When SBFC Finance gets listed on August 16, it is likely to debut with a 35-40 percent premium over its issue price of Rs 57 per share, against the 70 percent premium that was expected earlier.
If the strong initial public offering (IPO) subscription numbers and robust business model with stable asset quality were the factors behind the bullishness till last week, the correction in equity markets is the main reason for this shift, experts said.
In more than three-and-a-half weeks, especially since July 20 when Nifty hit a record high of 19,992, the index has corrected around 3 percent and experts largely expect the consolidation to continue in the market. The runaway rally since the end of March is unlikely in the coming weeks.
Till last week, SBFC traded consistently with a 70 percent premium in the grey market, but since the start of current week, the premium dropped up to 40-45 percent over the upper price band, analysts said on conditions of anonymity. The grey market is an unofficial market for trading IPO shares till listing.
The Rs 1,025-crore IPO was subscribed 70.16 times during August 3-7, with qualified institutional buyers (QIBs) purchasing 192.89 times the allotted quota, high net-worth individuals 49.09 times, retail 10.99 times and employees 5.87 times the portion set aside for them.
"Considering all the rationale, we expect a listing gain of around 35-40 percent against the 65-70 percent expected earlier over the final IPO price, given the subdued market mood," Prashanth Tapse, Research Analyst & Senior VP, Research, Mehta Equities, said.
‘Listing gain justified’
The current listing gain is justified based on its attractive IPO valuations, strong anchor book, impressive financial track record, followed by a business model with a high focus on the under-served and under-banked customers, which gives the company room to get premium listing, he believes.
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Astha Jain, senior research analyst at Hem Securities, also expects SBFC to list at a 40 percent premium to the issue price.
The professionally managed NBFC, with a focus mainly on the MSME loans segment (which has over 80 percent contribution to total revenue) and gold loans (17 percent to revenue) recorded assets under management growth at a CAGR of 44 percent during FY19-FY23, with significant disbursement growth at a CAGR of 40 percent during the same period.
"Its balance sheet has consistently improved, with net worth reaching Rs 1,727.27 crore as of March 2023, up by 34 percent over March 2022.
Additionally, a stable credit history, risk management policies, and brand equity have enabled it to access borrowings at a competitive cost, with the average cost of borrowing at 8.22 percent for FY23 against 7.65 percent in FY22," SBI Securities said.
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With a footprint in 120 cities with 152 branches in India, the company also focuses on loans, with ticket size in the range of Rs 5 lakh to 30 lakh, which contributed over 87 percent to its total AUM in FY23.
With direct customer sourcing and strong relationships, the company maintains gross non-performing assets (NPAs) and net NPAs, with ratios of 2.43 percent and 1.41 percent in FY23 against 2.7 percent and 1.6 percent in FY22, respectively.
SBFC Finance has registered a net profit of Rs 150 crore for the year FY23, up 132 percent over the previous year, and net interest income grew by 49 percent to Rs 378.9 crore during the same period.
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The NBFC is backed by private equity company Clermont Group and investment bank Arpwood Group. Its public issue comprises a fresh issuance of shares worth Rs 600 crore and an offer for sale of Rs 425 crore by Arpwood Group entities. The price band for the offer was Rs 54-57 per share.
The fresh issue proceeds will be used for augmenting its capital base to meet future capital requirements for business and asset growth.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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