Up 60% in 24 months? Tamilnad Bank’s IPO will open on Monday. Here’s What Analysts Say

After the Securities Appeals Court (SAT) dismissed the shareholder petitions, the path was clear for Tamilnad Mercantile Bank (TMB) to open Monday morning.

The professionally managed private lender, without any identifiable promoters, on Friday allocated 71,28,000 equity shares to 10 fixed investors and raised 363.53 crore at Rs 510. This is contrary to the price range of Rs 500 – Rs 525 per share for the new issue of 1,58,40,000 equity shares.

The bank has been banned from expanding branches by the Reserve Bank of India since June 2019 for failing to meet certain requirements regarding the bank’s equity structure. There are high hopes the ban will be lifted after the IPO listing.

While deposit costs are relatively higher, net margins are still good, analysts say. From a valuation point of view, the asking price is at 1.35 book value of FY22, which analysts consider attractive when compared to peers. Monitor the issue with a long-term view, some brokers said.

Securities started the news on this bank with a ‘subscribe’ rating with a base case target of Rs 843.60, 1.5 times its 25 year book value, representing a potential upside of 60, 7% over the next 24 months.

In the event of an increase in price, the brokerage firm has assumed total advances in FY25 to the bank at Rs 52,106.9 in FY25 (CAGR of 15.3% compared to FY22). -25) and NIM of 4.2% (up 40 percentage points from FY 22). In the bear scenario, the company assumed total advance for FY25 of Rs 44,388.2 for FY25, an increase of 9.3%. It shows a NIM of 3.4%, down 42 bps from FY22, in the bear scenario. The price targets for the bullish and bearish scenario are Rs 965.70 for the stock and Rs 511.30, respectively.

YES Securities when compared with 11 small private banks said that TMB’s 3-year loan CAGR from 19 to 22 at 8.1% is the fourth best. TMB’s cost of assets at 2.2% in FY22 stood at the 5th lowest level, adding that its expense to income ratio at 42.1% for FY22 was second best in its comparative universe. Meanwhile, the deposit cost for TMB at 4.9% for FY22 is the second-highest in its world, though not necessarily high in absolute terms.

Nirmal Bang said the private bank has demonstrated a solid track record in successfully developing and managing detailed portfolios with outstanding asset quality metrics.

TMB, it said, stands out among the older generation private banks in most indexes.

The brokerage believes that TMB can maintain a ROA of 1.5% in the coming years thanks to a stable NIM at 4% and credit costs falling below 1%.

“TMB is being offered for sale at 1.35x FY22 BV, with a slight discount to peer-to-peer banks with similar yield profiles. Despite pending regulatory issues regarding Bank equity will continue to be an issue; in terms of quality of business, top-quarter earnings profile in the banking industry and fair valuation, we rate the issue as ‘Following’ track,’ it said.

YES Securities says TMB will trade at a 22-year P/B of 1.4x. For fiscal year 22, the bank distributed a RoA of 1.7% and a RoE of 16.6%.

“Importantly, given TMB’s business model, we do not see these rates of return moving in the future. We therefore find the IPO valuation for TMB to be very attractive,” it said. said more.

(Disclaimer: The recommendations, suggestions, views and opinions expressed by experts are their own. They do not represent the views of The Economic Times)

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