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Suryoday Small Finance IPO review (May apply)

Review By Dilip Davda on March 13, 2021

•    SSFBL is one of the leading SFBs in India.
•    It gives a major thrust to the 'priority sector' for its lending business.
•    As of December 31, 2020, its customer base was 1.44 million and 4770 employees.
•    The issue is aggressively priced compared to listed peers.

Suryoday Small Finance Bank Ltd. (SSFBL) is among the leading SFBs in India in terms of net interest margins, return on assets, yields and deposit growth and had the lowest cost-to-income ratio among SFBs in India in Fiscal 2020. (Source: CRISIL Report).

It has for over a decade been serving customers in the unbanked and underbanked segments in India and promoting financial inclusion. Pursuant to receipt of the RBI Final Approval, it started operations as an SFB on January 23, 2017.  SSFBL were included in the second schedule to the RBI Act, as a scheduled bank pursuant to a notification dated July 24, 2017, issued by the RBI and published in the Gazette of India dated September 2, 2017.

Prior to the commencement of operations as an SFB, it operated as an NBFC - MFI carrying out microfinance operations and operated the joint liability group lending model for providing collateral free, small ticket-size loans to economically active women belonging to weaker sections. SSFBL's average 'priority sector' loans, as a percentage of average ANBC for Fiscal 2018, 2019 and 2020 and nine months ended December 31, 2020, was 99.08%, 112.10%, 103.67% and 114.09%, respectively. Over the years, it has diversified its loan portfolio to include non-micro banking loans thereby reducing its dependence on the micro banking business.  

As of December 31, 2020, its customer base was 1.44 million and employee base comprised 4,770 employees and it operated 554 Banking Outlets including 153 Unbanked Rural Centres ('URCs'). It has set up 661 customer service points ('CSPs') as additional service or touchpoints during April 1, 2020, and January 31, 2021, and intend to continue to expand its reach through the CSP model.

To part finance its plans for augmenting Tier-I capital of the bank and achieve listing benefits, SSFBL is coming out with a maiden IPO of 19093070 equity share of Rs. 10 each with a price band of Rs. 303 - Rs. 305 This composite issue has 8150000 fresh equity issue and an offer for sale (OFS) of 10943070 shares. At the upper price band, the bank mulls raising Rs. 582.34 cr. The issue opens for subscription on March 17, 2021, and will close on March 19, 2021. Minimum application is to be made for 49 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 18% of the post issue paid-up capital of the company.

The Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., ICICI Securities Ltd., IIFL Securities Ltd., and SBI Capital Markets Ltd., while KFin Technologies Pvt. Ltd. Is the registrar to the issue.

Having issued initial equity at par, SSFBL has issued further equity in the price range of Rs. 15.00 to Rs. 291.75 between May 2009 and March 2021. The average cost of acquisition of shares by the promoters/ selling shareholders is Rs. 58.77, Rs. 81.01, Rs. 83.13, Rs. 84.40, Rs. 96.25, Rs. 97.12, Rs. 107.00, Rs. 120.73, Rs. 122.30, Rs. 169.22, Rs. 172.79 and Rs. 200.57 per share.

Post issue, SSFBL's current paid-up equity of Rs. 97.98 cr. Will stand enhanced to Rs.106.13 cr. Based on the higher price band of the issue; the bank is looking for a market cap of Rs. 3237 cr.

On the financial performance front, SSFBL has posted a total income/net profit of Rs. 324.93 cr. / Rs. 11.49 cr. (FY18), Rs. 597.03 cr. / Rs. 90.40 cr. (FY19) and Rs. 854.14 cr. / Rs. 111.20 cr. (FY20). For the first nine months ended on December 31, 2020, of FY21, it has earned a net profit of Rs. 54.87 cr., on a total income of Rs. 689.27 cr. SSFBL posted growth in its business fromFY18 to FY20, but due to pandemic, it suffered a setback for FY21-9M.

For the last three fiscals, SSFBL has posted an average EPS of Rs. 11.33 and an average RoNW of 8.99%. The issue is priced at a P/BV of 2.28 based on its NAV of Rs. 133.54 as of December 31, 2020, and at a P/BV of 1.96 based on its post-issue NAV of Rs. 155.98. (at the upper price band).

With fully diluted post IPO equity, based on FY20 earnings, the asking price is at a P/E of around 29.10 whereas on the basis of annualized FY21-9M working it is at a P/E of 44.27 against the industry average of 25.15 (based on FY20 workings as per offer documents). Thus, on both counts, the issue is aggressively priced.  

The bank has not declared any dividend so far, however, it will devise a post listing a prudent dividend policy based on its working and future prospects.

As per offer documents, SSFBL has shown Ujjivan SFB, CreditAccess Grameen, Spandana Sphoorty, Bandhan Bank and AU SFB as its listed peers. They are currently trading at a P/Es of around 00, 118.90, 24.2, 21.44 and 34.31 (As of March 12, 2021). However, they are not truly comparable on an apple-to-apple basis.

The four BRLMs associated with the issue have handled 33 public issues in the past three years out of which 11 issues closed below the issue price on the listing date.

Conclusion / Investment Strategy

Except for FY21-9M, SSFBL posted growth in its top and bottom lines. Due to the pandemic scare, it suffered a set back for the first nine months working for the current fiscal. However, management is confident of speedy recovery going forward. Considering aggressive pricing, cash surplus-risk savvy investors may consider investment at their own risks.

Review By Dilip Davda on March 13, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

Suryoday Small Finance Bank IPO FAQs

  1. 1. Why Suryoday Small Finance Bank IPO?

    The initial public offer (IPO) of Suryoday Small Finance Bank Ltd offers an early investment opportunity in Suryoday Small Finance Bank Ltd. A stock market investor can buy Suryoday Small Finance Bank IPO shares by applying in IPO before Suryoday Small Finance Bank Ltd shares get listed at the stock exchanges. An investor could invest in Suryoday Small Finance Bank IPO for short term listing gain or a long term.

  2. 2. How is Suryoday Small Finance Bank IPO?

    Read the Suryoday Small Finance Bank IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Suryoday Small Finance Bank IPO what should investors do?

    Suryoday Small Finance Bank IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Suryoday Small Finance Bank IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Suryoday Small Finance Bank IPO good?

    Our recommendation for Suryoday Small Finance Bank IPO is to subscribe for long term.

  5. 5. Is Suryoday Small Finance Bank IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Suryoday Small Finance Bank IPO.

  6. 6. When will Suryoday Small Finance Bank IPO allotment status?

    The Suryoday Small Finance Bank IPO allotment status will be available on or around March 24, 2021. The allotted shares will be credited in demat account by March 25, 2021. Visit Suryoday Small Finance Bank IPO allotment status to check.

  7. 7. When will Suryoday Small Finance Bank IPO list?

    The Suryoday Small Finance Bank IPO will list on Friday, March 26, 2021, at BSE, NSE.