IPO NOTE BANDHAN BANK LIMITED 12 TH -MARCH-2018 Rating: Issue Summary: Price Band (Rs) Face Value (Rs) 10 Market Lot Rs.370-375 per share 40 shares Opens 15 th March, 2018 Closes 19 th march, 2018 Issue Size (Rs) 4,473Cr No. of shares pre-issue 1,095,141,034 No. of shares post issue 1,192,804,950 Listing Issue Break Up: NSE & BSE QIB Portion 50% NIB Portion 15% Retail Portion 35% Book Running Lead Managers: Kotak Mahindra Capital JM Financial Goldman Sach J P Morgan Registrar Karvy Computershare Pvt. Ltd. Company & Business Profile: Bandhan Bank Ltd, a commercial bank was incorporated on 23rd December, 2014. It began operations on 23rd August 2015 when parent Company Bandhan Financial Services Limited (BFSL) transferred its entire MFI business to them and Bandhan simultaneously commenced general banking activities. In 2001, Bandhan Konnagar was formed as a NGO providing microfinance services to socially and economically disadvantaged women in rural West Bengal. BFSL started its microfinance business in 2006 and the NGO transferred its microfinance business to BFSL in 2009 and thereby the entire microfinance business was undertaken by BFSL. When BFSL transferred its microfinance business to Bandhan Bank, it was India s largest microfinance company in terms of loan portfolio and number of customers. Bandhan Bank is focused on serving underbanked and underpenetrated markets in India across customer segments. Bank s strength lies in microfinance, including a network of 2,633 Doorstep Service Centers ( DSCs ) and 9.86 million micro loan customers as of December 31, 2017. It launched its general banking business on August 23, 2015 by opening a Greenfield network of 501 bank branches and 50 automated teller machines ( ATMs ), which as of December 31, 2017 has grown to 887 bank branches and 430 ATMs, together serving over 2.13 million general banking customers. Its distribution network is particularly strong in East and Northeast India, with West Bengal, Assam and Bihar together accounting for 56.37% and 57.58% of its branches and DSCs, respectively, with focus is to expand across India. Bandhan Bank has built a strong base of Current Account and Savings Account deposits, which together stood at Rs.8,401.85 crore as of December 31, 2017, a CASA ratio of 33.22%. Moreover, as of December 31, 2017, its retail-to-total deposit ratio stood at 85.07%. As of December 31, 2017, its Deposits and Gross Advances stood at Rs.25,293.96 crore and Rs.24,364.39 crore, respectively. 1 Source: Ace Equity, Arihant Research
Promoter and Promoter Group: The Promoters of Bandhan Bank is Bandhan Financial Holdings Limited ( BFHL ), Bandhan Financial Services Limited ( BFSL ), Financial Inclusion Trust ( FIT ) and North East Financial Inclusion Trust ( NEFIT ). BFHL holds 981,483,046 Equity Shares, representing 89.62% of the issued and paid-up Equity Share capital of Bandhan Bank. Dr. Ashok Kumar Lahiri is the Independent Director (part-time Chairman) of the Bank. He has significant experience in the banking sector. Previously, he has worked in the capacity of a Director at Asian Development Bank. He has been a director on the Board since July 10, 2015. Chandra Shekhar Ghosh is the Managing Director and Chief Executive Officer of the Bank. He has significant experience in the finance and microfinance sector. He has been a director on the Board since July 10, 2015. Objectives of issue: To augment the Bank s Tier-I capital base to meet the Bank s future capital requirements General Corporate Purposes Peer Comparison: Comparison of Accounting Ratios with Peers (Consolidated as at 31st March 2017) Company Name Total Income Face Value (Rs.) EPS (Basic) P/E P/B NAV ROE Bandhan Bank 4,320 10 10.15 * * 42.80 25.01 HDFC Bank 81,600 2 59.95 30.75 5.15 358.21 16.65 Bajaj Finance 10,003 2 34.01 50.35 9.81 174.59 19.13 Gruh Finance 1,487 2 8.15 62.34 16.64 30.54 26.65 AU Small Finance Bank 1,390 10 11.73 59.53 9.99 69.92 38.33 Equitas Holdings 1,557 10 4.79 29.39 2.13 66.03 7.14 Ujjivan Financial Services 1,398 10 17.76 21.17 2.56 147.03 11.83 In Cr Source: Ace Equity, Arihant Research 2
Loan and Deposit Growth in financial year 2017 In Cr Company Name Loans O/S Advances Growth Deposits Deposits Growth CASA Ratio Total Income PAT Bandhan Bank 16,840 35.4% 25,293 92.2% 29.4% 4,320 1,111 HDFC Bank 554,570 19.4% 643,640 17.8% 48.0% 81,600 14,550 Bajaj Finance 60,190 36.1% NA NA NA 10,003 1,840 Gruh Finance 13,240 19.2% NA NA NA 1,487 300 AU Small Finance Bank 10,730 30.6% NA NA NA 1,390 820 Equitas Small Finance Bank 7,170 17.2% 1,920 NA 5.0% 1,210 100 Ujjivan Financial Services 6,380 18.4% 110 NA 3.0% 1,398 210 *NA: Being NBFC they cannot accept deposits. NIM Key Accounting Ratios As at 31st March 2017 Yield on Advances Cost to income Ratio Capital Adequacy Ratio Tier 1 capital Gross NPA Net NPA Bandhan Bank 10.40 21.50 36.30 26.40 24.80 0.50 0.40 HDFC Bank 4.20 10.20 43.40 14.60 12.80 1.10 0.30 Bajaj Finance 9.40 20.20 44.20 20.30 14.60 1.70 0.40 Gruh Finance 4.00 11.60 17.20 18.30 16.80 0.30 - AU Small Finance Bank 10.80 19.70 39.30 23.00 21.50 1.90 1.20 Equitas Small Finance Bank 9.20 22.90 70.80 35.50 32.30 3.50 1.80 Ujjivan Financial Services 11.40 22.00 53.60 18.20 16.90 3.70 - Competitive Strengths: Operating Model Focused on Serving Under banked and Underpenetrated Markets. Consistent Track Record of Growing a Quality Asset and Liability Franchise. Low Cost Distribution Network. Customer-Centric Approach. 3
Strategy going forward: Aim to maintain focus on micro lending while expanding further into other retail and SME lending. Aim to strengthen the liability franchise with a particular focus on growing deposit base. Bank intends to boost non-interest income in order to diversify income stream and improve margins. Enhancement of digital platform to improve customer acquisition & cost reduction Financial Snapshot: Particulars (Rs. in Cr) Dec 31,2017 March 31,2017 March 31,2016 Interest income 2273 3908 1581 PBT 1009 1704 413 PAT 657 1111 275 Book Value 9066* 4390 2029 *Fresh issue of 3662Cr and book value as on Dec.17, 5404Cr *Total book value= 9066Cr Valuation: The issue has been offered at a price band of Rs 370-375 per equity share. At the upper price band of Rs 375, the stock is available at price-to-book value multiple of 4.9(x) its FY18 BVPS of 76.Considering the unique operating model, we have 4 star rating for the issue. 4
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