Hectic activity is once again back on the Dalal Street. After successful IPOs of IdeaForge, Cyient DLM, and Senco Gold, non-deposit-taking non-banking finance company (NBFC) player SBFC Finance is tapping the primary market with its INR 1,025 crore IPO. Here is everything you need to know about SBFC Finance IPO in 10 points.
#1 Business Background
SBFC Finance is a systemically important, non-deposit taking (NBFC-ND-SI) player offering Secured MSME Loans and Loans against Gold, with a majority of its borrowers being entrepreneurs, small business owners, self-employed individuals, salaried and working-class individuals. The company focuses on ticket size in the range of INR 5 lakhs to INR 30 lakhs. Among MSME-focused NBFCs in India, SBFC Finance has one of the highest assets under management (AUM) growth, at a CAGR of 44% in the period from Fiscal 2019 to Fiscal 2023. It has also witnessed robust disbursement growth, at a CAGR of 40% between Fiscal 2021 and Fiscal 2023.
SBFC Finance’s AUM is diversified across India, with 30.84% in the North, 38.53% in the South, and 30.63% in the West and East collectively, as of 31 March 2023. The disbursements across zones are also well-distributed, and it has reduced the concentration risk across industries and sectors, as demonstrated by the fact that no single industry, including the manufacturing sector, contributes more than 10% of the loan portfolio as of 31 March 2023.
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#2 Industry Overview of SBFC Finance
SBFC Finance operates in an industry which has grown in importance by catering to customers in underbanked regions and demographies. These customers would not be catered to by traditional financial institutions, due to the absence of credit history or lack of proper collateral records.
As of 20 June 2023, approximately only 16.9 million MSMEs have registered on UDYAM, of the estimated 70 million MSMEs in India, leaving a large number of MSMEs without access to organized finance owing to their unregistered status.
According to market research estimates, NBFC credit is expected to grow at 12% – 14% between Fiscal 2023 and Fiscal 2025. Credit growth is expected to be driven by the retail vertical, including housing, auto, and microfinance segments. Rapid revival in the economy is expected to drive consumer demand in Fiscal 2024, leading to healthy growth for NBFCs.
Housing and infrastructure loans account for more than 50% share of the overall NBFC portfolio as of Fiscal 2023.
#3 SBFC Finance IPO Details
| SBFC Finance IPO Dates | 3 – 7 August 2023 |
| SBFC Finance IPO Price | INR 54 – 57 per share |
| Fresh issue | INR 600 crore |
| Offer For Sale | INR 425 crore |
| Total IPO size | INR 1,025 crore |
| Minimum bid (lot size) | 260 shares (INR 14,820) |
| Face Value | INR 10 per share |
| Retail Allocation | 35% |
| Listing On | BSE, NSE |
#4 SBFC Finance IPO – Business Segments
The company offers three types of loans: Secured MSME Loans, Loans against Gold, and Other unsecured loans.
Secured MSME Loans – As of March 31, 2023, the average ticket size of Secured MSME Loans is INR 0.99 million, with an average contractual tenure of 9.84 years. Secured MSME Loans as a percentage of AUM increased from 64.93% in FY 21 to 79.31% in FY 23. The company serves over 34,738 borrowers in this category.
Loans against Gold – Borrowers can pledge their gold possessions for a loan, with up to 75% of the gold item’s value sanctioned. These loans are collateralized by gold jewelry, resulting in minimal documentation and credit assessment requirements. The company operates in 16 states and 2 union territories, serving 59,437 borrowers in this business. Loans against Gold as a percentage of AUM declined from 25.21% in FY 21 to 17.48% in FY 23. Gross NPA ratios for this portfolio were 1.50%, 1.71%, and 1.21% for FY 2021, 2022, and 2023, respectively.
Other Unsecured Loans include personal loans and business and professional loans. Personal loans are offered to salaried individuals for various purposes, such as weddings, education, home renovation, or purchases. The average ticket size for personal loans is INR 0.69 million, with an average tenure of 4.83 years as of March 31, 2023. The AUM of other loans for FY 2021, 2022, and 2023 were INR 219.0 crores, INR 226.35 crores, and INR 158.72 crores, respectively. However, the company discontinued disbursing other unsecured loans from September 2022.
#5 Extensive Branch Network
SBFC Finance has an extensive network of 152 branches, as of 31 March 2023, spread across 16 states and 2 union territories, and approximately 129 districts across India, with Karnataka, Uttar Pradesh, Maharashtra, and Telangana being its key states.
#6 In-house sourcing, No DSA
100% of SBFC Finance’s loan portfolio has in-house origination, limiting its reliance on direct selling agents or connectors in order to ensure a more direct, thorough understanding of the customer’s profile. The company sources customers directly through its sales team of 1,911 personnel and has adopted a direct sourcing model through branch-led local marketing efforts.
#7 SBFC IPO – Financial Performance
| FY2021 | FY2022 | FY2023 | |
| Revenue | 463.17 | 473.15 | 654.15 |
| Expenses | 397.47 | 444.01 | 539.00 |
| Net income | 85.01 | 64.52 | 149.74 |
| Margin (%) | 18.35 | 13.64 | 22.89 |
#8 Credit Ratings
The company received a credit rating of Ind A/ Stable in Fiscal 2018 and has subsequently been upgraded to Ind A+/ Stable in Fiscal 2022 by India Rating. It has received a credit rating upgrade of [ICRA] A+ (Stable) in October 2022 from [ICRA] A (Positive) in October 2021, for Its term loan and NCDs. It has received a rating of CARE A+; Stable by CARE Ratings for our long-term bank facilities in April 2023.
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#9 SBFC IPO – Valuations
| FY 2021 | FY 2022 | FY 2023 | |
| EPS | 1.06 | 0.79 | 1.62 |
| PE ratio | – | – | 33.33 – 35.19 |
| RONW (%) | 7.67 | 5.18 | 9.83 |
| NAV | 14.66 | 15.42 | 19.26 |
| ROE (%) | 7.67 | 5.18 | 9.93 |
| EBITDA (%) | 78.17 | 67.44 | 74.96 |
| Debt/Equity | 2.93 | 2.87 | 2.55 |
#10 Peer Comparison
The listed peers have been considered the basis of the business, relevant products, distribution network, and target segment (ticket sizes) of the company.
| Company | AUM (Cr.) | AUM Growth (%) | Total Income (Cr.) | Profit After Tax (Cr.) | Gross NPA (%) | Net NPA (%) |
| SBFC Finance | 4942.8 | 54.84 | 740.4 | 149.7 | 2.43 | 1.41 |
| Aavas Financiers | 14,166.7 | 24.81 | 1,610.1 | 430.1 | 0.92 | 0.68 |
| Home First Finance | 7,198.0 | 33.79 | 795.6 | 228.3 | 1.61 | 1.10 |
| Aptus Value Housing Finance | 6,738.0 | 30.08 | 1,129.0 | 503.0 | 1.15 | 0.86 |
| AU Small Finance Bank | 59,158.0 | 23.68 | 9,239.9 | 1,427.9 | 1.66 | 0.42 |
| Five Star Business Finance | 6,914.8 | 36.47 | 1,528.9 | 603.5 | 1.36 | 0.69 |
