Suryoday Small Finance Bank IPO – Invest or avoid?

Whatsapp share
Tweet it out
Share on FB
Post on LinkedIn

Small finance banks, with their focus on small ticket loans for urban and semi-urban India, are a play on the underpenetrated market for financial products in India. Players who’ve bagged SFB licences have managed  scorching loan book growth with Net Interest Margins (NIMs) and Return on Equity (ROE) far superior to traditional universal banks. Yet, after stellar performances soon after their IPOs many of these stocks have seen their valuations levelled. So, when a new candidate – Suryoday Small Finance Bank IPO (Suryoday) comes out in an overcrowded primary market, how should it be judged? Read on.

Suryoday small finance bank ipo

About the bank

Suryoday started operations as a micro finance player in 2009 and became an SFB in 2017. It does not have a holding company structure like some of the listed peers such as Equitas or Ujjivan, which is an advantage. The primary purpose of the IPO is to comply with RBI’s norms of listing within 3 years of incorporation of a Small Finance Bank in India. The bank has come out with an IPO of Rs 582 crore at the higher end of the price band of Rs 303-305. About 57% is an offer for sale by existing investors and 43% is fresh issue that would enhance capital adequacy. The offer closes on March 19, 2021.

At the higher end of the price band, the bank’s market cap post listing would be about Rs 3,200 crore.

The image below will give you a summary of the bank’s key metrics, pre-issue. Date is sourced from the offer document.

Suryoday, is clearly among the smaller players in the SFB space, in terms of assets under management. Data below will tell you that the top 3 players garner over 60% of the market share. In other words, it is not an industry leader.


#1 High growth in assets and deposits

Suryoday has had a trail blazing growth in advances at close to 50% CAGR between FY-18 to FY20 – superior to all other listed SFBs and matched only by universal bank Bandhan Bank. The bank managed to grow its advances by 7% between March 2020 to December 2020, at a time when closest peer Ujjivan saw a decline. Similarly, deposits jumped 4-fold between March 2018 and December 2020 (to Rs 3344 crore).

Two-thirds of its advances come from metropolitan and urban regions, thus significantly improving its prospects for growth. Presence in high-demand states of Tamil Nadu and Maharashtra (together accounting for 62% of advances) heightens its prospects for growth.

#2 High yields

Suryoday scores across profitability metrics. The data given below (source RHP) for FY-20 will tell you that the yield on advances and net interest margin are healthy. As a result, the cost to income ratio at 47% for FY-20 is the lowest among SFBs and even lower than universal banks like Bandhan.

The superior profitability is a mixed blessing because it indicates a riskier loan book. The data below shows that high exposure to micro finance segment is the margin-clincher for Suryoday. Among the listed players, you will notice that Ujjivan has a similar profile with almost similar profitability metrics while leaders such as AU SFB have a higher non MFI contribution. 

#3 Highly capitalized

Suryoday’s capital adequacy ratio (CAR) was at 41% (Tier I and II) as of December 2020, against the regulatory requirement of 15%. This is significantly higher than Ujjivan’s CAR   of 28%.

With pre-IPO fund raising as well as post IPO this will move well above the 50% zone making it the best capitalized play among SFBs as well as universal banks like Bandhan. This provides Suryoday with extra cushion not just to pursue high loan growth, but also to absorb any loan losses from Covid related distress.

Risks, Valuation and Recommendation

This section containing our opinion on valuation of this IPO and our recommendation is available only to our subscribers and active trial members. Please subscribe or start a free trial to access!

Share via Whatsapp
Tweet it out
Share on FB
Post on LinkedIn

More like this

Please note that any specific queries on any of our recommendations will be answered ONLY through email. If you are a subscriber, please mail  Only general queries or discussions will be answered through the comment section of the blog. For full details, please refer to this post – How to communicate with PrimeInvestor.

4 thoughts on “Suryoday Small Finance Bank IPO – Invest or avoid?”

  1. Dear Vidya ji,
    Well presented and with comparable SFBs. The risks are well brought out. A good , guiding article.

  2. majumderdebosmit

    They are still managing to give FDs at 6.75% for any amount which is more than other peers combined. How does it affect their viability?

    1. Most SFBs do it to get CASA/deposits. It will mean high cost initially but do remember that they also lend at high rates given that their borrowers are high risk. thanks, Vidya

Comments are closed.

