- Punjab & Sind Bank has a good network – 926 branches in North/ Central India
- The IPO pricing of Rs 113-120 per share will help firm raise Rs 452-480 crores
- The primary purpose is to fund growth plans and shore up capital adequacy
- Government shareholding will fall to 82% post IPO
- 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
Outlook, IPO status and Investment Advice
- 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, 13th 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 15th 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.