CSB Bank IPO – Should you Invest or Avoid?
CSB Bank IPO Review
CSB Bank (erstwhile The Catholic Syrian Bank Ltd) is coming up with IPO that would open for subscription on 22nd November, 2019. CSB Bank Limited is the one of the oldest private sector banks in India that has presence in 4 states in south India. Recently PMC Bank Scam has made many investors / account holders to think how safe is their bank and whether they should switch to public sector banks. Amidst this confusion would CSB Bank attract IPO investors. What are the various positive factors in CSB Bank IPO? Should you invest in the CSB Bank Ltd IPO or avoid?
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About CSB Bank Limited
CSB Bank (erstwhile The Catholic Syrian Bank Ltd) is one of the oldest private sector banks in India with a history of over 98 years and have a strong base in Kerala along with significant presence in Tamil Nadu, Karnataka, and Maharashtra. They offer a wide range of products and services to overall customer base of 1.3 million as on September 30, 2019, with particular focus on SME, Retail, and NRI customers. They deliver products and services through multiple channels, including 412 branches (excluding three service branches and three asset recovery branches) and 290 ATMs spread across 16 states and four union territories as on September 30, 2019, and various alternate channels such as micro ATMs, debit cards, internet banking, mobile banking, point of sale services and UPI. They believe with focus on quality of service and nurturing long term relationship with its customers, they have developed a wellrecognized and trusted brand in south India, particularly in the states of Kerala and Tamil Nadu.
CSB Bank IPO Issue details
|IPO Opens on||22-Nov-19|
|IPO Closes on||26-Nov-19|
|Face Value||Rs 10|
|Issue Price Band||Rs 193 to Rs 195 per share|
|Issue Size||Rs 409 Crores|
|IPO Lot Size||75 Shares and 75 shares there-of|
|Minimum Investment||Rs 14,474|
|Lead Managers||Axis Capital and IIFL Securities|
|Listing||BSE / NSE|
What are the Objects of the CSB Bank IPO?
Here are the objects of the IPO issue.
1) Offer for the sale (OFS) of 19.77 Mn equity shares by the Selling Shareholders totaling to approx. Rs 386 Crores. The company will not receive any proceeds from the offer and the entire proceeds from the Offer will go to the Selling Shareholders.
2) To augment Bank’s Tier-I capital base to Bank’s future capital requirements which are expected to arise out of growth in Bank’s assets, primarily its loans/advances and investment portfolio and to ensure compliance with Basel III and other RBI guidelines.
3) To achieve the benefits of listing of equity shares on stock exchanges and to meet IPO expenses.
Who are the Company Promoters?
FIH Mauritius Investments Ltd is the promoter of the company.
How is the company doing in terms of Financial Performance (Reinstated)?
1) Company revenues increased from Rs 1,617 Crores for the year ended Mar-17 to Rs 1,483 Crores for the year ended Mar-19. This shows 9% negative growth in revenues in the last 3 years.
2) Company incurred loss of Rs 57.9 Crores for the year ended Mar-17 and Rs 65.6 Crores for the year ended Mar-19. However, it posted profit of Rs 44.2 Crores for 6 months ended Sep-2019.
3) Its EPS in the last 3 years is negative as it incurred losses. For 6 months ended its EPS is at 3.86.
What is the of CSB Bank Credit Rating for IPO?
The credit rating is not required for issue of equity shares, hence, they have not approached any credit rating agency for credit rating.
What is the CSB Bank IPO GMP now?
CSB Bank IPO Grey Market Price / Premium (GMP) is in the range of 40 – 50.
What are the key strengths of CSB Bank Limited?
Every investor should understand the company’s key strengths so that one can compare with its competitors to know how unique is such company in their business. Their investment decision would change based on these facts. Here are the key strengths of the CSB Bank.
1) Strong channel network and trusted brand in South India.
2) Strong capital base for growth.
3) Well established SME business.
4) Retail offering driven by strong gold loan portfolio.
5) Stable and granular deposit base.
6) Professional and experienced management with strong and independent Board.
7) Streamlined risk management controls, policies and procedures
What are the various strategies that CSB Bank want to adopt?
Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.
1) Accelerate transformation as a new age private bank.
