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Fincare Small Finance Bank IPO Analysis
18-Sep-2021

Fincare small finance bank is coming up with an IPO, the issue size of the IPO is Rs 1,330 crore. The issue comprises a fresh issue of equity share worth Rs 330 crore and an offer for sale of up to Rs 1,000 crore by its promoter Fincare business services limited. The face value of each share will be Rs 10.

About Company

Fincare small finance bank is a "digital-first" SFB with a focus on unbanked and under-banked customers, especially in rural and semi-urban areas. According to CRISIL, among comparable SFB peers in India, this bank had the highest growth rate in advances over FY2018 to FY2020.

In FY2020, Fincare had the best ROA (Return on asset) and ROE (Return on equity) among SFBs and, for the nine months ended December 31, 2020, and FY2020, Fincare were one of India's most profitable SFBs, based on ROE and ROA (Source: CRISIL Report). Fincare's Gross Loan Portfolio (GLP) grew from Rs 2,154.37 Crore to Rs 5,547.58 Crore, registering a CAGR of 41.05%, from March 31, 2018, to December 31, 2020.

This growth was driven primarily by growth in borrowers from 1.02 million as of March 31, 2018, to 2.19 million as of December 31, 2020, a CAGR of 31.82%. Fincare's ROE was 18.41% for FY2020 and 14.27% (annualized) for the nine months ended December 31, 2020. Fincare had a total of 2.7 million customers (including borrowers and depositors) as of December 31, 2020.

The promoter of the company Fincare business services limited is holding 78.57% stakes of the bank, and the bank is backed by marquee investors, including True north fund, VLLP, Wagner, TaTa opportunities fund, Leapfrog investments, SIDBI, Kotak Mahindra life insurance, and Edelweiss tokio life insurance.  

Industry overview

Small finance banks’ AUM registered a growth rate at a CAGR of 30% during Fiscal year 2017 and Fiscal year 2020. The top three SFB’s accounted for approximately 61% of the aggregate AUM as of March 31, 2020, which increased from 55% as of March 31, 2017. The top three SFB’s experienced a growth rate at a CAGR of 35% during Fiscal year 2017 and Fiscal year 2020. The top six SFBs accounted for approximately 86% of the market share as of March 31, 2020. SFB’s loan portfolio is expected to experience a growth rate at a CAGR of approximately 22% in the near term. 

SFBs deposits are expected to grow by a CAGR of approximately 40% to 45% over Fiscal year 2020 and Fiscal year 2023.

Financials of Fincare Small Finance Bank

Particulars

       Fiscal 2019

        Fiscal 2020

For the nine months ended December 31, 2020

Total Income

          674.88

         1,215.72

             998.30

Profit After Tax (PAT)

          101.98

          143.44

             103.92

                                                                                                                                     Amount is in INR crore

Listed Competitors & Peers of the Company

   LISTED PEERS

 

TOTAL INCOME (INR Crore)

Return on Net Worth (RoNW)

Equitas Small Finance Bank

 

                  2,927.79

                       8.88%

Ujjivan Small Finance Bank Limited

 

               3,025.81

                     11.05%

Credit Access Grameen Limited

 

               1,705.48

                     12.27%

Spandana Sphoorty Financial Limited

 

               1,469.50

                     13.40%

Bandhan Bank Limited

 

               3,023.73

                     19.90%

AU Small Finance Bank Limited

 

               4,991.97

                     15.60%

 

Strengths of the Fincare Small Finance Bank

  • Customer-centric approach driven by digital banking and automation;
  • Fincare is having a large banking outlet network, with 747 banking outlets and more than 2.7 million customers as of December 31, 2020. Its banking outlets consist of 528 banking outlets operated directly by Fincare and 219 banking outlets operated through third-party business correspondents.
  • Strong commitment to financial inclusion with extensive rural franchise and expanding urban presence;
  • Multi-channel, low cost distribution network with diversified geographic presence;
  • Fast-growing stable deposit base with a growing CASA franchise;
  • Stable and experienced professional leadership team with strong corporate governance;
  • Robust risk management policies, leading to healthy asset quality; and
  • Strong track record of financial and operational performance

Risk Factors

  • Many of Fincare's microloan customers are located in rural areas across India, and as of December 31, 2020, 92% of its loan portfolio comprised rural borrowers.
  • This bank is the 7th largest among the SFBs in terms of asset under management and holds 5% of total market share of AUM of SFBs.
  • Fincare small finance Bank is subject to stringent regulatory requirements and prudential norms and fincare’s inability to comply with such laws, regulations and norms may have an adverse effect on bank's business, results of operations, financial condition and cash flows
  • Fincare small finance bank gets substantial portion of its income from 4 states(Tamil Nadu, Gujarat, Madhya Pradesh and Karnataka), for the nine months ended December 31, 2020, Fincare's top four states accounted for 46% of its banking outlets, 73% of its gross loan portfolio and 40% of its total deposits.