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Bumper listing for Ujjivan Small Finance Bank? Grey market suggests stock may list at up to 70% premium

Ujjivan SFB is likely to fix the issue price at Rs 37, the upper limit of IPO price band.

, ETMarkets.com|
Updated: Dec 12, 2019, 09.23 AM IST
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Most brokerages that rated the Rs 750 crore public issue had a ‘subscribe’ rating on it. Priced at around 2.5 times its book value, the IPO was available at a heavy discount compared with its peers.
Ujjivan Small Finance Bank, the most subscribed initial public offering (IPO) of this calendar, is likely to get listed on December 12 at a hefty premium to the issue price, suggests the buzz in the grey market for unlisted securities.

The IPO saw heavy demand across investor categories and logged an aggregate 166 times subscription.

The stock is changing hands at a premium of Rs 24-27 in grey market, which indicates its probable listing at Rs 61-64 on the bourses — a premium of up to 73 per cent over the issue price.

Analysts tracking grey market activity said the stock could go even higher on debut. “Ujjivan SFB is trading at a premium of Rs 24-25 in grey market. There is scope for it to list even higher. In general, the stock looks good. So it could continue to gain for a few days post listing,” said Sagar Shah of Ascent Wealth Advisors.

The small finance bank is likely to fix the issue price at Rs 37, the upper limit of IPO price band.

Most brokerages that rated the Rs 750 crore public issue had a ‘subscribe’ rating on it. Priced at around 2.5 times its book value, the IPO was available at a heavy discount compared with its peers.

From an idea to its listing: How the Ujjivan Small Finance Bank IPO story unfolded

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​RBI green flag: October 7, 2015

10 Dec, 2019
Ujjivan received in-principle approval from the Reserve Bank of India on October 7, 2015 to set up a small finance bank. Ujjivan planned to start operations in the first quarter of the next calendar year, as reported by Mint on 29 September.RBI’s licensing agreement mandated the bank to get listed as well within three years of operation with the deadline expiring in January, 2020. Under the licensing norms, promoter Ujjivan Financial Services’ stake in the lender will fall to 40 per cent by January, 2022, 30 per cent by January, 2027 and eventually to 15 per cent by January, 2032. The company is diluting about 11 per cent (94.4% to 83.32%) through the IPO and plans to use other instruments to offload another 3-5 per cent in next six months, indicating that it expects a post-issue valuation higher than that of the holding company’s.
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Apart from attractive valuations, superior asset quality, rural penetration of its promoter firm and, thus, the growth prospects, were other reasons that made the issue attractive, brokerages said.

And IPO investors simply lapped it up.

The IPO, which got fully subscribed on the first day itself, saw an overall 165.68 times subscription by end of third and final day of the bidding process. It overtook the IRCTC issue, which had recorded 112 times subscription in October, to become the most subscribed issue of 2019.

The quota reserved for qualified institutional buyers (QIBs) was subscribed 110.72 times, the non-institutional investor (NII) quota 473 times and the retail quota 49 times. In all, the issue drew total investor bets worth Rs 1.24 lakh crore.

Considering the heavy subscription and interest on the blocked amount, it seems a lot of high net-worth investors (HNIs) are betting on the issue, and the stock would need a bumper listing for them to make a solid gain, according to Santosh Meena, Senior Analyst at TradingBells.

“HNIs need a healthy listing of Ujjivan SFB to make a profit. My rough estimate is that it needs to list above Rs 57 for HNIs to come to a break-even price. Going by the Rs 27 premium in grey market, the indicative listing price comes at Rs 64. At that level, retail investors would be able to make a listing gain of more than 50 per cent,” Meena said.

Past trends are also supportive of Ujjivan SFB’s probable listing at a heavy premium to issue price. Out of the 34-odd IPOs that saw more than 50 times subscription in last 12 years, 13 got listed at over 50 per cent premium. Four of them — Salasar Techno, Astron Paper, Avenue Supermarts and IRCTC – debuted with over 100 per cent gains. None got listed at a discount.

Ujjivan SFB floated the IPO as per RBI’s licensing agreement that required it to get listed within three years of starting operation and after reaching a valuation of Rs 500 crore. That deadline expires in January, 2020.

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