Analysts have given a mixed verdict, staying cautious on IPO with probable pressure on margins, profitability and rising risk of defaults.
At the upper price band of Rs 57 per share, the stock is valued at 3x P/BV trailing FY23 book.
“Considering the subdued ROE profile of the company as well as high post-issue adequacy of 50%, return ratios are expected to remain under pressure in coming years. We have a cautious view on the issue,” said Incred Equities.
SBFC Finance is a non-deposit-taking, non-banking financial company offering loans including secured MSME loans and loans against gold.
The key competitive strengths include its pan-India presence, in-house sourcing, comprehensive credit assessment, underwriting and risk management framework.
The IPO, which comprises fresh equity issue of up to Rs 600 crore and an offer for sale (OFS) of up to Rs 425 crore, is priced in the range of Rs 54-57 per share.At the higher price band, analysts value the stock at 2.4x P/BVPS with a current book value per share of Rs 23.
Investors can bid for a minimum of 260 shares and in multiples thereafter.
About 50% of the offer is reserved for qualified institutional buyers (QIBs), 15% for non-institutional investors (NII) and the rest 35% for retail investors.
Choice Broking said it expects SBFC Finance to sustain a strong growth trajectory given the ample growth opportunities in the MSME segment and adequate capital with an additional boost to capital adequacy through a fresh issue of Rs 600 crore.
However, it added that rising competition in self-employed, secured MSME segments, high risky nature of focused segments, geographical risk and economic uncertainties are the key risks to the business. It has assigned a ‘subscribe with caution’ rating to the issue.
Meanwhile, LKP research recommended subscribing to the IPO, factoring the superlative return ratio (FY23 ROA of 3%) and further improvement post fundraise.
The proceeds from the fresh issuance worth Rs 600 crore will be used to boost its capital base to meet future capital requirements.
The company has witnessed spread expansion from 7% in FY21 to 7.7% in FY23 despite monetary tightening due to effective re-pricing of loans as well as improved rating profile which has kept the cost of funds under check.
For the year ending March 2023, the company’s revenues were at Rs 740 crore. The profit for the period was at Rs 149.7 crore.
ICICI Securities, Axis Capital, and Kotak Mahindra Capital Company are the book-running lead managers and KFin Technologies is the registrar of the offer.
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