1
Please refer to important disclosures at the end of this report
1
1
CSB Bank formerly known as Catholic Syrian Bank is predominantly present in the
state of Kerala (66.7% of deposits). After struggling for many years owing to lack
of capital, the bank is gradually coming out of trouble backed by fund infusion
from Fairfax group. CSB Bank was established in November 1920 and is the one
of the oldest banks in India. It offers wide range of banking services, but the key
focus of the bank is on SME, Retail (Gold) and NRI products.
Positives: (1) The bank is well capitalized (CAR - 22.7 & CET 1 - 22.10 as on
Q2FY2020); (2) Improving trend in asset quality; the banks GNPA declined from
7.89% in FY2018 to 4.87% in FY2019 and further to 2.86% by 1HFY2020; (3)
Stable and granular deposit base; as on March 31, 2019, retail deposits
constituted 93.73% of the total term deposits and these deposits have consistently
exhibited renewal patterns of above 90%.
Investment concerns: (1) Bank has regional concentration in Southern India,
especially Kerala; (2) Bank is planning to open new branches (350-400) over the
next 3-4 years, which will keep cost to income elevated; (3) Exposure to
NBFC/HFC is tad higher (18.2% exposure to NBFCs, including HFCs); (4) Strong
competition in south where CSB wants to increase gold lending business; (5) Post-
IPO, the promoters will hold about 50% stake in the bank. The promoter has to
reduce stake to 40% in 5 years, 30% in 10 years and 15% in 15 years, as per the
RBI regulation.
Outlook & Valuation: At the upper end of the price band, CSB Bank demands
Adj. PB multiple of 2.4x of Q2FY2020 Adj. book value, which we believe is
expensive considering the investment concerns. Similar banks are trading at lower
valuation than CSB and have better return ratio (DCB Bank at P/ABV of 1.73x,
Federal Bank at 1.36x, South Indian Bank at 0.5x, City Union Bank at 3.23x and
Karur Vysya Bank at 0.8x). Gold financiers with better return profile and pan India
presence are trading at 2.6x of Q2FY2020 Book Value. We believe investors
should wait for price discovery before taking any investment decision. Hence, we
have NEUTRAL view on the issue.
Key Financial
FY17
FY18
FY19
1HFY20
313
385
440
280
23
14
(58)
(127)
(66)
44
-
-
(7)
(16)
(8)
3
23
18
51
81
-
-
-
76
8.7
11.0
3.8
2.4
-
-
-
7.1
-
-
-
0.5
Source: Company: RHP, Angel Research; Note: Valuation ratios based at upper end of the price
band. Valuation mentioned for relative banks are derived or Q2FY20 book value.
NEUTRAL
Issue Open: Nov 22, 2019
Issue Close: Nov 26, 2019
QIBs 75% of issue
Non-Institutional 15% of issue
Retail 10% of issue
Promoters 49.7%
Others 50.3%
Post Issue Sh areholding Pattern
Post Eq. Paid up Capital: `173cr
Issue size (amount): *`406cr -**410 cr
Price Band: `193-195
Lot Size: 75 shares and in multiple
thereafter
Post-issue implied mkt. cap: *`3,348 cr
- **`3,382cr
Promoters holding Pre-Issue: 51.3%
Promoters holding Post-Issue: 49.7%
*Calculated on lower price band
** Calculated on upper price band
Book B u ildin g
Fresh issue: `24cr
Issu e D etails
Face Value: `10
Present Eq. Paid up Capital: `172cr
Offer for Sale: **1.98cr Shares
Jaikishan J Parmar
+022 39357600, Extn: 6810
Research Analyst
CSB Bank
IPO Note | Bank
Nov 21, 2019
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Nov
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201
CSB Bank | IPO Note
Nov 21, 2019
2
Comp Background:
CSB Bank Ltd, originating from Kerala, was established in November 1920
becoming one of the oldest banks in India. It offers wide range of banking services
to its 0.13 crore customer base with a loan book of `11,298cr. Further, the key
focus of the bank is on SME, Retail and NRI products. Recently, the bank has been
transforming itself into a modern age banking system. As part of this, it is re-
aligning its organizational structure wherein the branches will be responsible only
for deposits and cross-selling. All the loan products will be dealt by dedicated
teams. Moreover, unprofitable branches will be shut down and focus will be on
digital banking.
These initiatives are taken by the bank’s new promoter group Fairfax India. The
promoter infused `1,208cr into the bank to acquire 51% stake in CSB. This give
way to improvement in bank’s Tier I capital from 10.9% in FY2017 to 16.7% at the
end of FY2019. CSB became the very first bank in India to have a foreign
promoter. All the new initiatives have started making positive impact in banks
financials like decrease in bad loan proportion & cost of funds and improvement
in profitability.
