Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Indian mutual fund industry has assets of almost INR 5 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap and Small Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks.The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.In the upcoming recategorization in January 2021, we see 6 stocks moved from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 12 stocks are expected to move from the small cap segment to the mid cap segment with the same number moving the other way. There are quite a few IPOs that will join the small cap list, with just 1 joining the large cap list and 1 joining the mid cap list.Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.

The Indian mutual fund industry has assets of almost INR 5 trillion across Multi cap, Large Cap, Large and Mid Cap, Mid Cap and Small Cap equity schemes. Equity schemes classified as large cap need to have at least 80% of their assets invested in large cap stocks, large and mid cap schemes need to have at least 35% of their assets in large cap stocks and at least 35% in mid cap stocks, mid cap funds need to hold at least 65% of their assets in mid cap stocks, and small cap funds need to hold at least 65% of their assets in small cap stocks.The Association of Mutual Funds in India (AMFI) publishes the list of the stocks in each market cap segment in January and July each year and mutual funds have one month to rebalance their portfolios to adhere to the new categorization.In the upcoming recategorization in January 2021, we see 6 stocks moved from the mid cap segment to the large cap segment with an equal number of stocks moving the other way, and 12 stocks are expected to move from the small cap segment to the mid cap segment with the same number moving the other way. There are quite a few IPOs that will join the small cap list, with just 1 joining the large cap list and 1 joining the mid cap list.Historically, the stocks migrating upward to a higher market cap segment have outperformed stocks that migrate to a lower market cap segment over the 1 month and 2 month period post the publishing of the AMFI list. This can be attributed to fund managers realigning their portfolios to meet the new categorization. This provides opportunities to pre-position for the move and unwind post the announcement of the reclassification.

India: AMFI Stock Categorization Changes to Drive Active Portfolio Churn

India Financials

Saumya Agarwal

Equity Bottom-Up

Equitas Small Finance Bank / Equity Bottom-Up

Equitas Small Finance Bank (‘Equitas’) will be launching its IPO tomorrow i.e. on October 20, 2020. This would be the third IPO of a Small Finance Bank (SFB) in India, after that of AU Small Finance Bank and Ujjivan Small Finance Bank.The listing of Equitas (as well as other Small Finance Banks) is primarily driven by RBI regulations, which stipulate that Small Finance banks must list within 3 years of commencing operations. Equitas had commenced operations in 2016 and its listing has already been delayed, in part due to the Covid pandemic.Ahead of the IPO, we compare Equitas with its listed peers – AU and Ujjivan. How does Equitas compare with them on fundamentals and valuation.

Equitas Small Finance Bank (‘Equitas’) will be launching its IPO tomorrow i.e. on October 20, 2020. This would be the third IPO of a Small Finance Bank (SFB) in India, after that of AU Small Finance Bank and Ujjivan Small Finance Bank.The listing of Equitas (as well as other Small Finance Banks) is primarily driven by RBI regulations, which stipulate that Small Finance banks must list within 3 years of commencing operations. Equitas had commenced operations in 2016 and its listing has already been delayed, in part due to the Covid pandemic.Ahead of the IPO, we compare Equitas with its listed peers – AU and Ujjivan. How does Equitas compare with them on fundamentals and valuation. 

Equitas Small Finance Bank:  How Does It Compare with Its Listed Peers?

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

ESAF Small Finance Bank / Equity Capital Markets

ESAF Small Finance Bank (ESAFSFB from hereon) aims to raise up to US$150m in its India IPO. Its roots can be traced back to the 90’s even though the bank was incorporated in May 2016 and commenced its business in Mar 2017. ESAFSFB focuses on financial inclusion via providing microfinance loans. As of Nov 2019, it had operations in 16 states and one union territory. Through its 403 branches and 38 ultra-small branches, it has served over 3.73m customers.ESAFSFB has grown its loan book by 3.6x, over FY17 till Sep 2019. At the same time, it has used its banking license to scale up its deposit base by 14.8x over FY17-6M20. Profits have tripled in each of the past two reporting periods. At the same time, its margins and asset quality have been largely stable.However, it remains highly dependent on a related party for sourcing most of its customers and the company has failed to explain the rationale behind such an arrangement. Furthermore, its business is highly exposed to the states of Kerala and Tamil Nadu.

