Spandana Sphoorty Financial, the Andhra Pradesh-based microfinance lender, will launch its initial public offering for subscription on August 5.
Axis Capital, ICICI Securities, IIFL Securities, JM Financial, IndusInd Bank and Yes Securities India are book running lead managers to the issue which will close on August 7.
Here are 10 key things to know about Spandana Sphoorty Financial IPO:
Company Profile
Spandana Sphoorty Financial is a leading, rural-focused NBFC-MFI with a geographically diversified presence in India. The company offers income-generating loans under the joint liability group (JLG) model, predominantly to women from low-income households in rural areas.
It is the 4th largest NBFC-MFI in India in terms of assets under management (AUM) at Rs 4,437 crore as on March 2019, a growth of around 40 percent YoY backed by healthy growth of 29 percent in disbursements.
As of June 2019, the company had 7,062 employees (including 5,051 credit assistants) operating out of 929 branches in 269 districts across 16 states and 1 union territory in India.
Public Issue
The issue consists of a fresh issue of Rs 400 crore and an offer for sale by promoters and investors.
The offer for sale is up to 59,67,097 shares by Kangchenjunga Limited, 14,23,114 shares by Padmaja Gangireddy, 7,96,509 shares by Vijaya Siva Rami Reddy Vendidandi (VSRRV), 7,83,747 shares by Valiant Mauritius Partners FDI Limited, 1,32,831 shares by Helion Venture Partners II, LLC, 1,29,732 shares by Kedaara Capital Alternative Investment Fund – Kedaara Capital AIF 1 and 1,23,695 shares by Helion Venture Partners, LLC.
Fund raising
The company is aimed to raise around Rs 1,198.13 crore at the lower end of price band of Rs 853-856 per share and Rs 1,200.93 crore at a higher price band.
Objective of Issue
The funds raised through the fresh issue will be used towards augmenting the capital base to meet future capital requirements.
Competitive Strengths
> It has a seasoned business model with resilient performance through business cycles.
> It has a high degree of client engagement and robust risk management, leading to superior asset quality and collections.
> It has streamlined its systems and processes and high employee productivity leading to low operating expense ratio.
> Its focus is on the high potential and under-served rural segment.
> It has geographically diversified operations leading to risk containment and business resilience.
> It has significant industry experience of promoter and management team.
Strategy
> Company aims to leverage its popular income generation loan products to derive organic business growth.
> Company aims to leverage its existing branch network by increasing loan portfolio and enhancing employee productivity.
> Company aims to increase presence in under-penetrated states and districts.
> Company aims to further diversify its borrowing profile and reduce the cost of borrowings.
Financials and Peer Comparison
During FY19, company's net interest income, pre-provisioning profit and net profit of the company grew at a robust pace of 87.5 percent to Rs 640 crore, 109.8 percent to Rs 519 crore and 66 percent to Rs 312 crore YoY, respectively.
The high profitability was supported by a 560bps YoY decline in the cost-income ratio at 24.9 percent, thus resulting in return ratios of 6.3 percent return on assets (versus 5.0 percent in FY18) and 16.5 percent return on equity (versus 13.5 percent in FY18).
Shareholders
Kangchenjunga Limited, incorporated under Mauritius laws and promoted by Kedaara Capital, is currently the largest shareholder in the company with 59.14 percent stake, followed by Padmaja Gangireddy who has 19.57 percent shareholding.
Among other shareholders Valiant Mauritius Partners FDI Limited, JM Financial India Trust II, Vijaya Siva Rami Reddy Vendidandi and Helion Venture Partners II LLC hold 7.77 percent, 5.56 percent, 2.5 percent and 1.3 percent stake respectively.
Promoters' (Kangchenjunga Limited, Padmaja Gangireddy and Vijaya Siva Rami Reddy Vendidandi) shareholding will be reduced to 62.58 percent from 81.22 percent post issue.
Here are top 10 shareholders at the time of filing RHP on July 25:
Board of Directors and Management
Padmaja Gangireddy is the Founder and Managing Director of the company. She holds a bachelors' degree in science and a bachelors' degree in communication and journalism. She worked at ASSIST (a non-governmental organisation) for seven years and her last held title was deputy director.
She founded SRUDO in 1998, became a promoter of the company in 2003 and has been a Managing Director on the board of directors of the company since April 19, 2003. She is the founder and promoter of Abhiram Marketing. She also serves as a director on the board of directors of Caspian Financial, Criss Financial and Abhiram Marketing.
Risks
Here are some risks highlighted by brokerage houses:
> Microfinance loans are unsecured and are susceptible to various operational, credit and political risks which may result in increased levels of nonperforming assets (NPAs), thereby adversely affecting the company business, results of operation and financial condition.
> The company business is vulnerable to interest rate risk, and volatility in interest rates could have a material adverse effect on the company net interest income, net interest margin and the company financial performance.
> The company’s operations are concentrated in the states of Karnataka, Madhya Pradesh, Orissa, Maharashtra and Chhattisgarh and any adverse developments in these states could have an adverse effect on the company’s business, financial condition, results of operations and cash flows.
> The company depends on the accuracy and completeness of information provided by credit bureaus about clients and counterparties for the company credit assessment and risk management. Any misrepresentation, errors in or incompleteness of such information could adversely affect the company business and financial performance.
> The business involves high-volume cash transactions, making it exposed to operational risks, including fraud, petty theft and embezzlement.
> Outstanding litigations against the company could affect the operations.
> Promoter running this business since inception could pose major key man risk.
> Rising competition remains a challenge.
> Regulatory and local disruption affects the financial condition.
