IPO – As per the latest reports, SBFC Finance Ltd, a non-banking finance company, has filed preliminary papers with SEBI, the capital markets regulator, to raise Rs 1,600 crore under an initial public offering (IPO).
Details of the IPO
The non-banking finance company has filed its draft prospectus with SEBI to raise about Rs. 1600 crore funds through IPO (initial public offering).
According to the draft prospectus submitted to SEBI, the IPO includes a fresh issue of Rs. 750 crores and OFS of Rs. 850 crores.
The equity shares offered through the IPO will have a face value of Rs. 10 each.
Of the total IPO, 50 per cent of the issue size will be earmarked for qualified institutional buyers (QIBs). In comparison, 15 per cent of the size will be assigned to non-institutional investors (NII), and the remaining 35 per cent will be offered to individual retail investors (RII).
The public offer is a mix of fresh issues and offers for sale (OFS). The company plans to utilise a part of the proceeds to meet future Tier-1 capital requirements. After the IPO, SBFC’s equity shares will be listed on the stock exchanges BSE and NSE.
The price bands, timeframe, and other details will be announced after Sebi gives the go-ahead to the IPO.
ICICI Securities, Axis Capital, and Kotak Mahindra Capital Company are acting as the book-running lead managers of the IPO, while KFin Technologies is the registrar of the offer.
Under the OFS, promoters like Arpwood Partners Investment Advisors will offload a portion of their stake, totalling Rs. 398.19 crores. In comparison, Arpwood Capital will divest stakes amounting to Rs. 97.72 crores, Eight45 Services to sell shares for around Rs. 79.08 crores, and SBFC Holdings will divest stakes of about Rs. 275 crore.
Going by the draft papers, the SBFC may look into a pre-IPO placement aggregating to Rs 150 crore. If such an arrangement is undertaken, the public issue’s size will be smaller.
SBFC plans to utilise the proceeds from the fresh issue under the IPO towards raising its capital base to fulfil future capital requirements arising from its business and assets growth. Also, the company hopes to receive the benefits of listing equity shares on exchanges.
SBFC anticipates that the net proceeds will be adequate to fulfil its Tier- I capital requirements.
However, the net proceeds from the OFS will be given to the promoting shareholders.
SBFC Finance is a non-deposit-taking non-banking finance company that offers secured MSME loans and loans against gold, with most of its borrowers being entrepreneurs, small business owners, self-employed individuals, salaried and working-class individuals.
The NBFC serves customers in Tier II and Tier III cities, thereby promoting entrepreneurship in these regions, concentrating on customers who may have a strong credit history but may not have any formal proof of income documents.
Strong Credentials
In India, among MSME-focused NBFCs, from fiscal 2019 to 2022, SBFC has one of the highest assets under management, AUM growth at a CAGR of 40 per cent.
Also, the company’s disbursements registered strong growth at a CAGR of 39 per cent between fiscal 2019 to fiscal 2022.
SBFC believes it fills the gap as its products permit many underserved and underbanked customers to prosper. The company has a well-diversified pan-India presence with an expansive network in its target customer segment.
By the end of the June 2022 quarter, SBFC recorded its presence across 04 cities, transiting 16 Indian states & two union territories, with a total of 135 branches.
High on Profits
The Mumbai-based company is funded by marquee investors such as Malabar Group, Clermont Group and Arpwood Group.
For the fiscal ending March 2022, the company declared its total income of Rs 530.70 crore and posted a profit after tax (PAT) of Rs 64.52 crore.
A Decline in IPO Funding 2022
However, as per reports in the first half of the financial year 2023, IPO fundings have dropped 32 per cent to Rs. 35,456 crores.
From April to September of 2022-23, Only 14 Indian corporates raised Rs 35,456 crore as compared to Rs. 51,979 crore raised in the same period last year, which was through 25 IPOs.
The largest IPO: Life Insurance Corporation of India (LIC) alone raised close to Rs. 20,557 crores, which is 58 per cent of the amount raised just through one IPO.
However, out of the 14 IPOs, only one was from a new-age technology company, thus pointing towards a general slowdown in IPOs from this sector.
The response from retail investors towards IPOs also moderated in comparison to 2021-22. From retail, the average number of applications dropped by over half to 7.57 lakh as compared to 15.56 lakh in 2021-22 and 12.49 lakh in 2020-21.
As mentioned above, the highest retail applications were received by LIC, closely followed by Harsha Engineers and Campus Activewear at 32.76 lakh, 23.86 lakhs and 17.27 lakhs, respectively.
On the whole, public equity fundraising also saw a drop by 55 per cent to Rs. 41919 crores from the previous Rs. 92191 crores.
Poor Listings
Moderate Listings performance further muted the response towards IPOs; of the 14 IPOs, only Six gave a return of more than 10 per cent; Harsha Engineers provided the best return of 47 per cent, followed by Syrma SGS, which gave a return of 42 per cent. Dreamfolks gave a return of 42 per cent.
What’s to Come
The number of companies looking to launch their IPOs is strong, with 71 companies proposing to raise Rs. 105000 crores. At the same time, another 43 companies are looking to expand roughly Rs. 70,000 crores and are awaiting a positive from the SEBI.
Out of the list 114 companies, 10 belong to the new age companies list, which is looking to raise approximately Rs. 35,000 crores.
However, whether these companies go ahead with their plans to launch their IPOs remains to be seen as secondary market volatility is high due to the recession concerns and rising interest rates.
Conclusion: IPOs have been garnering a lot of interest from retail investors in the last decade. As retail investors became savvier and moved away from traditional investment options, IPOs had become a hot favourite, and pickings were also increasing as many companies moved the IPO route.
However, in the current, as recession fears loom and given the volatility in the markets, it is not only the companies but also retail investors that are wary of market conditions.
It is evident that in these market conditions, only those companies with a proven track record and decent profits to show in their books will be the ones that will take the risk of launching IPOs in the market. The same goes for retail investors; they will only be looking to buy IPOs of companies with strong credentials to boast a more robust track record in both growth potential and profits.
As many companies have been waiting to take the plunge, how many of them will actually take the risk of entering the markets via IPOs is totally based on how the markets perform in the coming six months.
The basis of the same depends on whether interest rates will stabilise and whether a recession actually hits the economy.
