IPO ANALYSIS OF KALINCHOWK DEVELOPMENT BANK LTD.

Note: IPO applied for more than 50 units should be divisible by 10 and when applied for more than or equal to Rs 50,000 the payment should be made through account payee check.

Issue Manager:  

• Growmore Merchant Banker Ltd.

Introduction of Kalinchowk Development Bank Ltd.

Company Profile

Kalinchowk Development Bank Limited was established in 2068/03/10 under the Company Act, 2063 and has been carrying out its activities as per Nepal Rastra Bank Act 2058, and Bank and Financial Institution Act, 2063. It commenced its operation as “B" Class (Three District i.e. Dolakha, Sinduli and Ramechap) financial institution of Nepal from 2068/08/05 after receiving a license from Nepal Rastra Bank as on 2068/07/20.

The bank was mainly established to facilitate in the economic development of country by channeling the savings of locals to needed area. With this ambition, businessman, intellectuals, industrialists, bankers and academicians came together to establish Kalinchowk Development Bank Limited. 

The Bank has been registered with an authorized capital of NPR 300 million and currently holds an issued capital of NPR 100 million and a paid-up capital of NPR 51 million.

At present, promoters own 100% shareholding of the bank which is expected to come down to 51%, provided the proposed IPO is fully subscribed.

The bank’s registered office is situated at Charikot, Dolakha District, which is also the Head Office of the bank. Currently, the bank is providing services to its customers through three districts of the country through its 3 branches and a head office in Dolakha District.

Board of Directors of Kalinchowk Development Bank Ltd.

1.Mr. Bal Krishna Sapkota, Chairman

Qualification: B.Com

Work Experience: Managing Director of Pashupati Vision Pvt. Ltd., Divya Samil Tatha Kastha Udhyog among others. He has been involved in various financial and social institutions from past 15 years.

2. Mr. Rudra Bahadur Khadka, Director

Qualification: I.A.

Work Experience: Associated with education, financial and social institutions from past 20 years. Currently, he is also involved in hotel businesses.

3. Mr. Sudarson Karki, Director

Qualification: B.Ad.

Work Experience: Associated with social, financial and education institutions for a long time. Currently, he is Chairman of Nepal Gharelu Tatha Sana Udyog Bibhag, Dolkha. And, he is also engaged in hotel and oil businesses.

4. Mr. Dhal Bikram Basnet, Director

Qualification: I.A.

Work Experience: Associated with transportation business and various financial organizations for a long time.

5. Mr. Bhalla Maskey, Director

Qualification: B.A., B.L.

Work Experience: Employed in Rastriya Beema Sastha for 11 years and involved in various financial organizations from past 30 years. Currently, he is the marketing head of Premier Insurance Company Limited.

Board of Directors (BOD) shareholding in the bank as per the Offer letter

Capital Structure

FINANCIAL HIGHLIGHT OF THE BANK

                                                                                                                                                                Figure in Rs “000”

Following its establishment, the paid-up capital of the bank has not come to alter. Currently it stands at 51 percent of the issued capital. With the initial public offering (IPO), the company plans to par the capital structure with that of the issued capital.

Now, observing the reserve and surplus of the company, it has sustained healthy growth till date. Coming to the fourth quarter data of this fiscal year, the bank has made significant growth as it reserve size has incremented by 144.03 percent which is a very astounding growth figure.

As per the published CD ratios, we can clearly see that the utilization of fund by the bank has gradually increased coming to the latest period. If we compare current fourth quarter CD ratio with that of two years before, it has increased nearly by 16 percent, however, CD ratio is still behind the optimum level set by NRB at 80 percent.

From the table, we see that the bank has been making increment in both deposit and loan but the growth figures of both portfolios have shrunk in this fourth quarter. It also should be noted that the size of both portfolios are reasonably small for a new bank which is functioning under three districts only.

Looking at the loan portfolio of fourth quarter of the company, it sustains higher exposure in Term Loan i.e. 45.27 percent. The second highest exposure is in Overdraft Loan/TR Loan/ WC with 23.55 percent. While, the exposure in Others Loan is 19.43 percent and 11.76 percent in Home/Housing Loan. It is to be noted that the bank doesn’t have any loan exposure in real estate and margin type.

In the initial period as the base size of profit was small, the bank was able to publish such a hefty growth in both operating before provision and net profit. In addition, the high spread, because of excess liquidity in the market, also attributed to the growth.

However, coming to the fourth quarter data of this fiscal year, the outcome is different. In this quarter, the interest income growth shrunk to 51.82 percent from that of 261.94 percent which mainly diluted the growth size in earning indicators.  Apart from it, the high expense growth to revenue further impacted the outcome.

In spite of such outcome, the progress chart of bank till date is still positive going by its size.

Now if we look at the net write back/loan, in the current fourth quarter it is tallied at 0.28 percent  from 0.52 percent of previous corresponding quarter which suggests the bank bad loans has slightly  decreased with raise in loan portfolio. From net provision figure also, we can conclude that same thing as the net write back has decreased to Rs 410 thousand from Rs 539 thousand.

Similarly, till date the bank has posted nil non performing loan indicating good loan portfolio.

If we look at the Net Worth of the company, its figure is not one of the best among its competitors. Now, looking at the EPS, ROA and ROE of fourth quarter of the FY 2070/71, we can see that, the increment in all this indicator has been on steady path.

But, it should be kept in mind that the BOD of this bank mainly consists of the directors with business background that lack banking experience. In addition, the bank is experiencing stiff competition for the commercial banks.

However, as the bank is focused on only three districts, it will have better understanding of people’s needs residing in this area than other national level banks which may lead to its own niche market. But in the long term, the growth prospective will be limited as it is limited to three districts only.

Along with it, looking at the market condition, where even the company having net worth below par is oversubscribed numerous times, the sentiment of the investors may uplift the value of this IPO rather than company’s performance alone.

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