Bandhan Bank's Rs 44-bn IPO opens: Expert views on why you should subscribe

The Bandhan Bank initial public offering (IPO) opened for subscription on Thursday, at a price band of Rs 370-375 a share. The issue will close on March 19.
 
The private sector lender is expected to raise Rs 44.13 billion at the lower and Rs 44.73 billion at the upper end of the price band. The bank has put on offer up to 119,280,494 equity shares, including a fresh issue of up to 97,663,910 equity shares.
 
The IPO also consists of an offer for sale of up to 14,050,780 equity shares by IFC and up to 7,565,804 equity shares by IFC FIG. Bids can be made for a minimum lot of 40 shares and in multiples of 40 shares thereafter.

 

Kotak Mahindra Capital Company, Axis Capital, Goldman Sachs (India) Securities, JM Financial and JP Morgan India are book running lead managers to the issue. Karvy Computershare is the registrar to the issue.
 
Should you subscribe to the Bandhan Bank IPO? Here’s what some brokerages recommend:
 
IIFL
 
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Bandhan Bank was able to ride the recent MFI crisis smoothly unlike NBFC-MFIs. So in the current form, it is a robust and resilient micro loan financier with great growth prospects. The bank would likely be able to sustain RoA and RoE near the 4% and 25% mark respectively. We believe long term investors would find post-money valuation at 4.8x P/BV reasonably attractive. A comparable benchmark for valuation would be the recent IndusInd Bank-Bharat Fin transaction wherein the former valued the latter at ~5.2x FY18 P/BV.

 
Centrum Broking
 
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The bank will be able to attract adequate investor interest. Further, the bank is expected to benefit largely from financialisation of household investments especially in the rural & underbanked areas, vast branch network and presence in high growth segments of micro lending, retail and SME banking. Given the high valuations, investors can subscribe to the issue from a long term perspective. It must be noted that since the issue is being offered at expensive valuation, listing gains may be capped.
 
Geojit Financial Services
 
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On the valuation front, at upper price band of Rs375, the issue is priced at 5.6x on FY17 and 5x on 9MFY18 adjusted book value (post IPO dilution). However, the valuation are on the higher side, we believe such premium valuations to persist given Bandhan’s strong presence in niche customer segments, higher return ratios and best in class asset quality.

 
Choice Broking
 
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Strong experience in the micro-finance provides an edge for BBL to make better strategies in order to adequately leverage the rising opportunities in the growing Indian retail banking market. Retail advance (micro + other retail loans) accounts for around 91% of advances by Dec’31, 2017.
 
Issue is aggressively priced, making it the 7th most valuable lender. Valuation is expensive compared to RBL Bank at 3.2x, Federal Bank at 1.7x and even higher to well managed banks like Yes Bank at 3.2x, Indusind Bank at 4.8x.
 
ICICI Direct
 
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Despite growth in advances and difficult conditions in India’s micro finance industry, Bandhan Bank has maintained asset quality with gross NPA at 1.67% (December 31, 2017). Such prudence is attributable to a group-based individual lending model and monitoring loan utilisation. As microfinance lender, Bandhan has managed low GNPA ratio and expects the ratio to stay at lower level.
 
Antique Stock Broking
 
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Given Bandhan's strong presence in niche customer segments, formidable liability franchisee and capable management, its profitability will be superior to most conventional banks and NBFCs. We estimate that the bank's focus on underpenetrated region and new products will ensure loan book growth of 23%+ over FY18-20E and its relentless focus on cost will lead to RoEs of 19% in FY20E.