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About the Company
SBFC Finance Limited is a Systemically Important Non-Deposit taking NBFC (NBFC-ND-SI), headquartered in Mumbai, India, offering Secured MSME Loans and Loans against Gold, and received its registration from the Reserve Bank of India on September 24, 2008.
The NBFC provides its services in the form of Secured MSME Loans and Loans against Gold to borrowers being entrepreneurs, small business owners, self-employed individuals, salaried and working-class individuals.
For the FY 2022-23, 79.31% of the Total AUM were Secured MSME Loans, and 17.48% of the Total AUM were Loans against Gold, the balance of 3.21% being classified as ‘Other Unsecured Loans’.
The NBFC has 152 branches spread across 120 cities spanning 16 states and 2 union territories of India.
Services offered by the NBFC
Secured MSME Loans
Under the ‘Secured MSME Loans’ portfolio, SBFC Finance Limited offers a wide range of financial solutions to help entrepreneurs and MSMEs meet their growing credit needs. The average ticket size of a ‘Secured MSME Loan’ is Rs.990,000, with average contractual tenure of 9.84 years. Collections for the ‘Secured MSME Loans’ occur on an installment basis. As of March 31, 2023, approximately 89.49% of the collections from ‘Secured MSME Loans’ are non-cash-based EMI collections, thus reducing the cash management risk. As of March 31, 2023, the NBFC has serviced more than 34,738 borrowers via the ‘Secured MSME Loans’ portfolio. The disbursements under the ‘Secured MSME Loans’ is Rs.2276.82 crores as of 31st March 2023. It has grown at a CAGR of 95.53% from FY 2020-21 to FY 2022-23. The Gross NPA ratio for the FY 2020-21 was 3.41%, FY 2021-22 was 2.86%, and 2.55% for FY 2022-23.
Loans against Gold
Under the ‘Loan against Gold portfolio,’ borrowers can capitalize on their gold possessions by pledging these to the NBFC for a loan. Up to 75% of the gold item’s value can be sanctioned as a loan. As of March 31, 2023, the average ticket size of the ‘Loans against Gold’ is Rs.90,000 with an average tenure of 11 months. Collections for the ‘Loans against Gold’ occur on a monthly interest payment basis. SBFC Finance Limited has serviced 59,437 borrowers in the ‘Loans against Gold’ portfolio as of March 31, 2023. The AUM of the ‘Loans against Gold’ portfolio is Rs.864.10 crores as of 31st March 2023. It has grown at a CAGR of 24.21% from FY 2020-21 to FY 2022-23. The Gross NPA ratio of this portfolio for the FY 2020-21 was 1.50%, FY 2021-22 was 1.71%, and 1.21% for FY 2022-23.
Other Unsecured Loans
‘Other Unsecured Loans’ comprise Personal loans, Business loans, and Professional loans. The personal loans are provided to salaried individuals intended to support requirements such as financing weddings, dependant’s education, home renovation, etc. Business loans are provided to small business entrepreneurs for working capital and other requirements for running the business and Professional loans are directed towards eligible professionals such as Doctors and Chartered Accountants who aim to set up or expand offices, and fulfil similar professional requirements. The average ticket sizes for a personal loan are Rs.690,000 and with an average contractual tenure of 4.83 years, as of March 31, 2023. Collections for ‘Other Unsecured Loans’ occur on an installment basis. The AUM of the ‘Other Unsecured Loans’ portfolio is Rs.158.72 crores as of 31st March 2023. It has declined from Rs.219.00 crores AUM in FY 2020-21. However, the NBFC has discontinued the disbursal of other unsecured loans from September 2022.
Industry Overview
The Indian financial system includes banking and non-banking financial companies (NBFCs). Though the banking system dominates financial services, NBFCs have grown in importance by carving a niche for themselves by catering to customers in underbanked regions or those who would not be catered to by traditional financial institutions, due to the absence of credit history or lack of proper collateral records.
NBFCs are classified based on liabilities into two broad categories:
1. deposit-taking; and
2. non-deposit taking.
