SBFC Finance is a
NBFC offering secured MSME loans (79.3% of AUM) and gold loans (17.5%) to
entrepreneurs, small business owners, self-employed individuals, salaried and
working-class individuals. The company has posted strong growth in assets under
management (AUM) at a CAGR of 44% from FY2018 to FY2023 at Rs 4943 crore. It
has also witnessed healthy disbursement growth, at a CAGR of 40% between FY2021
and FY2023.
The loans with a
ticket size of Rs 5-30 lakh account for 87.27% of AUM. The average ticket size
(ATS) of secured MSME loans was Rs 9.9 lakh, gold loans Rs 0.90 lakh and other
unsecured loans Rs 6.9 lakh. The company has provided loans to 102,722
customers in tier II and tier III cities, focusing on customers who have a
strong credit history but may lack formal proof of income documents. The net
interest margin was healthy at 9.32% in FY2023.
SBFC Finance has a
diversified pan-India presence, with an extensive network in target customer
segment. It has an expansive footprint in 120 cities, spanning 16 Indian states
and two union territories, with 152 branches. Geographically diverse
distribution network, spread across the North, South, East and West zones,
allows to penetrate underbanked populations in tier II and tier III cities in
India.
As a result of active
management of state concentration, the company has been able to maintain low
levels of AUM concentration per state with the largest state 17.42%, despite
growth over the years. AUM is diversified across India, with 30.84% in the
North, 38.53% in the South and 30.63% in the West and East. The disbursements
across zones are also well-distributed, and the company has reduced
concentration risk across industries and sectors and no single industry
contributes more than 10% of loan portfolio.
Aseem Dhru is a CEO
of the company with more than 25 years of experience, and was previously Group
Head – Business Banking, Working Capital and Retail Agri business at HDFC Bank.
He has also been the Managing Director and CEO of HDFC Securities and was a
director on the board of HDB Financial Services.
SBFC Finance has
complete in-house origination of loans and benefits from risk management
framework. Leveraging significant operational experience, the company has set
up stringent credit quality checks and customized operating procedures that
exist at each stage for comprehensive risk management and have aided healthy
portfolio quality indicators such as low rates of Gross NPAs at 2.43% and Net
NPAs at 1.41% end March 2023.
The company primarily
focuses on small enterprise borrowers with monthly income up to Rs 1.5 lakh and
a demonstrable track record of servicing loans and a CIBIL score above 700 at
the time of origination. The company sources customers directly through a sales
team of 1,911 employees end March 2023, and has adopted a direct sourcing model
through branch-led local marketing efforts, repeat customers or through walk-ins.
In addition, the
company has entered into a co-origination agreement with ICICI Bank in 2019,
through which ICICI Bank and Company co-originate Secured MSME Loans at a
mutually agreed ratio of 80:20, respectively.
The company has also
created an onground technology-driven collections infrastructure that is
extensive, to ensure that the company maintains high asset quality.
Approximately 89.49% of Secured MSME Loan collections and 90.92% of unsecured
loan collections were non-cash-based EMI collections, thus reducing cash
management risk. Technology is at the core of operations. In terms of
distribution, the centralized real-time lending system is a multi-product
digital platform supporting mobile customer onboarding, paperless login and
loan processing, which leads to quicker turn-around time.
The company has
demonstrated a history of healthy financial performance. It has been able to
access borrowings at a competitive cost due to stable credit history, credit
ratings, conservative risk management policies and brand equity. Its average
cost of borrowing was 8.22% for FY2023.
The company is backed
by marquee institutional investors such as the Clermont Group, Arpwood Group
and Malabar Group, who provide their expertise to operations, including through
their representatives on Board. In addition to providing capital, institutional
shareholders have assisted in growth through strategic guidance based on their
previous experience and insight into the financial services sector in India.
The company received credit
rating upgrade of [ICRA] A+ (Stable) in October 2022. The company has received
a rating of CARE A+; Stable for long term bank facilities in April 2023.
