Utkarsh Small Finance Bank’s Initial Public Offering to open on July 12, 2022, sets price band at ₹23 to ₹25 per Equity Share

 

Utkarsh Small Finance Bank’s Initial Public Offering to open on July 12, 2022, sets price band at ₹23 to ₹25 per Equity Share

 

·         Price Band fixed at ₹23 – ₹25 per equity share bearing face value of  ₹ 10 each (“Equity Shares”)of Utkarsh Small Finance Bank Limited (“Bank”)

·         Bid/Offer Opening Date – Wednesday, July 12, 2022 and Bid/Offer Closing Date – Friday, July 14, 2022*.

·         Minimum Bid Lot is 600 Equity Shares and in multiples of 600 Equity Shares thereafter.

·         The Floor Price is 2.30 times the face value of the Equity Share and the Cap Price is 2.50 times the face value of the Equity Share.

 

*The Bank may, in consultation with the BRLMs, decide to close the Bid/Issue Period for QIBs one Working Day prior to the Bid/Issue Closing Date in accordance with the SEBI ICDR Regulations. UPI mandate end time and date shall be 5.00 p.m. on the Bid/ Issue Closing Date.

 

Risks to Investors:

Regulatory Risk

·    We are subject to inspections by regulatory authorities, including by the RBI. Non-compliance with RBI inspection/ observations or other regulatory requirements or any adverse observations from such regulators may have a material adverse effect on our business, financial condition, results of operation or cash flows.

·    Our Previous Statutory Auditors have been debarred by the Reserve Bank of India from undertaking audit assignments for entities regulated by RBI for a period of two years with effect from April 1, 2022.

·    Our non-convertible debentures are listed on BSE and in the past, there were certain inadvertent delays by us in making certain disclosures and regulatory filings to BSE under the Listing Regulations. We have filed settlement applications before SEBI under show cause notice issued by SEBI on account of such inadvertent delays.

·    We have received a show cause notice from SEBI regarding alleged non-compliance of provisions of Companies Act 2013 and erstwhile SEBI (Issue and Listing of Debt Securities) Regulations, 2008 relating to public offering of securities which may result in penal actions.

 

Concentration Risk:

·    Asignificant portion of our advances in the microbanking segment are towards customers located in the states of Bihar and Uttar Pradesh. Further, a significant portion of our deposits from such customers are from the states and union territory of Maharashtra, NCT of Delhi, Uttar Pradesh and Haryana. We are currently significantly dependent on our microbanking segment, particularly joint liability group (“JLG”) loans.

 

Details of our bulk deposits, including as a percentage of our total term deposits:

 

Particulars	As of March 31,
	2021		2022		2023
	Amount (₹ million)	Percentage of Total Term Deposits (%)	Amount (₹ million)	Percentage of Total Term Deposits (%)	Amount (₹ million)	Percentage of Total Term Deposits (%)
Bulk Deposits	31,900.58	51.61%	40,655.42	51.98%	52,712.72	48.60%

 

Financial Risk:

·    If we are unable to control the level of NPAs in our portfolio, our business, financial conditions, results of operations and cash flows could be adversely affected.

·    Our profit after tax declined from ₹ 1,118.15 million in Fiscal 2021 to ₹ 614.62 million in Fiscal 2022. While our profit after tax was ₹ 4,045.02 million in Fiscal 2023, there can be no assurance that we will be able to recover our unsecured advances, lower our NPAs or maintain profitability in the future.

