Banks and finance companies that have listed on the bourses in the past two years have mostly been let-downs for investors even as stock benchmarks have moved from strength to strength in a record-breaking rally.
Mumbai: Banks and finance companies that have listed on the bourses in the past two years have mostly been let-downs for investors even as stock benchmarks have moved from strength to strength in a record-breaking rally.
Five of the eight such lenders are trading below their initial public offer prices, a track record that could make investors choosy while picking the dozen-odd small banks and finance companies that plan to hit the primary market over the next few months.
Suryoday Small Finance Bank, which launched its maiden public offering in March this year, is currently trading at Rs 150, less than half the IPO price of Rs 305.
The Nifty Index gained 20% during this period.
Ujjivan Small Finance Bank, which was listed in December 2019, is currently trading at a 44% discount to its issue price. Several top executives from the bank, including CEO Nitin Chug, chairman B Mahapatra have quit the bank since IPO.
Indian Railway Finance Corporation, listed the end of January, is trading at a discount of 11% from the offer price.
“Banks and non-banking finance companies (NBFCs) underperformed post public issue due to aggressive IPO pricing coupled with concerns on the asset quality due to the pandemic related stress on borrowers,” said Ravi Sardana, an investment banker.
Hyderabad-based microlender Spandana Sphoorty Financial that made its debut in August 2019, is trading at 26% lower than its offer price of Rs 856.
Small finance banks (SFBs) face challenges on the asset quality front and find it tough to compete with bigger banks.For instance, Suryoday reported a 25% decline in revenue in the March quarter, with losses widening to Rs 43 crore compared with Rs 15.5 crore a year ago. In the June quarter, the lender reported a net loss of Rs 48 crore on account of a write-off and provision on restructuring. The bank reported a net profit of Rs 27 crore in the June 2020 quarter.
“Some of the SFBs have underperformed due to the asset quality issues as most of them are not experts in non-micro lending businesses, and its take time for them to diversify their business to adhere to the SFB norms,” said V Jayashankar, head of equity capital market, Kotak Investment Banking. “Going forward, only select high-quality SFBs and NBFCs will find buyers in the primary market because of poor show by their peers in secondary market.”
CSB Bank and Equitas Small Finance Bank, listed in December 2019 and November 2020, respectively, are trading 54% and 82% above the offer price. Among small banks and NBFCs, Aadhar Housing Finance, ESAF Small Finance Bank, Fusion Micro Finance, Tamilnad Mercantile Bank, Northern Arc Capital, Utkarsh Small Finance Bank, Fincare Small Finance Bank, Jana Small Finance Bank, and Arohan Financial Services, among others, have already filed IPO papers with the market regulator Sebi.
The financial sector is likely to face challenging times ahead, said analysts.