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IPO Analysis: CSB Bank

Shashikant Singh
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IPO Analysis: CSB Bank

Recommendation : Invest with limited exposure

About the Issue

CSB Bank, one of the oldest private sector banks in India, with a history of over 98 years, is entering the capital market with its initial public offering (IPO). The IPO consists of a fresh issue, aggregating up to Rs. 24 crores and an offer for sale of up to 19,778,298 equity shares by its selling shareholders. The closing date for the bid will be on November 26, 2019. Bids can be made for a minimum lot of 75 equity shares and in multiples of 75 equity shares, thereafter. The issue's price band has been fixed at Rs. 193 – Rs. 195 per equity share of Rs. 10 each. The total offer size is around Rs. 405.72 – Rs. 409.68 Crores at the lower price band and the upper price band, respectively. The equity shares are proposed to be listed on the BSE Limited and the National Stock Exchange of India Limited (NSE). The net proceeds from the offer are proposed to be utilized to augment the tier-I capital base in order to ensure compliance with Basel III and other RBI guidelines and to meet the future capital requirements of the bank. These requirements are likely to arise out of the growth in the bank’s assets, primarily in loans/advances and investment portfolios.

CSB Bank IPO Details

Issue Open

Nov 22, 2019 - Nov 26, 2019

Issue Type

Book Built Issue IPO

Issue Size

21,021,821 Eq Shares of Rs. 10
(aggregating up to Rs. 409.68 Cr)

Fresh Issue

1,243,523 Eq Shares of Rs. 10
(aggregating up to Rs. 24.00 Cr)

Offer for Sale

19,778,298 Eq Shares of Rs. 10
(aggregating up to Rs. 385.68 Cr)

Face Value

Rs. 10 Per Equity Share

Issue Price

Rs. 193 to Rs. 195 Per Equity Share

Market Lot

75 Shares

Min Order Quantity

75 Shares

Listing At

BSE, NSE

 

About the Bank

Incorporated in 1920, CSB Bank is one of the oldest private sector banks, backed by Fairfax India through FIH Mauritius Investments (FIHM) It has a network of 412 branches across 16 States and 4 Union Territories. The bank has a strong base in Kerala, along with a significant presence in Tamil Nadu, Karnataka, and Maharashtra. It offers a wide range of products and services to its overall customer base of 13 lakh people as on September 30, 2019, with a particular focus on SME, Retail, and NRI customers. It delivers products and services through multiple channels, including 412 branches (excluding three service branches and three asset recovery branches) and 290 ATMs spread across 16 states and four union territories as on September 30, 2019. It also serves through various alternate channels, such as micro ATMs, debit cards, internet banking, mobile banking, point of sale services, and UPI. Its focus on the quality of service and nurturing long-term relationships with its customers has developed a well-recognized and trusted brand in south India, particularly in the states of Kerala and Tamil Nadu. The Bank has three principal business areas, namely, (a) SME banking, (b) retail banking and (c) wholesale banking. SME banking (term loans, export finance, bank guarantee, etc) accounts for 30 per cent of the operations, retail banking (different loans such as car loan, gold loan, personal loan, etc) constitute 46 per cent of the business, and rest 24 per cent is by wholesale banking (corporate loans, term loans, bank guarantee etc). 

 

Bank’s Financials

The bank is transforming itself from an old private sector bank to a new age private bank, backed by a new marquee investor – Fairfax India through FIH Mauritius Investments Ltd (FIHM). They invested around Rs. 1,207.7 crores in it, which helped it to improve its capital base. Total CRAR (per cent), which was a mere 8.3 per cent at the end of FY18, is now at a healthy 22.8 per cent (H1FY20), way above the regulatory threshold. In addition to the above, there has been a marked improvement in the financials of the company.

Net NPA reduced to 2.0 per cent at the end of H1FY20 compared to 4.1 per cent in FY17. At the same time, the provisioning coverage ratio increased to 79.5 per cent from 66 per cent in the same duration. CASA ratio improved to 28 per cent from 25 per cent in FY17. The cost of deposits reduced to 5.9 per cent from 6.9 per cent in FY17, reporting a 100 bps decline in the last two and a half years. The net interest margins improved to 3.4 per cent from 2.1 per cent in FY17. All these factors helped the bank to post a profit of Rs 44.3 crores at the end of H1FY20. Moreover, there is marked improvement in its net worth, which has increased from Rs. 546 crores at the end of FY17 to Rs. 1,536 crores at the end of H1FY20.


Valuation and Recommendation 

The bank has been laggard in its performance before the new promoter and strong management came in and revamped its operations. This is reflected in the all-round improvement in the performance of the bank. Further, at the IPO price band of Rs. 193-195, the stock is available at a price to book value (H1FY20) of around 2.2 times while price to adjusted book value comes to around 2.5 times. This is in line with other small listed players. However, what differentiates the bank is its strong management and higher capital adequacy ratio, which will help it in its growth trajectory. Therefore, we recommend investing in limited exposure. 

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