Here are the brokerage and research views and recommendations on the
IPO of Equitas Holdings Public IssueAntique Stock Broking said,
Given the niche customer segments they operate in, the profitability of small finance banks will be higher than that of conventional banks but lower than established NBFCs. However, for technical reasons, their RoEs will be suppressed over FY17-19. For a well established player like Equitas, valuations at 1.7x post money book are reasonable, especially considering the fact that it can deliver strong growth and RoAs in excess of 2% post FY18e
Phillip Capital Said,
At the upper end of the price band of Rs 109-110, the issue is valued at 1.8x post issuance book value per share of Rs 60. EHL has registered AUM CAGR of 60% between FY13-9MFY16. It’s RoE during the similar period improved to 13.03% from 8.24%. Given the strong capital position, its AUM growth is expected to remain robust going ahead. However the spreads may witness some contraction owing to regulatory cost, but will be compensated to some extent owing to decline in cost of fund. We view +2% RoA for a SFB to be reasonable and the valuations provide potential upside given the growth opportunity in the segment.
Quant Capital Analyst Jignesh Shial said,
Equitas is first among the recently nominated Small Finance Banks (SFB) to tap the equity markets in order to dilute its existing share holding as per RBI requirements. Although we expect decline in margins along with rising operating expenses during the process of conversion in to a bank, however with the IPO pricing at ~1.6x Price to Book (post dilution), the risk reward remains favorable and hence we recommend SUBSCRIBE to the IPO.
Motilal Oswal has the following view,
Equitas is a well-established player and has a strong management team that can deliver business scalability. RoE (sub-10%) is likely to be subdued in initial years due to dilution and initial cost of setting up banking operations. However it has strong growth potential and can deliver +2% RoA. At INR110 stock is valued at 1.88x trailing post money book.
IIFL Analysts Wrote,
At the upper band, the stock is priced at ~1.85x FY16 P/Adj. BV on postmoney basis. We believe that pricing is reasonable given that it is lower than well run private sector banks and it also seems to sufficiently capture the likely compression in RoA over the next couple of years due to required investments. While there is no precedent of this conversion process, given impressive execution track‐record, strong reach and substantial customer base of Equitas, we believe it should be able to navigate the challenge successfully and evolve as a profitable SFB after 3‐4 years. Long‐term investors can subscribe in the IPO
Monarch Networth Capital has the following view,
Valuations - In our view, the stock is available at reasonable valuations at 1.5x 9MFY16 ABV post issue (2.4x pre-issue). We recommend investors to SUBSCRIBE to the issue for the reasons like 1) management is strong and experienced 2) caters to un-served segment hence there is sound visibility of long-term sustenance/improvement of current return profile 3) it would get liability benefit once converted into SFB 4) although relatively small player, but its advanced in technology usage – key to keep opex growth in check in the long term 5) valuations looks reasonable to us.
Anand Rathi is of the following view,
The company has been growing healthily at CAGR 64% over last four years. Given the growth opportunity in micro finance and its entry into home finance business, the growth in the coming years is expected to be healthy. The valuation for FY16 earnings is ~ 23x which could fall down to 17x in the current financial year. This valuation is also comparable to Sks Micro which has same valuation though bigger in size in micro finance. We therefore recommend investors to participate in the IPO with” Long Term Subscribe”
IndiaNivesh Analysts have the following view,
At offer price band, it is trading at P/ABV of 1.9x post issue on trailing basis. We believe that business has strong potentials for growth from existing client base as well as from other banking offerings. Further management’s track record of creating highly transparent business model and past execution track also comforts us. While near term performance will be challenging and execution remains the key, huge potentials for existing Micro Finance business and SME business will help to sustain high growth trajectory going forward. Hence, we believe that current valuations are reasonable and we recommend ‘SUBSCRIBE’.
