What you must know about Jana Small Finance Bank?

Jana Small Finance Bank Ltd – About the company

Jana Small Finance Bank Ltd was incorporated in the year 2006. As the name suggests, it is a niche small finance bank (SFB) and is a non-banking finance company (NBFC) primarily engaged in MSME loans, affordable housing loans, term loans to NBFCs, loans against deposits, two-wheeler loans and gold loans. Jana Small Finance Bank Ltd also offers several unsecured loan products to its customers like loans for home repair, individual loans for school fees and personal loans for debt consolidation and for family functions. Jana Small Finance Bank Ltd provides digital products, services, and platforms, such as mobile and internet banking for its retail and corporate client base. The gross secured advances of Jana Small Finance Bank Ltd  have grown at a compound annual growth rate (CAGR) of 39.69%.

Jana Small Finance Bank Ltd, as of last count, had a total of 754 banking outlets spread across 22 states and two UTs. This includes a total of 272 banking outlets located in unbanked rural centres. However, its presence is pan-India, unlike most of the SFBs that are regional in nature. The bank has more than 1.2 crore customers that it has done business with till date and of these nearly 45.7 lakh are active customers. Jana Small Finance Bank Ltd has a total of 18,184 permanent employees. It will use the fresh funds raised in the IPO to shore up its capital base, which is a basic necessity for small finance banks to be able to expand their loan books and be compliant with capital adequacy regulations.

The promoters currently hold just 25.20% in the company, which will get diluted post the IPO. The IPO will be lead managed by Axis Capital, ICICI Securities and SBI Capital Markets. KFIN Technologies Ltd will be the registrar to the IPO.

Highlights of the IPO issue of Jana Small Finance Bank Ltd

Here are some of the key highlights to the public issue of Jana Small Finance Bank Ltd.

• Jana Small Finance Bank IPO td will be open from February 07th, 2024 to February 09th, 2024; both days inclusive. The stock of Jana Small Finance Bank Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹393 to ₹414 per share.
   
• The IPO of Jana Small Finance Bank Ltd will be a combination of a fresh issue of shares and offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the IPO of Jana Small Finance Bank Ltd comprises the issue of 1,11,59,420 shares (111.59 lakh shares approximately), which at the upper price band of ₹414 per share will translate into a fresh issue size of ₹462 crore.
   
• The offer for sale (OFS) portion of the IPO of Jana Small Finance Bank Ltd comprises the sale of 26,08,629 shares (26.09 lakh shares approximately), which at the upper price band of ₹414 per share will translate into an OFS size of ₹108 crore.
   
• The OFS size of ₹26.09 lakh shares will be entirely offered by investor shareholders. Among the investor shareholders offering shares in the OFS are Client Rosehill Ltd, CVCIGP II Employee Rosehill Ltd, Global Financial Inclusion Fund, Growth Partnership II, Hero Enterprise Partner Ventures.
   
• Thus, the total IPO of Jana Small Finance Bank Ltd will comprise of a fresh issue and an OFS of 1,37,68,049 shares (137.68 lakh shares approximately) which at the upper end of the price band of ₹414 per share aggregates to total issue size of ₹570 crore.

The IPO of Jana Small Finance Bank Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Jana Capital Ltd and Jana Holdings Ltd. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee, as indicated above. There is no employee quota that has been communicated by the company in the RHP filed. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the IPO of Jana Small Finance Bank Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Jana Small Finance Bank Ltd, the minimum lot size is 36 shares with upper band indicative value of ₹14,904. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Jana Small Finance Bank Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Jana Small Finance Bank Ltd IPO and how to apply?

The issue opens for subscription on 07th February 2024 and closes for subscription on 09th February 2024 (both days inclusive). The basis of allotment will be finalized on 12th February 2024 and the refunds will be initiated on 13th February 2024. In addition, the demat credits are expected to also happen on 13th February 2024 and the stock will list on 14th February 2024 on the NSE and the BSE. Jana Small Finance Bank Ltd will test the appetite for new age financial stocks. The credits to the demat account to the extent of shares allotted will happen by the close of 13th February 2024 under ISIN (INE953L01027). Let us now turn to the practical issue of how to apply for the IPO of Jana Small Finance Bank Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Jana Small Finance Bank Ltd

The table below captures the key financials of Jana Small Finance Bank Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Jana Small Finance Bank Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been steady and robust, which shows the maturing of the top line growth. However, the growth in the PAT has been rather volatile in the last 2 years. As a result, the PAT margins have also been relatively volatile in the last 3 years.
    
2. The ROE has been attractive at double digits and at 14.40%, it is likely to hold the P/E ratio of the stock. ROA is above banking average at 1.00%. The growth in the profits is a sign that NII and NIMs have also been growing in tandem.
    
3. The company has a very low sweating of assets at just about 0.14X on average. However, sweating is generally a fixed yield model for financials and may not be too relevant as long as the bank can maintain its NII growth and the net interest margins (NIMs) spreads.

Let us turn to the valuations part. On the latest year diluted EPS of ₹42.64, the upper band stock price of Rs414 gets discounted at a P/E ratio of 9.71 times. With its healthy profit growth and net margins, this should be a fairly reasonable P/E ratio for the investors. There are also some qualitative points to remember. The IPO is a good opportunity to participate in the fast growing organized microfinance business and Jana Small Finance Bank also has a pedigree to back it up. Investors must be willing to wait for longer and also be willing for higher risk scale considering the regulatory grey areas that these banks have to often contend with. The pricing does leave something on the table for investors.