The IPO of CSB Bank, formerly known as Catholic Syrian Bank and one of the oldest private sector banks in India, opened today for subscription. CSB Bank IPO will close on November 26 (Tuesday). The bank has priced the sale of shares at ₹193-195 apiece. The ₹410 crore offer involves a fresh issue of shares of face value ₹10 each to raise up to ₹24 crore, and an offer for sale (OFS) of 1.97 crore shares by existing investors through which it will sell ₹385 crore of shares. As of 5 pm, CSB Bank shares were subscribed 1.05 times.
Minimum 75 shares and in multiples of 75 thereafter.
Allotment and Listing
CSB Bank shares will be listed on both BSE and NSE. The tentative date for share allotment finalization is December 02, 2019 and listing date is December 4, 2019, according to brokerages.
Link Intime India Private Limited is the registrar to the offer.
As the fresh issue component is relatively smaller, the holding of its promoter entity, Fairfax India Holdings Corporation, will go down to 49.73% from the present 50.09%. According to RBI regulations, the promoter has to reduce stake to 40% in five years, 30% in 10 years and 15% in 15 years.
"While CSB Bank has a long operating history as a traditional bank, it is currently focusing on implementation of strategic changes in its business model to function efficiently as a full service new age private sector bank backed by its new marquee investor, Canadian billionaire Prem Watsa's Fairfax India Holdings Corporation," HDFC Securities said in a note.
"In recent years, its growth was constrained by low capital adequacy and higher operating costs, which adversely impacted its financial performance. However, in last three fiscals from fiscal 2017 to fiscal 2019, CSB Bank has improved its growth by focusing on better yield loan products with low risk and therefore, the surplus funds parked in investments were redeployed to advances with particular focus on gold loans and corporate advances to entities with high credit ratings which have low risk weights to minimize capital consumption," the brokerage added.
As on September 30, 2019, CSB Bank had a network of 412 branches.
Its gross NPAs decreased to 4.87% as of March 31, 2019 from 7.25% as of March 31, 2017. Further, its gross NPAs was 2.86% as on September 30, 2019. The net NPAs decreased to 2.27% as of March 31, 2019 from 4.12% as of March 31, 2017. Further, its net NPAs was 1.96% as on September 30, 2019.
Gold loans constituted a major portion of CSB’s advances, contributing 33.17% of its total advances as on September 30, 2019, respectively, according to the brokerage.
"Apart from liquidity of the security and low probability of credit losses, gold loan advances offer benefits of hassle-free lending and lower operational costs," says HDFC Securities.
The bank has returned to the black with a profit of ₹44 crore for the first half of the fiscal.
Bank has regional concentration in southern India, especially Kerala.
“The bank is planning to open new branches (350-400) over the next 3-4 years, which will keep cost to income elevated," says Angel Broking in a note.
What analysts say
ICICI Securities has a subscribe rating to the issue, banking on the turnaround theme. “CSB’s performance has not been encouraging in the past with rise in NPA level. However, new promoter and strong management brings capital and execution strength on the table which bodes well for future growth as well as earnings. Therefore, we assign a subscribe recommendation to the stock. Further, at the IPO price band of ₹193-195, the stock is available at a price per book value of about 2.2 times at the upper band on H1FY20 basis," ICICI Securities said in a note.
Another brokerage Angel Broking has neutral rating on the issue. “At the upper end of the price band, CSB Bank demands adjusted PB (price to book) multiple of 2.4x of Q2FY2020 adjusted book value, which we believe is expensive considering the investment concerns. Similar banks are trading at lower valuation than CSB and have better return ratio (DCB Bank at P/ABV of 1.73x, Federal Bank at 1.36x, South Indian Bank at 0.5x, City Union Bank at 3.23x and Karur Vysya Bank at 0.8x). Gold financiers with better return profile and pan-India presence are trading at 2.6 times of Q2FY2020 book value. We believe investors should wait for price discovery before taking any investment decision," it said in a note.