Utkarsh SFB surges 17% on heavy volumes; zooms 141% over issue price

Till 12:09 PM, a combined 34.73 million equity shares, representing 3 per cent of total equity of Utkarsh SFB, had changed hands on the NSE and BSE

Shares of Utkarsh Small Finance Bank (SFB) hit a record high of Rs 60.30 as they surged 17 per cent on the BSE in Thursday's intraday trade on the back of heavy volumes.

With this, Utkarsh SFB is ruling 141 per cent higher over its issue price of Rs 25 per share. The stock surpassed its previous high of Rs 56.30 touched on July 24, 2023. The bank made stock market debut on July 21.

At 12:09 PM, Utkarsh SFB was quoting 15 per cent higher at Rs 59.20 as compared to 0.70 per cent rise in the S&P BSE Sensex. The average trading volume on the counter jumped over five-fold today with a combined 34.73 million equity shares, representing 3 per cent of total equity of Utkarsh SFB, having changed hands on the NSE and BSE.

The Rs 500-crore initial public offer (IPO) of Utkarsh SFB had received a strong response from all investor segments with the issue getting oversubscribed nearly 111 times.

Utkarsh SFB provides financial services to the underserved and unserved sections. The bank's microfinance lending activities are primarily focused in rural and semi-urban locations of the country while its other services are spread across the country.

The Bank extends microfinance loans based on Joint Liability Group (JLG) model to individuals, other retail asset loans including Micro, Small and Medium Enterprise (MSME) Loans, Housing Loans (HL), Commercial Vehicle Loans, Construction Equipment Loans among other lending products.

The bank’s profitability metrics improved significantly during FY23, and the June 2023 quarter (Q1-FY24) after being under pressure during FY22 on account of significant rise in the credit costs due to effects of the Covid-19 pandemic.

Going forward, the bank expects the non-interest income to be driven by fee-based activities. While the bank intends to continuously grow microfinance portfolio at healthy pace, other lending verticals (being smaller in size) are expected to grow faster than microfinance business and hence the share of micro finance loans in bank’s overall loan book is expected to reduce further.

In Q1-FY24, Utkarsh SFB’s loan portfolio grew by 31.4 per cent year on year (YoY) to Rs 14,394 crore. The bank’s microfinance portfolio accounted for 63 per cent of total loan portfolio and non-microfinance portfolio accounted for 37 per cent of loan book.

The bank's net interest margin (NIMs) has remained in healthy range of 9–10 per cent, and stood at 9.2 per cent in Q1-FY24 vs. 9.7 per cent in Q1-FY23. Asset quality improved during the quarter with net NPAs at 0.33 per cent, against 0.39 per cent in Q4FY23.

On September 26, Care Ratings revised the bank's Tier II Bonds rating to CARE A+ (Stable) from CARE A (Positive).

The rating assigned to the bonds of Utkarsh SFB factors in improvement in the financial risk profile with improvement in profitability and asset quality parameters which was impacted by Covid19 induced stress.

"The bank continues to have comfortable capitalisation levels which have seen further enhancement as the bank has raised equity capital of Rs 500 crore through IPO during July 2023 which would allow the bank to grow its book," Care Ratings said in a rationale.

The rating continues to derive strength from the bank’s long track record of operations in microfinance lending, experienced management team for managing the various banking operations, along with its rapidly growing scale of operations. The bank has demonstrated significant mobilisation of deposits with increasing share of the retail and current account saving account (CASA) deposits and access to diverse funding sources since commencement of operations as small finance bank. Care Ratings expects stabilisation in profitability along with an increase in the scale of operations in the coming quarters.