7 things you must know about the Tamilnad Mercantile Bank Ltd IPO

Ever since the 75-day drought of primary issues ended with the IPO of Syrma SGS Technology, the IPO markets have been enthused. Syrma SGS saw good response to the IPO as well as a good listing performance. The second IPO of Dreamfolks Services Ltd also got a very strong response from all category of investors viz. QIBs, HNIs and Retail. It is in this background that Tamilnad Mercantile Bank has announced its IPO plans.

Tamilnad Mercantile Bank has a pedigree of over 100 years, having been established in the year 1921. TMB largely caters to the retail and the MSME segment, which are its core focus areas in terms of the lending book. Tamilnad Mercantile Bank boasts of a 509-branch network and a customer base of over 50 lakhs. Here is what you must know about the forthcoming IPO of Tamilnad Mercantile Bank.

Seven things to note in the IPO of Tamilnad Mercantile Bank?

The Tamilnad Mercantile Bank IPO opens for subscription on the coming Monday i.e. 05th September and will entirely be by way of fresh issue of shares. Here are key takeaways.

    1) Tamilnad Mercantile Bank Ltd was incorporated in the year 1921 in Thoothukudi in Tamil Nadu state. TMB has a strong portfolio of deposits and loans from a diversified client base. Its lending portfolio is largely split across retail loans, MSME loans to small businesses and to the agricultural sector. Out of its overall network of 509 branches, a predominant 369 branches of Tamilnad Mercantile Bank are located in the state of Tamil Nadu. The remaining branches are spread across 15 states and 4 union territories. 

    2) Like most banks, Tamilnad Mercantile Bank also needs to perpetually raise capital to maintain its Tier-1 capital ratio. That is the main purpose of this fresh issue. In addition, since Tamilnad Mercantile Bank is currently unlisted, they would also be looking at deriving the benefits of listing in the form of better visibility, reach and a more market based valuation for the bank. Its biggest strength is its pedigree and the deep domain skills it has built in the local market. The bank is not only consistently profit making, but also the profits have been growing much faster than the median growth in banking.

    3) The IPO of Tamilnad Mercantile Bank Ltd opens on 05th September and the issue closes for subscription on 07th September. The basis of allotment of the IPO will be finalized on 12th September while the refunds will be initiated the next day on 13th September. The demat credits will be received on 14th September while the issue would be listed on the NSE and the BSE on 15th September. The Tamilnad Mercantile Bank IPO will have an allocation of 75% to the QIBs (qualified institutional buyers), 15% to the NII/HNI category and 10% to the retail investors. The minimum investment lot in the IPO would be 28 shares. Retail investors can invest a minimum of 1 lot and a maximum of 13 lots (364 shares), entailing an investment of Rs191,100. In the HNI/NII category, the small HNIs can invest between 14 lots and 68 lots and the large HNIs can invest from 69 lots onwards, with no upper limit.

    4) The IPO of Tamilnad Mercantile Bank would be entirely a new issue of shares. The total issue size entails the fresh IPO of 1.584 crore shares in the price band of Rs500 to Rs525 per share. At the upper end of the price band, the size of the issue works out to Rs831.60 crore. Tamilnad Mercantile Bank shares have a face value of Rs10 per share. Since the bank is professionally managed, it does not have any identifiable promoter group. 

    5) Over the last 2 years i.e. between FY20 and FY22 ,the net profit of Tamilnad Mercantile Bank has grown from Rs465 crore to Rs902 crore. During the same period, the total revenues of Tamilnad Mercantile Bank was up from Rs3,993 crore to Rs4,657 crore. The bank’s Tier-1 capital already stands at 20.46% against the statutory requirement of 11.5%. Between FY21 and FY22, the gross NPAs of Tamilnad Mercantile Bank fell from 3.44% to 1.69%. The CASA ratio at 30.5% has improved, although it is much lower than the similar private banks in India.

    6) Being a fresh issue, it will lead to dilution of equity. If the fresh issue amount is also included to the existing capital base, the total indicative market cap of Tamilnad Mercantile Bank post issue would stand at around Rs8,313 crore. Having declared net profits of Rs902 crore in FY22, the stock is valued on historic earnings at  about 9.22 times earnings. The PE ratio should be more attractive on a forwards basis.

    7) The issue will be lead managed by Axis Capital, Motilal Oswal Investment Advisors and SBI Capital Markets. Link In Time India Private Ltd will be the registrars to the issue. 

Indian IPO markets are seeing a banking IPO after a very long time. With its pedigree and the consistent growth, the reasonable valuations should leave room for upsides for investors.