sir ji avoid karna chaiya ya apply karna chaiye...
84. Eagleye| Link| Bookmark|
March 28, 2016 9:39:06 AM
IPO Guru (6600+ Posts, 21900+ Likes)
Banking license, IPO and raising money
To get the “principle licenseâ€, your company will have to comply with the RBI’s SFB guidelines by April 6, 2017. At what stage of compliance are you in terms of meeting the RBI guidelines? How would the structure of the bank look?
The foreign holding of the company is currently at 92.48% vs the RBI requirement of 49% for an SFB license. Will the company be able to reduce its FII shareholding to 49% through this IPO and OFS?
What’s the rationale for applying for a small finance bank license? Why do you think that SFB is superior to an NBFC microfinance company? Can you support your arguments with numbers becaintuitively your RoE should remain depressed for many years becaof regulatory requirements associated with becoming a bank?
Can you please show your RoE progression over the next five years?
Are you raising capital to comply with the FII holding requirement to be eligible for SFB and/or to fund your future growth?
Given that the current balance sheet leverage is only 3.3x, why you are raising additional capital to the tune of `9bn which is 77% of your current net worth?
What kind of growth are you targeting to sweat this equity? Our calculations suggest that the company will need to grow at 50% CAGR in 3 years to fully utilise the capital raised.
Growth potential/Asside strategy
How many of your current branches can be converted into bank branches? What’s your overall branch expansion strategy once you become a bank?
What kind of growth are you expecting over the next three years and are your systems and processes equipped to handle a high pace of growth? Which segments would drive your growth going forward?
In the DRHP, you have mentioned that the company plans to enter into gold loans, two-wheeler loans and agriculture loans. Can you throw more light on how these products fit into your overall operational model, as not many NBFCs/ small banks have been successful by spreading themselves too thin?
Should you not have focused on developing your existing businesses before starting new product lines?
How much of your current loan book qualify for PSL? How will the compliance of PSL guidelines impact the company’s profitability?
Liability franchise
Currently ~55% of the total borrowings are in the form of bank borrowings. As a bank, you won’t be able to borrow from banks more than 2x of your net worth. How are you going to reduce your dependence on bank borrowings and still manage your loan growth?
The cost of funds for your microfinance subsidiary, EMFL, has increased from 11.2% in FY12 to 12.7% in FY15. This is counter intuitive, as the cost of funds for MFIs have decreased during this period. E.g. SKS Microfinance (SKS) has reduced the cost of its funds by 150bps in the last four years.
Do you think that your current borrowers can provide the deposit base? What percentage your total liabilities can come from time deposits and CASA over the next 3 years? How much of your funding costs can come down once you become a bank?
Asquality
You have highest yield in microfinance but lowest NPAs amongst your products? It looks counter intuitive?
Looking at the history of microfinance in India and across the world, do you think that the current credit cost of 0.5% is sustainable in the microfinance business?
How would your NPAs look like if you move to 90-day NPA recognition in your vehicle financing business vs the current 150-day recognition?
In your DRHP, you have mentioned that a majority of ‘micro housing’ loans are offered to higher income MFI customers. How do you ensure that you are not over leveraging your customers?
High exposure to stressed states: Tamil Nadu/Maharashtra/MP: The company is highly exposed to Tamil Nadu with around 65%-70% of the company’s loan book exposed to this state. (Refer Exhibit 2)
What has been the impact of the recent floods in Tamil Nadu on your growth and asquality?
What is the company’s plan to diversify into other regions and what geographical mix is the company targeting going forward?
Why do you think that a mass default similar to the 2010 default in the state of Andhra Pradesh cannot occur in Tamil Nadu?
Maharashtra (15% of loan book) and Madhya Pradesh (7% of AUM) are two states where most NBFCs are facing the maximum asquality pressure due to multiple crop failures. How is your asquality behaving in these two states as your numbers are not showing the stress, which other NBFCs, with high exposure to these states, are showing?
Mid-term loans to MFI customers: As per your DRHP, a customer is only eligible for a subsequent cycle of the loan if their track record of repayment is good and meets with certain other requirements relating to their conduct within the group. But in the DRHP, you have also stated that the company also extends mid-term loans to certain eligible microfinance customers based on their requirements.
What is the rationale for extending mid-term loans to existing borrows who are already borrowers?
How does the company ensure that these additional loans given to customers are not meant to repay the original term loan?
Are such top-up loans given at higher interest rates? If not, then how does the company manage taking such additional risk?
Others Corporate social responsibilities (CSR): In the past you have contributed in the range of 3.2% to 5.3% of PAT under CSR to Equitas Development Initiatives Trust (EDIT) vs the requirement of 2% under the Companies Act. What’s the rationale behind contributing a higher-than-required amount? Is it voluntary as the EDIT website mentions that the “group is committed to contribute 5% of its annual profits to this Trust� Would you continue to contribute such a higher share of profits to the Trust going forward? Who are the trustees of EDIT and how does EDIT spend the amount contributed by Equitas?
