IPO Analysis: Jana Small Finance Bank Ltd

IPO Rating: Apply for the long-term

The IPO juggernaut continues on Dalal Street as one more entrant gets ready to be listed on domestic equity bourses. With the Indian finance sector booming, is Jana Small Finance Bank IPO the hot cake that every investor wants a piece of? Let's find out.

About the Issue:  

Jana Small Finance Bank is launching its initial public offering (IPO) for equity shares valued at Rs 10 each. The IPO price range is set between Rs 393 and Rs 414 per equity share, resulting in a total issue size of Rs 570 crore at the upper price band.  

The IPO is scheduled to commence on February 07, 2024, and will conclude on February 09, 2024. The market lot size for the IPO is 36 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 468 shares or a total investment of Rs 1,93,752 assuming the upper price band.  

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the bank will not accrue any proceeds from the offer for sale. The bank intends to use the net proceeds from the fresh issue to strengthen its Tier-1 capital base, addressing the bank's future capital requirements.

Promoter holding  

Jana Capital Ltd and Jana Holdings Ltd are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 25.20 per cent in the company.   

Company profile  

According to the Fitch Report, as of September 30, 2023, Jana Small Finance Bank holds the position of the fourth-largest small finance bank based on both assets under management (AUM) and deposit size. The bank boasts a network of 771 banking outlets, with 278 of them strategically located in unbanked rural centres, spanning across 22 states and two union territories.

The primary secured loan products offered by Jana Small Finance Bank include secured business loans, microloans against property, MSME loans, affordable housing loans, term loans to NBFC, loans against fixed deposits, two-wheeler loans, and gold loans. Additionally, the bank provides unsecured loan products such as individual and micro business loans, agricultural and allied loans, and group loans. The group loans follow the Joint Liability Group model and are specifically tailored for groups of women.

The bank's gross advances have witnessed substantial growth, escalating from Rs 11,838.98 crore as of March 31, 2021, to Rs 18,000.74 crore as of March 31, 2023, indicating a CAGR of 23.31 per cent. Furthermore, the figure rose to Rs 21,347.13 crore as of September 30, 2023, reflecting an additional increase of 18.59 per cent. Prominent shareholders of the company encompass TPG, HarbourVest Group, Amansa Capital, Morgan Stanley, and Hero Ventures.

Financials  

The bank has consistently demonstrated robust growth in both interest earned and other income in recent years. The figures for H1FY24 were notably impressive, suggesting a potential strong growth trajectory for the fiscal year 2024. Profitability has generally remained strong, with the exception of FY22, during which the management attributed the impact of the Covid-19 pandemic and borrower defaults as influencing factors. The bank boasts a return on equity (RoE) and return on assets (RoA) of 19 per cent and 1.6 per cent, respectively.

Valuation and outlook  

The issue is priced with a P/BV ratio of 1.20 times, calculated using its Net Asset Value (NAV) of Rs 346.42 as of September 30, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 7. Taking into account both valuations and returns, the bank has significantly outperformed its listed peers.

The government is proactively driving inclusive development for Micro, Small, and Medium Enterprises (MSMEs) through financial assistance, with a primary emphasis on ensuring easy access to loans to empower the economically weaker sections of society. The optimistic outlook for the future is bolstered by the government's unwavering commitment, as reflected in the recent budget.

The bank's strengths lie in its customer-centric approach, particularly for underbanked and underserved customers. Its Pan-India presence coupled with strong brand recognition, a rapidly expanding retail deposit base, and a diversified deposit franchise contribute to its robust financial performance. Hence, we recommend investors to consider subscribing to the issue with a long-term perspective.