Key Management Personnel:
Mr. Rajendran Chinna Veerappan is the Managing Director and Chief Executive
Officer of CSB Bank. He holds a bachelor’s degree and a master’s degree in
commerce and is an associate of the Indian Institute of Bankers. He holds a total
experience of 40 years and previously served as the Chief Executive Officer of the
Association of Mutual Funds in India and has also worked with many PSBs.
Mr. Madhavan Karunakaran Menon is the part-time Chairman and a Non
executive Director of the bank. He holds a bachelor’s degree and a master’s
degree in business administration from the George Washington University. Mr.
Menon has over 30 years of experience in finance and banking sector derived
from NZ Grindlays Bank Limited, Citibank N.A., Emirates Bank International, Birla
Capital International AMC and so on. He is on CSB’s board since
Septemeber,2018.
Ms. Veluthattil Maheswari is the bank’s Chief Financial Officer and is in CSB since
1994. She holds a bachelor’s degree in commerce from the University of Madras
and is an associate of the Institute of Chartered Accountants of India. She has
about 25 years of experience in the banking sector.
Mr. Arvind Sharma is the Chief Risk Officer of the bank. He holds a bachelor’s
degree in science and master’s degree in arts (economics) from Kanpur University
and apart from this he pursued various certifications in risk management from
IICM, University of Pennsylvania, Columbia Business School and Harvard Business
School. He has a total experience of 27 years and worked with SBI and Bank
Sohar before joining CSB in August 2019.
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Nov
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CSB Bank | IPO Note
Nov 21, 2019
3
Issue details
This IPO is a mix of OFS and issue of fresh shares. The issue would constitute
fresh issue worth `24cr and OFS worth `386cr.
Under OFS, investors are offering 1.9 crore equity shares worth `386cr.
Exhibit 1: Pre and post-IPO shareholding pattern
Particular
No of shares
(Pre-issue)
%
No of shares
(Post-issue)
%
Promoter
8,62,62,976
50.1
8,62,62,976
49.73
Investor/Public
8,59,62,082
49.9
8,72,05,605
50.27
17,22,25,058
100.0
17,34,68,581
100.0
Source: RHP Note: Calculated on upper price band
Exhibit 2: Top 7 Selling Shareholders
Shareholder
Shares Offered
HDFC Life Insurance Company Limited
40,44,000
ICICI Prudential Life Insurance Company Limited
30,44,000
The Federal Bank Limited
27,85,661
Bridge India Fund
25,00,000
Satellite Multicomm Private Limited
19,39,097
Way2Wealth Securities Private Limited
15,55,214
ICICI Lombard General Insurance Company Limited
10,00,000
Total shares
1,68,67,972
Source: Company, RHP
Objects of the offer
The net proceeds of the Fresh Issue are proposed to be utilized for
augmenting capital base and general corporate purposes.
To achieve the benefits of listing the Equity Shares on the Exchanges and to
carry out offer for sale of equity shares
Risk
The operations are concentrated in two states and any adverse sustained
economic downturn and political unrest/disruption could change repayment
behavior of the borrowers.
Significant exposure (33.2% of loans) to gold based lending. Any downward
movement in gold prices or any disruptions in the gold market could cause
potential in the bank’s loan portfolio.
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CSB Bank | IPO Note
Nov 21, 2019
4
Exhibit 3: Relative Valuation
Bank
NIM
TTM PE
PBV
CAR
CET 1
ROE
CASA
GNPA
NPA
Mcap
TTM PAT
CSB
3.43
30.43
2.40
22.77
22.10
7.24
28.19
2.86
1.96
3,382
111
Karur Vysya
3.46
20.86
0.81
15.99
14.25
3.35
30.00
8.89
4.50
4,536
217
Federal Bank
3.01
11.64
1.36
13.98
12.87
9.75
31.55
3.07
1.59
17,650
1,516
South
Ind.Babnk
2.69
6.44
0.50
12.08
9.60
4.68
24.90
4.92
3.84
2,009
312
City Union B
4.01
21.55
3.23
15.49
15.17
24.69
3.41
1.90
15,783
732
DCB Bank
3.67
15.46
1.73
16.16
12.58
10.91
23.00
2.09
0.96
5,485
355
Source: Company, CSB ROE on Annualized number, Other Bank ROE as on FY19
Outlook & Valuation: At the upper end of the price band, CSB Bank demands Adj.
PB multiple of 2.4x of Q2FY2020 Adj. book value, which we believe is expensive
considering the investment concerns. Similar banks are trading at lower valuation
than CSB and have better return ratio (DCB Bank at P/ABV of 1.73x, Federal Bank
at 1.36x, South Indian Bank at 0.5x, City Union Bank at 3.23x and Karur Vysya
Bank at 0.8x). Gold financiers with better return profile and pan India presence are
trading at 2.6x of Q2FY2020 Book Value. We believe investors should wait for
price discovery before taking any investment decision. Hence, we have NEUTRAL
view on the issue.
Exhibit 4: DuPont
Particular
Karur Vysya
Bank
Federal
Bank
South Ind.
