SBFC Finance Limited is a non-deposit taking non-banking finance company offering Secured MSME Loans and Loans against Gold, with a majority of the borrowers being entrepreneurs, small business owners, self-employed individuals, salaried and working class individuals. Among MSME-focused NBFCs in Bharat, they have one of the highest assets under management ('AUM') growth, at a CAGR of 44% in the period from Fiscal 2019 to Fiscal 2023. They have also witnessed healthy disbursement growth, at a CAGR of 40% between Fiscal 2021 and Fiscal 2023. As of March 31,2023, the average ticket size ('ATS') of the Secured MSME Loans, Loans against Gold and other unsecured loans, on the basis of disbursed amounts was Rs 0.99 million, Rs 0.09 million and Rs 0.69 million, respectively. As of March 31, 2023, the Gross NPA to AUM ratio for ticket sizes between Rs 0.50 million and Rs 3.00 million was 1.97%. The total AUM as of March 31,2021, March 31, 2022 and March 31, 2023 was Rs 22,213.23 million, Rs 31,921.81 million and Rs 49,428.23 million, respectively. As of March 31, 2021, March 31, 2022 and March 31, 2023, they had provided loans to 56,587, 72,816 and 102,722 customers, respectively. They serve customers in tier II and tier III cities. Company has a diversified pan-India presence, with an extensive network in the target customer segment. As of March31, 2023, they have an expansive footprint in 120 cities, spanning 16 Indian states and two union territories, with 152 branches. Among MSME focussed NBFCs, they had the lowest proportion of AUM emanating from the largest state in the portfolio as of March 31,2023, being 17.42%, demonstrating better diversification. As a result of the active management of state concentration, they have been able to maintain low levels of AUM concentration per state despite the growth over the years. The AUM is diversified across India, with 30.84%, being Rs 15,242.41million, in the North (in the states of Chandigarh, Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand), 38.53%, being Rs 19,047.97 million, in the South (in the states of Karnataka, Andhra Pradesh, Telangana, Tamil Nadu and Puducherry), and 30.63%, being Rs 15,137.85 million, in the West and East (in the states of Gujarat, Madhya Pradesh, Maharashtra, West Bengal, Assam and Bihar) collectively, as of March 31,2023. Company primarily focuses on small enterprise borrowers, whose monthly income is up to Rs 0.15 million, with a demonstrable track record of servicing loans such as gold loans, loans for two-wheeler vehicles and have a CIBIL score above 700 at the time of origination. They source customers directly through the sales team of 1,911 employees as of March 31, 2023, and have adopted a direct sourcing model through branch-led local marketing efforts, repeat customers or through walk-ins, which has helped them maintain contact with the customers and establish strong relationships with them, high levels of customer satisfaction and increased loyalty. The risk management and underwriting processes, including the extensive customer assessment methods and monitoring systems, have aided the healthy portfolio quality indicators such as low rates of Gross NPAs and Net NPAs. As of March 31, 2021, March 31, 2022 andMarch 31, 2023, the Gross NPA ratio was 3.16%, 2.74% and 2.43%, respectively, and the Net NPA ratio was1.95%, 1.63% and 1.41%, respectively. The Net Interest Margin (NIM) for FY21, FY22 and FY23 is respectively 11.73%, 9.39% and 9.23%. As per financial performance, SBFC Finance limited has posted total income / net profits of Rs 511.53 Cr / Rs 85.01 Cr (FY21) and Rs 530.70 Cr / Rs 64.52 (FY22) and Rs 740.36 Cr / Rs 149.73 Cr (FY23). So as per previous financials data, company has shown good growth. Company has an average EPS of Rs 1.25 and average RoNW of 7.97% for last three fiscals. Issue is priced at a P/BV of 2.96 as per NAV of 19.26 as on 31.03.23. If we attribute latest earnings of FY22 on fully diluted equity post issue, then asking price is at a P/E of around 94.01 and as per FY23 earnings P/E is around 40.51, which looks fully priced. As per RHP, peers comparison is shown in above table. On BRLM's front, three lead managers are associated with this IPO, and have handled around 123 IPOs in last three fiscals.ICICI Securities Limited : This is 37th IPO from this BRLM. From last 10 IPOs, 4 opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, one is trading below issue price and remaining are trading above issue price or at par. (As on 28.07.2023) Axis Capital Limited : This is 39th IPO from this BRLM. From last 10 IPOs, 3 opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, three are trading below issue price and remaining are trading above issue price or at par. (As on 28.07.2023) Kotak Mahindra Capital Company Limited : This is 32th IPO from this BRLM. From last 10 IPOs, 2 opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, two are trading below issue price and remaining are trading above issue price or at par. (As on 28.07.2023) As per financials, SBFC Finance Limited has shown good growth, RoNW is 9.93% and P/E is respectively 94.01 and 40.51 as per FY22 and FY23 earnings, which looks fully priced. Company is an NBFC, and the sector is expected to do well in future although its highly competitive. Net Interest Margin of company is very good. Performance of BRLM is good. So, we give SUBSCRIBE rating for this IPO. Readers must consult a qualified financial advisor prior to making any actual investment decisions.
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