Bandhan Booms Market Debut at 33%

Bandhan Bank, a Kolkata-based financing company, booms dream market debut  listed at a peak of 29.3 percent at Rs 485 ($7.48) per share on the National Stock Exchange of India Ltd. (NSE) compared to its issue price of Rs 375($5.78). The company’s stock rose as much as 33.1 percent to Rs 499 ($7.69).

The bank's Rs 4,473 crore IPO was subscribed 14.62 times on the final day of bidding. The portion set aside for qualified institutional buyers received bids for nearly 38.6 times the number of shares on offer. According to Axis Capital, the retail segment was fully subscribed while shares reserved for high network investors were subscribed 13.8 times. At the issue price, the offer was valued at 10.2 times its 2017 fiscal year adjusted book value and 8.6 times its 2018 fiscal year  ABV. 

As of today, the shares of the company were trading at Rs 477.35 ($7.36) in the National Stock Exchange of India Ltd. (NSE). 

Furthermore, Bandhan Bank, whose shareholders include Singapore's GIC, has relatively fewer bad loans than most of its rivals, and has a double net interest margin of close to 10 percent compared to the leading private-sector banks in the India.

“We had a target of 500 rupees ($7.71) over a 12-month horizon, but it got delivered in 12 minutes," a financial sector analyst said."Bandhan is a leader in the micro-finance space and has been able to improve its scale of operations as well as profitability. Its low cost to income ratio versus other banks and micro-finance peers also is positive," the analyst added.

Bandhan Bank incorporated on December 23, 2014. After being authorized as an official lender and finance service and receiving a universal license from the Reserve bank of India, the bank started its banking operations in August 23, 2015.

The bank has 887 branches and 430 ATMS as of December 2017. In addition, Bandham bank served over 2.13 million banking customers.

Currently, with a market value of Rs 571.59 billion ($8,811,580.60), Bandhan Bank stands at 53rd position in overall market capitalization ranking according to the data showed by the Bombay Stock Exchange (BSE).

“Given the high valuations, the experts have suggested investors subscribe to the issue from a long-term perspective. It must be noted that since the issue is being offered at an expensive valuation, listing gains may be capped,” a brokerage firm said in an IPO note.

Investors are betting on Bandhan Bank for its low-cost model, high margins, and niche clients.

Small is the New Big

According to sources, an initial public offering will give Bandham Bank a market capitalization of almost Rs 448 billion ($6.9 billion), or nearly five times book value.

A public listing is a condition of the bank license Kolkata-based Bandhan won three years ago. The business still comes from small loans mostly to groups of women in east and northeast India, where the population is poorly served by traditional Indian banks, but Bandhan developed a deposit base rapidly.

Experts say that net interest income grew 27 percent in the nine months to end December. Gross non-performing assets, though rising, amount to just 1.7 percent of loans. Low cost and high interest rates produce a net interest margin of 9.9 percent, more than double that of its largest private-sector banking rival, the $73 billion HDFC Bank. Return on equity is an impressive 26 percent.

Bandhan Bank represents the union of microfinance and consumer-focused private lenders. These two are in demand from investors who want to benefit from India’s rapid growth, but avoid the unsteady balance sheets and fraud-plaguing state banks.

With India’s rapid growth, the price equates to 4 times more book value in 2019. One challenge Bandhan will have to overcome is the lender concentrating on less-industrialized parts of the country, where the demand for credit is low and it may need to venture lower in other states, while the other challenge is maintaining high lending standards amid fast-developing expansions.

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