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Bandhan Bank IPO

Rohan Takalkar
/ Categories: Mindshare, IPO, IPO Analysis, Markets
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Bandhan Bank IPO

IPO rating-51*

About the issue 

The issue opens on March 15, 2018, and closes on March 19, 2018. The issue comprises of fresh issue and an offer for sale of 11.9 crore shares of the promoter company BFSL (Bandhan Financial Services Ltd) worth Rs 4473 crore. The price band fixed for the issue is Rs 370-Rs 375 per share with face value of Rs.10 per share. The minimum lot size of the issue is 40 shares and will be listed on the BSE and NSE

Purpose of the issue
The main purpose of the issue is to comply with RBI’s regulations to go public after three years of operations and to reduce promoter shareholding to 40 per cent.
The issue includes fresh issue of 9.77 crore shares and an offer for sale of 2.16 crore shares of its shareholders International Finance Corporation, a World Bank arm and IFC FIG, which collectively hold 4.94 per cent stake in the company.
The bank will garner Rs 3,663 crore from the fresh issue and the selling shareholders will receive Rs 810 crore.

Company Background
BFSL was incorporated on December 23, 2014, and began operations on August 23, 2015, when Bandhan Financial Services Limited (“BFSL”), parent company, transferred its entire micro finance business to the bank and the bank simultaneously commenced general banking activities. By the time BFSL transferred its micro finance business to the bank, it was India’s largest micro finance company by number of customers and size of loan portfolio. The company’s network is sprawled over 2,546 doorstep service centres (DSCs) and 9.47 million micro finance loan customers. The bank currently operates through 864 branches and 386 ATMs  together serving 1.87 million general banking customers. It has a strong presence in northeast West Bengal, Assam and Bihar, which account for 57.75 per cent of the branches and 58.13 per cent of the DSCs
The bank’s core strength is in micro finance as well as micro, small and medium enterprises loans and small loans. The bank's 97 per cent of the loan portfolio comprises of priority sector lending. In addition, the bank also offers other banking products to the customers and earns non-interest income from these products. These include debit cards, internet banking, mobile banking, EDC- POS terminals, online bill payment services and distribution of third party general insurance products, mutual fund products, etc.

Financial performance
The company boasts strong financial performance since inception and has healthy portfolio. The advances for the quarter ended December 2017 stood at Rs.24,400 crore as against Rs.15,578.4 crore in March 2016. The total deposits for the quarter stood at Rs 25,500 crore (86 per cent retail) in December 2017 as against Rs.12,088.7 crore in March 2016. With robust growth in advances, the bank's net interest income grew to Rs.2,403 crore in Q2FY17 versus Rs 932 crore in March 2016. Further, the asset quality of the bank also looks stable with GNPAs of 1.43 per cent in Q3FY17. Also, the provisions for the quarter stood at Rs132.4 crore. The bank has strong NIM at 10.01 per cent for Q3FY18. It has CASA ratio of 33 per cent, giving it benefit of low cost borrowing. The capital adequacy also looks strong at 24 per cent as against the regulatory requirement of 13 per cent. Lastly, its bottomline has grown to Rs 1,110 crore in FY17 as compared with Rs 252 crore in FY16.

Post this IPO, the bank will be trading at P/BV of 4.3x, considering the highest price band of Rs 375 and book value of Rs 86 per share. The valuations look in line with its private peers, which are currently trading at high valuations. HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Indusind Bank are trading close to 4x their book value, while other private sector banks like Yes Bank and Axis bank are trading at cheaper valuations of 2x.



Bandhan Bank




Yes Bank


Axis Bank


Indusind Bank


Kotak Mahindra Bank


Our View
The bank’s sole purpose for going public is to comply with RBI norms. The bank boasts of strong presence in micro finance lending and aims to focus on micro finance lending and expand in retail and SME lending. Further, the bank also aims to increase its presence across the country to 33 states and Union territories. We see the expansion in SME lending will reduce the dependence on micro finance lending. Further, this is expected to yield higher returns. Post the public issue, the bank's capital adequacy ratio (CAR) would be 40 per cent, which is best in class. With ample capital adequacy, we see the growth in advances to accelerate further in coming years. In the last three years, the year-on-year growth of credit has been 51 per cent, while deposits have grown 91 per cent (zero base). This year (FY2017-18) in the three quarters, we have already seen credit growth of 31 per cent and the last quarter growth is usually high. It also aims to garner more non-interest income to reduce the dependency on the core interest income. The bank looks fairly stable in terms of asset quality even as some of its peers are struggling with high NPAs. With more micro and MSME lending, the portfolio looks granular and provides necessary boost to asset quality improvement. The higher CASA share of 33 per cent provides ample low cost funding. Also, retail deposits of the bank which are lower than Rs 1 crore constitute 86 per cent of total deposit. Going forward, we see the growth story to continue as the bank focuses to grow in under-penetrated and un-banked areas. We recommend our investors to subscribe to the IPO with limited exposure considering the chaos in the banking system. However, historically banking IPOs have generated hefty returns post listing for investors. We expect this issue to give limited returns considering recent market volatility.

40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment

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