Another first of its kind, after the first ecommerce company to get listed, Equitas Holdings Ltd. is the first Small Finance Bank (SFB) to go public.
Incorporated in 2007, a financial company providing monetary access to micro and small enterprises- Equitas Holdings is planning an exit gateway for its existing investors and also raising capital for itself. The IPO will open in 5th April 2016, with a price band of Rs. 109-110.
Equitas Holdings was granted the “SFB In-Principal Approval”, in September 2015, to set up a SFB.
About the company
In mid-2007, Equitas came into existence as UPDB Micro Finance Pvt. Ltd.- a Non-Banking Financial Company. Mr. P. N. Vasudevan raised seed capital for this venture from his close friends. Within eight years the company has 520 branches spread across 11 states in India.
Equitas delivers varied financial services to individuals and Micro & Small Enterprises (MSE) who are not served by the formal big financial means. The company focuses on low income groups that are economically weaker. The business services of Equitas can be categorized as:
- Micro-finance- Loan amounting from Rs.5000 to Rs 35,000 is accessed. The subsidiary company of Equitas holdings- Equitas Micro-finance Ltd. (EMFL) completely handles these operations. EMFL was India’s 5th micro-finance company, as on 31st March, 2015, based on its Gross-loan portfolio. From 2012 to 2015, this business has grown by 43.60% CAGR.
- Vehicle finance- operated by Equitas Finance Ltd. (EFL), this business has increased at a CAGR of 96.46% from 2013 to 2015. Most of the customers are first time borrowers who do not have any credit history, buying used commercial vehicles. The company reports 45,029 loan accounts with AUM of Rs. 12,489.16 million in this business, as on June 30, 2015.
- Micro and Small Enterprise (MSE) Finance- self-employed individuals are provided asset-backed financing for their MSEs.EFL manages this segment. Generally, loans ranging between Rs. 0.05 million to Rs. 5 million are granted with tenor of 3-15 years.
- Housing Finance- EHFL runs this business. The AUM in this segment increased at a CAGR of 100.54% from 2013 to 2015. Micro-housing and affordable housing loans are provided to self-employed individuals.
- Small Finance Bank (SFB)
After various discussions and recommendations, RBI published a “Policy Paper” in 2013, which concluded that expansion of banks was necessary to provide bank credit and other services in the unbanked and under-banked zones. Also, that small banks can be helpful in supplying credit to small farmers, small businesses, businesses in the unorganized sector, etc.
Accordingly, in November 2014, RBI issued “SFB Guidelines”, to license and set up Small Finance Banks in the private sector.
The applications were made in January 2015, by 72 entities, among which 10 received the SFB In-Approval. In October 2015, Equitas Holdings, too, received the license with 18 months validity (expiring April 2017). This means Equitas will have to open its first branch by then. The approval also instructs the SFB to go public in three years.
To satisfy SFB guidelines, Equitas Holdings Ltd. will merge all its three subsidiary companies and commence its operations as a SFB.
These are the details of the financial position of Equitas for the last 5 years
Based on the diluted earnings, the EPS is of 4.5. The puts the P/E for Equitas based on diluted share at around 25 based on the price of Rs 110 per share. The comparable company with Equitas is that of SKS Microfinance which has a P/E of around 27.
Equitas Holding Ltd. is coming up with its IPO, raising Rs. 6000million by issuing fresh equity shares and offering for sale 130,825,886 equity shares. Mr. P. N. Vasudevan will load-off around 1,80,000 shares. Among other selling shareholders are IFC, Sequoia, West Bridge ventures, etc. Foreign holdings in Equitas will come down to 35% after this IPO, from 93% now (RBI allows maximum 49% foreign ownership in SFBs).
Axis Capital, Edelweiss, HSBC Securities and ICICI Securites are the lead managers of this IPO.
Out of the total net proceeds from the fresh issue, Rs. 5200 million will be injected to the subsidiaries to expand their capital base for business growth requirements in future:
- EMFL- Rs. 2400 million
- EFL-Rs. 2400 million
- EHFL- Rs. 400 million
The rest will be used for general corporate purpose.
The price ban is fixed at Rs. 109-110 per share and the issue is open from 5th April 2016 to 7th April 2016. A minimum bid of 135 shares can be made and in multiples of 135 thereafter.
2.5 lakh equity shares are reserved for eligible employees of the company.
You can find more details about Equitas as a company here.
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