Particulars	As of/ For the year ended March 31,
	2021	2022	2023
Total income (₹ million)	17,058.36	20,336.46	28,042.86
Profit after tax (₹ million)	1,118.15	614.62	4,045.02
Unsecured loans (₹ million)	70,811.13	79,789.88	87,459.11

 

Particulars	As of/ For the year ended March 31,
	2021	2022	2023
Unsecured loans as a percentage of total advances	86.18%	78.01%	66.92%
Gross NPA as a percentage of Gross Advances (%)	3.75%	6.10%	3.23%
Net NPA as a percentage of Net Advances (%)	1.33%	2.31%	0.39%
Net Interest Income (₹ million)	8,392.46	10,608.51	15,290.31
Net Interest Margin  (%)	8.20%	8.75%	9.57%

 

·    The Weighted Average Cost of acquisition of all Equity Shares transacted in last three years, 18 months and one year preceding the date of the RHP:

 

Period	Weighted Average Cost of Acquisition (in ₹)#	Cap Price is ‘X’ times the Weighted Average Cost of Acquisition #	Range of Acquisition Lowest Price – Highest Price (in ₹)#
Last 1 Year	21.23	1.18	14.01-27.00
Last 18 Months	20.91	1.20	14.01-27.00
Last 3 Years	28.64	0.87	14.01-31.80

^#As certified by JHS & Associates LLP, Chartered Accountants, vide their certificate dated July 7, 2023.

 

·    Weighted average cost of acquisition compared to Floor Price and Cap Price:

Past transactions	Weighted Average Cost of Acquisition (in ₹)**	Floor price i.e. ₹23**	Cap price i.e. ₹25**
WACA* of primary issuance	31.80	0.72 times	0.79 times
WACA* of secondary issuance	27.00	0.85 times	0.93 times

Above weighted average cost of acquisition based on past five primary issuances/ secondary transactions.

* WACA- Weighted average cost of acquisition.

** As certified by JHS & Associates LLP, Chartered Accountants, vide their certificate dated July 7, 2023.

 

·    Average cost of acquisition of Equity Shares for the Promoter is ₹ 10.50 per Equity Share and Issue Price at upper end of the Price Band is ₹ 25 per Equity Share.

·    Weighted Average Return on Net Worth for fiscals 2023, 2022 and 2021 is 12.78%.

·    The two BRLMs associated with the Issue have handled 68 public issues in the past three Fiscal Years, out of which 24 issue closedbelow the IPO price on the listing date.

 

Name of the BRLM	Total Issues	Issues closed below IPO price on listing date
ICICI Securities Limited*	32	14
Kotak Mahindra Capital Company Limited*	19	4
Common Issues of above BRLMs	17	6
Total	68	24

*Issues handled where there were no common BRLMs

 

Mumbai, July 10, 2023:Varanasi-based Utkarsh Small Finance Bank Limited ("Bank”) proposes to open its initial public offering comprising a fresh issue of such number of Equity Shares aggregating up to ₹5,000 million (“Issue”) on Wednesday, July 12, 2023. Bid/ Issue Closing Date will be Friday, July 14, 2023. The Anchor Investor Bidding Date is one Working Day prior to the Bid/Issue Opening Date, that is, Tuesday, July 11, 2023.

Bank recorded the third fastest Gross Loan Portfolio growth between Fiscal 2019 and Fiscal 2023 among small finance banks (“SFB”).The Bank has fixed the price band at ₹23to ₹25per Equity Share for the Issue. Bids can be made for a minimum of 600 Equity Shares and in multiples of 600 Equity Shares thereafter.

 The Bank is promoted by Utkarsh CoreInvest Limited, which commenced its operations as a NBFC in Fiscal 2010 and focused on providing microfinance to unserved andunderserved segments particularly in the states of Uttar Pradesh and Bihar. Utkarsh CoreInvest Limited received the RBI In-Principle Approval on October 7, 2015, to establish an SFB,following which it incorporated Utkarsh Small Finance Bank Limited as a wholly-owned subsidiary on April 30,2016.Subsequent to the Bank obtaining the RBI Licence on November 25, 2016, to establish and carry-on business asan SFB, UtkarshCoreInvest Limited transferred its business of providing microfinance, as a going concern to the Bank, which commenced its operationsfrom January 23, 2017.