2) Grow our asset business with a focus on SME, agricultural and retail customers by leveraging our capital.
3) Continue to leverage strong deposit franchise.
4) Grow and diversify distribution infrastructure in key geographical locations.
5) Maximizing non-interest income by widening products and services for corporates as well as retail customers.
6) Invest in technology to improve operational efficiency, scalability and customer experience.
7) Strengthening risk management.
8) Focus on NPA recovery and improve asset quality.
Positive Factors to invest in the IPO of CSB Bank Limited
The company is the oldest Private sector bank in India that has a presence in 4 states in South India.
Major risk Factors to consider before investing in CSB Bank Limited IPO
These risk factors can impact company revenue and margins which would affect its share price. Investors should go through these points and understand these risk factors before investing.
1) Company has posted 9% negative growth in revenues in the last 3 years.
2) Company has posted losses for 3 years out of 3.5 years of financial performance. It turned into profit only for 6 months ended Sep-2019.
3) Its business and financial performance could suffer if they are unable to effectively manage the level of its NPAs.
4) Any change in the income recognition or asset classification norms or in RBI mandated provisioning requirements could also affect its business.
5) They have issued notices and initiated various recovery proceedings against defaulting borrowers under the SARFAESI Act and failure by such borrowers to repay the outstanding borrowings pursuant to such notices and proceedings may adversely affect its business.
6) They have a regional concentration in southern India, especially Kerala. Any adverse change in the economic, political, or geographical conditions of Kerala and other states in South India can impact its results of operations. Additionally, they may not be successful in expanding its operations to other parts of India which could have an adverse effect on its business, financial condition, and results of operations.
7) They are required to lend a minimum percentage of its ANBC to certain priority sectors. Any adverse performance by such priority sectors or any change in the RBI’s regulations relating to priority sector lending or its Bank’s inability to meet the priority sector lending targets could have a material adverse impact on its financial condition and results of operations.
8) Its business is vulnerable to interest rate related risks. Volatility in interest rates could adversely affect its net interest margin, the value of its fixed income portfolio, its security receipts, its income from treasury operations, the quality of its loan portfolio, and its financial performance.
9) Its business is vulnerable to investment risk, and any protracted or sudden decrease in the value of its investments can adversely affect its results of operation and financial condition.
10) For complete internal and external risk factors, you can refer the IPO RHP of the bank.
CSB Bank IPO Schedule
Offer Opens – 22-Nov-2019
Offer Closes – 26-Nov -2019
Finalization of Basis of Allotment – 2-Dec-2019
Unblocking of ABSA and Initiation of Refunds – 3-Dec-2019
Credit of shares to Demat Accounts – 3-Dec-2019
IPO Shares Listing Date – 4-Dec-2019
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Is the issue price of CSB Bank IPO reasonably priced or over priced?
CSB Bank has posted a loss in the last 3 years, hence EPS is negative. For the 6 months ended Sep-2019, it posted profits and EPS is 3.86. for this period, if we consider the EPS of 3.86 on a lower price band of Rs 193, P/E works out to be 50x. Even at higher price band the P/E works out to be 50.5x. Its peers like Karur Vysya Bank is trading at P/E of 27x (Highest) and South Indian Bank at 12.1x(Lowest) and industry average P/E is 18.8x. Hence CSB Bank IPO Price at P/E of 50x is aggressively / highly priced.
Should you Invest in CSB Bank IPO?
Bank’s revenues has not grown much in the last 3 years. It has been incurring losses for 3 out of 3.5 years. Its IPO is highly priced. However, Bank future prospects are looking good. It just turned positive (6 months ended Sep-19) in terms of profits. There are many comments on IPO forums that this IPO would give bumper listing gains. However, whether investors should invest high share price for such positive outlook in future? I would personally like to wait for few more quarters to watch the performance of the bank + wait for shares to be available at discounted price and then invest. As of now, I would like to stay away from this IPO.
Readers, what do you feel about investing in this IPO of CSB bank now?
Disclaimer: The information in this article is for information only. This is not a recommendation to invest or not to invest in this IPO. Please consult your investment advisor before you invest in such high risk IPOs.
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CSB Bank IPO Review