Mr. Arafat Saiyed - Senior Research Analyst at Reliance Securities.
About the Company
Tamilnad Mercantile Bank (TMB) was incorporated in 1921 as Nadar Bank Ltd. and is one of the oldest private sector banks in India. Bolstered by its strong portfolio of advances and deposits from a diversified customer base including retail customers, agricultural customers, and MSMEs, the company offers an array of banking and financial services to retail customers, MSMEs, etc. The company is coming out with an IPO of Rs8.4bn, the market cap at higher band is seen at Rs84bn.
~100 Years of Track Record
The company has a Long-term track record with almost 100 years of history. The bank has participated in various government sponsored schemes in order to extend its support to the society. Moreover, the bank has also tied up with reputed training institutions like SIBSTC- Bengaluru, NIBM-Pune and IIBF-Mumbai among others. It has a strong presence in Tamil Nadu and backed by diversified and loyal customer base and a growing deposit base with a focus on low-cost CASA.
Southern Specific Branch Network
As of Mar'22, the bank has a strong branch network of 509 branches and a total customer base of 5.08mn. TMB has a significant market presence in the state of Tamil Nadu with 369 branches, and is also present in 15 other states and 4 union territories of India. The company added 9 new ATMs and 22 new CRMs during FY22. It also added 52 new e-lobbies. The bank's ATM and alternate delivery channel network stood at 1141 ATMs, 282 CRMs and 101 e-lobbies. The company is aiming to expand its reach even further in the coming years. The banks has correspondent relations with 405 overseas banks by the exchange of bilateral keys under the SWIFT.
Improved Asset Quality
TMB has improved asset quality by focusing on secured advances, high loan to value ratio, diversification, low concentration across branches and more stringent audit procedures for sanction of the loans. The risk assessment, mitigation and management measures towards reducing NPAs and managing stressed assets portfolio is key parameter for TMB. Apart from continuously monitoring loans during their tenure, it also conducts various audit processes such as stock audits on working capital facilities. It also intends to reduce our NPAs by continuing to offer various schemes of settlement to address the issues specifically faced by small ticket borrowers.
Financials in Brief
The loan book has clocked ~8% CAGR during FY19-22 to Rs335bn in FY22. The strategy of TMB is focusing on the RAM (Retail, Agri, MSME), which has clocked CAGR of 13% during FY20-22. TMB's growth being concentrated within Tamil Nadu which contributes 76% of advances. The cost of deposits for TMB is relatively on the higher side, while the net interest margin is healthy. TMB performed well over the last two years despite the pandemic led disruptions. During FY20-22, its NII clocked 17% CAGR to Rs18.1.bn in FY22, while PAT grew by 42% CAGR to Rs8.2bn in FY22 led by other income. Total deposits were up 10% YoY to Rs449.bn while total advances increased 8% YoY to Rs335bn. During FY22, the net NPA of the bank decreased to 0.95% against 1.98% in FY21 while gross NPA, came down to 1.7% from 3.4% in FY21.
The IPO is valued at 1.6x FY22 Book. TMB is one of the oldest banks with 100+ years of legacy. TMB focussed on diversifying product portfolio to access more client base. It continues to expand relationship banking facilities to increase network. It intends to focus more on fee-based products such as issuing debit cards, credit cards, insurance, online bill payment, DP services, etc. In view of its improving assets quality, lower NPAs, focus on strategic expansion, growing deposit base with a focus on low-cost retail CASA, strong financial track record and valuation comfort, we recommend a 'SUBSCRIBE' to the issue.