ESAF Small Finance Bank IPO GMP (Grey Market Premium)

ESAF Small Finance Bank IPO opens on 03rd November 2023 and closes for subscription on 07th November 2023. The stock of the company has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹57 to ₹60. The final price will be discovered within this band. The IPO of ESAF Small Finance Bank Ltd will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion of ESAF Small Finance Bank Ltd IPO comprises the issue of 6,51,16,667 shares (651.17 lakh shares approximately), which at the upper price band of ₹60 per share translates into fresh issue size of ₹390.70 crore. The offer for sale (OFS) portion entails the sale of 1,20,50,000 shares (120.50 lakh shares), which at the upper price band of ₹60 per share will translate into an OFS size of ₹72.30 crore.

The OFS is being offered by one promoter shareholder and two investor shareholders. Out of the 120.50 lakh shares OFS, promoter ESAF Financial Holdings will offer 82.10 shares while the investor shareholders (PNB Metlife Insurance and Bajaj Allianz Life Insurance) will offer the remaining 38.40 lakh shares. Consequently, the overall IPO of ESAF Small Finance Bank Ltd will comprise of the issue and sale of 7,71,66,667 shares (771.67 crore shares approximately), which at the upper price band of ₹60 per share will translate into total IPO issue size of ₹463 crore. The net proceeds from the IPO fresh issue portion will be used to augment the bank’s Tier-1 capital adequacy to meet future capital requirements; a pre-requisite for expanding the asset book. The IPO will be lead managed by ICICI Securities, DAM Capital Advisors (formerly IDFC Securities), and Nuvama Wealth Management. Link Intime India Private Ltd will be the registrar to the issue.

About the GMP pricing for ESAF Small Finance Bank IPO

The grey market price (GMP) trading normally starts about 4-5 days prior to IPO opening and continues till the listing date. In the case of ESAF Small Finance Bank Ltd, we already have GMP data for the last 2 days, which should give a reasonable picture of the likely listing.

There are 2 factors that impact the GMP. Firstly, the market conditions have a deep impact on the GMP, especially the liquidity conditions in the market. Secondly, the extent of subscription for the IPO has a deep impact on the GMP as it is indicative of investor interest in the stock. GMP can also technically be in negative, which means the stock would list at a discount to the issue price.

There is one small point to remember here. The GMP is not an official price point, just a popular informal price point. However, in most cases, it has been observed to be a good informal gauge of demand and supply for the IPO. Hence it does give a broad idea of how the listing is likely to be and how the post-listing performance of the stock would be.

How has the GMP panned out in last few days

GMP tends to be a good mirror of the real stock story. More than the actual price, it is the GMP trend over time that gives insights about which direction the wind is blowing. Here is a quick GMP summary for ESAF Small Finance Bank IPO for which data is available.

In the above case, the GMP trend shows that the grey market premium has opened at around ₹9, but has remained steady at the same price of ₹16 for which GMP data is available. The IPO price of ESAF Small Finance Bank Ltd was only announced on the morning of 31st October, so the actual GMP may still take some time to manifest the real underlying value. Of course, we have to await for the actual subscription numbers to flow in after the issue opens for subscription on 03rd November 2023 and also watch the progress, as that would have a very significant impact on the GMP. In the past, stocks which got oversubscribed in the IPO also saw a very robust positive shift in the grey market pricing. For a start, ESAF Small Finance Bank Ltd has shown good traction in the grey market.

If you consider the upper end of price band of the IPO of ESAF Small Finance Bank Ltd at ₹60, then the likely listing price is being signalled at around ₹69 per share as per the GMP indicator on 01st November 2023. This is dynamic and keeps changing. One data point to track will be the subscription update on the stock as that would chart the GMP course.

The GMP of ₹9 on the upper end of the book built IPO price of ₹60 indicates a listing premium of a healthy 15% for ESAF Small Finance Bank Ltd over the IPO issue price. That pre-supposes a listing price of approximately ₹69 per share, when ESAF Small Finance Bank Ltd lists on 16th November 2023. Of course, these are purely approximations, so you must keep a margin of safety. One needs to observe the trend of GMP closely as that gives the best hints on listing status. Look at the time series trend instead of just the GMP absolute numbers.

How to apply for the ESAF Small Finance Bank IPO

Investors can apply for the IPO of ESAF Small Finance Bank Ltd in minimum lot sizes. 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 ESAF Small Finance Bank Ltd, the minimum lot size is 250 shares with upper band indicative value of ₹15,000. In short, IPO investors have to apply in lots that are in multiples of 250 shares only. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of ESAF 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.

Quota allocation across IPO investor categories

As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The net offer would be net of the employee quota allocation. The stock of ESAF Small Finance Bank Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Employees will have a discount of ₹5 to the IPO price. The anchor portion, will be carved out of the QIB portion and will happen a day ahead of the IPO opening.

The issue opens for subscription on 03rd November 2023 and closes for subscription on 07th November 2023 (both days inclusive). The basis of allotment will be finalized on 10th November 2023 and the refunds will be initiated on 13th November 2023. In addition, the demat credits are expected to happen on 15th November 2023 and the stock is scheduled to list on 16th November 2023 on the NSE and the BSE. It is a mainboard issue so it will be traded in the regular EQ listing on the NSE.