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SBFC Finance IPO comprises of a fresh issue of shares of ₹600 crore and an offer for sale of ₹425 crore. The promoters selling in the OFS include SBFC Holdings Pte Ltd, Clermont Financial Pte Ltd, Arpwood Partners Investment Advisors LLP, Arpwood Capital Partners, and Eight45 Services LLP. SBFC Finance Ltd is a systemically important non-deposit taking NBFC.

About SBFC Finance Limited:

• SBFC Finance Limited is a systemically important, non-deposit taking non-banking financial company offering loans including secured Micro, Small and Medium Enterprises loans and loans against gold.4
• Majority of its borrowers are entrepreneurs, small business owners, self-employed individuals, salaried and working class individuals.
  SBFC Finance Ltd is spread across 105 cities and towns located across 16 states and these are served through a network of 137 branches. The NBFC will use the proceeds from the fresh issue portion to boost its capital adequacy buffers to enable further growth in the loan book.
• The Promoters are SBFC Holdings Pte. Ltd., Clermont Financial Pte. Ltd., Arpwood Partners Investment Advisors LLP, Arpwood Capital Private Limited and Eight45 Services LLP.
• SBFC’s has a diversified pan-India presence, with an extensive network with footprint in 120 cities, spanning 16 Indian states and two union territories, with 152 branches. Its
• The Company’s AUM is diversified across India, with 30.84%, being Rs.15,242.41 million, in the North (in the states of Chandigarh, Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand), 38.53%, being Rs.19,047.97 million, in the South (in the states of Karnataka, Andhra Pradesh, Telangana, Tamil Nadu and Puducherry), and 30.63%, being Rs.15,137.85 million, in the West and East (in the states of Gujarat, Madhya Pradesh, Maharashtra, West Bengal, Assam and Bihar) collectively, as of March 31, 2023.
• SBFC Finance sources customers directly through their sales team of 1,911 employees as of March 31, 2023,

Financials: SBFC Finance IPO

Anchor Issue

Out of the total allocation of 5,34,07,893 Equity Shares to the Anchor Investors, 2,23,08,260 Equity Shares i.e. 41.77% of the total allocation to Anchor Investors were allocated to 10 domestic mutual funds through a total of 18 schemes. Some major investors are listed below.

SBFC Finance IPO: Salient Points

• NBFCs have grown in importance by catering to customers in underbanked regions or those who would not be catered to by traditional financial institutions.
• As per estimates of CRISIL, NBFC’s credit growth is expected in range of 10% – 12% from FY23 to FY25.
• Company is promoted by 3 financial investors, holding 80% of pre-IPO stake – SBFC Holdings Pte. Ltd/Singapore based Clermont Financial Pte. Ltd. owns 66% of pre-IPO shareholding, PE Arpwood 14% and Eight45 Services holding 1% stake.
• Company was earlier known as MAPE Finserve and came under current management’s fold in 2017, through acquisition of Karvy’s Financial Services for Rs.1,080 cr.
• MAPE Finserve gained access to Karvy’s Financial Services’ distribution network, which helped the company to reach a wider audience.
• Among MSME-focused NBFCs in India, SBFC Finance has one of the highest assets under management growth, at a CAGR of 44% in the period from Fiscal 2019 to Fiscal 2023.
• It witnessed healthy disbursement growth, at a CAGR of 40% between Fiscal 2021 and Fiscal 2023.
• In the year ended FY23 the company saw net interest income grow by 49% to ₹379 crore.
• The IPO proceeds will be used towards augmenting the Company’s capital base to meet its future capital requirements arising out of the growth of the business and assets.
• NIMs for the period were healthy at ~ 9.3%.
• It took a Pre-IPO Placement of 27,272,727 Equity Shares for cash consideration aggregating up to ₹ 1,500 million. The size of the Fresh Issue has been reduced by ₹ 1,500 million pursuant to the Pre-IPO Placement.Rs.150 cr pre-IPO placement of 2.73 cr shares at Rs. 55/sh on 23rd May23.
• Earlier it had undertaken Rs.250 cr. private placement of 6.25 cr. shares at Rs. 40/sh on 8th April 22.
• As of March 31, 2023, 96.44% of its Gross Loan Book was secured.
• Its MSME loans are majorly secured against property.
• Average cost of borrowing (%) is 8.22%.
• It derives a significant portion of its AUM and disbursements from co-origination agreement with ICICI Bank Limited. Any termination of co-origination agreement or may adversely affect its growth and prospects.
• SBFC Finance Gross NPA was 2.28% as of March 31, 2020, 3.16% as of March 31, 2021, and 2.74% as of March 31, 2022.
• The Net NPA ratio was 1.58% on March 31, 2020, 1.95% on March 31, 2021, and 1.63% on March 31, 2022.
• Net NPAs was at 1.41% (as of 31.3.23) as against below 1% for most peers lending to MSMEs. Five Star , Poonawalla Finance range .7%-.8%, AU Small Finance is quite low at .42% , IDFC First is at .55%.
• The offer is being made at a PBV multiple of 2.25x and PE multiple is 40x. Many peers are quoting at lower PE ratios. P/BV which ismore meaniong +fiul for NBFC is ok.
• I intend to apply in SBFC Finance subject to availability of funds. There may be better options available in the listed space however IPOs in general attract more attention.
• GMP as reported on social media has been around Rs. 40. I have my doubts if such price can be supported but listing is determined by a combination of many factors.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Do check the data from company’s RHP and exchanges before making any decision. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.