Strong Listing | SBFC Finance debuts with 43.8 percent premium

SBFC Finance, backed by private equity firm Clermont Group and investment bank Arpwood Group, started first day trading with a 43.8% premium on Aug. 16. The number is high. 35-40% higher than analysts’ expectations.
Shares opened the day at Rs 81.99 on BSE, compared to an issue price of Rs 57 per share.
We have seen some of the effects of recent stock market corrections and consolidations on listing fees. The benchmark fell nearly 3% after hitting a record high on July 20. This professionally regulated, non-banking, non-deposit financial company received a strong response to its initial public offering with 70.16 registrations between 3rd and 7th of May. 8, based on a strong business model with strong financial performance and stable asset quality. Qualified institutional buyers (QIBs) led the way among investors, buying 192.89 times the number of shares reserved for them, and high net worth individuals bidding 49.09 times times the number of reserved shares. Units allocated to savers and registered employees are 10.99x and 5.87x, respectively.
SBFC Finance raised Rs 1,025 crore through a public offering last week, which included a new issuance of Rs 600 crore and a sale offer of Rs 425 crore by Arpwood Group. The asking price range is 54 to 57 rupees per share. Most analysts have a positive view of the IPO and therefore recommend signing up for the offer. 2.5x for base issues after BV (after factoring in new issue), seems higher. The peers mentioned in the RHP are primarily affordable housing finance companies that are not comparable on a one-to-one basis. Meanwhile, Ugro Capital, which has a similar business to SBFC, is currently trading at a P/BV of 1.9x. Therefore, given the above parameters, we are assigning a ‘conservative registration’ rating to the question,” said Choice Broking, net profit and 33% CAGR of earnings for fiscal year 21-23. Net profit margin is 9.3% and lending rate is 15.9%. Asset quality remained stable with total bad assets and net NPA at 2.4% and 1.4% in FY2023, down from 2.7% and 1.6% in FY23, respectively. 22 respectively. SBFC Finance mainly focuses on MSME lending, which accounts for more than 80% of their business, followed by gold lending which contributes around 17%. With a footprint in 120 cities with 152 branches in India, the company is more focused on lending, with bonds ranging in size from Rs 50,000 to Rs 30,000, representing over 87% of total assets. managed as of fiscal year 23 .
Given the company’s growth opportunities and solid fundamentals, Ventura Securities recommended an underwriting rating at the IPO.

SBFC has seen growth at a CAGR of 44% for assets under management in fiscal year 2019-23 and disbursements growth at a CAGR of 40% in the same period.

Its AUM is diverse in different regions, with about 31% in the North, 39% in the South, and the rest in the West and East combined as of March 2023.

The Company will use the proceeds from the new issue to increase its capital base to meet future capital needs arising from the business and asset growth.