Utkarsh Small Finance Bank makes solid debut with 60% listing gains

Shares of Utkarsh Small Finance Bank listed at Rs 40, a 60 per cent premium over its issue price of Rs 25 per share on the National Stock Exchange (NSE) on Friday

Utkarsh Small Finance Bank (SFB) made a strong stock market debut on Friday, with its shares getting listed at Rs 40 apiece, a staggering 60 per cent premium over its issue price of Rs 25 per share on the National Stock Exchange (NSE). The stock opened at Rs 39.95 on the BSE.

At 11:50 AM, Utkarsh SFB was locked at the 20 per cent upper circuit at Rs 47.95, a solid 92 per cent premium to the issue price on the NSE and BSE. The stock hit a low of Rs 37.20 in the intra-day trade. In comparison, the benchmark indices, Nifty 50 and S&P BSE Sensex, were down 1 per cent. A combined 265 million shares of the company had already changed hands on both the exchanges, with pending buy orders for nearly 6.8 million shares at the counter.

"The company has a strong track record of growth, and its financial performance has been improving in recent years. Utkarsh SFB is well-positioned to benefit from the growth of the SFB sector, as it has a strong focus on underserved segments of the population. After listing at such a level, we will suggest booking this gain; however, aggressive investors can choose to buy during any subsequent dip," said Anubhuti Mishra, Equity Research Analyst at Swastika Investmart.

The Rs 500-crore initial public offer (IPO) of Utkarsh SFB had received strong response from all investor segments, with the issue getting oversubscribed nearly 111 times. The institutional investor portion of the issue was subscribed 135.7 times, high net-worth individual (HNI) portion 88.7 times, and retail investor portion 78.4 times.

The bank aims to utilise the net proceeds for augmenting its Tier-1 capital base to meet its future capital requirements and towards meeting the expenses in relation to the issue.

According to analysts at Anand Rathi Share and Stock Brokers, Utkarsh SFB is one of the leading small finance banks, and has posted decent financial performance even as the SFB’s future prospects hinge on the monetary policy of Reserve Bank of India (RBI) and the Government of India.

"he bank’s ability to provide their products and services in a cost-efficient manner is among their core strengths, and their cost-to-income ratio was the lowest among SFBs with gross loan portfolio of more than Rs 6,000 crore," they said in a IPO review report.

Utkarsh is favorably placed with presence in low ticket segments having strong industry tailwinds. Further, Utkarsh has managed to reduce its exposure to the unsecured micro banking segment from 82 per cent in FY21 to 66 per cent in FY23 which has derisked its business model.

Analysts at Nirmal Bang Securities expect this trend to continue. Over FY21-23 period, Utkarsh has outperformed its peers on all fronts - loan growth, return ratios and asset quality. It’s valuation on P/B basis is at a significant discount compared to peers, at 1.1x FY23 post issue BVPS.

Considering that the micro finance industry has come out of severe crisis over 2020-22, with most of the bad loans having weeded out of the system, the brokerage firm expects growth and healthy profitability to resume for the sector as well as for Utkarsh.