- 02 Aug 2023
- ICICIdirect
SBFC FINANCE LIMITED IPO OPENS FOR SUBSCRIPTION ON 3RD AUGUST
The market continues to do well, and even though it has not touched the much-awaited 20,000 mark, it is sitting strong around 19,500 levels. The IPO count for FY23 continues to increase. We are in August, and many IPOs are lined up for the month. To start the month, we have an interesting IPO to launch - SBFC Finance Limited. Investors can look forward to applying for SBFC Finance Limited IPO, and we will help you with the analysis in this article.
The IPO opens for subscription on the 3rd August and closes on the 7th August. In this article, we will share various aspects related to the company which may help you decide whether to subscribe or invest in the IPO for the long term.
SBFC Finance Limited IPO: Key Details
Below are the key details related to SBFC Finance Limited (SBFC) IPO:
- Issue Size: Rs 1,025 crore
- Price Band: Rs 54 - Rs 57
- Issue Details: Fresh issue of 600 crore and remaining OFS (Rs 425 crore)
- Market Cap: At the upper price band, Rs 6,066 crore
SBFC Finance Limited: About the business
SBFC Finance is a systemically important, non-deposit-taking non-banking finance company (NBFC-ND-SI) offering Secured MSME Loans and Loans against Gold. Most of their borrowers are entrepreneurs, small business owners, self-employed individuals, and salaried and working-class individuals.
Among MSME-focused NBFCs in India, they have one of the highest assets under management (AUM) growth, at a CAGR of 44% between FY19 to FY23. They have a diversified pan-India presence, with an extensive network in their target customer segment. As of March 31, 2023, the company has an expansive footprint in 120 cities, spanning 16 Indian states and two union territories, with 152 branches. Their geographically diverse distribution network, spread across the North, South, East, and West zones, allows them to penetrate underbanked populations in tier II and tier III cities in India.
Their complete portfolio of loans has in-house origination and benefits from its risk management framework. Leveraging its significant operational experience, SBFC has set up stringent credit quality checks and customized operating procedures that exist at each stage for comprehensive risk management.
SBFC Finance Limited: Industry Overview
NBFCs are classified based on liabilities into two broad categories: deposit-taking and non-deposit taking. Deposit-taking NBFCs are subject to requirements of capital adequacy, liquid assets maintenance, exposure norms, etc. Further, in 2015, non-deposit-taking NBFCs with an asset size of Rs 5 billion and above were labeled as ‘systemically important non-deposit taking NBFCs’ (NBFC–ND–SI) and separate prudential regulations were made applicable to them.
Corporate credit determines the growth in overall credit as it accounts for nearly two-thirds of systemic credit. Overall, systemic non-retail credit grew approximately 9% in FY19, mainly driven by public sector undertakings and the energy sector. The corporate credit of banks grew only 3% approximately year-on-year as of March 2019, as demand dropped sharply, and alternate capital market channels opened up.
In FY3, systemic credit showed strong growth on the back of pent-up retail demand from sectors like housing and auto. Credit demand also grew due to strong credit demand from NBFCs and the trade segment. CRISIL MI&A projects systemic credit to grow at 10% - 12% CAGR between FY23 and FY25.
SBFC Finance Limited: Peers
The company has many peers, both in listed and unlisted spaces. The company competes with players in:
- MSME finance - Vistaar Finance, Veritas Finance, AU Small Finance Bank, Non-home segment of affordable housing finance companies
- Loan against Gold segment - Fedbank Financial Services, Manappuram Finance, Muthoot Fincorp and Muthoot Finance
The major listed are Aavas Financiers, Home First Finance Co India, Aptus Value Housing Finance India, AU Small Finance Bank, and Five Star Business Finance. Let us compare them with SBFC Finance:
- For FY23, the total income of SBFC Finance is the lowest among all the listed peers. Most peers have double the total income, while the largest player is AU Small Finance with total income for FY23 being Rs 9,239 crore (nearly 13X of SBFC).
- Earning Per Share of SBFC is much below the peers. The average EPS (diluted) of all listed peers is 28.2, while that of SBFC is 1.71.
- Aptus Value Housing Finance India has the highest RoNW, while SBFC has the lowest among all peers.
- PAT for FY22 for SBFC is Rs 149.80 crore, the highest PAT is of AU Small Finance Bank of Rs 1,427.93 crore.
SBFC Finance Limited: Financials
One of the crucial parameters to consider while evaluating an IPO is the financial data of the last three financial years. Let us look at how the company has performed:
- For FY21, FY22, and FY23, SBFC Finance has reported revenue from operations of Rs 507.10 crore, Rs 529.05 crore, and Rs 732.81 crore, respectively. The revenue has grown at a CAGR of 22% during this period.
- SBFC Finance reported EBITDA of Rs 362.06 crore, Rs 319.09 crore, and Rs 490.53 crore for FY21, FY22, and FY23, respectively.
- The net profit reported by the company for the last three financial years is Rs 85.01 crore, Rs 64.52 crore, and Rs 149.74 crore, respectively. The net profit margin was 16.76%, 12.20%, and 20.43%.
- For the last three financial years, the company has reported an average EPS of Rs 1.17 and an average RoNW of 7.6%.
- Asset Under Management has increased continuously. For FY21, FY22, and FY23, the AUM was Rs 2,221.32 crore, Rs 3,192.18 crore, and Rs 4,942.82 crore, respectively. AUM has grown at a CAGR of 49.17%.
- The Gross NPA reported by the company for FY21, FY22, and FY23 is 3.16%, 2.74%, and 2.43%, respectively. The net NPA in the same period is 1.95%, 1.63%, and 1.41%, respectively. The asset quality has improved considerably in this period.
- For FY23, the ROA and ROE were 2.9% and 9.93%, respectively.
What are the competitive strengths of SBFC Finance?
As per the company, their competitive strength is as below:
- The SBFC Finance has a diversified pan-India presence with an extensive network to cater to its target customer segment.
- 100% of their loan portfolio has in-house origination, limiting their reliance on direct selling agents or connectors to ensure a more direct, thorough understanding of the customer’s profile.
- They have a comprehensive credit assessment, underwriting, and risk management framework
- The company also has an in-house collections team, responsible for detecting likely defaults early, thereby maintaining relatively low Gross NPA ratios.
Risks associated with the SBFC Finance
Below are the risks the company has highlighted in its RHP documents:
- The risk of non-payment or default by their borrowers may adversely affect the business, results of operations, and financial condition.
- They depend on the accuracy and completeness of the information provided by their customers and certain third-party service providers, and their reliance on any erroneous or misleading information may affect the judgment of their creditworthiness, and the value of and title to the collateral.
- Their inability to assess and recover the full value of collateral, or amounts outstanding under defaulted loans promptly, or at all, could adversely affect the business.