Tamilnad Mercantile Bank makes a muted debut; lists at par with issue price

The stock listed at Rs 510 on the BSE, while it listed with a 6 per cent discount on the NSE

Shares of Tamilnad Mercantile Bank (TMB) made a lackluster debut on the bourses, with the stock of the private lender getting listed at par against its issue price of Rs 510 per share on the BSE on Thursday. Post listing, the stock hit an intra-day low of Rs 487, and a high of Rs 519, BSE data shows.

On the National Stock Exchange, the stock debuted at Rs 495 per share, around 6 per cent lower than the issue price. 

At 10:08 AM, TMB was at Rs 509.90, marginally lower than its issue price on the BSE. Around 90,000 equity shares have changed hands on the counter so far, exchange data shows.

"Tamilnad Mercantile Bank debuted at Rs 495 i.e. 6 per cent below its issue price. The precarious legal challenges, the lack of complete clarity on the management's long-term performance, and less than stellar subscription numbers are some of the reasons for its negative listing," said Santosh Meena, Head of Research, Swastika Investmart Ltd.

Those who had applied for listing gains can maintain a stop loss of Rs 470, while long-term investors should wait for some quarters to let the dust settle, he added.

Meanwhile, BSE, in a notice on Wednesday, said that the equity shares of TMB will be admitted to the list of 'T ' group of securities. The scrip will be in Trade-for-Trade (T2T) segment till further notice. The stocks under T2T group are not allowed for intra-day trading. The T2T stocks can only be delivery based i.e. the buyer has to take the delivery of these shares.

The initial public offering (IPO) of TMB had garnered nearly three times subscription. The qualified institutional buyer (QIB) segment of the issue was subscribed 1.62 times, high networth individual 2.94 times, and retail portion was subscribed nearly 6.5 times. The bank had allotted shares worth Rs 363 crore to anchor investors at Rs 510 apiece ahead of its IPO.

TMB plans to use the IPO proceeds to augment its tier-I capital base. This will help it meet future capital requirements arising out of growth in the bank's assets. It will also help to ensure regulatory compliance around capital adequacy prescribed by the Reserve Bank of India.

TMB has around 100 year's legacy with around 80 per cent of its customers associated with the bank for more than five years. The focus on low cost CASA deposits is expected to keep borrowing cost lower. The focus on new geographies coupled with southern states to accelerate growth.

The Bank focuses on advances to MSME, agricultural and retail segment which have grown at CAGR of 12.94 per cent between FY20-22. The Bank have shown consistent financial performance, NIM have grown over the years with an increase from 3.64 per cent to 4.10 per cent from FY20 to FY22 at a CAGR of 6.13 per cent.

"TMB is one of the oldest private sector banks in India with a consistent financial performance and healthy asset quality. At the upper end of the price band, the bank is valued at ~1.35x P/BV (post issue) as on March 31, 2022 which looks reasonable. However, a change in management and pending legal proceeding in relation to shareholding remain risks," analysts at ICICI Securities had said in an IPO note.

TMB is demanding a slight higher valuation when compared to its peers given that TMB is outperforming its peers in majority of financial parameters. Given the consistency in its performance over past periods and healthy return ratio, the brokerage firm Anand Rathi Share and Stock Brokers had recommended a "Subscribe-Long Term" rating to the IPO.