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Utkarsh Small Finance Bank IPO to open on Wednesday. What GMP signals ahead of subscription?

The initial public offering (IPO) of Utkarsh Small Finance Bank will open for public subscription on July 12 and close on July 14. Ahead of the subscription, the company’s shares are getting a healthy premium of Rs 14 in the unlisted market.

The company has fixed a price band of Rs 23-25 per share for the IPO, which is entirely a fresh issue of shares of Rs 500 crore. About 75% of the offer is reserved for qualified institutional buyers (QIBs), 15% for non-institutional investors (NIIs) and the rest 10% for retail investors, who can bid for a minimum of 600 shares in one lot and in multiples thereafter.

Incorporated in 2016, Utkarsh commenced operations in 2017 and its product suite includes saving accounts, salary accounts, current accounts, recurring and fixed deposits and locker facilities.

The bank recorded the third fastest gross loan portfolio growth between fiscal 2019 and fiscal 2023 among its peers with a gross loan portfolio of more than Rs 6000 crore.

For the year ending March, the company had recorded total income of Rs 2,804 crore, while net profit for the same period stood at Rs 404 crore.

While the top-line has remained healthy, reporting a CAGR of 26% over FY21-23, there was muted growth in the FY22 in the bottom lines following the general market trends after the Covid-19 pandemic. Its net NPAs (non-performing assets) were at 1.33%, 2.31%, and 0.39% for FY21, FY22 and FY23.

At the upper price band, the company is valuing at P/B of 1.39x with a market cap of Rs 2,740 crore post issue of equity shares and return on net worth of 20.22%, according to Anand Rathi.Proceeds from the fresh issue will be utilised to augment the lender’s Tier 1 capital base to meet future capital requirements. ICICI Securities and Kotak Mahindra Capital Company are the book running lead managers to the issue.

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