Tamilnad Mercantile Bank Limited
Please refer to important disclosures at the end of this report
1
Tamilnad Mercantile Bank ltd (TMBL), Incorporated in 1921, is a bank with
strong presence in the state of Tamil Nadu with 369 branches, 949 ATM’s and
255 Cash recycler machines (CRM’s). TMBL’s business is majorly driven by
lending to MSME’s customers along with Agriculture and Retail customers
which combined contribute ~85% of total revenues. The bank reported
deposits of ₹ 44,930 crore and advances of ₹ 33,490 crore as of March 2022. In
fiscal 2022, TMB also reported a low credit cost ratio of 0.27%, along with that
bank has also reported return on assets (ROA) of 1.66% and return on equity
(ROE) of 16.58% which are better than the bank peers.
Positives: (a) Bank has reported strong growth in deposit and advances, from 2020-
22 bank has reported growth in deposit of 10.46% and growth in advance of 9.93%.
b) Consistently growing customer deposit base with a focus on low-cost retail,
current CASA ratio of 30.5%. (c) Bank consistently growing their customer base from
4.6 million customers in FY2020 to 5.08 in FY2022.
Investment concerns: (a) 70% of the loan book comes from MSME & Agricultural,
in which credit risk is high. (b) Highly concentrated on one state that is Tamil Naidu,
any natural calamity will impact the bank business adversely. (c) GNPA & NPA ratios
have improved significantly in the last couple of years, any downturn in the economy
will impact the bank.
Outlook & Valuation: In terms of valuations, the IPO is priced at price to book
of 1.4 times and PE levels of 9.1 times at upper price band of the IPO. Company’s
consolidated revenue growth of 5% over FY20-22 but interest/discount on
advances was of 4.1% over FY20-22. It will be challenging for the bank to grow
its business in Tamil Naidu as well as new geographics. Looking at the current
valuation of price to book of 1.4 times we believe that near term positive has
been priced in the ipo price. Thus, we have a NEUTRAL rating on the issue.
Key Financials
Particular
2020
2021
2022
Total Business
65,061
72,511
78,681
Deposits
36,825
40,970
44,933
Net advances
27,716
31,070
33,492
Cost of deposits
6.3%
5.5%
4.9%
Yield on advances
10.2%
9.7%
9.5%
Credit cost
1.5%
1.4%
0.6%
Net interest margin
3.6%
3.8%
4.1%
Return on assets
1.0%
1.3%
1.7%
Return on equity
10.7%
14.1%
16.6%
CASA to total deposits ratio
25.9%
28.5%
30.5%
Cost to income ratio
46.1%
44.9%
42.1%
Source: Company, Angel Research
NEUTRAL
Issue Open: September 05, 2022
Issue Close: September 07, 2022
Offer for Sale: ` 0 cr
QIBs 75% of issue
Non-Institutional 15% of issue
Retail 10% of issue
Promoters 0.0%
Public 100.0%
Fresh issue: ` 832cr
Issue Details
Face Value: `10
Present Eq. Paid up Capital: ` 143cr
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: ` 158cr
Issue size (amount): ₹ 832cr
Price Band: ₹500- ₹525
Lot Size: 28 shares and in multiple thereafter
Post-issue mkt. cap: * `7,818cr - ** `8,314cr
Promoters holding Pre-Issue: 0%
Promoters holding Post-Issue: 0%
*Calculated on lower price band
** Calculated on upper price band
Book Building
Yash Gupta
Yash.gupta@angelone.in
+022 4000 3600, Extn: 6872
IPO NOTE
Tamilnad Mercantile Bank Limited
September 5, 2022
Tamilnad Mercantile Bank Ltd | IPO Note
September 5, 2022
2
Company background
Tamilnad Mercantile Bank ltd (TMBL), Incorporated in 1921, is a bank with
strong presence in the state of Tamil Nadu with 369 branches, 949 ATM’s and
255 Cash recycler machines (CRM’s). TMBL’s business is majorly driven by
lending to MSME’s customers along with Agriculture and Retail customers
which combined contribute ~85% of total revenues.
Bank’s deposits have grown at a healthy pace of 10.46% CAGR (compared to
median of its peers 7.90%), while its advances grew at 9.93% CAGR
(compared to median of its peers: 8%). As of March 31, 2022, their deposits
and advances portfolio in the state of Tamil Nadu has contributed 75.06% to
their Total Business. They also focus on diversifying their growth in other high
growth regions of India which will help increase their network and client base.
Other than Tamil Nadu, they are present in 15 other states and 4 union
territories of India. Apart from Tamil Nadu, they have sizable presence in the
states of Maharashtra, Gujarat, Karnataka, and Andhra Pradesh
Customer wise break-up
Bank Asset Products target the RAM customers, which include MSMEs,
agricultural customers, retail customers, and their corporate customers. The
information in relation to their advance portfolio for asset products as of March
31, 2022,
Exhibit 1: Loan Book
Category of Loan Portfolio
Amount
Outstanding (₹
Cr)
% of Total
Advances
Average
ticket size (₹
Cr)
MSMEs
12,615
37.38
0.19
Agricultural customers
10,022
29.70
0.01
Retail customers
6,882
20.39
0.05
Corporate customers
4,227
12.53
0.57
Total
33,748
100.00
0.03
Source: Company, Angel Research
Tamilnad Mercantile Bank Ltd | IPO Note
September 5, 2022
3
Issue details
The IPO is made up entirely of Fresh issue of 15,840,000 shares making the total
Issue size of ₹832cr
Pre & Post Shareholding
(Pre-Issue)
(Post-Issue)
Particulars
No of shares
%
No of shares
%
Promoter
0
0%
0
0%
Public
14,25,11,454
100%
15,83,51,454
100%
Total
14,25,11,454
100%
15,83,51,454
100%
Source: Company, Angel Research
Objectives of the Offer
The net proceeds from the issue will be utilized for the following purposes:
• To augment tier-I capital base to meet future capital requirements.
