Highlights
| Issue Size – 179-189 mn shares | Issue Open/Close – Aug 3/Aug 7, 2023 |
| Price Band (Rs) 54-57 | Issue Size- Rs 10.25 bn |
| Face Value (Rs) 10 | Lot Size (shares) 260 |
SBFC Finance Ltd. was Started in 2017 and it is a systemically important, non-deposit taking Non-Banking Finance Company (NBFC) that provides Secured MSME loans and Loans against gold, with most of their borrowers being entrepreneurs, small business owners, self-employed individuals, salaried individuals and working-class individuals. The company also offered other unsecured loans in the past which comprise Personal loans, Business and Professional loans but in 2022 company discontinued disbursal of other unsecured loans.
It has a presence in 16 states and 2 union Territories and has 1052 branches across India with the only focus on MSME Finance. The company focus segment is Rs 0.5 mn to Rs. 3 mn Ticket Size loans.
As an MSME-focused NBFC in India, the company has one of the highest Asset Under Management (AUM) growth rates in the country, with a CAGR of 44 pct from FY19 to FY23. Between FY21 and FY23, the company saw significant disbursement growth at a CAGR of 40%.
SBFC Finance Ltd intends to use the Net Proceeds to increase its capital base to meet future capital requirements emerging from the expansion of the company and assets.
Key Highlights
- According to the BLinC Invest Report, India’s MSME sector has a substantial credit gap of Rs 25 trillion, with formal sources meeting less than 15 pct of the overall credit demand of Rs 69.3 trillion. The company believes this allows decent room for growth in the coming years.
- 17 pct of AUM of SBFC comes from one state. i.e., Karnataka. All the states where the company has its presence are growing at 20 pct CAGR. SBFC Finance Ltd wants to stay in the existing states and there is no plan to expand in other states for the time being.
- SBFC lends money to those who have a CIBIL score of more than 700. 82 pct of AUM contributes to borrowers who have CIBIL scores of more than 700. The company Loan to Value Ratio stood at 42.5 pct. 97 pct of the AUM are secured loans and 3 pct of loans are unsecured.
- As of March 31, 2023, their AUM was distributed across India, with 30.84 pct in the North, 38.53 pct in the South, and 30.63 pct in the West and East combined. Their disbursements are also evenly dispersed among zones, and they have reduced their concentration risk across industries and sectors, as seen by the fact that no single industry, including the manufacturing sector, contributes more than 10 pct of their loan portfolio as of March 31, 2023.
- SBFC focuses on ticket size in the range of Rs 0.5 mn to Rs 3 mn. In this segment, the average Non-Performing Asset (NPA) stood at 4.2 pct whereas SBFC’s GNPA and NPA stood at 2.43 pct and 1.41 pct with a provision coverage ratio of 42.4 pct. The GNPA and NPA of the company are decreasing on a YoY basis.
- The Net Interest Margin (NIM) is decreasing over the last three years and currently stands at 9.32 pct. As a result, NIM has seen falling patterns that are cause for concern. Where the average cost of borrowing increased from 7.65 pct to 8.22 pct.
- Within 5 years, the company has been able to generate a Return on Asset (ROA) of 2.92 pct and a Return on Tangible Equity of 12.1 pct. The company also got [ICRA] A+ (stable) Rating from ICRA and Ind A+/stable rating from the India Ratings.
Valuation
Based on FY23 earnings, the IPO is priced at PE of 40.4x and is priced aggressively as compared to its peers. Only long-term investors may Subscribe to the issue.
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