IPO: SBFC Finance

In a nutshell Quality: It reported a three-year average ROE of 7.6 per cent. Moreover, it achieved an average net interest margin of 10.1 per cent in the last three financial years. Growth: Over the last three years, it grew its AUM (assets under management) by 49.2 per cent annually and its PAT by 32.7 per cent annually. Valuation: The stock is expected to be listed at a higher P/E than its peers' median level but a lower P/B than its peers' average level. Overview: Rising credit demand in the MSME and retail segment should help it grow. Also, the untapped demand in the smaller cities and rural markets (where it is setting up shop) should drive growth. However, intense competition and declining asset quality due to economic downturns pose a risk. About SBFC Finance SFBC Finance is a non-deposit-taking NBFC. It offers secured MSME loans (79.3 per cent of FY23 AUM), gold loans (17.5 per cent), and unsecured loans (three per cent). It primarily operates out of tier 2 and tier 3 cities. Strengths of SBFC Finance A pan-India presence: It has 152 branches spread across 120 cities. Close relationships with its customers: It secures 100 per cent of its customers through its in-house sales team. Superior capital adequacy ratio (CAR): It maintained a CAR of 30.9 per cent in FY23 against the regulatory requirement of 15 per cent. Weaknesses of SBFC Finance Low provision coverage ratio: an average of 40.2 per cent in the last three years. The NBFC segment is highly competitive , especially since banks entered the gold loan segment. IPO details Total IPO size (₹ cr) 1025 Offer for sale (₹ cr) 425 Fresh issue (₹ cr) 600 Price band (₹) 54-57 Subscription dates August 3, 4 and 7, 2023 Purpose of issue To increase its capital base Post-IPO M-cap (₹ cr) 6066 Net worth (₹ cr) 2327 Promoter holding (%) 65.5 Price/earnings ratio (P/E) 40.5 Price/book ratio (P/B) 2.6 Financial history Key financials 2Y growth (% pa) FY23 FY22 FY21 NII (₹ cr) 29.2 379 254 227 PAT (₹ cr) 32.7 150 65 85 AUM (₹ cr) 49.2 4943 3192 2221 Borrowings (₹ cr) 3746 2949