Shares of AU Small Finance Bank made a stellar market debut, ending their first trading day 51% higher than the price at which the stock was sold to investors in an initial public offering (IPO).

The stock ended trading on Monday at Rs541.20 on BSE against an IPO pricing of Rs358. In intraday trade, the stock gained as much as 52.2% and touched a high of Rs545 a share. The stock opened at Rs525 on BSE and touched a low of Rs506.80.

“Following trend of 50-100% gains on listing day this year, AU Small Finance Bank performed on similar lines. However, the issue was valued at five times book value when it went public and now it becomes closer to 7 times at today’s prices and defies all logic," said Arun Kejriwal, director of Kejriwal Research and Investment Services.

AU Small Finance’s market capitalization was at Rs15,383.66 crore when it closed, higher than the market cap of most public sector banks such as Indian Bank, IDBI Bank, Union Bank of India, Vijaya Bank and Syndicate Bank. Among private banks, City Union Bank, Karur Vysya Bank and DCB Bank had a lower market cap than that of AU Small Finance.

Post listing, it is ranked 16th among all listed Indian banks in terms of market capitalization. Among PSUs, AU Small Finance Bank is at seventh position, while among private banks it is placed 10th.

However, AU Small Finance has much lower advance and deposits than these banks. As of fiscal 2017, its total advances stood at Rs5,930.8 crore against Rs3,817.40 crore, while its deposits were at Rs6,608 crore from Rs5,789.30 crore.

Among non-banking financial companies (NBFCs), HUDCO, Dewan Housing Finance Ltd, Bharat Financial Services Ltd, JM Finance Ltd, IDFC Ltd, Manappuram Finance Ltd, Equitas Holdings Ltd and Ujjivan Financial Services Ltd are among those with lower market cap than AU Small Finance.

“AUSFB is among the very few lenders that enjoy such superior return ratios while providing secured credit which is commendable. Owing to secured lending, AUSFB is better positioned for transition to small finance banking as compared to peers. Having strong retail asset book, it shall allow AUSFB to build liabilities with strategic focus on sticky customers and aid in better cross-selling opportunities," said a research note by Aditya Birla Money Research released on 28 June for its investors.

The IPO raised Rs1,912 crore, and got bids for 1.09 billion shares against the total issue size of 37.7 million shares, according to data available on the National Stock Exchange.

The category reserved for qualified institutional buyers was subscribed 78.77 times, while portions reserved for non-institutional investors and retail investors were subscribed 143.51 times and 3.52 times, respectively.

AU Small Finance promoter Sanjay Agarwal and private equity investors Warburg Pincus, World Bank arm International Finance Corp., ChrysCapital and Kedaara Capital, are together selling 53.42 million shares.

AU Small Finance Bank was one of the 10 NBFCs that obtained approvals from the Reserve Bank of India (RBI) in September 2015 for setting up a small finance bank. The bank has 301 branches across 10 states and one Union territory with a significant presence in Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.

For fiscal 2017, it reported a net profit of Rs842.60 crore, including Rs517 crore gains from sale of investments in subsidiaries, compared to Rs247.20 crore a year ago. Net interest income rose 40.7% from a year ago to Rs916.60 crore from Rs651.70 crore during the same period. Gross non-performing assets as a percentage of advances rose 1.6% from 0.6% in the same period.

The book-running lead managers to the offer are ICICI Securities, HDFC Bank (Investment Banking Group), Motilal Oswal Investment Advisors and Citigroup Global Markets India.

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