Bandhan Bank Limited IPO Message Board (Page 33)

To answer your question : "why I should be applying in IPO when proven, already listed alternatives are already available" :
Bandhan is the first microfinance to get universal banking license. So strictly speaking there is no peer to Bandhan on listed space. Couple of salient feature of Bandhan which no one else can provide:
1. Bandhan''s retail loan book is 76%(page184 of DRHP). As shown in page97, retail loans suffer the minimum NPA(2.2% in retail whereas 16.2% in industrial loan) in all Scheduled Commercial Bank. Moreover NPA in retail loan has not been increased in recent time when whole sector is struggling with increasing NPA. That''s why the private banks with a large retail base performing better.

2. Bandhan has more than 90% Priority Sector Lending(PSL) where as so many other banks are struggling to meet RBI guideline. So bandhan is using its PSL strength to increase non interest income by selling PSL to other bank.

3. Since Bandhan''s main focus is micro lending, its avg. lending rate is higher. So it is enjoying superior NIM(10%) compared to HDFC or Yes bank (3-4%). [page109, DRHP] However NIM will reduce as it will start giving more and more SME/MSME loans.

4. Geographical adv: Bandhan is the first bank from eastern India after independence. Its major business is in east & north-east, the most underbanked region in the country. At present very less competition for Bandhan in this region to grow its business into underbanked through DSCs and brach network(hub and spoke model)

As a whole Bandhan is a unique business[a bit different from leading banks] which had transformed itself from NGO to NBFC to universal bank over a span of around 15years.

Thanks Rise Time for your detail post.

First of all it is not a question-answer session. It is just a discussion to understand different perspectives in this regard.

I understand and believe everything you said that....Bandhan Microfinance Company is better than HDFC Bank or Yes Bank.

But we are forgetting a crucial information here.....IPO is not of Bandhan Microfinance Company but IPO is for Bandhan Bank where Bandhan is yet to build any noticeable credentials. Just saying that Bandhan has a unique proposition cannot be a justification for asking investors pay almost double valuation as compared to already established banks.

If after couple of years of existence, Bandhan Bank shows better performance than current banks then market will automatically rerate it but paying double valuations in IPO seems to be paying for a product which is yet to be manufactured but can be potentially manufactured in the future.

Other perspectives are equally welcomed.

@ Cool Sunshine, partially I agree with you regarding valuation aspect. However I want to mention couple of points first:

1.      Bandhan Microfinance vs Bandhan Bank : Actually there is no difference. Let me point out the historical timeline of Bandhan..
a.      2001-2002 : Bandhan was registered as NGO and named as Bandhan-Konnagar. Purpose was financial inclusion in underbanked region and provide micro loan
b.      2007: Bandhan acquired an NBFC named Ganga Niryat and renamed it as Bandhan Financial Services Pvt Ltd.[BFSL](source: MCA website, incorporation certificate)
c.      2010: Bandhan-Konnagar transferred its full business to BFSL. Thus Bandhan got converted to NBFC from NGO.
d.      2013-2015: BFSL applied and got banking license. As per RBI regulation a new company called Bandhan Financial Holding Ltd(BFHL) was registered as wholly owned subsidiary of BFSL. BFHL is the holding company of Bandhan Bank
e.      2016: BFSL transferred its full business to Bandhan Bank. At present BFSL does not have any operating income.

2.      Regarding Bandhan vs HDFC/Yes bank: I think its apple to orange comparison. Bandhan may enjoy better NIM than HDFC/Yes but most of its micro loans are unsecured i.e. bandhan having risky loan book than HDFC/Yes bank.

3.      Regarding credential in banking space: Bandhan is not going to change its business model. It will keep on doing(core business) what it used to do- micro credit. The main difference is that now bandhan can borrow funds at lower rate compared to earlier. So, it is not “yet to be manufactured product” but “an already manufactured product with a competitive advantage which is going for an expansion” However there are and will be some hurdles as bank due to more stringent regulation from RBI

4.      Regarding valuation: I believe it’s individual’s choice to decide how much is too much. I personally feel p/e of 35 is on the higher side. But logically speaking, there is no doubt that a company with virtual monopoly will ask for a premium pricing. The good thing is that majority of the IPO is fresh issue. So, the higher premium paid by the investor will be added to book and eventually will be used to provide better return(if bandhan keep on running efficiently) to investors

Thanks for sharing perspective. You seems to be close to Bandhan Bank.

When I said Bandhan Microfinance different than Bandhan Bank................I was not talking about names but business. For all practical purpose Regular Banking Operation is just starting while microfinance business may be continuing as was in BFHL.

Key point in your posts:

- Microfinance business HIgh Risk high return
- Stringent regulations for Banks
- while CASA (safe) deposits can be used in Micro (risky) lending but Bank needs at least Tier-I capital base and then provisioning for any bad loans etc and so on so forth. So overall fund required will be much higher.
- For CASA it will be competing with established banks which have much renowned existing franchise in banking.

I agree it is individual call.......how much valuation is too much.......... for the potential value perceived in banking and current value in micro lending.

Justifie p/e multiples is 20 and intrinsic value @ 250

Just sharing as it is article published today

Bandhan Bank IPO: Short-term investors can easily avoid this ''tie-up''

http://www.business-standard.com/article/markets/bandhan-bank-ipo-short-term-investors-can-easily-avoid-this-tie-up-118031200049_1.html

one key point from this above article.

96 % loan book is insecured as against 80-90 % secured loan book of HDFC and still commands 5 times valuation as against 3.5 of HDFC !

Second thing :
Analysts are not convinced with the performance of very short term period of 3 years as a bank.

It seems the correct way to judge a bank is through PBV and how well they are managing their NPAs....