Categories: Stock Markets

Tamilnad Mercantile Bank(TMB) IPO Review

TMB Bank (Tamilnad Merchantile Bank) is a private sector bank that has existed since the pre-independence era. From its humble roots, the bank has grown to have an extensive network today but its primary concentration is still in Tamil Nadu. The bank has the honour of receiving the award of being the fastest growing private sector bank for 5 consecutive years and also the best private sector bank.

The bank is now coming out with an IPO which was long due but was restricted based on the RBI policy and direction for listing. Post the listing the bank is set for its planned expansion. Below are the details of the TMB IPO and whether it is a good investment opportunity for investors.

Table of Contents hide

1 TMB IPO Objective

2 TMB IPO Details

3 Financials of TMB

4 Risks of investment

5 Should you invest in TMB IPO?

6 How to invest in TMB IPO?

TMB IPO Objective

The objectives of this IPO and its target expectations from this IPO are mentioned below.

The prime objective of the Bank from this IPO is to increase its Tier-I capital base and to meet its future capital requirements.
The bank intends to meet the offer issue expenses through this IPO
Furthermore, TMB also aims to receive the listing benefits that are available to companies by listing their shares on stock exchanges.

TMB IPO Details

The key details of the IPO are tabled below.

IPO Size

Category	Details
IPO Opening Date	5th September 2022
IPO Closing Date	7th September 2022
Listing	NSE, BSE
Issue Type	Book Building Type
Fave Value of shares	Rs.10 per share
IPO Price Band	Rs.500 – Rs.525
IPO Issue size	1,58,40,000 shares of Rs.10 each
Fresh Issue size	1,58,40,000 shares of Rs.10 each
IPO Size	Rs.831,60,00,000
Offer For Sale

IPO Dates

The IPO will be open for a brief period and the other important dates pertaining to the IPO are as below.

Event	Date
Opening date	5th September 2022
Closing Date	7th September 2022
Allotment date	12th September 2022
Refund Date	13th September 2022
Share Credit Date	14th September 2022
Listing Date	15th September 2022

IPO Lot Size

The lot size of the TMB IPO is clearly defined. Investors will have to invest in specific lot sizes and therefore, investment in individual shares or fraction of lots will not be available. The details of the lot sizes and the minimum amount of investment is tabled below.

Category	Details
Minimum investment	1 lot
Shares in each lot	28 shares
Minimum amount of investment per lot	Rs. 14,700
Maximum permissible investment in Lots	13 lots
Maximum shares for investment	364 shares
Maximum amount of investment permissible	Rs. 1,91,100

IPO Reservation

The TMB IPO will be available for subscription for three categories of investors. The maximum permissible investment for each category is tabled below.

Category of Investor	Reservation of the IPO applicable	Maximum shares for subscription	Amount of investment
QIB (Qualified Institutional Buyers)	75%	1,18,80,000	Rs. 623,70,00,000
NII (Non-Institutional Bidders)	15%	23,76,000	Rs. 124,74,00,000
RII (Retail Individual Investors)	10%	15,84,000	Rs. 83,16,000

Financials of TMB

Tamilnad Merchantile Bank has shown a steady increase in its revenue band profits and fundamentally is a good bet for the investors. The key financial data of the bank over the last three years to highlight its progress is tabled below.

Category	2020	2021	2022
EPS	28.61	42.34	57.67
PAT (Rs. in crores)	464.89	654.04	901.90
Interest Earned (Rs. in crores)	3466.11	3609.05	3833.86
EBITDA (Rs. in crores)	1030.10	1251.62	1566.74
Revenue (Rs. in crores)	3992.53	4253.40	4656.44

Other details of its financials and comparables

A few more details of TMB’s financials and comparable data with peers are highlighted below which show the relative position of TMB in the industry.

The bank showed an increase in its net worth from Rs. 3979.65 crores to Rs. 5335.71 crores which translates into a 15.78% growth in terms of CAGR.
The bank also performed better in terms of deposit collections which increased by 10.46% CAGR as compared to the industry average of 9.93%
The EPS of TMB topped the list among its peers and was followed by CSB Bank which had an EPS of 26.43
The P/E ratio of TMB stands at 9.11 which is lower compared to a few of its peers. This makes it an attractive buying option for investors.
The ROCE (Return on Capital Employed) of TMB is again higher at 16.58% compared to the industry average of 8.30%
Finally, the RoNW (Return in Net worth) of TMB is 15.40% which is the next best in the industry after CSB Bank which has a RoNW of 17.29%

These parameters further showcase the relatively better position of TMB and its fast track for growth.

Risks of investment

The key risk of investment in this IPO is mentioned hereunder.

TMB has a significant percentage of its equity, 37.7% of its paid-up share capital, subject to outstanding legal proceedings which are still pending in various legal forums.
There is also an ongoing legal proceeding with the Directorate of Enforcement regarding the petition filed by a former Director alleging mismanagement in the bank.
The bank could face a negative impact on its business, reputation, and financials if the verdict of these legal proceedings would be adverse for them.
The bank also has higher contingent liabilities than its net worth along with a risk of an increase in NPAs which can pose a danger to its financials
The prime concentration of the bank is in Tamil Nadu, therefore, any adverse impact in terms of political, economic, or social instability will impact its operations and thereby its financials.
The bank requires prior permission from the RBI to open new branches and any hindrance in the same can damage its growth prospects.
The bank is heavily reliant on MSME, Retail, and Agricultural Customers for its business, and any negative impact in these segments will have a direct impact on the bank’s bottom line.

Should you invest in TMB IPO?

The overall performance of TMB has been quite impressive in the past years especially in terms of its core financials, like the increase in deposits by 10.46% CAGR, increase in interests income by 17% CAGR, and decrease in gross NPA from 3.62% to 1.69%.

The ROA (Return on Assets ratio)for the bank is also higher at 1.66% compared to the average of 0.80% of its peers. Reviewing these hard data and given its more than 100-year-old existence, it can be safely said that TMB Bank has established itself as a trustworthy name among the masses.

Also, the TMB IPO is priced at approximately 1.4 times higher than its book value in FY 22 (based on fully diluted post-issue equity). All these factors make it an overall attractive investment option for investors looking for long-term investments. However, investors looking for listing gains may be disappointed as the grey market premium was approximately 10% which had eventually come down to Rs. 7 by end of the trading day on 5th September 2022.