Can you tell me about this company SBFC Finance which is planning an IPO in the Indian markets?

SBFC Finance is a lending institution, that was floated by Aseem Dhru. Now Aseem Dhru is a veteran banker and also the former CEO of HDFC Securities. He has specialized in agricultural banking and is applying and extending these skills into SBFC Finance. He brings a combination of aggression and compliance sensitivity to the business. It has some marquee backers in the form of Clermont Group and Arpwood Partners.

SBFC Finance actually gave a big boost to its lending book when it acquired the complete retail lending business of Karvy Financial Services Private Limited in the year 2017. Fortunately, this was before the Karvy group had slipped into a massive scam. Due to the acquisition, SBFC Finance got quantum boost to its business with the 65 branches and a staff of over 700 people. SBFC Finance is likely to benefit from the consolidation trend in MFIs.

SBFC Finance provides loans to medium, small and micro enterprises or MSMEs. It also gives loans to salaried and self-employed non-professionals. In short, it caters to the segment of the population without easy access to credit through formal channels. By helping them get credit through the formal channels, they don’t have to rely on borrowing from usurers. SBFC Finance joins Home First Finance and Aptus Value Housing Finance as listed entities in the microfinance business. They all cater to the lower and middle income groups.

The IPO would be worth around Rs.1,000 crore, although final details are awaited. What we know is that ICICI Securities Ltd has been appointed as the lead manager to the issue while Axis Capital and HDFC Bank will be the advisors. It is yet to file the draft red herring prospectus (DRHP) with SEBI and the approval comes only about 2 to 3 months after the DRHP is filed. So the issue is still some time away. The Rs1,000 crore IPO is expected to be a combination of a fresh issue and an offer for sale.

In terms of ownership structure, Clermont Group holds 73% stake while Arpwood Group holds 23% stake. The opportunity is huge because as of date only 8% of the medium, small and medium enterprises (MSMEs) avail any form of organized credit. SBFC is likely to be a big beneficiary of this trend shift. SBFC Finance has assets under management (AUM) of Rs3,342 crore and it is an existing profit making company.