Jana Small Finance Bank IPO
Published by Sharekhan Education | February 7, 2024
Amit Pathak | Sharekhan Education
Jana Small Finance Bank is coming up with an IPO having an Issue size of ₹ 570 Cr, Price Band in the range of ₹ 393-414. The issue opens on: Wednesday, 7th Feb’2024 and closes on: Friday, 9th Feb’2024
Jana Small Finance Bank Company Overview:
Jana Small Finance Bank is the fourth largest Small Finance Bank in terms of AUM. It has 771 banking outlets across 22 states and two union territories. It offers secured loan products like MSME loans, affordable housing loans, and gold loans. The unsecured loan products include agricultural loans and group loans. This bank also acts as a corporate agent for third-party life insurance products, general insurance products, and health insurance products. It also offers Point of Sales (POS) terminals and payment gateway services through merchant acquiring partners.
Why Jana Small Finance Bank is coming up with an IPO:
The IPO consists of a fresh issue of equity shares aggregating to Rs 462 crores, and an offer for sale (OFS) of up to Rs 108 crores by existing shareholders. The proceeds from the fresh issue will be used to augment the Bank’s Tier I capital base to meet future capital requirements. Minimum application is to be made for 36 shares and in multiples thereafter. Post allotment, shares will be listed on BSE and NSE.
What are the competitive strengths of Jana Small Finance Bank?
The bank drives financial inclusion for the underbanked and underserved customer segment by providing banking services at customers’ doorsteps in urban and rural geographies. They have been able to leverage the strength of the `Jana’ brand to rapidly grow its deposit portfolio since the bank commenced operations as a Small Finance Bank in March 2018. It has significantly digitized their operations and most of their services. They have adopted an integrated risk management approach.
Business strategy of Jana Small Finance Bank:
Jana Small Finance bank intends to extend its offering from Joint Liability Group loans to individual loans and other asset products to achieve a well-diversified lending book. They intend to strengthen their liability franchise by continuing their focus on CASA and retail deposit base steadily. The bank intends to diversify its fee and non-interest-based revenues by cross-selling third-party products such as the distribution of mutual funds, life insurance, and general insurance products. They intend to strategically invest their resources in leveraging technology for efficient operations as they scale up.
Key Concerns regarding Jana Small Finance Bank IPO:
The unsecured microfinance loans account for 42.3% of the loan book. Micro Loan borrowers generally have limited sources of income. The bank has a high dependence on bulk deposits at 32.8%. The states of Tamil Nadu, Karnataka, and Maharashtra account for 38.24% of advances, 31.59% of deposits and 28.92% of branches. Any adverse developments such as a slowdown in economic activity, political unrest, or natural disasters in these states could adversely affect business metrics.
Financials:
The bank reported advances growth of 23.31% CAGR between FY 2021-23. The cost-to-income ratio of the bank stands at 58.48%. The RoA of the bank is strong at 1.61% and the RoE at 19.6%. The capital adequacy ratio of the bank stands comfortably at 17.5%. Net NPA has declined from 5.3% to 2.6% over FY21-23. At the upper end of the price band (₹393-414) the issue is reasonably priced at a P/ABV of 1.5x post-issue Adjusted book value.
Source: IPO Red Herring Prospectus
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