As I am reading Tamal B’s recent book on HDFC 2.0…feel, Nitin Chugh has got an excellent opportunity…because of the kind of experience he had in building Digital HDFC in last 6 years…he can really catapult Ujjivan in a new level…he got the base…a stable management under Mr.Ghosh…now need to scale with Digital…he does not need to start from scratch unlike Aditya Puri…also Ujjivan faced some of the toughest times…again…I am not putting it as NEXT HDFC etc…all those stories…but feel…he can take Ujjivan…as good growth story…
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Ujjivan SFB has raised 250cr in Pre IPO fund raise at 35 per share. Any idea how much this values SFB?
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Hi,
This is my first post on VP.
Disclosure- recently invested & would subscribe to USFB IPO
And what about the additional 200 mn preference shares that UFSL holds in USFB?
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market cap of 6240cr after capital infusion of 1250cr looks ridiculously low!
It basically means that the SFB is currently valued at PB of around 2.4
Comparing this with other large banks (Like ICICI, Axis, Kotak, HDFC) which are trading at PB of 3 to 5 and somewhat comparable AU SFB, which is trading at PB of over 7. It doesn’t make any sense.
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Comprehensively compiled data points of SFBs for business sustainability and financial inclusion. Would have loved to see data and comparison with Bandhan and at least the top 10 MFIs for a more complete picture.
Tracking-Performance-of-Small-Finance-Banks-against-Financial-Inclusion-Goals.pdf (3.3 MB)
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SFB IPO issue date, price band, existing shareholders discount - Link
Disclosure: Invested
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Can existing share holders still avail the Rs 2 benefit or dead line already over
The proposed Issue of USFB comprises of a fresh issue of Equity Shares aggregating up to ~ 7,500 miIIion
@Rushabh_Doshi, @fundoo stmt is from above link. What does this 750 cr mean when they are raising 1.2kcr
They are raising total 1000 cr (250cr already raised pre IPO). As per the press release, shareholders as on 22nd November will be eligible for discount
How as a shareholder I can apply for the discount?
| BV of SFB on Sep 19 | 1998 cr |
|---|---|
| Shareholding Structure | |
| UFSL ORD Shares | 1440036800 |
| UFSL PREF Shares | 200000000 |
| Pre IPO Shares Issued | 71428570 |
| Pre IPO Price | 35 |
| IPO Shares Issued @ Rs.37 | 202702702.7 |
| Total Shares after IPO | 1914168073 |
| MKT Cap at IPO @ Rs.37 | 7082 cr |
| P/B @ IPO | 2.36x |
| Value of UFSL Holding | 6068 cr |
| Curr. Mkt. Cap. on 27/11/19 | 3939 cr |
| Holding Co. Discount | 35.08% |
| UFSL Holding Post-IPO | 85.68% |
Given the reduced holding co. discount at today’s prices, there are 2 scenarios.
- Prevailing market conditions and sentiments want to attribute this low holding company discount of 35%.
- The market actually wants to give the holding company a 50-60% discount and is assuming that post-IPO USFB could be valued at ~7878 cr to 9747 cr which is a P/B of 3.94x/4.87x respectively by the participants due to post-IPO rush.
My thoughts:
- Scenario 1 is less likely but possible.
- In scenario 2 valuation up to 4x P/B is plausible in this market given peer valuations, and considering Ujjivan’s geographic and book diversification.
- Buying at this price and hoping USFB to trade at AUSFB’s valuations is a hope trade but is not entirely out of the realm of possibility. UFSL could also inch higher if this happens.
- Is there a downside possible from the company holding structure given all else remains status quo on the business side (growth and book quality as usual)?
Ans. Yes, if USFB does not trade higher after IPO, market could punish the UFSL price and move the current discount from 35% to 50%. - As mentioned in the Q2FY20 conference call, after the IPO the management will focus on reducing the UFSL holding from post-IPO 85% to 40%. This could be an overhang over the medium term on both the stocks until Jan 2022. In the past, they have mentioned that one of the ways to reduce the holding to 40% will be a reverse merger, this has been discussed in this thread, I am just reiterating it here for new entrants in the stock. There is some grey area even with the new SFB guidelines, whether RBI will allow a reverse merger to reduce promoter holding. As per the guidelines, the promoter holding reduction comes before the 5-year deadline and reverse merger prospect is later.
Another factor is that with the IPO in Dec-19, the promoters have to maintain their holding for 1 year and have to maintain their 20% holding in USFB until Dec-22 which is after the Jan-22 deadline. The recent attempt by Equitas to gain approval from SEBI for a reverse merger was rejected because it was outside the scope of the regulations as per my understanding.
I contacted the management about how they will manage to reduce the holding to 40%, with a reverse-merger given the above SEBI rules on promoter lock-in after IPO, this is what they replied, “We need to closely work with the regulators and seek necessary exemptions and relaxations and we are quite hopeful to get the required relaxations/exemptions.”
