Healthy Financials

• ESAF Small Finance Bank has shown remarkable growth in its revenue over the past two years, achieving a 33% increase, surpassing its listed peers. The company's loan portfolio has also expanded significantly, reflecting its efforts to shift from a microfinance-dominated book towards a more balanced mix of retail and agricultural loans.
• One standout metric for the company is its Net Interest Margin (NIM), which has reached 10%, the highest among its peers. However, it's important to note that this impressive NIM is partly attributed to a higher risk profile, with 75% of the company's loan portfolio dedicated to microfinancing, while its competitors have a more diversified portfolio.
• Despite this risk, the company has maintained commendable Gross Non-Performing Asset (GNPA) and Net Non-Performing Asset (NNPA) ratios, which are among the lowest in the industry. This demonstrates the company's ability to manage and minimize bad loans effectively. Additionally, the Return on Assets (ROA) for the company stands at 2.1%, trailing only the top-performing institutions. Moreover, the Price to Book (P/B) ratio is at 1.58, which is also one of the best in the industry. This attractive valuation metric positions the company favorably to attract substantial investor interest.
• As ESAF Small Finance Bank continues to reduce its exposure to microfinancing and diversify its loan portfolio, it is expected that the Net Interest Margin may experience a gradual decline. However, the company's low NPA levels should play a pivotal role in sustaining profitability and enhancing its financial performance in the upcoming years. This prudent approach to risk management and diversification underscores the company's potential for long-term growth and stability.

Attractive Valuation

• The company is asking for a PE of 10x and a market cap to sales of just 1x. This is a very attractive valuation when compared to listed peers. Hence, we recommend subscribing to this IPO.