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Spandana Sphoorty Financial Ltd. IPO Note
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Offer Details

Price band

Rs 853-856 Per Equity Share

Offer Open Date

Aug 5, 2019

Offer Close Date

Aug 7, 2019

Lot Size

17 shares

Shares for Fresh Issue

4,689,331

Shares for OFS

93,56,725

Face value

Rs 10 Per Equity Share

Issue Type

Fresh issue of equity shares + offer for

sale of equity shares

Fresh Issue Size (In Cr)

400

OFS Issue Size (In Cr)

800.94

Total Issue Size (In Cr)

1200.94

Book Building

QIBs

50% of the offer (Company may allocate up to 60% Shares of the QIB Portion to Anchor Investors.)

Non-Institutional

15% of the offer

Retail

35% of the offer

Lead Managers

 Axis Capital Limited, ICICI Securities Limited, IIFL Holdings Limited, IndusInd Bank Limited

Exchange

BSE, NSE

Capital Structure

Pre Issue Promoter Share Holding

81.2%

Post Issue PromoterShare Holding

62.6%


Company Profile:

Spandana is a leading, rural focused NBFC-MFI with a geographically diversified presence in India, which offer income generation loans under the joint liability group model, predominantly to women from low-income households in Rural Areas. Mrs. Reddy is a founder, MD and promoter of the company who incorporated spandana as a public company in 2003 and registered as an NBFC with the RBI in 2004, later registered as an NBFC-MFI in 2015. As of March 31, 2018, they were the 4thlargest NBFC-MFI and the 6thlargest amongst NBFC-MFIs and SFBs in India, in terms of AUM (Source: ICRA Research).

Through their extensive corporate history, they have developed an in-depth understanding of the borrowing requirements of the low-income client segment. Their business model involves regular client meeting processes through their employees, who maintain contact with clients across the districts. As of March 31, 2018, Spandana had 4,045 employees operating out of 694 branches in 222 districts across 15 states in India. Through their loan products and client centric approach, they endeavor to strengthen the socio-economic well-being of low-income households by providing financing on a sustainable basis in order to improve livelihoods, establish identity and enhance self-esteem.

The company started working under CDR mechanism (Corporate Debt Restructuring) of the RBI to revive the business and restructure the borrowings in 2010 and exited successfully in March 2017 with the help of Kangchenjunga Ltd and Kedaara AIF-1. Before the 2010 crisis, the company had Rs 4,500 crores loan portfolio. The company started recovering and made the first profit in the year 2013-14. As of September 2018, Spandana had Rs 2,244 crores loan portfolio.

Financial Overview:

 

For the year ended March 31,

 

2018

2017

2016

Gross AUM

3166.35

1297.08

1219.54

Income

560.84

357.17

3,46.41

Profit before tax

227.72

63.89

2,46.49

PAT

170.39

42.06

246.49

Net Worth

984.09

538.7

196.44

Return on Net Worth

17.31%

7.81%

125.48%

 

 

 

 

 

 

Figures are based on the Restated Standalone Summary Statements of the Company

Gross AUM represents total portfolio loans outstanding

During FY19, company's net interest income, pre-provisioning profit and net profit of the company grew at a robust pace of 87.5 percent to Rs 640 crore, 109.8 percent to Rs 519 crore and 66 percent to Rs 312 crore YoY, respectively.

Objects of the Issue:

  1. To utilise the Net Proceeds from the Fresh Issue towards augmenting its capital base to meet future capital requirements and general corporate purposes.
  2. To receive the benefits of listing of the Equity Shares on the Stock Exchanges, enhancement of company’s brand name and creation of a public market for the Equity Shares in India.

Key Risks:

  1. Sluggish market conditions: Spandana has reduced the number of shares in the IPO to about 9.35 million, from the 13.15 million shares that they intended to sell previously due to slowdown in India’s primary capital market.
  2. Their operations are concentrated in the states of Karnataka, Madhya Pradesh, Orissa, Maharashtra and Chhattisgarh and any adverse developments in these states could have an adverse effect on company’s business, financial condition, results of operations and cash flows.

Peer Comparison:

Name of the company

Face Value

P/E

EPS

Return on net
worth (%)

Spandana Sphoorty Financial Limited

10

16.01

53.46

16.51

Satin CreditcareNetwork Limited

10

8.8

41.67

17.53

Ujjivan FinancialServices Limited

10

28

12.43

8.01

Sundaram FinanceLimited

10

17.6

105.40

12.88

MahindraMahindraFinancial ServicesLimited

2

14.2

29.73

16.46

*P/E ratio based on closing market price as on March 29, 2019

Update on IPO:

The company has raised around Rs 360.28 crore from 18 anchor investors at the upper end of the price band at Rs 856. These investors include Wells Fargo Emerging Markets Equity Fund, Florida Retirement System, Bajaj Allianz Life Insurance Company among others.

Conclusion:

Given the low penetration of financial services in rural India and SSFL’s high operational efficiencies, we believe the company could have a considerable scope going ahead. Their credit rating (by ICRA) improved from BBB+ (Stable) in May 2018 and A- (Stable) in March 2019. At the upper end of the price band, Spandana Sphoorty’s FY19 price-to-book value stands ~2.5 times. Company appears cheap at ~16x P/E against its peers. However, given the NBFC industry being in doldrums and liquidity being tight, investors may consider investment for the long term only. Listing gains may be limited as GMP is around 15-20.

Source: DRHP


The author may have positions in the stocks as mentioned in the article above, please assume us to be biased. This is not a recommendation to buy or sell securities. This is purely information about the company mentioned.  Equity investing contain risks and please consult your financial adviser for any buy and sell securities!

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