Usha Financial Services IPO – set to open next week – is likely to attract significant attention from investors. As the bidding process approaches, it is essential to understand the key aspects of this offering. In our Usha Financial Services IPO analysis, we present ten important points derived from the Red Herring Prospectus (RHP) that potential investors should consider before participating in the IPO.
Table of Contents
1. Usha Financial Services IPO Analysis: Company Overview
Usha Financial Services is a non-banking finance company (NBFC) that provides lending solutions to other NBFCs, corporates, MSMEs, and individuals, focusing on women entrepreneurs. The company has formed partnerships with various NBFCs and organizations to facilitate loan services for MSMEs across multiple states in India. Currently, Usha Financial Services has an Assets Under Management (AUM) of INR 306.96 crore and a net worth of INR 106.03 crore. It maintains a strong Capital Risk Assets Ratio (CRAR) of 33.03% and a Debt to Equity (D/E) Ratio of 1.71.
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2. Usha Financial Services IPO Analysis: IPO Size & Timeline for Bidding
Usha Financial Services IPO aims to raise approximately INR 98.45 crores through a fresh issue of 58,60,000 shares, priced in the range of INR 160 – 168 per share. Investors can apply for a lot size of 800 shares (INR 1,34,400) and in multiples thereafter. Investors should stay updated on key dates, including:
- Opening date for bidding: 24 October 2024
- Closing date for bidding: 28 October 2024
- Finalization of Basis of Allotment: 29 October 2024
- Transfer of shares to demat accounts: 30 October 2024
- Expected date of listing: 31 October 2024
3. Usha Financial Services IPO Review: Business Model
The company employs two distinct business models to generate revenue
Retail Lending
Under the retail lending business model, the company provides the following (i) Green Finance Lending i.e., providing financial support for initiatives that promote environmental sustainability, such as electric vehicle and e-battery financing. This lending is facilitated through authorized dealers who distribute and support these electric vehicles and e-battery. (ii) MSMEs including shopkeepers, and individuals. Usha Financial Services offers financial products directly to Micro, Small, and Medium Enterprises (MSMEs), as well as to shopkeepers and retailers.
Wholesale Lending
Under the wholesale lending business model, the company offers financing solutions to fellow NBFCs for further lending to individual consumers or businesses and other body corporates for their working capital requirements. Wholesale Lending involves thorough risk management practices. This includes stringent due diligence to assess the creditworthiness of borrowing institutions and ensure their ability to repay borrowed funds.
4. Usha Financial Services IPO Analysis: Use of Proceeds
The funds raised from the fresh issue will be utilized for several purposes:
- To augment the capital base of the company – INR 70 crore
- To meet the general corporate purposes
- To meet out the issue expenses.
These allocations indicate a focus on growth and stability in the competitive financial services market.
5. Usha Financial Services IPO Review: Financial Performance
Usha Financial Services has shown consistent growth in its financial performance over the past few years. Key metrics include:
- Revenue growth: The company has demonstrated consistent year-on-year revenue growth. Over the past three fiscal years, its revenues were as follows: INR 63.22 crore in 2024, INR 45.63 crore in 2023, and INR 25.03 crore in 2022, resulting in a compound annual growth rate (CAGR) of approximately 59%. This upward trend underscores the company’s strong financial performance and its capacity to thrive in a competitive market.
- Profitability: Usha Financial has maintained profitability, with net profits showing an upward trend. The company’s profit increased significantly from INR 4.14 crore in FY 2022 to INR 13.45 crore in FY 2024.
- Asset quality: The company has successfully maintained its non-performing assets (NPAs) at a manageable level, which is essential for an NBFC. In Fiscal 2024, the net NPA to AUM ratio stands at 2.59%, a decrease from 4.04% in Fiscal 2022.
These indicators suggest a stable financial foundation as it moves towards public listing.
