The Rs 832-crore initial public offer (IPO) by Tamilnad Mercantile Bank (TMB) received 30 per cent bids so far on Day 1 of the bidding process on Monday.

The issue has attracted bids for 27,48,396 shares or 0.32 times the issue size of 87,12,000 shares. The quota reserved for retail individual investors (RIIs) was subscribed 0.76 times, qualified institutional buyers by 0.30 times and NII by 0.08 times.

On the table is a fresh issue of 1,58,40,000 shares being sold in Rs 500-525 price band. The professionally-managed private lender allotted 71,28,000 equity shares to 10 anchor investors on Friday, raising Rs 363.53 crore at Rs 510 apiece.

Most analysts said the asking valuations are attractive when compared with peers, but the bank’s future growth would be subject to pending legal actions. Some of them, therefore, have a subscribe rating on the issue with a long-term view.

YES Securities in its comparison of 11 small private banks said the three-year FY19-22 loan CAGR for TMB at 8.1 per cent is the fourth best. The cost to assets for TMB at 2.2 per cent for FY22 stood at the fifth lowest, it said, adding that the cost to income ratio at 42.1 per cent for FY22 was the second best in its comparison universe. Meanwhile, the cost of deposits for TMB at 4.9 per cent for FY22 is the second highest in its universe, although not necessarily high in the absolute sense.

“Importantly, given the business model of TMB, we do not see these return ratios as volatile, going forward. As a result, we find the IPO valuation for TMB as eminently attractive,” YES Securities said while suggesting a ‘subscribe’ on the issue.

Nirmal Bang said the private bank demonstrated a strong track record of successfully growing and managing a granular portfolio with superior asset quality metrics. TMB, it said, stands out among the old generation private banking peers on most metrics.

The brokerage believes TMB can sustain ROA at around 1.5 per cent levels in coming years on the back of stable NIM at around 4 per cent levels and a decline in credit cost to below 1 per cent.

“TMB is being offered at 1.35 times FY22 BV, at a slight discount to peer banks having similar return ratio profiles. Although pending legal issue regarding the bank’s share capital shall continue to be a hangover; considering the quality of business, top quartile earnings profile in the banking industry and reasonable valuations, we rate the issue as ‘Subscribe,'” it said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)


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