MUMBAI: Shares of Fino Payments Bank made a tepid debut on the stock exchanges on Friday. The stock listed at ₹544.35 apiece, a 5.65% discount over issue price of ₹577 per share. The ₹1200.29 crore initial public offering (IPO) was subscribed 2.03 times.
The issue comprised a fresh Issue by the payments bank and an offer for sale by existing shareholders. Net proceeds from the fresh issue will be used to augment the bank’s tier -1 capital base to meet future capital requirements.
Ahead of the issue, Vikas Jain, analyst, Reliance Securities, had said the IPO was valued at 31.9 times FY21 book value, which looks to be stretched. He believes current valuations do not leave much on the table for investors in the medium-term perspective.
“The bank generates over 95% of its income through fees and commissions, and future growth is primarily dependent on incremental wallet share digital payment opportunity in the country. Given, digital payments are expected to cross ₹3,500 trillion in FY25, recording a sharp 25-27% CAGR over FY21-FY25E, the bank is is poised to see healthy business opportunity in subsequent years in the backdrop of strong digital platform and resources built in the last couple of years,” said Jain.
The bank turned profitable in FY21, while its common equity tier- I (CET-1) ratio has been deteriorating for the last two years. CET-1 was at 56% as of FY21. Return on equity (RoE) and return on asset (RoA) stood at 13.3% and 2% respectively, as of FY21.
According to Jyoti Roy, analyst, Angel One, at the higher end of the price band the stock would be trading at price to earnings (PE) of 220 times FY2021 fully diluted earnings per share (EPS) of ₹2.6 which is expensive. “Despite strong growth prospects, we believe that valuations do not justify the premium,” she added.
As there are no listed payment banks, analysts at Nirmal Bang have taken from cues from the merger and acquisition (M&A) transactions in the unlisted space. “We observe that during September 2021, Kotak Bank sold its 8.6% stake in Airtel Payments Bank to Bharti Enterprises for ₹300 crore. This transaction values the payment bank at ₹3,501 crore or FY21 P/S of 5.6 times. Fino is being valued at a 10% premium to this deal at FY21 P/S of 6.1 times. Having demonstrated profitability during FY21 and scope for further improvement in RoE via operating leverage, we believe Fino is reasonably valued,” Nirmal Bang said.
Fino Payments Bank is a wholly-owned subsidiary of Fino Paytech Ltd. Principle shareholders include marquee investors such as ICICI Bank Ltd, Intel Capital Corp., International Finance Corp., HAV3 Holdings (Mauritius) Ltd, Blackstone GPV Capital Partners (Mauritius) VI-B FDI Ltd, and Bharat Petroleum Corp. Ltd.
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