ESAF Small Finance Bank (ESAFSFB from hereon) aims to raise up to US$150m in its India IPO. Its roots can be traced back to the 90’s even though the bank was incorporated in May 2016 and commenced its business in Mar 2017. ESAFSFB focuses on financial inclusion via providing microfinance loans. As of Nov 2019, it had operations in 16 states and one union territory. Through its 403 branches and 38 ultra-small branches, it has served over 3.73m customers.ESAFSFB has grown its loan book by 3.6x, over FY17 till Sep 2019. At the same time, it has used its banking license to scale up its deposit base by 14.8x over FY17-6M20. Profits have tripled in each of the past two reporting periods. At the same time, its margins and asset quality have been largely stable.However, it remains highly dependent on a related party for sourcing most of its customers and the company has failed to explain the rationale behind such an arrangement. Furthermore, its business is highly exposed to the states of Kerala and Tamil Nadu.

ESAF Small Finance Bank Pre-IPO - Growing Fast but Remains Highly Dependant on a Related Party

Equitas Small Finance Bank / Equity Capital Markets

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Equitas Small Finance Bank (ESFB) plans to raise up to US$150m via selling a mix of primary and secondary shares in its Indian IPO.
In my earlier note, <a href="https://www.smartkarma.com/insights/equitas-small-finance-bank-pre-ipo-another-forced-small-finance-bank-listing" target="_blank" rel="noopener">Equitas Small Finance Bank Pre-IPO - Another Forced Small Finance Bank Listing</a>, I looked at the company’s past performance and some of the issues which could impact the deal. 
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Although, like <a href="https://www.smartkarma.com/entities/ujjivan-small-finance-bank-ltd" target="_blank" data-smartkarma-citation="entities:28443:1" rel="noopener">Ujjivan Small Finance Bank (USFB IN)</a> before it, ESFB too is nearly the same as its already listed parent, <a href="https://www.smartkarma.com/entities/equitas-holdings-ltd-india" target="_blank" data-smartkarma-citation="entities:24834:1" rel="noopener">Equitas Holdings Ltd/India (EQUITAS IN)</a>, thus, it's not really an IPO. Hence, before the actual listing, one can already do a pre-IPO trade for Equitas. In this insight, I'll look into the same and use the <a href="https://www.smartkarma.com/entities/ujjivan-financial-services" target="_blank" data-smartkarma-citation="entities:22697:1" rel="noopener">Ujjivan Financial Services (UJJIVAN IN)</a> performance before the listing of USFB as a benchmark. 
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Equitas Small Finance Bank (ESFB) plans to raise up to US$150m via selling a mix of primary and secondary shares in its Indian IPO.
In my earlier note, Equitas Small Finance Bank Pre-IPO - Another Forced Small Finance Bank Listing, I looked at the company’s past performance and some of the issues which could impact the deal. 


Although, like Ujjivan Small Finance Bank (USFB IN) before it, ESFB too is nearly the same as its already listed parent, Equitas Holdings Ltd/India (EQUITAS IN), thus, it's not really an IPO. Hence, before the actual listing, one can already do a pre-IPO trade for Equitas. In this insight, I'll look into the same and use the Ujjivan Financial Services (UJJIVAN IN) performance before the listing of USFB as a benchmark. 


