SBFC Finance IPO: Apply to encash listing gains

SBFC Finance Ltd is tapping the capital markets with its fresh issue and offer for sale. The issue consists of a fresh issue of Rs600 crore and an offer for sale of Rs425 crore. The price band of the issue is Rs54-57. The issue will open on Thursday (August 3) and close on Monday (August 7). The company will raise Rs1,025 crore from the issue.

The anchor allotment finalised on Wednesday August 2. Prior to the issue opening, the company had done a pre-IPO round where it sold 2.72 lakh shares at Rs55 to Amansa Holdings. The promoters have further sold 1.58 crore shares and 6.18 crore shares at Rs55 to a group of marquee investors totalling Rs427 crore approximately. They have done a price discovery through this placement and fixed the price band at Rs54-57.

The company as the name suggests is an NBFC and has its focus on core lending to MSME in the Rs5 lakh to Rs30 lakh bracket. The company has its presence in 16 States and 2 Union Territories (UTs) covering 120 cities which are served through 152 branches. The company has an AUM of just under Rs5,000 crore at Rs4,942 crore as of March 23.

The company has grown the book at an impressive 49 per cent since FY21 to FY23. Sourcing of customers is 100 per cent in-house and the company does not use any outside agencies for the same. Revenue mix is 38 per cent from South, 31 per cent from North, 21 per cent from West and 10 per cent from East. The company has a focus on Tier-II and Tier-III towns and it has been receiving good traction. The CAGR has been higher than the industry for the last four years. Probably the low base four years ago could have contributed for the same to a reasonable extent.

The company also does co-origination where it handles the entire loan and the collection and processing of the loan, but takes only 20 per cent of the liabilities on its books with balance 80 per cent being on the books of the co-originator partner. This ensures a fee income for the NBFC on a sustainable basis.

The company earned an average yield of 15.9 per cent during FY23, which was up from 14.9 per c ent in the previous year. The net spread was 7.7 per cent, which was up from 7.2 per cent. The profit after tax or net profit was at 3.7 per cent against 2.4 per cent in the previous year.

The loan is 93.8 per cent against self-occupied residential or commercial property. Average loan to value is 42.5 per cent and almost 90.4 per cent of the loan is to women borrowers/co-borrowers. In terms of overall quality, GNPA stood at 2.4 per cent at the end of March 23 while NNPA was at 1.41 per cent. The PCR (Provision coverage ratio) is at 42.04 per cent.

The company reported an EPS of Rs1.71 for the year ended March 23 which on a fully diluted basis was Rs1.62. At the fully diluted EPS, the PE band is 33.33-35.19 times against the average peer group PE of 30.44. Very clearly there is overpricing in the issue.