Another company from the financial services sector has filed its draft papers with the SEBI to tap the public markets and come up with its IPO. So let us discuss in detail the company’s business prospects:
About the company
Arohan Financial Services Limited is a leading NBFC-MFI with operations in financially under-penetrated low income states of India. The company provides income generating loans and other financial inclusion related products to customers who have limited or no access to financial services. The company is the largest NBFC-MFI in eastern India and the fifth largest NBFC-MFI in India based on gross loan portfolio as of September 2020. The company registered a 49% CAGR in customer growth rate between FY18 and FY20. The company commenced microfinance operations in 2006, and has served 2.21 million borrowers in 17 states as of September 2020. The company has a network of 710 branches in 11 states. As of September 2020, 76.78% of the company’s microfinance portfolio was in non-urban areas of India and women constituted more than 97% of their total customers.
Arohan Financial Services Limited IPO Details
Following are the details about the company’s IPO:
- The company is not yet out with the IPO subscription dates.
- The company is not yet out with the IPO price range, through which valuations can be assessed.
- The company’s shares will list on the NSE and the BSE.
- The company’s IPO is a combination of an offer for sale and a fresh issue.
Objectives of the IPO
Following are the objectives of the company’s IPO:
- The IPO is a combination of an offer for sale and fresh issue of shares. The company will raise gross proceeds from fresh issuance of shares up to ₹850 crores.
- From the net proceeds of the fresh issue, the company will use a part of it to augment its capital base.
- Further, the company wants to enhance its credibility and corporate image by listing its equity shares on the exchanges.
Following are the key strengths of the company:
- The company is the largest microfinance institution in eastern India and the fifth largest in India with a focus on low income states.
- The company has a customer centric approach with diverse product offerings. They offer loans ranging from ₹10,000 to ₹25 crores.
- The company has an advanced and scalable technology-enabled infrastructure.
- The company has a diverse borrowing relationship and access to multiple sources of capital.
- The company has an experienced board and management team.
Following are the key risks that the company faces in its business:
- The company’s business requires funds regularly, and any disruption in their funding sources would have a material impact on their business and cashflows.
- The company’s financial performance in vulnerable to interest rate risk. The company could also face asset-liability mismatch in the future.
- The company’s loan portfolio might no longer continue to be classified as priority sector lending by the RBI.
- A significant portion of the company’s loans are being provided to customers in low income states such as West Bengal, Assam, Bihar, and Odisha, which poses concentration risk.
- The financing industry is becoming increasingly competitive with significant presence of NBFCs, public and private sector banks that have extensive branch networks, and other financial services company.
- The company’s business requires it to deal with large volumes of small value cash transactions.
Fundamentals of the company
Following are the fundamentals of the company:
- The company’s revenue from operations increased from ₹327.8 crore in FY18 to ₹934.5 crores in FY20. The company’s revenues for the period ended September 2020 stood at ₹507.3 crores.
- The company’s profit after tax stood at ₹30.6 crores in FY18 to ₹135.1 crores in FY20. The company’s profit after tax stood at ₹51.3 crores for six months ended September 2020.
- The company’s total borrowings increased from ₹1870.1 crores in FY18 to ₹4669.3 crores for six months ending September 2020.
- The company’s earnings per share stood at ₹5.75 for the six months ended September 2020.
- The company’s net asset value per share stood at ₹91.32 for the six months ended September 2020.
Arohan Financial Services Limited counts CreditAccess Grameen Limited, Spandana Sphoorty Financial Limited, Bandhan Bank Limited, and Ujjivan Small Finance Bank Limited among its peer group. Arohan Financial Services Limited’s return on net worth is in line with its peers. The average industry P/E ratio stands at 21.63 times earnings.
Following were the details about the Arohan Financial Services Limited IPO. It is important to note that the sector is a competitive one and investors should do their own due diligence on company fundamentals and risks involved, and take a decision regarding subscribing in the company’s IPO only after it is out with the IPO price range, so that the valuations can be assessed.