Given, the recent SEBI rejection to Equitas and RBI’s approval also needed for a reverse merger, it would be best for a conservative investor to factor this into their investment decision, there could be a possibility of big share dilution before Jan-22 in case reverse merger is not approved. This could be similar to what Bandhan did with Gruh. If they find a good acquisition target, it could be a marriage made in heaven. Although thinking about it now, SFBs are regulated differently than UBs like Bandhan and I can’t recall accurately right now, but I am not sure whether SFBs are allowed to have different business lines in subsidiaries or wholly owned companies. Will go through the guidelines to confirm.
Disc.: Invested. There could be some discrepancy in my calculations. Please do correct me if I am wrong.
PS: A slight change in the calculation, I had not added the 1000 cr IPO amount to the Sep-19 book value while calculating the P/B value and thus got the wrong P/B of 3.Xx, I have corrected for the mistake. Reading through a few IPO notes, I find that they do not account for the preference shares when calculating BVPS and the total shares O/S pre-IPO they use is approximately 5.6% higher than the value I have used. I took the value from FY19 AR, there are obvious additions since then in the shares O/S due to ESOPs issued in the interim, but I doubt the value is so different. Such big dilution is not possible as in the past the ESOPs have lead to an annual dilution of 0.03%.
I am unable to find from where and how they got that figure of 1525520467. The difference in P/B between my figures and their’s is 2.3x and 2.2x.
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Good read.
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Many media reports talk about 75 cr worth shares being allocated to existing shareholders on 'proportionate basis" !!! What does that mean ?? Below snippet is from Livemint.
I just hold 1 share of UFSL to be eligible for SFB special quota. Should I own 400 shares to get 1 lot allocated for sure ?
“The proposed issue of Ujjivan Small Finance Bank comprises of a fresh issue of equity shares aggregating up to ₹750 crore and a portion of the issue aggregating up to ₹75 crore has been made available for the eligible Ujjivan Financial Services shareholders, on a proportionate basis”
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Proportionate basis means , u get as many percentage of shares in SFB retail existing shareholders quota(75 cr) as much percentage u own in UFSL.
Full application is 1.96 lac for existing shareholders. That amount is 0.0002% of 75 cr.
So for full application to get allocated I need to own 0.0002% of UFSL, which is at 4000 cr mcap, ie 80k worth shares I have to hold in holding co.
Gautham, there is an error in your calculation, 2 lacs of 75 cr is 0.026%. It was confusing to see how the same percentage of a smaller number is bigger than the same percentage of a much bigger number.
I am not exactly sure how the proportionate allottment will work. During the conference call the management said the 10% will be reserved for the retail investors which were around 76k individuals on Sep-19 (Nov. 22nd figure should be somewhere similar). Out of these only 50k would have gotten the minimum 15k allottment through lottery system.
Now in RHP they specify no such thing and say the 10% is reserved for all UFSL shareholders. So chances are even less. My guess is that you have to hold 1.4-1.5 Lac worth of UFSL shares to be eligible to get 15k worth of USFB shares. And if all shareholders of UFSL will apply for this the allottment will fall short.
The recent communique from the management conveys thats if a UFSL shareholder applies for less than 2 lac worth of shares your bid will considered in both shareholders quota and non-reserve portion and will not be considered as multiple bids. If you apply for more than 2 Lacs you cannot apply for the non-reserve part.
Therefore most of the institutional holding, if they are applying should be bidding in the non-reserve portion. That should clear some space for retail. But many of the 76k shareholders will have holdings less than the proportionate amount required to bid for the minimum lot size.
All this is just speculation, if someone has alternative theories please do share.
In the scheme of things, and the valuations at which USFB is coming to market the 2 rs. Discount shouldn’t matter much. If there is overbidding in the reserved segment as well, I am not sure whether the 35 rs. Bid will be considered if the allocation is fully subscribed at 37 for reserved portion as well.
We will get to know tomorrow how the application is structured, it should have the option for shareholder reserved portion. Most of you will be doing it through your broker, in case of zerodha you get the facility in console. If applying through bank hdfc has an ipo section in their netbanking. Other must have it as well. And for others there is always the offline form option.
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Guys, how do we apply in the IPO in the catagory of existing shareholders of usfl? Is there a special way of applying ??
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In ICICIDirect I see two different IPO options - one for shareholders and another one for regular applicants.
I am assuming I can apply in both options - as retail shareholder. Can someone please confirm…
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Yes
This is what ICICI site says
Customers to please note :
Ujjivan Finance Services Ltd shareholders applying through “Shareholder” category IPO up to Rs. 2,00,000/- can also apply in Net offer (Normal IPO) with Retail application i.e. Application amount upto Rs. 2,00,000/- Only and the same shall not be treated as multiple application.
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Report on Ujjivan SFB IPO
Ujjivan Small Finance Bank - IPO notes by Wealthyvia.pdf (752.2 KB)
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Thanks for the reply. I made a big blunder in calculations
Felt sad that management is not transparent about the proportionate holding.
applied for 1 lot in regular retail and shareholder category
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