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Is it profitable to apply for Standard Chartered FPO? Know about its past performance and projections

- ShareSansar, March 14, 2017  on Company Analysis , Featured , Financial Analysis , FPO , Latest , Stock Market
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As a part of a capital expansion plan put forward by Nepal Rastra Bank (NRB), all commercial banks operating in Nepal need to increase their paid-up capital to Rs 8 arba by the end of FY 2073/74. In order to comply with the requirement, the Banks and Financial Institutions are opting for different measures such as mergers, acquisitions, issuance of bonus shares, right shares and FPO (Further Public Offering).

Standard Chartered Bank Nepal Limited, being a class “A” commercial bank operating in Nepal, has to comply with the direction before the deadline. Thus, the bank has decided to float a Further Public Offering (FPO) at a premium price. Though capital expansion is not the prime reason for FPO, the premium so collected might be used for the issuance of bonus shares (stock dividend). This will ultimately help the bank meet the paid-up capital requirement.

For this purpose, the bank has decided to Float Further Public Offering (FPO) from 1st Chaitra, 2073.

Standard Chartered Bank (SCB) Further Public Offering
Issue units25,58,140
Issue Price (Rs)1,290
Face Value (Rs)100
Premium Price (Rs)1,190
Minimum Purchase Units10
Maximum Purchase Units25,580
Issue Open Date12/1/2073
Issue Close Date (Earliest)12/4/2073
Issue Close Date (Latest)12/15/2073
ICRA RatingIPO 2+

About Standard Chartered Bank Nepal

With 75% of foreign holding, Standard Chartered Bank is the largest international bank operating in Nepal. It was registered in 2042/09/04 with the name of “Nepal Grindlays Bank”. The bank has been providing quality service all over the nation through its 12 branches and 3 extension counters.The global network of Standard Chartered Group has given this bank a unique opportunity to provide truly international banking services in Nepal. It was the first Bank in Nepal to implement the Anti-Money Laundering policy and apply the ‘Know Your Customer’ procedure on all the customer accounts.

Capital Structure 

share ratio

75% of the total shares of SCB is held by foreign partners, with only 25% held by Nepalese public. Standard Chartered Grindlays PTY Ltd., Australia holds 50% of the total shares whereas 25% is held by Standard Chartered Bank, U.K

After the floatation of Further Public Offering (FPO) the Promoter-Public ratio will drop to 70.21 : 29.79.

This will increase the holding of Nepalese general public in the bank.

Financial Highlights

If we see the past 5 years trend of Standard Chartered Bank, we can see the bank has continuously increased its Capital and Reserve. It has made the bank stronger to grab bigger opportunities. Even in the absence of Capital expansion plan, the bank was focused on increasing its capital on its own pace. The bank has to increase it to Rs. 8 arba by the end of this fiscal year. The bank, however, has no plans to increase the capital in the following two years.

share-capital

If we see the past 5 years Reserves and Surplus chart of Standard Chartered Bank, we can see the reserve has been continuously rising. The bank has projected the reserves to grow rapidly in the following two years 2074/75 & 2075/76.

Deposits

deposits

If we analyze the deposit of last five years, an average growth of 12.01% can be seen. As of 2nd quarter 2073/74, the deposit of the Commercial banks rose by 22.43% in one-year period, whereas that of Standard Chartered Bank surged by merely 7.09%. However, the bank has projected a dynamic growth in the coming years.

Loans & Advances

loans

The bank has shown a decent growth in terms of disbursement of loans and advances in the last five years. The bank is now projecting a dynamic growth in the coming years. If we analyze the last 5 years loan disbursement, an average growth of 12.51% can be noticed. As of 2nd quarter 2073/74, the loans and advances of this bank expanded by 34.50% in one year. The loans & advances of the industry rose by 32.93% in the same period.

Operating Profit & Net Profit

operating-net-profit

If we see the Operating profit of SCB in the last five years, a decline has been seen in the last two years. The operating profit has fallen after FY 2070/71. Similar scenario was seen in terms of Net Profit. However, the company has projected a hefty increase in both operating and net profit. Decrease in its operating expenses should add to this.

Earnings Per Share (EPS)

Fiscal yearEPS (Rs)
2068/6972.67
2069/7065.7
2070/7165.47
2071/7258.29
2072/7345.96
2073/7436.7 (Projected)
2074/7522.53 (Projected)
2075/7627.09 (Projected)

If we see the earnings per share of last 5 years, it has continuously fallen. The per share earnings are expected to fall even further in the coming years. The number of shares are increasing every year, but the failure to increase the Net Income in the same pace has resulted this fall. Earnings per Share (EPS) helps the investors to predict their return, and this fall in EPS signifies a drop in return for the investors.

EPS

Net Worth Per Share

It is also known as Book Value per share. If we analyze the past, the Net worth of the company was almost stagnant from FY 2068/69 to FY 2072/73.It is expected to increase to Rs 307.09 by the end of this fiscal year. However, it is projected to fall heavily in the year 2074/75 due to the increase in capital.

net-worth-per-share

CONCLUSION

The per unit price of Standard Chartered Bank’s FPO was calculated as per the directive issued by SEBON. At Rs 1,290 per share, investors have to apply a minimum of Rs 12,900. Since the growth of SCB has remained lower than the industry in the recent years, investors may not be able to reap good benefits unless the bank meets up with its projected performance.

Brand Name and Goodwill does not show in balance sheet, it can only be realized

However, Standard Chartered is an international brand name with a long and proven history. The value of brand and goodwill does not show up in balance sheet, so this FPO of Standard Chartered Bank should be analyzed by also taking its reputation into account. Thus, investment in Standard Chartered group is a safe investment. Applicants are also especially attracted towards the probability of 100% stock dividend next year. FPO allottees will be able to get the share for Rs 1,290. After the adjustment of probable 100% bonus share, their per share cost will reduce to just Rs 645. Considered a blue-chip stock since its inception, Rs 645 per share seems like an attractive price for a stock whose 180-day average price falls in Rs 3,000 levels. This FPO is also an opportunity for existing shareholders of the bank who have bought the shares in the secondary market to minimize their per share cost.

Our suggestion:

Investors who have cash in hand are on the safer side. If they can hold the SCB stock for some time, it can be considered a good investment in the long term. However, for investors who are looking to invest in the FPO by taking loans, it may not be profitable. If the recent FPO of Nepal Life Insurance Company is taken into account, the money will be in hold for almost 2 months. The per share cost after accounting for the interest of the loan will be much higher than Rs 1,290, and it might not be a good investment.

Only invest as much risk you are willing to take. Also consider other stocks with similar EPS that are trading in NEPSE for a much lower price. The decision ultimately falls on the applicants.

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