Equitas appoints JM Financial, Edelweiss, and IIFL for IPO of SFB unit

The firm is targeting an issue size of Rs 1,500-2,000 crore and may file its offer document with markets regulator Securities and Exchange Board of India (Sebi) in a few weeks

Equitas Holdings (EHL) has appointed JM Financial, Edelweiss, and IIFL to handle the IPO of Equitas Small Finance Bank (ESFB), according to people in the know. 

The firm is targeting an issue size of Rs 1,500-2,000 crore and may file its offer document with the Securities and Exchange Board of India (Sebi) in a few weeks, said the people. 

The EHL stock has slid 12 per cent to Rs 102.9 on the BSE since September 13. A listing could create a pricing discount for the holding firm as well as result in possible dilution for existing shareholders of EHL. 

An email sent to Equitas did not elicit a response. 

EHL had said last month it would initiate steps for ESFB’s IPO after its plea for approval of a scheme of arrangement — which envisaged a reverse merger with itself — was turned down by the markets regulator. 

The firm had then informed investors that the bank would be listed by March 2020, either through the scheme of arrangement it is pursuing with the markets regulator or through an IPO.

The RBI has barred ESFB from opening new branches and may impose additional regulatory restrictions if the bank fails to make enough progress towards listing itself on the bourses. 

Under the scheme of arrangement approved by the boards of EHL and ESFB, the latter would have to capitalise its free reserves and issue shares of the bank to the shareholders of EHL without cash consideration, in proportion to their holding in EHL.

The regulator returned the company’s draft scheme with a suggestion to re-submit the application after ensuring compliance with provisions mentioned in the Sebi circular. 

The bank had a network of 392 banking outlets and 595 asset branches in India, according to its latest annual report.

EHL’s net profit rose 74.9 per cent to Rs 61.9 crore in the quarter ended June over the year-ago period. Robust loan growth, with healthy asset quality and efficiency improvement, has been the growth driver for Equitas Holdings, according to analysts. 

“Growth is expected to compound over 30 per cent compound annual growth rate over the next two years, given the healthier demand in the segment. Liability franchise is showing strong trend. Going ahead due to change in assets mix towards low riskier assets will impact the net interest margin. However, the improvement in efficiency will offset the impact. Growth and traction in fee income will drive the profitability, going ahead,” said a recent research note by Narnolia Financial Advisors.

ESFB commenced its banking operations after receipt of the final banking licence from the RBI on September 5, 2016. It is engaged in retail banking business, with focus on microfinance, commercial vehicle finance, and home finance, among other segments — typically underserved by formal financing channels.