Capital to Risk
Weighted Assets Ratio of the company stands at 31.9% end March 2023 with the
Tier I ratio at 31.71% and Tier II at 0.19%.
The
Offer and the Objects
The initial public
offer (IPO) consists of an offer for sale (OFS) to raise Rs 425 crore by
issuing 7.87 crore equity shares of face value of Rs 10 each at lower price
band Rs 54 and 7.46 crore equity shares at upper price band of Rs 57. The IPO
also consists of fresh issue to raise Rs 600 crore by issuing 11.11-10.53
equity shares.
Among the promoters, Arpwood
Partners Investment Advisors LLP is proposing to raise Rs 306 crore, Arpwood
Capital Rs 75 crore and Eight45 Services LLP Rs 44 crore in OFS.
The promoter and
promoter group shareholding would decline to 65.1% post IPO from 80.5% pre-IPO.
The issue is to be
made through the book-building process and will open on 03 August and will close
on 07 August 2023.
The company proposes
to utilize the net proceeds towards augmenting capital to meet future capital
requirements arising out of the growth of business and assets. The company also
expects to receive the benefits of listing of the equity shares on the stock exchanges
and enhancement of Company’s brand name amongst existing and potential
customers and creation of a public market for equity shares in India.
Strengths
The company has a
diversified pan-India presence with an extensive network to cater to the target
customer segment.
The company has
witnessed rapid growth since the commencement of operations in 2017. AUM has
grown at a CAGR of 49.17% during the last three years.
As of March 2022,
less than 15% of the approximate 70 million MSMEs in India have access to
formal credit in any form providing strong growth potential.
The company has made
significant investments in terms of infrastructure and personnel in setting up a
branch network in existing geographies.
Entire in-house loan originations
ensure a more direct and thorough understanding of the customer’s profile and
leads to better asset quality and low turn-around time.
A CIBIL score is
above 700 at the time of origination for 82.32% of secured MSME Loan customers.
The focus is on
collateral-backed lending and 96.44% of its loan portfolio was secured with
mostly self-occupied properties.
A spouse or parent is
made a co-borrower to ensure that there are joint holders for loans ensuring
lower defaults and more prompt repayment.
Secured MSME Loans
have an average LTV ratio of 42.51% and Loans against Gold is having an average
LTV ratio of 68.51%.
A stable credit
history, credit ratings, conservative risk management policies and brand equity
provides access diversified sources of funding at a competitive cost.
Weaknesses
About 81.33% of total
AUM of Secured MSME Loan customers are self-employed, which are often perceived
to be higher risk customers due to their increased exposure to fluctuations in
adverse economic conditions.
Due to recent growth,
a significant portion of the loan portfolio is relatively new and was disbursed
during the last 36 months.
The financial
services market is being served by a range of financial entities, including
traditional banking institutions, captive finance affiliates of players in
various industries, NBFCs and small finance banks
The company is
subject to the potential increase in competition brought about by changes in
the laws and regulations governing business.
More players in
consumer-facing businesses with a repository of data (such as e-commerce
companies and payment service providers) are expected to enter the lending
business, intensifying competition.
The company had a
negative asset liability mismatch of Rs 968.19 crore for over one year and up
to three years maturity and Rs 1072.30 crore for over three years and up to
five years maturity end March 2023.
The company derives a
significant portion of AUM at 15.6% and disbursements at 21.2% in FY2023 for
secured MSME loans from co-origination agreement with ICICI Bank. The
termination of the co-origination agreement may adversely affect growth and
prospects.
The gold loans
account for 17.5% of AUM of the company, while there is steep competition and
the top three gold financing NBFCs accounted for 70% share in NBFC gold loan
book in FY2023.