• To receive the benefits of listing the shares on the stock exchanges.
Kay Managerial Personnel
• K V Rama Moorthy is the MD & CEO of the Bank. He has over 40 years
of banking experience, including in Bank of Baroda and as an Executive
Director in United Bank of India. Prior to joining the Bank, he was
Executive Director in United Bank of India till 2017.
• Krishnan Sankarasubramaniam* The Board, pursuant to its resolution
has appointed Krishnan Sankarasubramaniam as the Managing
Director & CEO with effect from September 4, 2022. Prior to joining
the Bank, he was associated with Indian Bank, Syndicate Bank (which
was merged into Canara Bank) and Punjab and Sind Bank.
• Niranjan Sankar A is the Non-Executive Director of the Bank. He has
over 22 years of experience in small scale undertakings.
• S R Ashok is the Non-Executive Director of the Bank. He is a doctor by
profession and presently serves at the Thoothukudi Medical College
Hospital.
• Asok Kumar P C G is the Non-Executive Director of the Bank. He has
over 25 years of experience investing in the stock market.
Tamilnad Mercantile Bank Ltd | IPO Note
September 5, 2022
4
Financial Summary
Income Statement (Consolidated)
Y/E March (₹ cr)
FY’20
FY’21
FY’22
INCOME
Interest earned
3,466
3,609
3,834
Interest Expended
2,147
2,072
2,019
Net Interest Income
1,320
1,538
1,815
% chg
17%
18%
Other Income
526
644
823
Total Income
1,846
2,182
2,638
Operating Expenses
851
980
1,111
Cost to Income (%)
46%
45%
42%
PPoP (Operating Profit)
995
1,202
1,527
Provisions & Contingencies
410
404
402
PBT
585
798
1,125
current tax
156
192
293
deferred tax
21
3
10
Total Taxes
177
195
303
PAT
408
603
822
% chg
48%
36%
EPS
2.86
4.23
5.77
Source: Company, Angel Research
Balance Sheet (Consolidated)
Y/E March (₹ cr)
FY’20
FY’21
FY’22
Sources of Funds
Capital
143
143
143
Reserves & Surplus
3,837
4,437
5,193
Total Equity
3,980
4,580
5,336
Deposits
36,825
40,970
44,933
Borrowings
324
0
0
Other Liabilities and Provisions
1,630
1,977
2,590
Total Liability & Equity
42,759
47,527
52,858
Application of Funds
Cash with RBI
1,414
1,680
2,113
Balances with Banks
2,322
1,025
1,739
Investments
9,467
11,703
13,035
Advances
27,716
31,070
33,492
Fixed Assets
128
137
211
Other Assets
1,711
1,912
2,269
Total Assets
42,759
47,527
52,858
Source: Company, Angel Research
Tamilnad Mercantile Bank Ltd | IPO Note
September 5, 2022
5
Return on Equity (ROE)
Particular
2020
2021
2022
Interest Income
8.1%
7.6%
7.3%
Interest Expenses
5.0%
4.4%
3.8%
Net Interst Income
3.1%
3.2%
3.4%
Non Interest Income
1.2%
1.4%
1.6%
Total Income
4.3%
4.6%
5.0%
Operating Cost
2.0%
2.1%
2.1%
PPoP
2.3%
2.5%
2.9%
Provisions
1.0%
0.8%
0.8%
PreTax Profit
1.4%
1.7%
2.1%
Tax
0.4%
0.4%
0.6%
ROA
1.0%
1.3%
1.6%
Leverage
10.74
10.38
9.91
RoE (%)
10.2%
13.2%
15.4%
Source: Company, Angel Research
Key Performance
Particular
FY20
FY21
FY22
Total Business
65,061
72,511
78,681
Deposits
36,825
40,970
44,933
Credit to deposit ratio
75.3%
75.8%
74.5%
Cost of deposits
6.3%
5.5%
4.9%
Net advances
27,716
31,070
33,492
Yield on advances
10.2%
9.7%
9.5%
Credit cost
1.5%
1.4%
0.6%
Net interest income
1,320
1,538
1,815
Net interest margin
3.6%
3.8%
4.1%
Operating profit
995.0
1202.2
1526.8
Net profit
407.7
603.3
821.9
Return on assets
1.0%
1.3%
1.7%
Return on equity
10.7%
14.1%
16.6%
CASA to total deposits ratio
25.9%
28.5%
30.5%
Cost to income ratio
46.1%
44.9%
42.1%
Source: Company, Angel Research
Tamilnad Mercantile Bank Ltd | IPO Note
September 5, 2022
6
Research Team Tel: 022 - 40003600 E-mail: [email protected] Website: www.angelone.in
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