Catholic Syrian Bank is launching an IPO from 22nd Nov to 26th Nov at an issue price of Rs 193-195/share
Let us review the fundamentals of the company
Company Background
Incorporated in 1920, Kerala based CSB Bank Ltd, formerly known as Catholic Syrian Bank, is one of the oldest private sector banks in India. The bank has a significant presence in Kerala, Karnataka, Tamil Nadu and Maharashtra. CSB Bank Ltd has four business areas, which are:
1. SME Banking: Under SME Banking, the bank offers banking services to vendors, allied businesses, agriculture, financial institutions, and dealers of corp orates. The products offered to this category include working capital loans, letters of credit, term loans, bank guarantees and invoice/bill discounting.
2. Wholesale Banking: CSB Bank fulfils business needs of large & mid-size corporate, and business entities of Rs 250 million and more credit requirement under Wholesale Banking category.
3. Retail Banking: Under the Retail Banking category, the bank offers retail lending and deposit products to retail and NRI customers. The lending products include vehicle loans, gold loans, loans against properties, education loans, agricultural loans, personal loans and housing loans to retail and NRI customers. The deposit products include corporate salary accounts, recurring deposits, savings accounts, current accounts, and fixed deposits.
4. Treasury Operations: Under Treasury Operations, the bank deals with asset-liability management, statutory reserves management, trading & investment of securities, foreign exchange, and liquidity management activities. This category is aimed to maintain liquidity requirement to comply with the CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio), which are RBI Mandates.
The company also has a contractual arrangement to distribute life insurance products of HDFC, Edelweiss Tokio, and ICICI Prudential Life Insurance Company Ltd and general insurance products of Reliance General Insurance Company Ltd.
The bank has 1.3 million customers, which are majorly from Retail, SME and NRI segments. It has a wide product and services range which are delivered through multiple channels such as 277 ATMs, 414 branches and other micro ATMs, internet banking, debit cards, mobile banking, UPI and POS (Point of Sale). CSB Bank has a presence across 16 states and 4 UTs (Union Territories).
Its current loan book consists of 33% gold loans, 32% SME Loans, 28% corporate loans and 8% retail loans, It is now putting major thrust for Gold, Retail and SME loans.
Promoters
The Promoter of the Bank is FIH Mauritius Investments Ltd (“FIHM”).
As on the date of the Red Herring Prospectus, FIHM holds 86,262,976 Equity Shares, representing 50.09% of the issued, subscribed and paid-up equity share capital of our Bank.
The promoters are Fairfax India Holdings(promoted by the famous Canadian Investor Prem Watsa)
Objects of the issue
One of the goals of the issue is to meet the RBI norms of listing the shares.
The size of the issue will range from 400-450 crores
Out of nearly 400-450 crores being raised by the bank,only 24 crores will go to the bank to shore up the TIER-1 capital.
Rest all money will go to existing shareholders who are exiting.
Financials
The bank has been reporting losses in the past 2 years on the back of accelerated provisioning for some NPAs.
Its gross NPAs decreased to 4.87% as of March 31, 2019, from 7.25% as of March 31, 2017. As on 30.09.19, it's gross NPAs was 2.86%. The net NPAs decreased to 2.27% as of March 31, 2019, from 4.12% as of March 31, 2017, and its net NPAs was 1.96% as of September 30, 2019, while its provisioning coverage ratio was 65.50%, 75.83%, 78.16% and 79.45 % in respect of NPAs (including technical write-offs) as of March 31, 2017, March 31, 2018, March 31, 2019, and September 30, 2019, respectively. The net interest margin increased from 2.11% in Fiscal 2017 to 2.80% in Fiscal 2019 primarily on account of reduction in its cost of funds and increase in credit to deposit ratio.
Further, its net interest margin was 3.43% for the six months ended September 30, 2019.
Valuation
CSB has reported a net loss in the last 3 years.Thanks to the kitty of share premium that has largely helped CSB to show positive book value.
The issue is priced at a P/BV of 2.19 based on the post-conversion equity NAV of Rs. 89.19 as on 30.09.19.
Peer Valuation
Grey Market Premium
Conclusion
Though the promoter Fairfax India Holdings is a well known name, solely on the valuation multiples and the track record of the bank the issue is very aggressively priced.
Many peers like Federal Bank,DCB with a far superior and proven track records are available at cheaper valuations.
Therefore one needs to be careful for the long term
On the issue of listing gains,there is little left on the table in terms of pricing to definitely say there could be listing gains.
However the Grey Market does suggest a Rs 50 premium.However all listing gains are subject to manipulation by stock market operators.
Disclaimer:-The author of this report is a Chartered Financial Analyst(CFA) from CFA Institute,USA,the views expressed in the above report are personal and at no point should be construed as an investment advise.Please consult your financial advisor before making any decisions.Reproduction of the above report is strictly prohibited.
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