IPO: Akme Fintrade

Akme Fintrade, a non-banking finance company (NBFC), will launch its initial public offering (IPO) on June 19, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality: The NBFC's three-year average ROE is 7.8 per cent. Its average gross non-performing assets (NPA) were 4.3 per cent during FY21-FY23. Growth: During the same period, its AUM (assets under management) declined by over 8 per cent per annum and profit after tax by 1.6 per cent. Valuation: The stock is valued at a price-to-earnings ( P/E ) and price-to-book (P/B) ratio of 32.4 and 1.5 times, respectively. Overview: India's financially underserved rural and semi-urban regions provide an untapped growth opportunity for NBFCs like Akme Fintrade. However, it's the quality of loans that dictates the health of a financial business. About Akme Fintrade Incorporated in 1996, Akme Fintrade primarily deals in vehicle and small business loans with a major focus on rural and semi-urban regions. The company's 12 branches span across Rajasthan, Maharashtra, Madhya Pradesh and Gujarat. It is developing a digital lending platform named 'Aasaan Loans', that is aimed to initially focus on two-wheeler finance. The company saw a more than 8 per cent annual decline in its AUM during FY21-23 as it held back on loan disbursals during the economic downturn spurred by the Covid-19 pandemic. However, at the same time, it strengthened its capital base and reduced its leverage (borrowings) by more than 40 per cent. Strengths of Akme Fintrade Strong capital base: Its capital adequacy ratio (CRAR) was a healthy 42 per cent as of Q3 FY24. The IPO proceeds will further raise its CRAR, providing enough firepower for future growth. Weaknesses of Akme Fintrade Regional concentration: The company's business spans across four states, with more than 80 per cent of its AUM concentrated in Rajasthan alone. In the event of an upheaval in this state, the company's business could get severely impacted. High cost of borrowing: The company has the highest cost of borrowing, at 13.6 per cent as of FY23, amongst its peers. Although it disburses secured loans, the high cost of borrowing forces it to cater to riskier borrowers more. IPO details Total IPO size (Rs cr) 132 Offer for sale (Rs cr) - Fresh issue (Rs cr) 132 Price band (Rs) 114-120 Subscription dates June 19-21, 2024 Purpose of issue To augment its capital base Post-IPO M-cap (Rs cr) 512 Net worth (Rs cr) 349 Promoter holding (%) 41.6 Price/earnings ratio (P/E) 32.4 Price/book ratio (P/B) 1.5 Financial history Key financials (Rs cr) 2Y CAGR (%) FY23 FY22 FY21 NII -0.9 35 30 36