It's a landmark week for Canara Bank as the PSU lender is about to gain huge profits from the sales of its shares in Canara Robeco Asset Management Company (AMC) and Canara HSBC Life Insurance Company. These IPOs could unlock significant value and might be one of the most lucrative exits in the Indian financial services sector over the past few years.
The Canara Robeco AMC IPO opened for subscription today, with the price band set between Rs. 253 and Rs. 266 per share. The entire issue is an offer for sale (OFS) by its promoters, Canara Bank and ORIX Corporation Europe N.V.
According to the red herring prospectus, Canara Bank is offloading 2.59 crore shares, valued at around Rs. 690 crore. The PSU lender’s weighted average cost of acquisition for these shares was just Rs. 2.01 per share, implying an astonishing 13,134% return at the upper price band of Rs. 266.
Following the IPO, Canara Bank’s stake in Canara Robeco will fall from 51% to 38%. The asset management arm’s robust growth in assets under management (AUM) and profitability has contributed to this massive valuation jump.
Brokerage firm Anand Rathi gave a positive outlook on the issue, noting that at the upper price band, the company is valued at a P/E of 27.8x its FY25 earnings with a post-issue market cap of Rs. 5,304 crore. It recommended a ‘Subscribe Long Term’ rating, suggesting strong growth potential in the AMC industry.
In the grey market, the Canara Robeco IPO is trading at a premium of Rs. 35, suggesting possible listing gains of nearly 13%.
The IPO will remain open for subscription until October 13 and is expected to list on October 16 on the BSE and the NSE. Lead managers for the issue are SBI Capital Markets, Axis Capital, and JM Financial.
Canara Bank is also gearing up for impressive gains from the Canara HSBC Life Insurance IPO, which opens for subscription on October 10. The PSU bank’s weighted average acquisition cost for these shares was Rs. 10 apiece, while the IPO price band has been set between Rs. 100 and Rs. 106.
At the upper end, Canara Bank is set to earn returns of nearly 960% on its investment.
Also Read: US Stock Market Today: S&P 500 gains 0.6%, Dow rises 0.4%, NASDAQ gains 0.9%, Gold climbs 1.5%
With the expected strong performance of IPOs, Canara Bank’s divestments have been well timed and may deliver record profits. The bank’s dual stake divestments are a demonstration of the bank’s strategy of creating value from its non-core, non-performing investments and strengthening its balance sheet.
Market analysts suggest that such exits not only build capital adequacy but also enhance investor perception of the ability of PSU banks to build long-term value through strategic monetization of assets.