Strong listing | Utkarsh Small Finance Bank debuts with 60% premium

Attractive valuations and strong financial profile, improved asset quality and reduced exposure to the unsecured microbanking sector appear to be the main reasons for increased participant confidence.
Utkarsh Microfinance Bank opened trading on trading day July 21 with a whopping 60% premium to the issue price, reflecting strong IPO registrations and bullish market conditions. The benchmark index hit a record high this week, with Nifty hitting the 20,000 mark.
On the first day of trading, the NSE had an issue price of Rs 25, whereas the shares started at Rs 40, while the listing price of BSE was Rs 39.95.
In his IPO of this microfinance bank, he recorded 101.91 applications from July 12-14, making him the second highest number of applications in the current calendar year after Ideaforge Technology.
Qualified institutional investors took the lead, buying shares at 124.85 times their allotted quota, followed by wealthy individuals and individual investors bidding at 81.64 and 72.11 times their allotted quota. Employees also actively bid and the part was booked at 16.58x.
Attractive valuations, strong financial profile, improved asset quality and reduced exposure to the unsecured microbanking sector are likely the main reasons for increased participant confidence. The Varanasi-based microfinance bank has raised Rs 500 crore to be used to expand its Tier 1 capital base to meet future capital needs that are expected to arise from the growth of its presence, subject to issuance costs. Offering prices ranged from Rs 23-25 ​​per share.
The stock received a “subscribe” rating from most brokers as it is a fair value stock. The Microfinance Bank (SFB) sector is growing rapidly in India and Utkarsh Microfinance Bank is one of the leading players in the market. Swastika Investmart said it is well positioned to benefit from the growth of its SFB sector as it focuses on underserved populations, adding that the company has a history of strong growth and improved financial performance in recent years.
Utkarsh Microfinance Bank’s total loan portfolio grew at a CAGR of 34% to reach Rs 1,395.7 billion in FY2018-23, while total deposits reached Rs 1,371 billion at a CAGR of around 44% over the same period, supported by branch expansion, post-COVID-19 recovery, product diversification and customer acquisition.
Profit for the fiscal year ending March 2023 increased by 558% year-on-year to Rs 450 million, net interest income increased by 44% to Rs 1,529 million, and net interest margin improved from 8.8% in FY22 to 9.6% in FY23.

On the asset quality side, gross non-performing assets (NPA) as a percentage of total loans decreased from 6.1% in FY22 to 3.2% in FY23, and net NPA decreased from 2.3% in FY22 to 0.4% in FY23, reflecting the normalization of business activity after the pandemic.
“The valuation of the IPO is reasonable and the company’s balance sheet is strong. However, there are some risks to consider, such as the competitive environment and possible asset quality issues. Overall, we believe the IPO is a good opportunity for investors who want to participate in the growth of the SFB sector. Therefore, we have a positive assessment of this IPO,” said Swastika Investmart. Geojit Securities had also assigned a ‘Subscribe’ rating to the issue in the short to medium term given its strong post-COVID-19 performance, steady growth in outstanding loans and deposits, healthy yield ratio, best cost/income ratio, presence across India and promising industry outlook.
Between 2021 and 2023, Utkarsch outperformed its peers in all areas, including credit growth, yields and asset quality. The PER-based valuation is significantly discounted to its peers at 1.1x post-issuance BVPS in FY2023, but said, “As the microfinance industry emerges from the severe crisis of 2020-2022 and most of the non-performing loans are out of the regime, we expect growth and healthy profitability to return to both the microfinance industry and Utkarsch.” I recommend subscribing to this issue,” said Nirmal Bang.