IPO Note : SBFC Finance Limited By Nirmal Bang Ltd
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BACKGROUND
Incorporated in 2008, SBFC’s primary customer base includes small business owners, self-employed individuals, and salaried and workingclass individuals. SBFC provides Secured MSME Loans and Loans against Gold with an average ticket size of Rs. 10 Lacs (MSME Loans). Its robust underwriting processes in this unserved borrower segment has resulted in healthy portfolio quality indicators with GNPA/NNPA at 2.4%/1.4% combined with NIMs of ~9.3% resulting in ROA/ROE of 2.9%/9.9% for FY23. The AUM has grown to Rs. 4,415 Cr as of FY23, from Rs. 2,070 Cr as of FY21, at a CAGR of 46% between FY21-FY23.
Objects and Details of the Issue:
The public issue consists of Offer For Sale of Rs. 425 Cr and Fresh Issue of Rs. 600 Cr aggregating to total issue size of Rs. 1025 Cr.
Investment Rationale:
* Secured MSME loans with ticket size between Rs. 5 and 30 Lacs has witnessed high growth within the overall secured MSME portfolio.
* 100% in-house sourcing; comprehensive credit assessment and robust collections framework, leading to good asset quality
* Access to diversified and cost-effective long-term financing
Valuation and Recommendation:-
SBFC is a proxy play on secured business loans to self-employed individuals which is one of the fastest growing segments in lending. SFBC has grown its AUM at a CAGR of 46% over FY21-23, one of the fastest amongst listed financials. With a loan book of just Rs. 4415 Cr as on FY23, the runway for accelerated growth is huge. Owing to SBFC’s focus on low ticket size (Rs. 10 Lacs in MSME) and self employed segment; its business is a difficult one to establish and execute, especially with regards to the underwriting capabilities for this segment which acts as durable competitive advantage and thus SBFC faces low competition. SBFC is being offered at a discount to listed comparable peers on P/B basis and thus we recommend ‘Subscribe’ to the issue.
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