6. Usha Financial Services IPO Review: Valuation Metrics
The RHP provides insights into the company’s valuation metrics, which are critical for potential investors:
- Price-to-Earnings (P/E) ratio: Usha Financial Services, with a P/E ratio of 19.44, offers a stable investment opportunity appealing to value investors seeking lower risk. In contrast, its peer IBL Finance has a much higher P/E ratio of 45.47. This highlights the differing investment strategies: Usha is ideal for conservative investors, while IBL targets those pursuing aggressive growth.
- Return on Net Worth: The Return on Net Worth (RoNW) has shown a positive trend over the past three years, increasing from 9.20% in 2021-22 to 15.67% in 2022-23, before slightly declining to 14.30% in 2023-24. Despite this minor dip, the overall improvement indicates effective utilization of equity to enhance profitability and shareholder value.Â
Understanding these metrics will help investors gauge whether this upcoming IPO is priced attractively.
7. Usha Financial Services IPO Analysis: Borrowing, lending & Loan process
Usha Financial Services has formalized agreements and maintains relationships with four banks and 15 NBFCs to avail loan and financing facilities as necessary. The company borrows loans at 13.89% while the yield on average term loans is 17.64% for the Fiscal 2024. The company has disbursed a total of 10,941 loans of INR 306.96 crore for the Fiscal year 2024.
The company conducts thorough evaluations of borrowers before offering loans, using multiple checks to assess repayment capacity and ensure they meet strict criteria. The loans are EMI-based with competitive interest rates and favourable terms, disbursed directly into customers’ accounts through banking channels. By partnering with several NBFCs and other companies, Usha Financial Services facilitates and accelerates loan services for MSMEs across various states.
8. Collaboration Agreement and Loan Recovery
The company has partnered with 13 business entities to facilitate MSME loans, compensating them based on portfolio management performance. These partnerships enable the company to extend its lending services through efficient borrower sourcing and EMI collection across diverse regions. Additionally, the company distributes EV loans via dealers, though these dealers are not formal partners, and revenue from green financing (EV loans) accounts for just 1% to 2% of total revenue.
The company’s key partners include NBFCs and private companies like Aadhar India, Bargach Finance, Shubhalaxmi Finance, and others. They play a crucial role in building the MSME retail portfolio by utilizing their local expertise.
Loan recovery is robust, with a 98.34% collection efficiency. In cases of defaults, legal actions, including arbitration and Lok Adalat, are utilized to resolve disputes and ensure timely recovery.
9. Management Team
Usha Financial Services has a strong management team that plays a crucial role in the company’s operations and growth. Mr. Rajesh Gupta, the promoter and managing director, brings over 28 years of experience in the business & financial market, overseeing overall management and strategy development. Mr. Anoop Garg, the promoter and executive director, also has 24 years of experience in various capacities & domains and manages day-to-day operations. Ms. Geeta Goswami has 13 years of experience in business development, and legal & secretarial consultancy. She is the director and CEO, and adds her expertise in financial services, guiding key decisions and risk management. Together, this experienced team is committed to driving Usha Financial’s mission of providing tailored financial solutions and empowering women entrepreneurs.
10. Usha Financial Services IPO Review: Risk Factors
Investors should be aware of potential risks associated with investing in Usha Financial Services:
- The company has negative cash flows from its operating, investing and financing activities in the current and past years. Sustained negative cash flow could impact growth and business. Details of Fiscal 2024 are given below:
Operating Activities: INR 71.47 crore
Investing Activities: INR (8.06) crore
Financing Activities: INR (55.73) crore - There is outstanding litigation of INR 3.09 crore pending against promoters which, if determined adversely, could affect the business,
- Any deterioration in the credit quality of loans could adversely affect the business.
- The company depends on the top 10 customers for a significant portion of its revenues, which is 17.73% of the total revenue for the Fiscal year 2024.
- The credit rating of the company for Fiscal 2024 is BBB/stable, any downgrade in the rating could adversely affect the business.
The RHP outlines these risks clearly, allowing investors to make informed decisions based on their risk tolerance. Overall, Usha Financial Services IPO analysis tells us a tale of a company which has perfected the art of balancing NPAs with growth.
