SBFC Finance IPO: 5 Things to Know

Initial public offerings (IPOs) are a product of a bull market. The euphoria in the stock market these days has led to the companies launching their public offers and more lined up in the next few months.

Sector wise, a lot of money is flowing into Non-Banking Finance stocks (NBFCs).

So far this year, only one finance company - Utkarsh Small Finance Bank successfully raise funds.

This week, another NBFC - SBFC Finance is set to open for subscription on 3 August 2023. Here are some important details about the upcoming IPO.

Issue Period: 3 August 2023 to 7 August 2023

Face Value: Rs 10 per share

Issue Size: Rs 10,250 million (m)

Type: Fresh issue of Rs 6,000 m and offer through sale of Rs 4,250 m

Price Band: Rs 54 to 57

Employee discount: Rs 2 per share

Lot size: 260 shares

Application Limit: Minimum one lot and maximum thirteen lots for retail investors.

The company has reserved not less than 50% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 35% of shares are available for retail individual investors.

Tentative IPO allotment date: 10 August 2023

Tentative listing date: 16 August 2023

Here are five key details about the IPO.

#1 About the company

Incorporated in 2008, SBFC Finance is a systemically important, non-deposit-taking Non-Banking Finance Company. The primary customer base of the company includes entrepreneurs, small business owners, self-employed individuals, and salaried and working-class individuals.

SBFC provides its services in the form of Secured MSME Loans and Loans against Gold.

The entity has a diversified pan-India presence through its extensive network. As of 31 December 2022, SBFC Finance had established its footprints in over 105 cities in 16 Indian states and two union territories. They currently have 137 branches.

#2 Financial Position

In financial year 2023, the company's revenue grew by 38.3% to Rs 6,541.5 m. The net profit stood at Rs 1497.4 m during the same period.

The asset under management (AUM) stood at Rs 49,428.2 and grew by 54.8%. AUM represents aggregate of gross loan book and share of partner bank for Loan under co-origination as of the last day of the relevant period.

Financial Snapshot (2021-23)

Particulars	31-Mar-23	31-Mar-22	31-Mar-21
Revenues (Rs m)	6,541.50	4,731.50	4,631.70
Revenue growth	38.30%	5.60%
Expenditure before Tax (Rs m)	5390	4,440.10	3,974.70
% of Total Income	82.40%	93.80%	85.80%
Net Profit	1497.4	645.2	850.1
Net Profit Margin (%)	22.90%	13.60%	18.40%
Net Worth	17,272.70	12,871.70	12,051.10
Return on net worth	9.90%	5.20%	7.70%
Basic Earnings Per Share (EPS) (Rs)	1.71	0.81	1.09
Diluted EPS (Rs)	1.62	0.79	1.06

#3 Peer comparison

According to the company's red herring prospectus, Aavas Financiers, Home First Finance, Aptus Value Housing Finance, AU Small Finance Bank and Five Star Business Finance are its listed peers in the finance sector in India.

Peer Comparison

Company	Total Income (Rs in m)	Net Profit (Rs in m)	EPS (Rs)		Return on Networth (%)
			Basic	Diluted
Aavas Financiers	16,106.1	1498	54.38	54.26	13.1%
Home First Finance	7956	2282.9	26.01	25.2	12.6%
Aptus Value Housing Finance	11,290	5,030.2	10.11	10.08	15.1%
AU Small Finance Bank	92,398.7	14,279.2	21.86	21.74	13%
Five Star Business Finance	15,289.3	6,035	20.71	20.49	13.9%

#4 Arguments in favour of business

SBFC Finance is backed by marquee institutional investors such as the Clermont Group, Arpwood Group and Malabar Group, who provide their expertise to their operations, including through their representatives on the board.

In addition to providing them with capital, their institutional shareholders have assisted them in their growth through strategic guidance based on their previous experience and insight into the financial services sector in India.

Industry trends suggest that the non-performing assets (NPA) for NBFCs giving loan to MSMEs, and self- employed people is on rise. However, the company has been able to reduce its NPAs consistently.

The NPA was at 3.2% for 2021 which reduced to 2.43% in 2023. It shows company's ability in maintaining asset quality.

#5 Risk factors

As of 31 March 2023, 81.3% of the total AUM of secured MSME loan customers are self-employed. During the period from 1 April 2021 to 31 March 2023, 80.1% of the loans disbursed (in terms of disbursal amount) by SBFC finance were to self-employed customers and amounted to Rs 42,051.7 m.

They also have a concentration of loans to MSMEs. Self-employed customers and MSMEs are often perceived to be higher risk customers than large corporate borrowers due to their increased exposure to fluctuations in cash flows due to adverse economic conditions.

Changes in RBI repo rates could affect the interest charged on interest-earning assets and the interest rates paid on interest-bearing liabilities.

There are eight FIRs filed against the company and its employees by clients. Such FIRs have been filed in relation to claims such as cheating, criminal conspiracy, criminal breach of trust, intentional insult, harassment, among others.

In conclusion

SBFC Finance is a systematically important NBFC. It has huge potential for growth as the interest rates in the country have started to stabilise. The repo rates too have been stable at 6.5% since February 2023.

The steady growth is reflected in the company's financial statements as well.

However, with government policies and regulations becoming more stringent, it becomes more cumbersome for NBFC to comply with all the applicable laws and regulations.

Just like any other investment opportunities, SBFC finance has its own pros and cons.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

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