SBFC Finance will make a debut on the BSE and NSE on August 16, as per IPO schedule.
SBFC Finance, a non-banking finance company backed by private equity firm Clermont Group and investment bank Arpwood Group, will have its first initial public offering (IPO) in August 2023. Its main focus is on the MSME sector.
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Here are 10 key things to know before subscribing to the issue:
1) IPO Date
On August 3, people will be able to sign up for the deal. It will end on August 7. The anchor book, which is for qualified institutional buyers, will be open for one day on August 2, a day before the issue opens.
2) Price Band
3) Offer Size
The NBFC wants to raise Rs 1,025 crore through a public issue, which will include a new issuance of shares worth Rs 600 crore and an offer for sale (OFS) by founders worth Rs 425 crore.
Promoter companies, including Arpwood Partners Investment Advisors LLP, Arpwood Capital, and Eight45 Services LLP, will sell shares through OFS for a total of Rs 306.25 crore, Rs 75.16 crore, and Rs 43.59 crore, respectively.
The real size of the new issue was Rs 750 crore, but Rs 150 crore has already been raised by giving 2.72 crore equity shares to Amansa Investments as part of a pre-IPO placement. So, the value of the new issue has gone down from Rs 750 crore to Rs 600 crore.
4) Objectives of Issue
SBFC Finance will use the money from the fresh issue, minus the costs of the IPO, to increase its capital base to meet future capital needs caused by the growth of its business and assets. The money from the offer for sale will go to the selling owners.
5) Lot Size
At the IPO, investors can buy at least 260 stock shares, and after that, they can buy multiples of 260 shares. So, retail investors can spend as little as Rs 14,820 per lot (260 shares) and as much as Rs 1,92,660 for 13 lots (3,380 equity shares).
People with a lot of money could spend as little as Rs 2,07,480 for 14 lots (3,640 shares) and as much as Rs 9,92,940 for 67 lots (17,420 shares) in the IPO. The minimum entry size for people with more than Rs 10 lakh in capital would be Rs 10,07,760 for 68 lots (17,680 shares).
Half of the offer size is set aside for qualified institutional buyers, 15% is set aside for high-net-worth people, and the remaining 35% is set aside for small investors.
6) Company Profile
SBFC Finance mostly helps people in tier II and tier III towns get secured MSME loans and loans against gold. By March FY23, it had lent money to more than 1.02 lakh people.
According to a CRISIL report, among MSME-focused NBFCs in India, it has one of the best growth rates in assets under management (AUM), with a CAGR of 44 percent from FY19 to FY23, to Rs 4,942.82 crore in FY23. During the same time period, disbursements grew at a CAGR of 40 percent.
The company has 152 branches in 120 places in India and focuses on giving out loans with a ticket size between Rs 0.50 million and Rs 3 million. As of March 2023, 87.27 percent of its AUM had a ticket size in this range.
With more MSME lenders in smaller cities and more lenders focusing on underserved customers, the portfolio of secured MSME loans with ticket sizes of $1 million or more is projected to grow at a compound annual growth rate (CAGR) of 18 to 20 percent from FY23 to FY26.
As of FY23, the average loan amount for its guaranteed MSME Loans was Rs 0.99 million, the average loan amount for loans against gold was Rs 0.09 million, and the average loan amount for other unsecured loans was Rs 0.69 million.
For the year that finished in March FY23, SBFC Finance’s profit after taxes grew by a huge 132% to Rs 150 crore. During the same time period, fees and other income grew by 50% YoY to Rs 86.2 crore.
The difference between how much interest was made and how much was spent on interest grew by 49 percent to Rs 378.9 crore. Disbursements for secured MSME grew by 71 percent YoY to Rs 2,277 crore, and loans against gold grew by 17.4 percent YoY to Rs 1,323.4 crore for the year. During the same time period, the amount of assets under care rose sharply by 55% YoY to Rs 4,943 crore.
For FY23, the net interest margin went down from 9.39 percent to 9.32 percent, while the return on assets went up from 1.48 percent to 2.92 percent during the same time period.
The quality of the company’s assets has been getting better over time. In FY23, gross non-performing assets fell 31 basis points year over year to 2.43 percent, and net non-performing assets fell 22 basis points year over year to 1.41 percent.
On an FY23 financial basis, SBFC has a P/BV (price-to-book value) of 3x at the upper price band of Rs 57 per share, which is better than peers Aavas Financiers, Home First Finance Company, and Five Star Business Finance, which have a range of 3.78x-4.62x. However, its P/E (price-to-earnings) stood at 35.18x, which is higher than peers with a range of 28.
8) Promoters and Management
The company’s owners are SBFC Holdings Pte Ltd, Clermont Financial Pte Ltd, Arpwood Capital, and Arpwood Partners Investment Advisors LLP, all of which are owned by the Arpwood Group. Together, they own 80.48 percent of the company’s shares.
Neeraj Swaroop is the Independent Director and Chairperson of the Board, and Aseem Dhru is the Managing Director and Chief Executive Officer of the company. Dhru owns 4.2% of the company.
The company’s Chief Financial Officer is Narayan Barasia, and the Company Secretary and Compliance Officer is Jay Mistry.
9) Key Risks
Here are key risks highlighted by Incred:
a) Because margins are being squeezed and operating costs are going up, SBFC may not make as much money in the next few quarters.
b) Even though a loan against property is a secured product, it takes a long time to get the money back because of all the legal steps that go along with it. Most big banks have been wary of LAP loans in the past, which has made NBFCs take out more LAP loans.
c) In the past few years, SBFC has seen a sharp rise in employee turnover, which has reached a peak of 60%. This could cause a slowdown and possibly a rise in defaults.
d) The company’s running costs have gone up because it has grown so quickly. But the management has promised that running leverage will come into play as business momentum goes up. But because of the need for higher running costs to keep employees and to keep up with digitalization, operating leverage may happen more slowly than expected.
10) Allotment and Listing Dates
The NBFC will decide how the IPO shares will be given out on August 10. By August 14, equity shares will be added to the demat accounts of those who are qualified. Investors who didn’t do well will get their money back by August 11.
According to the IPO plan, SBFC will start trading on the BSE and NSE on August 16.
Analysts who didn’t want to be named said that its IPO shares traded on the “gray market” at a 70% premium over the top price band. The grey market is an illegal place where IPO shares can be bought and sold before they are put on the bourses.
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Merchant bankers for the issue are ICICI Securities, Axis Capital, and Kotak Mahindra Capital Company. The offer is being registered by KFin Technologies.
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