Equitas Small Finance Bank falls on stock market debut

By Ankit Doshi

  • 02 Nov 2020
Credit: 123RF.com

Equitas Small Finance Bank, a unit of Equitas Holdings Ltd, made a weak debut on the stock exchanges on Monday with its shares listing at a 6% discount before losing more ground in early trade.

Shares of Equitas SFB began trading on the BSE at Rs 31 apiece compared with the initial public offering (IPO) price of Rs 33. The stock touched a high of Rs 31.45 and a low of Rs 30.10 in early trade.

The Chennai-based lender now commands a market capitalisation of Rs 3,505.81 crore as against the valuation of Rs 3,756 crore ($512 million then) it sought through the IPO.

The BSE’s benchmark Sensex was down 174.92 point, or 0.44%, at 39,439.15 in the morning trade.

Equitas SFB’s debut follows an IPO that managed to sail through with the support of retail and institutional investors. However, the issue failed to attract wealthy individuals.

Equitas SFB will join Ujjivan SFB and PE-backed AU Small Finance Bank Ltd in going public. Ujjivan SFB went public last year with a strong investor turnout and bumper listing. AU Small Finance Bank floated its IPO in 2017. Parent Equitas Holdings had listed its shares in April 2016, followed by Ujjivan SFB parent Ujjivan Financial Services Ltd.

Equitas SFB is the 11th company to list on the main board of the stock exchanges this year. SBI Cards and Payment Services Ltd, which went public in March, had received a very strong response to its IPO but had a subdued listing.

Six other companies – warship maker Mazagon Dock Ltd, Rossari Biotech Ltd, Happiest Minds Technologies Ltd, Route Mobile Ltd, Chemcon Speciality Chemicals Ltd and Computer Age Management Services Ltd – all made strong debuts.

UTI Asset Management Company Ltd, India's eight-largest mutual fund house, and Angel Broking Ltd, which is backed by World Bank firm International Finance Corporation, made a poor start on the stock exchanges.

Another company, Anthony Waste Handling Cell Ltd, the first waste management services company in India to attempt an IPO, withdrew the public issue in mid-March as it failed to secure enough subscription.

Equitas SFB’s IPO comprised a fresh issue of shares worth Rs 280 crore and an offer for sale of 72 million shares by parent Equitas Holdings. The bank trimmed the issue size after the Securities and Exchange Board of India in April allowed companies to tweak their IPO size by up to 50% in the wake of the Covid-19 pandemic. 

The total IPO size was Rs 517.60 crore. The offer resulted in roughly 13.78% stake dilution on a post-issue basis. Equitas Holdings’ stake diluted to about 82% after the issue compared with 95.49% earlier. It will get three years to pare its stake to 75% or below as per the Securities and Exchange Board of India’s minimum public shareholding guidelines for listed companies.

As per the Reserve Bank of India’s bank licensing conditions, Equitas Holdings is also required to pare its stake in the small finance bank to 40% by September 2021.

Equitas SFB is the largest small finance bank by banking outlets, and second-largest by assets and deposits. It will use the fresh net proceeds from the IPO to augment its Tier-1 capital base to meet its future capital requirements for expansion and meeting regulatory requirements.

The IPO was imperative to the bank’s operations. In September last year, the RBI had barred the bank from opening new branches for missing its listing deadline, a key licensing condition. The RBI had warned the lender that it might impose more restrictions if it failed to make “satisfactory progress” towards listing its shares.

JM Financial, Edelweiss Financial Services and IIFL Securities arranged and managed the share sale of Equitas SFB.