State Bank of Bikaner and Jaipur (SBBJ)'s equity shares got listed for the first time on National Stock Exchange (NSE) on February 4, 1998. The Rs 100 paid-up scrip opened at Rs 545.05 as against the offer price of Rs 540. In the face of a consistent selling pressure, the scrip plunged to Rs 507 before recovering partially to close the day at Rs 519.70 with a loss of Rs 20.30 or 3.76 per cent on the offer price. On the muhurat day, 1,995 shares were transacted in 217 trades, at an average of a little over 9 shares per trade, indicating that small shareholders were active sellers. This maiden day's high retail volume on NSE is in direct contrast to the meagre trading of the bank's existing shares on BSE where only a total of 2,790 shares changed hands in 20 trading days during the entire month of January 1998. Even on February 4 only 80 existing shares were transacted on BSE.
During the current fiscal, after IndusInd Bank, SBBJ is the second bank out of the five listed to trade below the offer price onlisting. The other three banks -- Bank of India, Corporation Bank and ICICI Bank -- ended their muhurat trades on a high note, remaining well above their respective offer prices. The selling spree by small investors continued even on the second and third days on NSE. On the second day, after opening at Rs 520, the scrip soon lost ground to touch a low of Rs 501, but slightly recovered to close its second innings at Rs 506.45 in 116 trades comprising 1,255 shares. On the third day, the scrip's slide pierced the psychological barrier of Rs 500 when it fell to Rs 493, but gained grounds later to close at Rs 502.75 in 76 trades comprising 610 shares. The scrip has thus far lost Rs 37.25, or nearly 7 per cent over its offer price in just three days of trading on NSE.
On the BSE, the bank's new shares have been reportedly listed since February 5 but its impact is not assessable as the trading volumes on the two days have remained subdued. But there is a clear downward trend in the price. The scripwhich closed at Rs 531 on February 4, has been steadily losing out. On February 5, the closing price was Rs 516 and the next day it was Rs 513. Of course, between the closings on NSE and BSE, clearly the latter holds a price advantage. For how long? It is anyone's guess.
It may be recalled that SBBJ recently issued 13.6 lakh shares of Rs 100 each at a premium of Rs 440 per share, out of which SBI was given a firm allotment of 1,38,800 shares. After making reservations of 1,22,100 shares and 1,52,700 shares in favour of employees and NRIs/OCBs respectively, the net public offer worked out to 9,46,400 shares. The issue closed for public subscription on 27 November 1997.
While the basis of allotment was finalised on December 26, 1997 within 29 days of issue closure, it took another 39 days more for the promised trading on NSE to commence. The existing shares of the bank, of which a paltry 0.79 per cent was held by the public, are listed on Jaipur and Mumbai stock exchanges. It is thereforesurprising that the new shares could not be listed on JSE and BSE prior to the listing on the NSE. One of the lead managers to the issue confirms that the delay in obtaining the auditor's certification for the issue-related expenditure was the reason for the hold up in the listing of the new shares on JSE and BSE. As against the net public offer of 9.46,400 shares, SBBJ received 79,713 applications for 36,25,780 shares resulting in a oversubscription of 2.83 times.
However, a close look at the basis of allotment reveals that while the issue has been genuinely subscribed more than once by small applicants seeking less than or equal to 100 shares, the bulk of the oversubscription has come about through corporate applications. For instance, 955 applicants (both individual and corporates) sought 25,63,015 shares, clocking a high average of 2,685 shares per applicant. With 71 per cent of the total subscription coming from the latter category, the bank has also obviously followed what is by now hasbecome the well established `pressure-tactic' on clients to ensure the safe passage of bank issues.
The post issue equity of SBBJ is Rs 50 crore, of which 75 per cent is held by SBI. Out of the public holding of Rs 12.5 cr, about 0.58 per cent is in the hands of existing shareholders of the bank and the balance of 24.42 per cent is held by the bank's employees, NRIs/OCBs and Indian public. The allotment pattern for the present issue reveals that 6,25,900 shares representing nearly 12.5 per cent of the post issue equity is held by 1,275 bulk shareholders (with an average holding of 491 shares each) and 5,95,300 shares representing 11.9 per cent of the post issue equity is held by 71,181 small shareholders (with an average holding of a little over 8 shares each). A major disincentive to prospective individual investors in the bank is the restriction of shareholding to a maximum of 200 shares.
However, corporations have been thankfully excluded from the ambit of this provision. Considering theshareholding pattern, the price line of the scrip in the near term is as much dependent on the commitment of the bulk shareholders as it is on the sentiment of smaller shareholders. On the operational front, for fiscal 1998, the bank has forecast a net profit of Rs 64 crore on a year-end equity of Rs 50 crore, translating into an EPS of Rs 128 per Rs 100 paid-up share. The closing price of Rs 519.70 discounts the projected EPS for fiscal 1998 a little over four times.
Given the current drop in the prices of fixed income instruments as a sequel to the hike in the bank rate, SBBJ may have to provide for substantial depreciation on investments if the present tight money conditions last till the end of this fiscal. Significantly, the bank did not provide for any depreciation on its investments in its projected financials for fiscal 1998. The bank had an investment portfolio of Rs 2,282 crore at the end of fiscal 1997, out of which 76.26 per cent had been marked to market.
Assuming theyear-end investment corpus to be Rs 2,400 crore and the average decline in security prices to be 3 per cent, the bank may be staring at a depreciation charge in excess of Rs 50 crore for fiscal 1998, which will badly deflate the bottomline.
If this scenario is to unfold, the bank may end up with an EPS of barely Rs 25 per Rs 100 paid-up share.
Therefore, the longer the tight money conditions persist, the bleaker will be the short term prospects of the bank and consequently the scrip.
Based on the historical EPS for fiscal 1998 and the current prices of eight major commercial bank scrips, the banking industry's average P/E multiple works out to 9.4, with Bank of Baroda's 2.87 and HDFC Bank's 20.39 at the two extremes. For SBBJ, the current price discounts the last reported EPS 4.3 times. However, considering the potential threat of a drop in EPS for the current fiscal, the SBBJ scrip has a tough time ahead.
(Arranged by INVESTAR -- The Aarthik News & ResearchSyndicate)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