Contribution of the MSME Sector
The National Sample Survey in its 73rd round dated June 2016 estimated that there are around 63.5 million MSMEs in India. Since then, the number of MSMEs is estimated to have increased further to around 70 million as of Fiscal 2022. MSMEs complement large corporates as suppliers or directly cater to end users. The MSME sector contributes to India’s socio-economic development by providing huge employment opportunities in rural and backward areas, reducing regional imbalances, and assuring equitable distribution of national wealth and income. The segment currently contributes to 30% of the GDP, over 40% of exports, and creates employment for about 110 million people in the country, thus supporting economic development and growth.
Overview of the Secured MSME Loan Market in India
There is a huge demand-supply gap in the secured MSME loan segment, especially in lower ticket-size segments. With the increasing presence of MSME lenders in smaller cities and the rising focus of lenders on underserved target customer segments, the loan portfolio is expected to see strong growth in the future. Going forward, CRISIL MI&A expects the portfolio of secured MSME loans with ticket size between Rs.500,000 and Rs.30,00,000 to grow at a CAGR of 18% - 20% over Fiscal 2023 and Fiscal 2026 aided by increasing lender focus and penetration of such loans, enhanced availability of data increasing lender comfort while underwriting such loans, enhanced use of technology, newer players entering the segment, and continued government support.
Overview of the Gold Loan Market in India
As can be witnessed from the chart below, the industry has witnessed consistent growth over the last decade, even as gold prices have seen periodic fluctuations. As of March 2023, CRISIL MI&A estimates the outstanding value of loans given out by organized financiers – banks and NBFCs – to be Rs. 6.1 trillion, with NBFCs accounting for one-quarter of the market.
Government Initiatives like ‘Liquidity boost for NBFCs, ECLGS for MSMEs, Subordinated debt to MSMEs, Equity infusion in MSMEs, Clearing MSME dues guarantee scheme, Loan Interest Subvention Scheme, etc’ have provided the necessary impetus for the growth of MSMEs and NBFCs.
Objectives
1. The company intends to utilize the entire proceeds from the 'Fresh Issue' to enhance its capital base to meet the future capital requirements resulting from the growth of its business and assets.
Financials
The AUM of the NBFC has grown from Rs.2221.32 crores in FY 2020-21 to Rs.4942.82 crores in FY 2022-23 at a CAGR of 49.17%.
Interest income has grown from Rs.463.17 crores in FY 2020-21 to Rs.654.15 crores in FY 2022-23 at a CAGR of 18.84%.
The Net Profit has grown from Rs.85.01 crores in FY 2020-21 to Rs.149.74 crores in FY 2022-23 at a CAGR of 32.71%.
Other Important Ratios are as below:-
Valuation
The issue price can be seen as overvalued when considering earnings due to the company's PE ratio of approximately 35.19, which surpasses the industry's ratio of 30.44. Conversely, when looking at book value, the issue price may be considered undervalued as the company's PB ratio is about 2.96, lower than the industry's PB ratio of 4.08.
Peer Comparison
From the data presented in the table above, it can be observed that SBFC Limited's Net Interest Margin (NIM) is higher than that of several other companies, suggesting a healthy interest margin. Additionally, SBFC Limited's Provision Coverage Ratio (PCR) exceeds those of its counterparts, indicating a lower likelihood of needing to provide for bad loans in the future. However, there are concerns regarding the company's elevated levels of Gross NPA and Net NPA.
Key Risks
1. The inability to assess and recover the full value of collateral, or amounts outstanding under defaulted loans in a timely manner, or at all, can adversely affect the business of the NBFC.
IPO Details
1. The IPO subscription period is scheduled from 3rd August 2023 to 7th August 2023.
2. The issue price band for the IPO is set at Rs. 54 to Rs. 57 per share.
3. The IPO will consist of a fresh issue of Rs. 600 crores and an Offer for Sale of Rs. 425 crores, making the total issue size Rs. 1025 crores.
4. Retail Individual Investors must apply for a minimum of one lot of 260 shares worth Rs.14,820 and can apply for a maximum of thirteen lots comprising 3380 shares worth Rs.192,660.
5. The Grey Market Premium (GMP) stands at 68.42% as of the time of writing this blog.