Utkarsh Small Finance Bank IPO Review: Utkarsh Small Finance Bank Limited is coming up with its Initial Public Offering. The IPO will open for subscription on July 12, 2023, and close on July 14, 2023.
In this article, we will look at the Utkarsh Small Finance Bank IPO Review 2023 and analyze its strengths and weaknesses. Keep reading to find out!
Table of Contents
Utkarsh Small Finance Bank IPO Review – About The Company
After receiving approval from the RBI to establish an small finance bank (SFB), Utkarsh CoreInvest Limited incorporated Utkarsh Small Finance Bank Limited as a wholly-owned subsidiary on April 30, 2016.
It is a small finance bank in India which has recorded the third fastest Gross Loan Portfolio growth in the past three years among SFBs with a Gross Loan Portfolio of more than ₹ 60 billion. As of FY23, the bank had 830 Banking Outlets spread over 26 States and Union Territories in India, encompassing 253 districts.
The following are the product offerings of the company:
- Microbanking loans that include individual loans and joint liability group loans
- Retail loans include unsecured loans, such as personal loans and business, and secured loans like loans against property
- Wholesale lending that includes long-term and short-term loan facilities to SMEs, medium and large corporates and institutional clients
- Housing loans which focus on affordable housing
- Commercial construction/vehicle equipment loans
- Gold loans
Utkarsh Small Finance Bank IPO – Financial Highlights
If we look at the financials of Utkarsh SFB Limited we notice that their deposits have increased from Rs.7507.56 crores in March 2021 to Rs. 13710,.14 crores in March 2023. This can be an indication of an increase in the number of accounts opened in the Bank
Similarly, its advances have also increased from Rs. 8216.85 Crores in FY21 to Rs. 13,068.76 Crores in FY23. An increase in the Advance can help the bank gain more interest income and it also suggests an increase in the bank’s growth.
Along with the increase in the advances, the bank has also increased its reverses and surplus from Rs. 520 Crores in FY21 to Rs. 1104.4 Crores in FY23. An increase in reverse can positive sign as it can act as a contingency during unexpected losses like defaults.
Coming to the Non-performing assets of the company, the company reported a gross NPA of 3.23% and a net NPA of 0.39% in FY23. This means the number of defaults in FY23 was less.
Looking at the revenue aspects, the bank has increased its total revenue from Rs 17,05.83 Crores in FY21 to Rs. 2804.28 Crores in FY23. The total profits have also increased from Rs. 111.81 Crores to Rs. 404.50 Crores in the past three years.
The balance sheet of the company
(Source: RHP of the company)
The Income Statement of the company
(Source: RHP of the company)
Key metric of the company
(Source: RHP of the company)
Key Players in the Market
Below are the peers of Utkarsh SFB along with their profitability as of FY23:
(Source: RHP of the company)
Strengths of the Company
1) The business has a history of providing microfinance services to clients, with a focus on financial inclusion for underserved and unserved clientele in rural and semi-urban areas.
After the commencement of SFB operations, it further improved its relationship with borrowers by concentrating on microfinance and expanding its product line to include bank accounts, deposit products and other loan products.
2) The company offers a wide range of deposit products that include salary accounts, savings accounts, current accounts, recurring & fixed deposits and locker facilities. It also offers diversified liabilities products at competitive rates targeted primarily at retail customers from all segments led by middle-class individuals, senior citizens, and self-employed and salaried individuals.
This has enabled its total deposits and CASA ratios to increase over the past three years.
3) As of FY23, the bank had 830 Banking Outlets spread over 26 States and Union Territories in India, encompassing 253 districts, with 522 of them being in rural and semi-urban areas. This range of banking outlets will let the bank in providing service to existing customers as well enabling them to attract new customers.
4) Risk management runs at the core of the company’s operations and it has focused on robust and comprehensive credit assessment and risk management framework.
The banks’ framework identifies, monitors and manages risks inherent to its operations and in particular manages credit, liquidity, market, IT and operational risks.
5) One of the bank’s main strengths is its capacity to deliver products and services at a reasonable cost, and its cost-to-income ratio was the lowest among SFBs with a Gross Loan Portfolio of more than 60 billion in Fiscal 2023.
6) The company’s promoter, Utkarsh CoreInvest Limited, has a number of institutional investors, some of which include including British International Investment PLC, RBL Bank Limited, HDFC Life Insurance Company Limited, and HDFC Ergo General Insurance Company Limited. The bank believes it will help in increasing its credibility.
Weaknesses of the Company
1) The company is subject to inspections by regulatory authorities like SEBI. Noncompliance with RBI inspections/observations or other regulatory requirements, as well as any negative observations from such regulators, may have a material adverse effect on our business, financial condition, operating performance, or cash flows.
2) A huge portion of the company advances (such as loans) in the micro banking segment are towards customers located in the states of Uttar Pradesh and Bihar. Any adverse changes in the region’s conditions can have a negative impact on the company’s business, financial condition, results of operations, and cash flows.
3) While the company’s revenues have increased over the span of 3 years, its profits after tax haven’t been able to maintain the same consistent pace. Furthermore, the company has no assurance about maintaining its profitability in the future.
4) The major portion of the company’s deposits are obtained from a limited number of customers. Any loss of such customers can adversely affect the operations of the company
The following images will show you the total deposits by the top depositors:
(Source: RHP of the company)
5) The company’s operations include handling significant amounts of cash which makes it exposed to s susceptible to operational risks, including fraud, petty theft and embezzlement.
6) If the company incurs any huge losses that exceed the insurance coverage, it could have an adverse impact on the business.
(Source: RHP of the company)
Utkarsh Small Finance Bank IPO – Key IPO Information
| Particulars | Details |
|---|---|
| IPO Size | ₹500.00 Cr |
| Fresh Issue | ₹500.00 Cr |
| Offer for Sale (OFS) | -- |
| Opening date | 12 July 2023 |
| Closing date | 14 July 2023 |
| Face Value | ₹10 per share |
| Price Band | TBA |
| Lot Size | TBA |
| Minimum Lot Size | 1 |
| Maximum Lot Size | TBA |
| Listing Date | - |
Promoters: Utkarsh Coreinvest Limited
Book Running Lead Manager: ICICI Securities Limited and Kotak Mahindra Capital Company Limited
Registrar to the Offer: KFin Technologies Limited
The Objective of the Issue
The bank intends to utilise the net proceeds of the IPO towards the following purposes:
- To increase its Tier–1 capital base in order to meet its future capital requirements.
- To meet the expenses incurred in relation to the Issue.
In Closing
In this article, we looked at the details of Utkarsh Small Finance Bank Limited IPO Review 2023. Analysts remain divided on the IPO and its potential gains. This is a good opportunity for investors to look into the company and analyze its strengths and weaknesses. That’s it for this post.
Are you applying for the IPO? Let us know in the comments below.
Written by Aaron Vas
By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks also get updated with stock market news, and make well-informed investment decisions.
