Highlights:
| Issue Size –: 13,768,049 shares | Issue Open/Close – 07 Feb / 09 Feb, 2024 |
| Price Band (Rs.) 393 – 414 | Issue Size (Rs.) – 5,700 mn |
| Face Value (Rs) 10 | Lot Size (shares) 36 |
Jana Small Finance Bank Limited (JSFBL) was incorporated in 2006, registered as a non-banking finance company (NBFC) on March 4, 2008, and was awarded non-banking finance company-microfinance institution (NBFC-MFI) status in 2013. It started operating as a Small Finance Bank with effect in 2018 and became a Scheduled Commercial Bank in July 2019.
The company’s secured loan products are secured business loans, microloans against property (Micro LAP), MSME loans, affordable housing loans, term loans to NBFC, loans against fixed deposits, two-wheeler loans and gold loans. Its primary unsecured loan products are individual and micro business loans, agricultural and allied loans, and group loans.
JSFBL is also a corporate agent for third-party life insurance products, general (non-life) insurance products and health insurance products, including COVID-19 insurance products. They also offer Point of Sales (POS) terminals and payment gateway services through their merchant-acquiring partners.
The company is the 4th largest Small Finance Bank in terms of AUM and the 4th largest Small Finance Bank in terms of deposit size as of September 30, 2023. As of H1FY24, they had 771 banking outlets, including 278 banking outlets in unbanked rural centres, 22 states and two union territories. They have served nearly 12 mn customers since 2008, including 4.87 mn active customers as of H1FY24. Out of the total proceeds of Rs. 5,700 mn, Rs. 4,620 mn would go towards augmenting its Bank’s Tier–1 capital base to meet the Bank’s future capital requirements, to improve Tier-I capital and CRAR. And Rs. 1,080 mn would go towards existing selling shareholders of the company.
Key Highlights:
- The exponential growth in the SFB industry is illustrated by the growth in both loans and deposits. As per FSIAPL’s analysis, the advances and deposits in the SFB industry are projected to increase at a CAGR of 33.4 pct to 44.0 pct from FY23 to FY25. Looking at the high growth rate of the industry the company has huge opportunities to grow in this industry.
- JSFBL’s new products are designed with application programming interface (API) technology to increase operating efficiencies, deliver better quality services, and to allow them to integrate with the larger ecosystem by leveraging the API framework.
- The company has implemented technology solutions that enable them to execute cashless disbursement of loans. Their collection mechanism has also been largely digitized through the use of mobile applications. Apart from the standard digital payment services, including NEFT, RTGS, IMPS, and e-NACH/NACH, they also provide a UPI QR code-based equated monthly instalment (EMI) payment service.
- The company’s integrated risk management framework lays down its core principles in identifying, measuring, assessing, and managing key risks. They have put in place detailed risk management policies and a governance structure for each type of key risk, including credit, operations, liquidity, interest rate, market, cyber and information security, and reputational risks.
- Jana Small Finance Bank plan to further accelerate its gross secured advances by (i) Offering multiple products to its existing customers including evaluating new products, such as used two-wheeler loans. (ii) Focusing penetration into current states and expanding the oversight of hubs to around 100 kilometres covering Tier 1 centres and Tier 2 centres. (iii) Enhancing its location strategy by mapping industry performance and tightening policies (iv) focusing its growth plans on the right combination of customer segment and collateral type, by assessing loss-given defaults based on strengthened collections and recovery processes. (v) enhancing its digital capabilities to source and serve customers.
- The company plans to continue to cross-sell gold loans to microfinance institutions’ customers and to maximize output through product and pricing strategies. They will also expand the offering of new gold-loan product variants, like the Agri gold loan launched in FY22, to all outlets focused on agriculture sourcing.
- The company AUM grew from Rs. 127,705 mn to Rs.201,108 mn as of FY21 and FY23, respectively, registering a CAGR of 25.49 pct, and increased to Rs. 230,295 mn as on H1FY24, an increase of 35.34 pct YoY. Its deposits grew from Rs. 123,162 mn to Rs. 163,340 mn as of FY21 and FY23, respectively, registering a CAGR of 15.16 pct, and increased to Rs. 189,367 mn as of H1FY24. While GNPA of the company declines to 2.44 pct in H1FY24 against GNPA of 6.83 in H1FY23. Also, NNPA of the company declined to 0.87 in H1FY24 pct from 4.60 pct in H1FY23.