Bank
City Union
Bank
DCB
Bank
CSB
Bank
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
Interest Income
8.83
8.52
7.69
7.66
7.88
7.85
9.05
8.84
8.88
9.21
8.34
8.48
Interest Exp
5.27
5.06
4.86
4.86
5.38
5.54
5.24
5.06
5.22
5.73
5.86
5.71
NII
3.56
3.46
2.82
2.80
2.50
2.31
3.80
3.78
3.67
3.48
2.47
2.77
Provisions
1.97
2.03
0.75
0.57
1.25
0.98
1.11
0.74
0.51
0.42
1.73
0.70
Adj NII
1.59
1.43
2.08
2.23
1.25
1.33
2.69
3.04
3.15
3.05
0.74
2.07
Other Income
1.39
1.41
0.91
0.91
1.07
0.83
1.42
1.21
1.14
1.06
0.81
0.86
Total Income
2.98
2.84
2.99
3.13
2.32
2.15
4.11
4.25
4.30
4.12
1.55
2.92
Operating Exp
2.20
2.37
1.93
1.85
1.68
1.72
2.01
2.08
2.88
2.58
2.80
3.54
Employee Expenses
0.99
1.12
0.98
0.92
0.91
0.94
0.84
0.86
1.40
1.31
1.84
2.42
Other Expenses
1.21
1.25
0.95
0.93
0.77
0.78
1.17
1.22
1.47
1.27
0.96
1.12
PBT
0.78
0.47
1.06
1.28
0.64
0.43
2.10
2.17
1.42
1.53
(1.25)
(0.61)
TAX
0.24
0.16
0.37
0.44
0.21
0.15
0.53
0.57
0.52
0.55
(0.44)
(0.20)
ROA
0.54
0.31
0.69
0.83
0.43
0.28
1.57
1.60
0.90
0.98
(0.82)
(0.41)
Leverage
11.42
10.76
11.98
11.69
15.58
16.56
9.73
9.46
10.85
11.16
34.57
23.94
ROE
6.12
3.32
8.30
9.75
6.64
4.68
15.31
15.17
9.80
10.99
(28.25)
(9.91)
Source: Angel Research, Company
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CSB Bank | IPO Note
Nov 21, 2019
5
Income Statement
Y/E March (` cr)
FY17
FY18
FY19
1HFY20
Net Interest Income
313
385
440
280
- YoY Growth (%)
23
14
Other Income
281
125
136
84
- YoY Growth (%)
(55)
8
Operating Income
595
510
576
364
- YoY Growth (%)
(14)
13
Operating Expenses
443
436
562
260
- YoY Growth (%)
(2)
29
Pre - Provision Profit
152
74
13
104
- YoY Growth (%)
(51)
(82)
Prov. & Cont.
252
269
111
35
- YoY Growth (%)
7
(59)
Profit Before Tax
(101)
(195)
(98)
69
- YoY Growth (%)
94
(50)
Prov. for Taxation
(42)
(68)
(32)
25
- as a % of PBT
42
35
33
36
PAT
(58)
(127)
(66)
44
- YoY Growth (%)
119
(48)
Balance Sheet
Y/E March (` cr)
FY17
FY18
FY19
1HFY20
Equity
81
81
86
172
Reserve & Surplus
465
273
888
1,364
Net worth
546
354
974
1,536
Deposits
14,893
14,685
15,124
15,510
- Growth (%)
(1)
3
Borrowings
60
48
-
-
Other Liab. & Prov.
271
249
356
277
Total Liabilities
15,770
15,335
16,453
17,323
Cash Balances
127
101
82
165
Bank Balances
1,084
1,114
892
651
Investments
5,729
4,083
4,028
4,314
Advances
8,001
9,185
10,615
11,298
- Growth (%)
15
16
Fixed Assets
51
57
60
59
Other Assets
778
795
777
837
Total Assets
15,770
15,335
16,453
17,323
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CSB Bank | IPO Note
Nov 21, 2019
6
Key Ratio
Y/E March
FY17
FY18
FY19
1hFY20
Profitability ratios (%)
NIMs
2.9
3.2
3.7
Cost to Income Ratio
75
85
98
72
RoA
-
-
0.52
RoE
-
-
7.06
Asset Quality (%)
Gross NPAs
7.3
7.9
4.9
2.9
Net NPAs
4.1
2.9
2.3
2.0
Slippages
4.6
3.1
1.9
1.5
Credit Cost
3.2
2.9
1.0
0.6
Provision Coverage
43
64
53
31
Per Share Data (`)
EPS
(7.2)
(15.7)
(7.6)
2.6
ABVPS (70% cover.)
23
18
51
81
Valuation Ratios
PER (x)
-
-
-
76
P/ABVPS (x)
8.7
11.0
3.8
2.4
Valuation done at upper IPO price band
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CSB Bank | IPO Note
Nov 21, 2019
7
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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