CSB Bank IPO Review – Risky; Avoid

Last Updated on March 5, 2020

Proceeds of the offer

Proceeds of the offer will be going to existing shareholders. The company gets no funds from the IPO.

About the CSB Bank

CSB Bank (formerly The Catholic Syrian Bank Limited) offers a wide range of products and services to SME, Retail, and NRI customers.

It has three principal areas of lending, viz., (i) SME banking, (ii) retail banking, (iii) wholesale banking. The bank delivers its products and services primarily through 412 branches and alternate channels.

The bank was recently acquired by Fairfax, a renowned firm based in Canada managed by Prem Watsa who has various holdings in India like IIFL, Thomas Cook, Fairchem, Quess Corp and Quantum Mutual Funds, etc.

CSB Bank Financials

If we observe CSB Bank’s financials, it has never earned ROE in the past 10 years.

CASA has improved from ~18% in 2013 to 28% in 2019 albeit not enough to sustain the low cost of funds. NIM% is inching upwards from just 1.65% in Mar’2010 to 2.82% in Mar’19.

CSB Bank IPO – MoneyWorks4me Opinion

As fundamental investors, we prefer to own firms that have exhibited the ability to earn superior ROE, consistent growth and scaling up. Even if we are late to the party, the execution track record helps to achieve twin benefits; not only it significantly reduces our risk to lose money but also gives good upside potential.

CSB Bank is yet to prove its business model as evident by its EPS CAGR and ROE. CSB Bank has concentrated geographical exposure in Kerala, Tamilnadu, Karnataka, and Maharashtra.

It has an advances base of mere ₹11,000 Cr and limited presence in terms of online, branches, etc. The size of a bank makes a big difference in terms of achieving consistent growth, sail through in economic slowdown and raise money for growth or provisioning.

We do not find any material difference in return expectations from smaller banks versus larger banks. Larger banks have the advantage of scale-up and raise money without diluting equity.

We recommend to let CSB Bank establish a track record before considering it for investment. Prem Watsa himself prefers an established track record.

Those who are aggressive might want to invest only a small portion and wait for performance in financials before increasing allocation. We will be keeping an eye on 3-4 parameters viz. Branch expansion, rising CASA%, Advances growth and declining NPA%.

A lot of hands are chasing a handful of stocks, IPO issues may experience a rapid increase in share price in the short term. You may wish to ‘speculate’ with small capital.

But as an advisor, our duty to inform you what is right and refrain from risk-taking behavior in this market. We will definitely recommend you select issues that are worth investing in. We are equally interested in making money as you are!

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