About 69.98% of AUM comes from six
states with a share of Karnataka at 17.4%, Uttar Pradesh at 15.5%, Telangana at
12.54% and Maharashtra at 10.5% end March 2023. The concentration in these
states exposes to adverse geological, ecological, economic and/or political
circumstances in those respective regions.
Valuation
SBFC Finance is one
of the fastest growing small business loans focused NBFCs with healthy earnings
performance in FY2023. The company has maintained stable asset quality. The
revenues of the company jumped 40% to Rs 740.36 crore and net profit galloped 132%
to Rs 149.74 crore in FY2023.
The EPS on post-issue
equity works out to Rs 1.4 for FY2023. At the price band of Rs 54 to Rs 57, P/E
works out to 38.4-40.5 times of EPS for FY2023.
Post-issue, the book
value (BV) will be Rs 23.8 at upper price band and adjusted BV (ABV) is Rs 23.2
(net of NNPA). The scrip is being offered at price to Adj BV multiple of 2.5x
at the upper price band.
Among peer NBFCs, Five
Star Business Finance is trading P/Adj BV (end March 2023) multiple of 4.9x, MAS
Financial Services at 3.0x and IIFL Finance at 2.6x.
In terms of P/E, SBFC
Finance is offered at 40.5x of EPS for FY2023 at the upper price band. Among
peers, Five Star Business Finance is trading at PE of 34.8x of EPS for FY2023.
MAS Financial Services at 21.2x and IIFL Finance at 15.7x.
SBFC Finance has
exhibited moderate RoE of 8.7% for FY2023, while the RoE was healthy at 13.9%
for Five Star Business Finance, 13.4% for MAS Financial Services and 16.7% for IIFL
Finance.
The RoA for SBFC Finance
was healthy 2.6% for FY2023, while it was robust at 7.0% for Five Star Business
Finance. MAS Financial Services has exhibited RoA of 2.6% and IIFL Finance 3.0%.
SBFC Finance : Issue highlights
|
For Fresh Issue Offer size (in no.
of shares crore)
|
|
- On lower price band
|
11.11
|
- On upper price band
|
10.53
|
Offer size (in Rs crore)
|
600.00
|
For Offer for Sale Offer size (in
shares crore)
|
|
- On lower price band
|
7.87
|
- On upper price band
|
7.46
|
Offer size (in Rs crore)
|
425
|
Price band (Rs)*
|
54-57
|
Minimum Bid Lot (in no. of shares
)
|
260
|
Post issue capital (Rs crore)
|
|
- On lower price band
|
1070.02
|
- On upper price band
|
1064.17
|
Post-issue promoter & Group
shareholding (%)
|
65.1
|
Issue open date
|
03-08-2023
|
Issue closed date
|
07-07-2023
|
Listing
|
BSE, NSE
|
Rating
|
45/100
|
SBFC Finance:
Financials
|
|
2103 (12)
|
2203 (12)
|
2303 (12)
|
Income from operations
|
469.87
|
486.09
|
676.75
|
Other Income
|
41.66
|
44.61
|
63.61
|
Total Income
|
511.53
|
530.7
|
740.36
|
Interest Expenses
|
238.46
|
220.6
|
276.45
|
Other expenses
|
115.83
|
164.83
|
217.77
|
Gross profit
|
157.25
|
145.26
|
246.14
|
Depreciation
|
9.54
|
11.78
|
12.71
|
Provisions
|
33.64
|
46.78
|
32.06
|
Profit before tax
|
114.07
|
86.70
|
201.37
|
Provision for tax
|
29.06
|
22.18
|
51.63
|
Net profit
|
85.01
|
64.52
|
149.74
|
EPS*(Rs)
|
0.8
|
0.6
|
1.4
|
Adj BV (Rs)
|
14.6
|
15.3
|
18.7
|
*EPS annualized on
post issue equity capital of Rs 1064.17 crore of face value of Rs 10 each
Figures in Rs crore
Source: SBFC Finance Issue Prospectus
|
|