Considering SBFC Finance IPO? Prioritize Informed Decision-Making Before Investing
SBFC Finance IPO
Exploring the SBFC Finance IPO Opportunity: Key Details and Expert Insights
Investors looking to tap into the potential of the SBFC Finance IPO have until August 7th to make their move. The IPO presents an enticing price band of Rs 54-57, with lots of 13 shares per issue.
SBFC Finance, a prominent NBFC specializing in asset management, kicked off its IPO subscription on August 3rd. Impressively, it had already secured Rs 304 crore from 37 anchor investors before the IPO’s official launch.
These anchor investors acquired 5.34 crore equity shares at a rate of Rs 57 each. Notably, the gray market has showcased strong activity around SBFC Finance’s shares, indicating a Grey Market Premium (GMP) of Rs 40 based on the higher price of the IPO’s price band.
However, financial experts advise that making investment decisions should primarily rely on the company’s financials and fundamentals, rather than being swayed solely by signals from the gray market.
To provide a comprehensive overview of the IPO, let’s delve into its details, both positive and negative, and explore expert insights for potential investors.
Key Details of the SBFC Finance IPO
Investors have the window to participate in the SBFC Finance IPO until August 7th. The pricing is set within the range of Rs 54-57 per share, with lots consisting of 13 shares.
Employees are offered a discount of Rs 2 per share. The total IPO size amounts to Rs 1025 crore, with fresh shares worth Rs 600 crore issued at a face value of Rs 10 each, while the remaining shares worth Rs 425 crore are part of the Offer for Sale (OFS) segment.
Following a successful IPO, share allotment is scheduled for August 10th, and listing is expected in the market by August 16th.
The Registrar to the Issue is Keffin Tech. The capital raised from the issuance of new shares is intended for bolstering the company’s capital base.
Critical Considerations for Investment
While SBFC Finance exhibits strengths, it’s essential to acknowledge potential challenges. The company caters to a ticket size ranging from Rs 5 lakh to 30 lakh, serving a niche market without significant national-level financial institution presence.
This segment constitutes a substantial 87% of SBFC Finance’s Assets Under Management (AUM). Although this contributes to its strength, it also poses a significant risk.
An analysis of the company’s asset quality reveals nuanced perspectives. Experts emphasize that any assessment of credit and bad loans should ideally be based on the track record of a financial institution operating for 10-15 years.
SBFC Finance, comparatively young at six years, demands cautious evaluation. Its asset quality shows improvement, with gross NPA dropping from 2.74% to 2.43%, and net NPA reducing from 1.63% to 1.41% on an annual basis in FY2023. Notably, this improvement is measured against a relatively modest AUM of Rs 4900 crore.
A Rise in Concerns
Anubhuti Mishra, an analyst at Swastik Investmart, highlights concerns regarding SBFC Finance’s rising cost of funds and escalating debt.
The outstanding debt increased from Rs 2948 crore (7.65% rate) in FY2022 to Rs 3745 crore (8.2% average rate) in the following fiscal year.
Considering this, experts suggest that investors might consider the IPO for potential listing gains, while reserving long-term investment for AA and AAA rated NBFCs.
SBFC Finance faces competition from various players in the market. Secured MSME loan segment competitors include Five Star Business Finance, Veritas Finance, IIFL Finance, and Fedbank Financial Services, while Muthoot Finance, Manappuram Finance, and Shriram City Union Finance offer loans against gold pledge.
SBFC Finance trails in terms of return ratio compared to these competitors. The high attrition rate, around 60%, could potentially impact loan recovery, as departing employees possess crucial insights into customer risk profiles.
Promoter Group Dynamics
A significant consideration lies in the composition of SBFC Finance’s promoter group, comprising SBFC Holdings, Arpwood Capital, and Claremont Corporation – all private equity firms. In the realm of financial services, private equity firms are viewed with skepticism due to their exit-focused nature.
For instance, Arpwood Capital is divesting a portion of its stake through the IPO, reaping a substantial profit.
Positive Aspects of SBFC Finance IPO
Amidst the evaluations of risks, several positive aspects shine through. SBFC Finance specializes in Secured MSME Loans and Loans against Gold Pledge, with a focus on entrepreneurs and small business owners.
As one of the leading NBFCs catering to MSMEs, it boasts an impressive Assets Under Management (AUM) growth rate of 44% CAGR between FY2019-23.
Notably, a significant number of MSMEs lack access to organized finance, presenting an exciting opportunity for investors eyeing listing profits.
Furthermore, the prevailing uptrend in banking and NBFC stocks contributes to a positive market environment.
SBFC Finance’s co-origination agreement with ICICI Bank showcases its strategic approach, facilitating risk-sharing in the ratio of 80:20 between the bank and the NBFC.
Final Words
Investing in the SBFC Finance IPO demands a balanced assessment of its strengths, weaknesses, and overall market dynamics.
While its unique market segment and growth potential underscore its attractiveness, potential investors are urged to consider a diversified portfolio strategy and consult with financial experts before making their investment decisions.
