Equitas shares debut at 33.6% premium to offer price

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Mumbai: Shares of Equitas Holdings Ltd, the first so-called small finance bank (SFB) to go public, saw a decent debut, as they rose 33.6% on Thursday, after its initial public offer (IPO) was subscribed more than 17 times earlier this month, backed by strong interest from local financial institutions.

At 10.05am, Equitas shares were trading at Rs.140.75 apiece, up 28% from its issue price of Rs.110. The shares opened at Rs.144, and rose to as much as Rs.147, and touched a low of Rs.136.60 in early trade.

Equitas, which has the first mover advantage in its space, raised around Rs.1,525 crore and the share sale sailed through smoothly even though foreign institutional investors (FIIs) were not allowed to participate in the first IPO of a SFB licencee.

The share sale is the largest primary issue which was open only to domestic subscriptions, according to bankers.

The company raised Rs.652.18 crore by way of anchor allotment at Rs.110 per share, the upper end of the Rs.109-110 price band. The public issue was worth Rs.2,176 crore in total.

Equitas, one of the eight micro-finance institutions that won the SFB licence by the Reserve Bank of India (RBI) last year, received bids worth Rs.26,000 crore, data from the stock exchanges showed.

The IPO was welcomed by brokerages and attracted decent ratings from them.

“We expect the new bank to deliver ROA (return on assets) of above 2% in next 2-3 years. Although, FIIs will not able to participate in the IPO but they can acquire the stock post listing, as post listing FII holding will fall below the 49% limit set by the RBI for SFBs,” Reliance Securities said in a 2 April note.

“This may in turn create liquidity and fresh buying support on the counter upon listing. We suggest subscribe from a long-term perspective,” Reliance Securities added.

FIIs were not allowed to buy shares in the IPO as their holdings already exceed the limit stipulated by the RBI. The guidelines for SFBs limit foreign shareholding to 49%. At all times, at least 26% of the paid-up capital will have to be held by residents or domestic investors, said the statutory guidelines for SFBs.

In a note on 18 April, IIFL Holdings Ltd said Equitas’ valuation will attract premium, and initiated the stock with a “buy” rating.

“EHL (Equitas Holdings Ltd) will be the first listed SFB and would probably be among the few SFB listings in the medium term,” IIFL said in the note.

“It should attract meaningful valuation premium,” IIFL said, adding that the robust business model, strong management team of Equitas will help it emerge as a high quality SFB.

Post the stock market listing, Equitas may garner a market capitalization of Rs.3,700 crore, the company said in a press conference last week. The company received approval for its IPO from capital markets regulator Securities and Exchange Board of India on 29 December.

As part of the IPO, six foreign investors will fully exit their holdings. They are Sequoia Capital India Investments III, Aavishkaar Goodwell India Microfinance Development Co. Ltd, Aquarius Investment Advisors Pte Ltd, MVH SpA, Lumen Investment Holdings Ltd and WestBridge Ventures II Llc.

Other foreign investors selling part of their shares include World Bank arm International Finance Corporation, Dutch development finance institution FMO and Helion Venture Partners Llc. Equitas founder P.N. Vasudevan, who owns 3.17% stake in the firm, will also sell a part of his holding, according to the company’s red herring prospectus.