Private equity company Clermont Group and investment bank Arpwood Group-backed non-banking finance company SBFC Finance, which focusses more on MSME segment, will be first initial public offering to be launched in the month of August 2023.
Here are 10 key things to know before subscribing to the issue:
1) IPO Date
The offer will open for subscription on August 3, while the closing date would be August 7. The anchor book, a part of qualified institutional buyers, will be opened for a day on August 2, a day before the issue opening.
2) Price Band
The price band for the offer has been set at Rs 54-57 per share.
3) Offer Size
The NBFC is planning to raise Rs 1,025 crore via public issue which comprises a fresh issuance of shares worth Rs 600 crore and an offer for sale (OFS) of Rs 425 crore by promoters.
Promoter entities - Arpwood Partners Investment Advisors LLP will be selling shares worth Rs 306.25 crore, Arpwood Capital Rs 75.16 crore, and Eight45 Services LLP Rs 43.59 crore via OFS.
The actual fresh issue size was Rs 750 crore, of which Rs 150 crore has already been raised via the allotment of 2.72 crore equity shares to Amansa Investments in a pre-IPO placement. Accordingly, the fresh issue size has been reduced to Rs 600 crore from Rs 750 crore.
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4) Objectives of Issue
SBFC Finance will utilise fresh issue proceeds, excluding IPO expenses, mainly for augmenting its capital base to meet future capital requirements arising out of the growth of the business and assets, while the offer for sale money will go to selling shareholders.
5) Lot Size
Investors can buy a minimum of 260 equity shares in the IPO and in multiples of 260 shares thereafter. Accordingly, retail investors can make a minimum investment of Rs 14,820 per lot (260 shares), and their maximum investment would be Rs 1,92,660 for 13 lots (3,380 equity shares).
The minimum investment by high networth individuals in the IPO would be Rs 2,07,480 for 14 lots (3,640 shares) and the maximum is Rs 9,92,940 for 67 lots (17,420 shares). Meanwhile for high networth individuals with more than Rs 10 lakh capital, the minimum application size would be Rs 10,07,760 for 68 lots (17,680 shares).
The company has reserved half of the offer size for qualified institutional buyers, while the 15 percent portion is reserved for high-networth individuals and the remaining 35 percent for retail investors.
6) Company Profile
SBFC Finance majorly offers secured MSME loans and loans against gold, mostly serving customers in tier II and tier III cities. By March FY23, it had provided loans to over 1.02 lakh customers.
Among MSME-focused NBFCs in India, it has one of the highest assets under management (AUM) growth, at a CAGR of 44 percent during FY19-FY23, to Rs 4,942.82 crore in FY23, while the disbursement growth during the same period was at a CAGR of 40 percent, as per CRISIL report.
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With a footprint in 120 cities with 152 branches in India, the company focusses on disbursing loans with a ticket size in the range of Rs 0.50 million to Rs 3 million and as of March 2023, 87.27 percent of its AUM had a ticket size within this range.
With the increasing presence of MSME lenders in smaller cities and lenders increasingly focusing on underserved customers, the portfolio of secured MSME loans with above ticket size is expected to grow at a CAGR of 18-20 percent between FY23-FY26.
As of FY23, the average ticket size of its secured MSME Loans on the basis of disbursed loans was Rs 0.99 million, loans against gold at 0.09 million and other unsecured loans at Rs 0.69 million.
7) Financials
SBFC Finance has recorded massive 132 percent YoY growth in profit after tax at Rs 150 crore for the year ended March FY23, with fees and other income rising 50 percent YoY to Rs 86.2 crore during the same period.
Net interest income, the difference between interest earned and interest expended, grew by 49 percent to Rs 378.9 crore, with disbursement for secured MSME segment growing 71 percent YoY to Rs 2,277 crore and loan against gold rising 17.4 percent YoY to Rs 1,323.4 crore for the year. Assets under management increased sharply by 55 percent YoY to Rs 4,943 crore during the same period.
Net interest margin dropped to 9.32 percent for FY23, down from 9.39 percent for FY22, while return on assets rose to 2.92 percent from 1.48 percent during the same period.
We have seen consistent improvement in the asset quality of the firm, with the gross non-performing assets in FY23 falling 31 bps YoY to 2.43 percent, and net NPA declining 22 bps to 1.41 percent compared to previous year.
On FY23 financial basis, SBFC is available at P/BV (price-to-book value) of 3x at upper price band of Rs 57 per share, which is better compared to peers Aavas Financiers, Home First Finance Company, and Five Star Business Finance which are available in the range of 3.78x-4.62x, while its P/E (price-to-earnings) stood at 35.18x, which is higher compared to peers having in the range of 28.8x-32.47x.
8) Promoters and Management
Clermont Group-owned firms SBFC Holdings Pte Ltd and Clermont Financial Pte Ltd, and Arpwood Group-owned Arpwood Capital and Arpwood Partners Investment Advisors LLP are the corporate promoters of the company, together holding 80.48 percent shares.
Neeraj Swaroop is the Independent Director and Chairperson on the board, while Aseem Dhru, who holds 4.2 percent equity in the company, is the Managing Director and Chief Executive Officer of the company.
Narayan Barasia is the Chief Financial Officer of the company, while Jay Mistry is the Company Secretary and Compliance Officer of the firm.
9) Key Risks
Here are key risks highlighted by Incred:
a) With pressure on margins and elevated cost of operations, profitability trend for SBFC may remain subdued in coming quarters.
b) Loan against property, though being a secured product, has a lengthy recovery mechanism due to various legal procedures attached to it. Most large banks have been remaining cautious against LAP loans in the past has resulted in a surge in LAP loans for NBFCs.
c) SBFC has witnessed a sharp rise in employee attrition during recent years whereby the attrition has peaked at ~60 percent which may result in a slowdown and also a probable rise in defaults.
d) The company has higher operating expenses due to rapid expansion. However, the management has assured operating leverage to play out with a rise in business momentum. But considering the need for higher operating expenses for employee retention as well as digitalization, operating leverage may play out at a relatively slower pace compared to expectation.
10) Allotment and Listing Dates
The basis of allotment of IPO shares will be finalised by the NBFC on August 10. Equity shares will be credited to the demat accounts of eligible investors by August 14. Unsuccessful investors will get refunds in their bank accounts by August 11.
SBFC will make a debut on the BSE and NSE on August 16, as per IPO schedule.
Its IPO shares traded at a 70 percent premium over the upper price band, in the grey market, analysts said on anonymity. The grey market is an unofficial market for trading in IPO shares till their listing on the bourses.
ICICI Securities, Axis Capital, and Kotak Mahindra Capital Company are the merchant bankers on the issue, while KFin Technologies is the registrar of the offer.
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