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

The essence of PrimeInvestor

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

Legal Disclaimer : PrimeInvestor Financial Research Pvt Ltd (with brand name PrimeInvestor) is an independent research entity offering research services on personal finance products to customers. We are a SEBI registered Research Analyst (Registration: INH200008653). The content and reports generated by the entity does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information are provided on an ‘as is’ basis by PrimeInvestor Financial Research Pvt Ltd. Information herein is believed to be reliable but PrimeInvestor Financial Research Pvt Ltd does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. The services rendered by PrimeInvestor Financial Research Pvt Ltd are on a best-effort basis. PrimeInvestor Financial Research Pvt Ltd does not assure or guarantee the user any minimum or fixed returns. PrimeInvestor Financial Research Pvt Ltd or any of its officers, directors, partners, employees, agents, subsidiaries, affiliates or business associates will not liable for any losses, cost of damage incurred consequent upon relying on investment information, research opinions or advice or any other material/information whatsoever on the web site, reports, mails or notifications issued by PrimeInvestor Financial Research Pvt Ltd or any other agency appointed/authorised by PrimeInvestor Financial Research Pvt Ltd. Use of the above-said information is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this website, blog, and investment solutions are and shall remain with PrimeInvestor Financial Research Pvt Ltd. All material made available is meant for the user’s personal use and such user shall not resell, copy, or redistribute the newsletter or any part of it, or use it for any commercial purpose. PrimeInvestor Financial Research Pvt Ltd, or any of its officers, directors, employees, or subsidiaries have not received any compensation/ benefits whether monetary or in kind, from the AMC, company, government, bank or any other product manufacturer or third party, whose products are the subject of its research or investment information. The performance data quoted represents past performance and does not guarantee future results. Investing in financial products involves risk. Investments are subject to market risk. Please read all related documents carefully. As a condition to accessing the content and website of PrimeInvestor Financial Research Pvt Ltd, you agree to our Terms and Conditions of Use, available here. This service is not directed for access or use by anyone in a country, especially the USA, Canada or the European Union countries, where such use or access is unlawful or which may subject PrimeInvestor Financial Research Pvt Ltd or its affiliates to any registration or licensing requirement.

Aditya Birla Mutual Fund • Axis Mutual Fund  Baroda Mutual Fund BNP Paribas Mutual Fund • BOI AXA Mutual Funds Canara Robeco Mutual Fund • DSP Mutual Fund  • Edelweiss Mutual Fund
Essel Mutual FundFranklin Templeton Mutual FundHDFC Mutual FundHSBC Mutual FundICICI Mutual FundIDBI Mutual FundIDFC Mutual FundIIFL Mutual FundIndiabulls Mutual FundInvesco Mutual FundITI Mutual FundKotak Mahindra Mutual FundL&T Mutual FundLIC Mutual FundMahindra Mutual FundMirae Asset Mutual FundMotilal Oswal Mutual FundNippon India Mutual FundPGIM Mutual FundPPFAS Mutual FundQuant Mutual FundQuantum Mutual FundSahara Mutual FundSBI Mutual FundShriram Mutual FundSundaram Mutual FundTata Mutual FundsTaurus Mutual FundsUnion Mutual FundsUTI Mutual FundsYes Mutual Funds

Equity: Large Cap Funds | Mip Cap Funds | Large And Mid Cap Funds | Small Cap Mutual Funds | Contra Mutual Funds | Dividend Yield | Focused Mutual Funds | Find Top Index Funds | Best Sector Funds | Thematic Mutual Fund | Best Value Mutual Funds | Equity Linked Savings Scheme | Tax Saving Funds

Debt: Banking And PSU Funds | Corporate Bond Funds | Credit Risk Funds Mutual Funds | Dynamic Bond Funds | Floating Rate Funds | Gilt Mutual Funds India | Find Top Liquid Funds In India | Long term debt funds | Low Duration Funds Debt Funds | Medium Duration Debt Funds | Medium To Long Duration Funds | Money Market Debt Funds | Overnight Debt Funds | Short Duration Debt Funds | Ultra Short Term Debt Fund
Hybrid: Aggressive Hybrid Funds | Arbitrage Mutual Funds | Balanced Advantage Mutual Funds | Conservative Hybrid Funds | Dynamic Asset Allocation | Equity Saving Funds | Multi Asset Funds | Multi Asset Allocation
Mutual fund rolling returns by category: Balanced Advantage | Conservative Hybrid Fund | Corporate Bond | Dividend Yield | Dynamic Bond | Equity Linked Savings Scheme | Floating Rate | Index Funds | Large and Midcap fund | Large Cap Fund | Liquid funds | Low Duration | Mid Cap Fund | Multi Cap Fund | Short Duration | Small cap Fund | Solution Oriented – Childrens Fund | Ultra Short Duration

Login to your account