What you must know about IBL Finance IPO?

IBL Finance Ltd was incorporated in 2017 as a new-age with fintech based financial services platform. The company leverages technology and data-science to make lending quick, easy, and efficient. The company is based on the premise that traditional ways of lending can exclude those most in need because of rigid and inefficient processes. At IBL Finance, the lending process has been substantially simplified with a focus on serving the unique needs of the borrowers. This not only ensures that the deserving get finance but also assures the customer of a superior borrowing experience. It largely operates through a mobile app, offering a 100% digital process. For instance, small ticket personal loans can be received into your bank account in less than 5 minutes. There is no need for physical availability for a loan, and most of the arduous paperwork is done away with. The company uses fairly advanced algorithms that leverage big data and machine intelligence to arrive at logical and workable conclusions in the lending process.

As of date, IBL Finance Ltd has disbursed over 1,65,000 personal loans amounting to over ₹7,200 lakhs. It has already seen more than 5 lakh app downloads while in the latest year, its IBL Instant Personal Loan app got 3,81,156 logins. On average, each month, more than 28,000 users were active on the app. Over the last 7 years in operations, the company operates through 8 branches located in the states of Gujarat and Maharashtra. While many of its algorithms are obviously proprietary, the company uses an advanced underwriting algorithms what leverages on more than 500 data points to generate a detailed comprehensive credit report. The advantage is that even semi-urban and rural people without the requisite documents and audit paper trail, can still get loans because of their point of presence in other data points. It currently has over 81 full time employees.

Key terms of the IBL Finance IPO

Here are some of the highlights of the IBL Finance IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 09th January 2024 and closes for subscription on 11th January 2024; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The fixed issue price for the IPO has been set at ₹51 per share. Being a fixed price issue, there is no question of price discovery in this case.
   
• The IPO of IBL Finance Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, IBL Finance Ltd will issue a total of 67,25,000 shares (67.25 lakh shares), which at the fixed IPO price of ₹51 per share aggregates to a fresh fund raising of ₹34.30 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 67,25,000 shares (67.25 lakh shares) which at the upper IPO band price of ₹51 per share will aggregate to overall IPO size of ₹34.30 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation. The number of shares for market maker inventor and the name of the market maker is yet to be finalized. The market maker will provide two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Manish Patel, Piyush Patel, and Mansukh Patel. The promoter holding in the company currently stands at 85.55%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 62.45%.
   
• The fresh issue funds will be used by the company for augmenting the Tier-1 capital, which is mandatory to be able to expand the lending book. Part of the monies raised will also go towards meeting the general corporate expenses of the company.
   
• Fedex Securities Private Ltd will be the lead manager to the issue, and Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is yet to be officially announced.

IPO allocation and minimum lot size for investment

IBL Finance Ltd is yet to announce allocation to market makers, but that is normally in the region of 5% to 6% in most of the SME IPOs. The name of the market maker is also yet to be announced by the company. The net offer (net of market maker allocation) will be divided equally between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of IBL Finance Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹102,000 (2,000 x ₹51 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 4,000 shares and having a minimum lot value of ₹204,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the IBL Finance Ltd IPO (SME)

The SME IPO of IBL Finance Ltd IPO opens on Tuesday, 09th January 2024 and closes on Thursday, 11th January 2024. The IBL Finance Ltd IPO bid date is from 09th January 2024 at 10.00 AM to 11th January 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 11th January 2024.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on January 15th 2024, will be visible to investors under the ISIN Code – (INE0O7401018).

Financial highlights of IBL Finance Ltd

The table below captures the key financials of IBL Finance Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenues have grown very sharply in the last two years so the previous growth periods may not be too relevant for the company. That is because the growth has come on a very low base. Also, the company is making profits only since last 2 years.
   
• The net margins have been very robust in the last 2 years at 14% due to the surge in revenues, but the ROE is relatively tepid in the latest year also. The same trend is seen in ROA, but only the latest year numbers may be of relevance.
   
• Being a capital heavy business, the asset turnover ratio is very low, at below 1 in all the years. However, if you combine the sweating with the ROA, it still looks OK. However, this is a spread business so the NIMs may be the really material metrics.

The company has latest year EPS of ₹1.15 and weighted average EPS of ₹0.66 for the last 3 years. Either ways, the valuations look quite steep even if you consider latest year EPS at 44.4 times P/E discounting. Investors should be wary of the sharp spike in revenues in the latest year and a lot of the valuation assumptions will depend on being able to maintain this tempo of growth in the future too. The investor will have to look at the sustainability of profits and whether it can really scale  up its model. It remains a high risk proposition.