Half-a-dozen entities in the small finance bank and microfinance space that have received approval for raising funds through initial public offerings appear to be going slow because of valuation issues, people familiar with the matter said.
Among small finance banks, ESAF, Jana, Fincare and Utkarsh are said to be weighing investor interest for their proposed IPOs. Utkarsh Small Finance Bank received Securities & Exchange Board of India’s approval for IPO in June, Jana SFB got it in July and Fincare in August. ESAF Small Finance Bank received the regulator’s approval in October for the second time, after the one-year validity on the first lapsed in March.
Microfinance firm Arohan Financial Services received Sebi approval in April but has yet to hit the market. Northern Arc Capital, a non-bank lender with exposure to the financial inclusion space, got the approval in September.
“Many Lenders including those in the microfinance industry are not getting the kind of investor interest or valuation seen for primary issues of fintech firms,” said Donald D’Souza, managing director & co-head (investment banking) at Equirus.
“Some of these firms have done a few roadshows but have failed to attract investors at higher valuation. That’s the reason why some of these lenders are not seen in the IPO market despite the bull run. Even some small finance banks, which need to be listed within a specified time frame to meet regulations, are yet to be seen in this space,” D’Souza said.
Investors are apparently exercising caution as micro lenders are saddled with concerns over asset quality, high credit cost and squeezed margin following the pandemic-led stress on their borrowers.
The portfolio at risk for 30 days (PAR30+) for the microfinance sector remained high at 10.18% at the end of September, even after showing a sharp improvement from 16.56% three months earlier.
“The new-age companies are mostly making merry in the season of IPOs since investors are ready to pay huge premiums for new business models and fresh ideas. The party is on at least till Christmas. The valuations however are relatively muted for lending companies as investors are comparing them with the existing secondary market prices in the same segment,” said Dinesh Arora, partner and leader (deals) at PwC India.
As many as 52 companies have mobilised Rs 1.08 lakh crore from primary issuances in 2021 so far compared with Rs 26,600 crore raised by 15 companies last year. Foreign portfolio investors are said to have invested more than Rs 46,000 crore in IPOs this year.
Microfinance association Sa-Dhan said the average collection efficiency has increased to more than 95% in the quarter through September from 85% in the preceding quarter, even as 13 states and union territories including Chhattisgarh, Kerala, Tamil Nadu and West Bengal have their PAR30+ value higher than the industry average.