In your DRHP, it is stated that one criminal case is pending in the case of one of the directors (Mr. N. Rangachary) of the company, which pertains to the Negotiable Instruments Act, 1881. Can you give us more color on this?
As per your DRHP, three subsidiaries (EMFL, EFL and EHFL) are under litigation proceedings regarding delays in payment or non-payment of dues to the Employee Provident Fund. In addition to that EMFL was also under litigation for paying wages at below minimum limits. Can you throw some light on this issue?
Keyman Insurance: In your DRHP, you have mentioned that KMI has been taken for Mr. P. N. Vasudevan, Managing Director of the company. Up to what extent is the company dependent on him to implement its future strategy?
What is the incentive structure for your employees? In your existing ESOP schemes, 10.76mn options are outstanding. Is your company planning to issue more ESOP schemes in future? What could this amount be and what could be the potential dilution?
Your FY15 Annual Report states that during the year, EMFL did not have any foreign currency earnings. However, foreign currency expenditure of `11.32mn was incurred by the company. What exactly is this expenditure? Can you give us more color on this as all of your business operations are domestic?
Good concerns...Maximum retailers apply for listing gains and sold out immediately any thing they get ,concerns raised are only matter for long term big qib,nii and fund house.....
84.2. Septa| Link| Bookmark|
March 28, 2016 11:59:22 AM
(4000+ Posts, 4600+ Likes)
have u posted or mailed them question.....
83. Eagleye| Link| Bookmark|
March 28, 2016 9:30:25 AM
IPO Guru (6600+ Posts, 21900+ Likes)
Equitas: Questions for Management
Equitas is a small ticket sized lender who has recently got a small finance bank license. It is expected to come out with an IPO soon. In this note we have given a brief profile of the company with key questions investors should ask the management team. Given low leverage, low credit cost and conversion into a bank, growth, asquality and regulatory costs will be major drivers of profitability of the company going forward. Hence we would recommend investors to get better clarity on these issues before making their investment decisions.
Rationale for an IPO and banking license Investors should have clarity on why the management thinks that a small finance bank (SFB) is superior to an NBFC microfinance company, as intuitively the company’s RoE should remain depressed for many years owing to regulatory requirements associated with becoming a bank. What would be the company’s RoE progression over the next five years? Also, given that the current balance sheet leverage is only 3.3x, why is the company raising additional capital to the tune of `9bn, which is 77% of its current net worth.
Growth potential How will the company sweat this equity and how quickly will the company reach optimal RoEs. Our calculations suggest that the company will need to grow at 50% CAGR in three years to fully utilise it post the IPO capital base. If there is so much growth potential in microfinance and low-cost housing finance business, why then is the company getting into gold loans, two-wheeler loans and agriculture loans. How do these products fit into the company’s overall operational model, as not many NBFCs/small banks have been successful by spreading themselves so thin?
Asquality What has helped the company contain its asquality despite: (i) lending to relatively riskier segments, (ii) 86% of company’s loan book being exposed to the states of Tamil Nadu (64% of AUM), Maharashtra (15% of AUM) and Madhya Pradesh (7% of AUM), which are driving asquality challenges for most NBFCs for the last couple of years. How will the company’s asquality be impacted due to the recent floods in the state of Tamil Nadu?
Others What’s the rationale underlying contribution of higher-than-required amount (3.3% to 5% of PAT) for CSR activities vs the regulatory requirement of 2%?. What’s the rationale for taking keyman insurance for the MD and CEO? More color on the criminal case pending against one of the directors and litigation proceedings regarding delay in payment or non-payment of dues to the Employee Provident Fund and paying wages below the minimum limits.
Anchor Opens: 4th April Issue opens: 5th April 2016 Issue Closes: 7th April 2016
Price band: Rs 109 - Rs 110 Lot Size: 135 Shares
Issue Split: QIB: 50% HNI: 15%
80. Septa| Link| Bookmark|
March 28, 2016 12:03:10 AM
(4000+ Posts, 4600+ Likes)
lot is told about this company.... it past has been good and IMO its future will be great if it comes with a PE lower then SKS micro finance then it is sure apply.
Also this better option then SkS micro finance with small bank licence
Bandhan Financial was valued at 1.3 billion in last rounds of PE funding after it got bank licence. Bandana Financial net profit risen from 250 Cr to 428 crore after changing itself into bank same can be expected from Equitas
let sees what it comes in RHP Imo will be one stock which all should have in your portfolio
frds ye gray mkt ipo ke phle uper hota hai issue close hone ke baad girta hai or listing tak negative ho jata hai so please carefull quick heel ke loss bada na de
I hear from my friends that Thyrocare would be launched somewhere around mid Apr...so after Equitas...Thyrocare should be next...and Thyrocare will be another bumper issue which in my opinion which will be heavily subscribed and a money spinner!
As for Equitas...at 2xP/B apply with closed eyes...!