Punjab and Sind Bank IPO – closes Dec16 for Retail

Investment Note

5% Retail discount; Attractively priced compared to PSU peers, with P/E multiple of 4.56-4.84, and P/B value of 1.12
CAGR of 38% in business over 06-10 with advances + deposits at Rs. 88k crores
Gross NPA ratio is falling, and is currently at 0.92%, favorable compared to peers; Conservative in NPA provisioning
Also there has been a 24% CAGR in earnings
Over 8000 employees, but still it has high productivity of Rs 9.6 crore/ employee
Quality partners – Tie-ups with Aviva (for life), Bajaj Allianz (general insurance) and UTI MF (distribution of MF product) should shore up its fee-based income.

Low CASA at 25%, resulting in lower Net interest margins (NIM) at 2.67 for FY-10. Hence now firm is focused on branch and deposits growth.
Lack of clarity on appointment of new CMD – typical problem of PSU firms
Slow technology up-gradation
Presence in limited geographies – however in these areas, there is a high consumer recall/ brand strength

While not large, P&S Bank is likely to grow faster and more profitably than the sector for a few years. Thereafter who knows, a M&A maybe?
On Day 1, 13^th Dec, the issue has been oversubscribed 1.58 times – surprising strength, with QIB (2.94 times), HNI (0.18 times) and Retail (0.40 times).
Looks like even the recent steep fall in Indices has not dampened the appetite for attractively priced government offerings :-)
Watch subscription figures of IPO till 15^th Dec to set expectations for allotments
For firm allotment in Retail, invest in 1650 shares at cut off (120) – a total investment of 1,98,000.