Jana SFB IPO review (Apply)

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Review By Dilip Davda on February 3, 2024

•    JSFB is the fourth largest SFB in India offering all financial services under one roof.
•    It marked a setback for FY22 on account of the Pandemic impact.
•    It is back on track as indicated by its financial performance from FY23 onwards.
•    Based on annualized FY24 earnings, the issue appears reasonably priced. 
•    Investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Jana Small Finance Bank (JSFB) is the fourth largest Small Finance Bank in terms of AUM and the fourth largest Small Finance Bank in terms of deposit size as of September 30, 2023. (Source: Fitch Report). As of September 30, 2023, it had 771 banking outlets, including 278 banking outlets in unbanked rural centres, in 22 states and two union territories. The company has served nearly 12 million customers since 2008, including 4.87 million active customers as of September 30, 2023.

JSFB was incorporated on July 24, 2006, registered as a non-banking finance company ("NBFC") on March 4, 2008, and started operating as a Small Finance Bank with effect from March 28, 2018 and became a Scheduled Commercial Bank on July 16, 2019. 

Its primary secured loan products are secured business loans, micro loans against property ("Micro LAP"), MSME loans, affordable housing loans, term loans to NBFC, loans against fixed deposits, two-wheeler loans and gold loans. Its primary unsecured loan products are individual and micro business loans, agricultural and allied loans, and group loans (group loans are offered to a group of women as per the Joint Liability Group ("JLG") model). 

Since becoming a Small Finance Bank, it has focused on increasing secured gross advances to diversify its advances, and within unsecured advances, we have focused on growing agricultural and allied loans. JSFB has been able to leverage the strength of the "Jana" brand to rapidly grow its deposit portfolio since it commenced operations as a Small Finance Bank in March 2018. As an NBFC-MFI, the company is not permitted to accept deposits as per applicable laws in India. 

JSFB is among the top four Small Finance Banks in India in terms of deposit size as of September 30,
2023. (Source: Fitch Report). It is also a corporate agent for third-party life insurance products, general (non-life) insurance products and health insurance products, including COVID-19 insurance products. The company also offers Point of Sales ("POS") terminals and payment gateway services through merchant acquiring partners. In addition to delivering its products and services through banking outlets and ATMs, it delivers products and services through business correspondents, ATM cum debit cards, mobile banking platforms, internet banking portals and SMS alerts.

JSFB has appointed three corporate entities as business correspondents to manage a total of 159 banking outlets in unbanked rural centres as of September 30, 2023. In addition, it had 17 other business correspondents that source and service customers for agricultural and allied loans, individual and micro business loans, and group loans as well as deposits as of September 30, 2023. As of the said date, it had 20355 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo book building route IPO of fresh equity issue worth Rs. 462 cr. (approx. 11159424 shares at the upper cap) and an Offer for Sale (OFS) of 2608629 shares (worth Rs. 108 cr. at the upper cap). Thus the overall IPO size will be 13768053 shares worth Rs. 570 cr. The company has announced a price band of Rs. 393 - Rs. 414 per share of Rs. 10 each and minimum application to be made is for 36 shares. The issue opens for subscription on February 07, 2024, and will close on February 09, 2024. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 13.16% of the post-IPO paid-up capital of the company. The net proceeds of the fresh equity issue will be utilized for onward lending and capital adequacy requirements.

The joint Book Running Lead Managers to this issue are Axis Capital Ltd., ICICI Securities Ltd., and SBI Capital Markets Ltd., while KFin Technologies Ltd. is the registrar of the issue. 

Having issued/converted initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 12.51 - Rs. 8738.58 between November 2006 and January 2024. It has also issued bonus shares in the ratio of 4 for 1 in March 2017. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 141.14, Rs. 359.70, Rs. 362.76, Rs. 363.61, Rs. 366.43, Rs. 800.00 and Rs. 1056.24 per share.  

Post-IPO, company's current paid-up equity capital of Rs. 93.43 cr. will stand enhanced to Rs. 104.59 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 4330.04 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, as per restated financials, the company has posted a total income/net profit of Rs.2720.74 cr. / Rs. 72.26 cr. (FY21), Rs. 3062.37 cr. / Rs.17.47 cr. (FY22), Rs. 3699.88 cr. / Rs. 255.97 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs.213.22 cr. on a total income of Rs. 2215.57 cr. According to management, downtrend in bottom lines for FY22 is attributed to Pandemic period impact, but now the bank is on track as indicated by its performance from FY23 onwards. The bank is offering all kinds of financial services under one roof.  

For the last three fiscals, the company has reported an average EPS of Rs. 24.63 and an average RoNW of 8.78%. The issue is priced at a P/BV of 1.20 based on its NAV of Rs. 346.42 as of September 30, 2023, and at a P/BV of 1.39 based on its post-IPO NAV of Rs. 298.52 per share (at the upper cap).

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 10.15. Thus the issue appears reasonably priced.

Its net NPAs were down to 0.87% as of September 30, 2023, against 2.64% as of March 31, 2023, and 5.33% as of March 31, 2021.

For the reported periods, it posted PAT margins of 8.36% (FY21), 7.32% (FY22), 7.73% (FY23), 7.76% (H1-FY24), and RoCE margins of 6.51%, 1.53%, 16.78%, 19.60% respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects as per RBI guidelines.

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown AU SFB, Suryoday SFB, Credit Access, Spandana Sphoorty, Ujjivan SFB, Equitas SFB, Fusion Micro, and Utkarsh SFB as their listed peers. They are currently trading at a P/E of 26.5, 11.2, 19, 15.7, 8.64, 15.1, 12.8, and 13.8 (as of February 02, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 88 public issues in the last three fiscals, out of which 26 issues closed below the offer price on listing date. 

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