8.0 |
| DCB Bank |
3,043 |
94 | 10 | 123 | 0.8 | 9.24 |
10.2 |
| J&K Bank |
2,976 |
32 | 1 | 73 | 0.4 | 8.05 |
4.0 |
| Karnataka Bank |
2,350 |
75 | 10 | 213 | 0.4 | 16.32 |
4.6 |
| South Ind Bank |
1,747 |
8 | 1 | 26 | 0.3 | 0.21 |
38.4 |
| Dhanlaxmi Bank |
306 |
12 | 10 | 30 | 0.4 | 1.42 |
8.4 |