Join ESAF Small Finance Bank by subscribing: Ingejit

Join ESAF Small Finance Bank by subscribing: Ingejit

The study by Geojit on the ESAF Small Finance Bank is now available. In its study report, the research group recommends "Subscribing" to the IPO as of November 02, 2023.

Report on the Geojit IPO on ESAF Small Finance Bank

Founded in 2016, ESAF Small Finance Bank Ltd. (ESFBL) is a small finance bank with a focus on the south that mainly serves unbanked and underbanked clients in rural and semi-urban regions. The bank provides loans to financial institutions, retail customers, MSME customers, microloans, and agricultural customers. By the end of June 30, 2023, ESFBL had 700 banking locations serving 7.15 million clients in 21 states and two union territories, of which 502 were located in rural and semi-urban areas. The small finance bank industry's advances under management (AUM) increased at a 29% CAGR between March 2018 and June 2023. CRISIL MI&A predicts that AUM would expand at a 22-24% CAGR between June 2023 and March 2025. Net Interest Margin (NIM) increased from 8.5% in FY21 to 9.7% in FY23, while ESFBL's Net Interest Income (NII) increased to ₹1,529cr at a CAGR of 41% between FY21 and FY23. 

In comparison to the industry, the RoA increased from 0.9% to 1.6% over FY21–23, while the RoE increased from 8.7% to 19.4% within the same time frame. In Q1FY24, ESFBL's total revenue was ₹992cr, with a net profit of ₹130cr. The company's net interest income increased by 30% to ₹585cr. The bank's asset quality also showed a notable improvement, with net non-performing assets (NPAs) falling to 0.81% and gross non-performing assets (NPAs) falling to 1.7% from 6.2%. 

ESFBL is offered for a P/BV of 1.8x (FY23) at the top price range of ₹60, which seems fair when compared to its competitors. The small finance banking industry is expected to do well because to the large market potential in the rural segment, increasing emphasis on portfolio diversification and reach expansion, availability of low-cost capital, and abundant cross-sell possibilities.

Assessment and Prognosis

We provide a medium- to long-term "Subscribe" grade due to steady expansion in loan books and deposits, strong return ratios, and an expanding footprint across India.