Key Risk:
- Jana Small Finance Bank have made new loans to microfinance loan borrowers who had NPAs, with earlier NPAs being netted off with the proceeds of new loans, which poses a risk of further deteriorating asset quality and increasing credit risk.
- The Indian LAP market faces delinquency and collateral challenges that could impact its stability and growth potential. If the company unable to manage the risks involved in Micro LAP and gross affordable housing loans, it could have an adverse effect on its business.
Financials:
| Rs. Mn | FY21 | FY22 | FY23 | H1FY24 |
| AUM | 127,704 | 153,473 | 201,018 | 230,295 |
| Gross Advances | 118,389 | 132,503 | 180,007 | 213,471 |
| Deposits | 123,162 | 135,364 | 163,340 | 189,367 |
| Net Interest Margin % | 8.36% | 7.32% | 7.73% | 7.78% |
| Cost to Income Ratio % | 70.47% | 66.00% | 56.22% | 58.48% |
| CASA to total deposits ratio % | 16.29% | 22.52% | 20.21% | 20.49% |
| Gross NPA % | 7.24% | 5.71% | 3.94% | 2.44% |
| Net NPA % | 5.33% | 3.95% | 2.64% | 0.87% |
| Total Capital Adequacy Ratio % | 15.51% | 15.26% | 15.57% | 17.50% |
| Average Total Assets | 160,695 | 200,498 | 226,806 | 267,260 |
| Cost of Funds % | 8.61% | 7.37% | 7.02% | 7.55% |
| Yield on Average Interest Earning Advances % | 21.81% | 19.94% | 18.09% | 17.50% |
| Net Profit | 722 | 174 | 2,559 | 2,132 |
| Operating expenses to Average Total Assets % | 6.52% | 5.68% | 5.66% | 5.86% |
| Return on Assets % | 0.45% | 0.09% | 1.13% | 1.60% |
| Return on Equity % | 6.51% | 1.53% | 16.78% | 18.78% |
| Credit to deposits ratio % | 94.18% | 96.09% | 108.73% | 110.94% |
| Credit Cost % | 3.41% | 4.59% | 4.84% | 1.69% |
| Net Asset Value per Share | 217.00 | 230.41 | 323.23 | 346.42 |
Peer Comparison as of H1FY24:
| Players | Yield on advances (%) | Cost of funds (%) | Advances to Total Assets (%) | Gross Spread (%) | NIM (%) | Opex (%of average assets) | Opex (% of average advances) | Cost to income (%) |
| AUSFB | 13.30% | 6.36% | 66.86% | 6.93% | 5.36% | 4.39% | 6.66% | 63.11% |
| Eauitas SFB | 17.35% | 7.16% | 71.69% | 10.19% | 8.04% | 6.49% | 8.94% | 65.49% |
| Ujjivan SFB | 20.55% | 6.96% | 62.89% | 13.59% | 8.98% | 5.78% | 9.13% | 52.51% |
| Jana Small Finance Bank | 19.23% | 7.48% | 74.75% | 11.75% | 7.35% | 5.83% | 8.08% | 58.48% |
| ESAF SFB | 23.24% | 6.97% | 66.62% | 16.27% | 11.10% | 7.17% | 10.60% | 56.40% |
| Utkarsh SFB | 19.56% | 7.68% | 71.63% | 11.87% | 8.91% | 6.21% | 8.87% | 56.73% |
| Fincare SFB | 22.71% | 7.82% | 70.85% | 14.89% | 9.20% | 8.03% | 11.41% | 70.53% |
| Survodav SFB | 20.08% | 6.85% | 61.91% | 13.24% | 8.61% | 6.51% | 10.59% | 61.46% |
| Capital SFB | 10.88% | 5.79% | 68.94% | 5.09% | 4.17% | 2.95% | 4.45% | 62.35% |
Valuation:
JSFB is the fourth largest SFB in India in terms of AUM and the fourth largest Small Finance Bank in terms of deposit size as of September 30, 2023. At the upper price band of Rs.414, Jana SFB is available at a P/BV of 1.4 times, which appears to be reasonably priced compared to its peers. Considering its rapid growth in deposits, diversified loan portfolio, strong brand equity, improved asset quality ratios, healthy return ratios, and financial inclusion, one can Subscribe from a longer-term perspective.
Also read: Evolving Landscape of Financial Advisory in India
Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.
