How lucrative is the FPO of NMB Bank?

- Puskar Shrestha

The FPO issuance of NMB Bank has started from today. The bank is issuing 1,14,15,163 unit shares at a price of Rs 333. The bank has endorsed the public offering to meet its capital requirement of Rs 8 arba. After issuing the Further Public Offering, the share capital of the bank will stand at Rs 7.60 arba. To fulfill the minimum capital requirements of Rs 8 arba, NMB will need to issue only about 6% bonus shares. Along with the fulfillment of capital requirement, the company’s share structure will be converted to 51:49. The current capital structure of the bank is around 60:40.

Just like in previous FPOs, this issue has also gathered much interest from the investors. But in the recent period, the investors have started to become wary as the issue price is very close to the current market price. The recent FPO issuance of Butwal Power Company and Pokhara Finance can be considered as examples.

The main issue creating dilemma among the investors on whether to apply for the FPO is its price of Rs 333, as the current trading price of the stock is Rs 368. There is not much room for capital gain should the market continue its recent downward trend. The calculation of the FPO price based on the SEBON’s guidelines was determined to be Rs 535. The bank had also proposed the FPO at Rs 422 earlier, but after certain market survey, it lowered the price to Rs 333.

Overview of the Issue

The commercial bank is issuing 1,14,15,163 unit shares as further public offering at Rs 333. The investors can apply for a minimum 10 unit of shares and the maximum applications can be made of 57,070 unit of shares. ICRA Nepal has assigned Grade 3 rating to the FPO issuance, which indicates average fundamentals. Citizen Investment Trust has been appointed as the issue manager. The FPO issuance will close on Asadh 3, 2075 at the earliest. If the issue fails to be fully subscribed by then, institutional investors can also apply for the FPO till Asadh 28, 2075.

Equity of the bank

Despite being one of the most prominent banking institutions of the country, it is yet to meet the capital requirement set by Nepal Rastra Bank. The bank will need to issue bonus shares of around 6% to meet the capital requirement of Rs 8 arba. The bank has not said whether it will issue only 6% or more.

The FPO issuance of the bank will not just increase its capital, but will highly increase its reserve. It will garner Rs 2.65 arba as share premium from the FPO issue. The bank has also projected to raise its paid-up capital to Rs 10 arba at the end of FY 2076/77 for which the bank will probably issuing 25% bonus shares from its reserve. The reserve at that time is projected to be Rs 11.43 arba.

The net worth per share of the bank is also supposed to rise to Rs 196 after the FPO issuance. The company has projected the maintenance of Net worth per share in the similar fashion in the upcoming future as well.

Net Profit

NMB Bank has been staying in the frontline when the net profit of the company is considered. It has consistently performed well and has reported increasing net profits. Since an investor mainly speculates the return from a company from its net profit, it is one of the major factors that an investor considers before investing in any company.

The net profit of the bank has been expected to rise in the upcoming years as well. The interested investors can consider the fact regarding the consistent rise in the amount of net profit of the bank.

Loans and Deposits

The performance of a banking institution can be clearly observed through its lending and deposits. NMB has been in the leading positions when comparing the loans and deposits.

The company projects an increment of about 20% in the next three fiscal years. And if the past performance of the company is to be followed, it can be easily achieved by the bank.

Performance of the bank as of latest quarter

The bank has earned Rs 1.41 arba in net profit for the third quarter of the current fiscal year, which is around 28% improvement on the same period last year.  The bank also reported its deposits to stand at Rs 85.29 arba and loans and advances to be reported as Rs 74.01 arba. The annualized EPS of the bank comes out to be Rs 29.09. The bank has shown great performance in the quarter and is expected to follow the trend in the fourth quarter as well.

Performance in the Stock Market

For the investors interested in gaining short term return from the share of NMB Bank, the performance of stock market plays a vital role. The price of the share of NMB has been a consistent performer which has rarely shown high fluctuations—until the past few weeks.

If we compare the performance of the stock in the market for the past 3 months, it is clearly visible that the share price has been continuously decreasing for the last 1 month. As on Jestha 06, 2075 the price of the stock was Rs 465 while the price of the stock as on Jestha 29, 2075 stood at Rs 367.

Seeing that a large supply of shares will enter the market after FPO, the price is expected to decrease further, although it cannot be said by what margin.

How lucrative is NMB’s FPO?

The investment decision is solely upon the analysis of the investor. However, the FPO of the bank can be termed as a great deal for future gain. The bank showcases one of the strongest fundamentals in the market. So, returns in the long term can be surely expected from the bank. But considering the current market trend, the share is less likely to provide huge returns. For maintaining the paid-up capital at Rs 8 arba, the bank will be issuing around 6% bonus share.

However, if the projected statements of the bank are considered, the shareholders will receive further bonus shares only in FY 2076/77. The profit of the FY 2075/76 is supposed to rise by 31 percent and by about 25% in the FY 2076/77. Though the FPO price seems to be high in comparison to the current market price, it seems reasonable when the fundamentals of the company are taken into consideration.

 How much to apply for?

An investor can apply for a minimum 10 unit of shares and 57,070 units at maximum. If the total applicants are expected to be around 2 lakh, investors applying around 50-60 kitta will most likely be allotted fully. Since all the applicants will also not apply for whole 50-60 kitta, we can expect up to 100 units to be allotted fully. With the market price close to FPO price, most of the retails investors will not be interested with this FPO issuance. So there is high chance that the FPO will get undersubscribed. The investors are advised to wait till the last day of application, and incase the issue seems to get fully subscribed they can apply for 100 units or they will be allotted any number of shares they apply for.

Incase the FPO gets undersubscribed within initial four days, the institutional investors can apply for the shares. Unlike retail investors, this issuance might lure the institutional investors because of the strong fundamentals of the company. The institutional investors will have a chance of haveing huge unit of shares to hold for a long run. So, there is a high chance the issue gets subscribed by institutional investors or else the underwriters will have to subscribe the issue.