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Last Updated : Aug 05, 2019 10:34 AM IST | Source: Moneycontrol.com

Spandana Sphoorty Financial IPO opens today; should you subscribe?

"SSFL's successful exit from corporate debt restructuring (CDR) mechanism in March 2017 (well ahead of scheduled date of Mar’18), consistent profits along with a healthy asset book, builds confidence in the prospects," Centrum Capital said.

Sunil Shankar Matkar

The initial public offering of microfinance lender Spandana Sphoorty Financial (SSFL) has opened for subscription on August 5, with a price band at 853-856 per share.

The company plans to raise around Rs 1,200 crore through public issue which consists of a fresh issue of Rs 400 crore and offer for sale of around Rs 800 crore by promoters and investors.

Spandana will use the money raised through fresh issue towards augmenting the capital base to meet future capital requirements.

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Most brokerages recommended subscribing the issue but with a long term perspective, and not for listing gains.

"SSFL's successful exit from corporate debt restructuring (CDR) mechanism in March 2017 (well ahead of the scheduled date of Mar’18), consistent profits along with a healthy asset book, builds confidence in the prospects," Centrum Capital said.

Given the low penetration of financial services in rural India, the ability of MFIs to reach out to the hinterlands and SSFL’s high operational efficiencies, the brokerage believes the company could have a considerable scope for growth going ahead.

Hence, Centrum suggests investors to subscribe to the issue for long term.

Mehta Equities also believes Spandana Sphoorty IPO provides good scope of growth as well as a favourable investment opportunity in MFI space for long term investors. Hence, investors can tap this IPO as a next long term investment idea in microfinance space. It recommends investors to subscribe to the issue for long term basis only, it advised.

At Rs 856, SSF commands Rs 5,505 crore market cap with P/E of 17x on its FY19 earnings, with AUM of Rs 4,437 crore (FY19) a growth of around 40 percent backed by healthy growth of 29 percent in disbursements.

On valuation parse at higher price band SSF trades at 2.91x P/BV multiples post issue which seems average when compared other listed MFI peers and considering women-focused business targeting to low income group, the self-employed, daily wage category and first-time borrowers, which acts as key factor of growth going forward, Mehta Equities said.

Also read: Spandana Sphoorty Financial IPO — all you need to know


SPA Securities believes higher yields are not sustainable as RBI does not permit lending rate to exceed more than 10 percent above the cost of funds on the balance sheet. However, it believes strong AUM growth of around 35 percent (around 52 percent CAGR for last 3 years) and increasing leverage to keep ROA/ROEs around 6.5percent /24 percent in the medium term.

As brokerage further believes the risk/reward ratio is encouraging, it also recommends subscribing the issue with a long-term perspective.

After considering parameters like price to adjusted book value on FY19 earnings post issue, Choice Broking also assigned subscribe with caution rating to the issue.

It said SSFL peer such as Creditaccess Grameen (nearest listed peer) is trading at P/ABV of 3.4(x), Satin Credit Care Network at P/ABV of 1.1(x).

However, there are some risks like company's regional concentration – over around 72 percent of AUM coming from top 5 states, socio-political issues in borrowing community, unsecured nature of loans may affect asset quality and profitability in case of defaults, business is vulnerable to interest rate risk, outstanding litigations against the company could affect the operations, rising competition etc, attached to this issue, which one has to consider before subscribing the issue.

Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Aug 5, 2019 10:34 am
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