In case of any revision to the Price Band, the Bid/Issue Period will be extended by at least three additional Working Days following such revision of the Price Band, provided that the Bid/Issue Period shall not exceed 10 Working Days. In cases of force majeure, banking strike or similar circumstances, the Bank, in consultation with the BRLMs may, for reasons to be recorded in writing, extend the Bid/Issue Period for a minimum of three Working Days, subject to the Bid/Issue Period not exceeding 10 Working Days. Any revision in the Price Band and the revised Bid/Issue Period, if applicable, will be widely disseminated by notification to the Stock Exchanges by issuing a public notice, and also by indicating the change on the respective websites of the BRLMs and at the terminals of the Syndicate Member and by intimation to the Self Certified Syndicate Banks, other Designated Intermediaries and the Sponsor Banks, as applicable.

The Issue is being made in terms of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957, as amended, (the “SCRR”) read with Regulation 31 of the SEBI ICDR Regulations. The Issue is being made through the BookBuilding Process, in compliance with Regulation 6(2) of the SEBI ICDR Regulations, where not less than 75% of the Net Issue will be Allotted on a proportionate basis to Qualified Institutional Buyers (“QIBs”) (the “QIB Portion”),provided that the Bank may, in consultation with the BRLMs, allocate up to 60% of the QIB Portion to Anchor Investors, on a discretionary basis (the “Anchor Investor Portion”), of which one-third shall be reserved for domesticMutual Funds, subject to valid Bids being received from domestic Mutual Funds at or above the price at which Equity Shares are allocated to Anchor Investors. Further, 5% of the QIB Portion (excluding the Anchor Investor Portion)(“Net QIB Portion”) shall be available for allocation on a proportionate basis to Mutual Funds only and the remainder of the Net QIB Portion shall be available for allocation on a proportionate basis to all QIBs (other than AnchorInvestors), including Mutual Funds, subject to valid Bids being received at or above the Issue Price. However, if the aggregate demand from Mutual Funds is less than 5% of the Net QIB Portion, the balance Equity Shares availablefor allocation in the Mutual Fund Portion will be added to the remaining Net QIB Portion for proportionate allocation to QIBs. If at least 75% of the Net Issue cannot be Allotted to QIBs, then the entire application money will berefunded forthwith. Further, not more than 15% of the Net Issue shall be available for allocation to Non-Institutional Bidders of which one-third of the Non-Institutional Portion shall be available for allocation to Bidders with anapplication size of more than ₹200,000 and up to ₹1,000,000 and two-thirds of the Non-Institutional Portion shall be available for allocation to Bidders with an application size of more than ₹1,000,000 provided that under-subscriptionin either of these two sub-categories of Non-Institutional Portion may be allocated to Bidders in the other sub-category of Non-Institutional Portion in accordance with the SEBI ICDR Regulations, subject to valid Bids being receivedat or above the Issue Price. Further, not more than 10% of the Net Issue shall be available for allocation to Retail Individual Bidders, in accordance with the SEBI ICDR Regulations, subject to valid Bids being received at or abovethe Issue Price. Further, Equity Shares will be allocated on a proportionate basis to Eligible Employees applying under the Employee Reservation Portion, subject to valid Bids received from them being at or above the Issue Price.All Bidders (other than Anchor Investors) shall mandatorily participate in this Issue through the Application Supported by Block Amount (“ASBA”) process and shall provide details of their respective bank account (including UPIID for UPI Bidders (as defined below)) in which the Bid Amount will be blocked by the Self-Certified Syndicate Banks (“SCSBs”) or under the UPI Mechanism, as applicable. Anchor Investors are not permitted to participate in theAnchor Investor Portion through the ASBA process. For details, see “Issue Procedure” beginning on page 417 of the RHP.

The Equity Shares offered through the red herring prospectus dated July 6, 2023 (“Red Herring Prospectus” or “RHP”) are proposed to be listed on both BSE Limited (“BSE”) and National Stock Exchange of India Limited (“NSE”, together with BSE, the “Stock Exchanges”).

ICICI Securities Limited and Kotak Mahindra Capital Company Limited are the book running lead managers (“BRLMs”), while KFin Technologies Limited is the Registrar to the Issue.