Equitas Holding/Small Finance Bank Pre-IPO - Valuation And Pre-Listing Trade Idea

Equitas Small Finance Bank (ESFB) plans to raise up to US$150m via selling a mix of primary and secondary shares in its Indian IPO.Like <a href="https://www.smartkarma.com/entities/ujjivan-small-finance-bank-ltd" target="_blank" data-smartkarma-citation="entities:28443:1" rel="noopener">Ujjivan Small Finance Bank (USFB IN)</a> before it, ESFB too is nearly the same as its already listed parent, <a href="https://www.smartkarma.com/entities/equitas-holdings-ltd-india" target="_blank" data-smartkarma-citation="entities:24834:1" rel="noopener">Equitas Holdings Ltd/India (EQUITAS IN)</a>, in terms of operations and the only reason for its listing, is to comply with RBI’s strict requirements. Thus, it's not really an IPO, considering that the parent itself only listed in 2016 and its assets and earnings are nearly identical to what ESFB will offer once listed. In this note, I’ll broadly look at the company’s past performance and some of the issues which could impact the deal.

Equitas Small Finance Bank (ESFB) plans to raise up to US$150m via selling a mix of primary and secondary shares in its Indian IPO.Like Ujjivan Small Finance Bank (USFB IN) before it, ESFB too is nearly the same as its already listed parent, Equitas Holdings Ltd/India (EQUITAS IN), in terms of operations and the only reason for its listing, is to comply with RBI’s strict requirements. Thus, it's not really an IPO, considering that the parent itself only listed in 2016 and its assets and earnings are nearly identical to what ESFB will offer once listed. In this note, I’ll broadly look at the company’s past performance and some of the issues which could impact the deal. 

Equitas Small Finance Bank Pre-IPO - Another Forced Small Finance Bank Listing

India

Equitas Small Finance Bank Ltd. is a Chennai-based banking institution that evolved from a microfinance company into a full-service small finance bank. It focuses on serving individuals and small businesses often underserved by traditional banking channels, offering products like microfinance, small business loans, vehicle finance, and housing finance. The bank was founded in 2007, and its banking operations commenced in 2016.

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Equitas Small Finance Bank (EQUITASB IN)

India: AMFI Stock Categorization Changes to Drive Active Portfolio Churn

The reclassification of stocks to large, mid and small cap will set off a churn in mutual fund portfolios where historically stocks migrating...

Brian Freitas

Equitas Small Finance Bank: How Does It Compare with Its Listed Peers?

Ahead of the IPO of Equitas Small Finance Bank (‘Equitas’) , we compare it with its listed peers - AU Small Finance Bank and Ujjivan Small...

Saumya Agarwal

Equitas Holding/Small Finance Bank Pre-IPO - Valuation And Pre-Listing Trade Idea

Equitas Small Finance Bank (ESFB) plans to raise up to US$150m via selling a mix of primary and secondary shares in its Indian IPO. In my earlier...

Sumeet Singh

Equitas Small Finance Bank Pre-IPO - Another Forced Small Finance Bank Listing

Equitas Small Finance Bank (ESFB) plans to raise up to US$150m via selling a mix of primary and secondary shares in its Indian IPO.Like Ujjivan...

Sumeet Singh

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

India: AMFI Stock Categorization Changes to Drive Active Portfolio Churn

The reclassification of stocks to large, mid and small cap will set off a churn in mutual fund portfolios where historically stocks migrating...

Brian Freitas

Equitas Small Finance Bank: How Does It Compare with Its Listed Peers?

Ahead of the IPO of Equitas Small Finance Bank (‘Equitas’) , we compare it with its listed peers - AU Small Finance Bank and Ujjivan Small...

Saumya Agarwal

ESAF Small Finance Bank Pre-IPO - Growing Fast but Remains Highly Dependant on a Related Party

ESAF Small Finance Bank (ESAFSFB from hereon) aims to raise up to US$150m in its India IPO. Its roots can be traced back to the 90’s even though...

Sumeet Singh

Equitas Holding/Small Finance Bank Pre-IPO - Valuation And Pre-Listing Trade Idea

Equitas Small Finance Bank (ESFB) plans to raise up to US$150m via selling a mix of primary and secondary shares in its Indian IPO. In my earlier...

Sumeet Singh

Equitas Small Finance Bank Pre-IPO - Another Forced Small Finance Bank Listing

Equitas Small Finance Bank (ESFB) plans to raise up to US$150m via selling a mix of primary and secondary shares in its Indian IPO.Like Ujjivan...

Sumeet Singh