India: Spandana Sphoorty IPO Subscribed 6% on Day 1: Here's All You Need to Know
India, August, 06 2019 -
Spandana Sphoorty Financial, which is the fourth-largest microfinance institution in India, offers income generation loans under the joint liability group model, predominantly to women from low-income households in rural areas.
The initial public offering (IPO) of microfinance lender Spandana Sphoorty Financial opened for subscription on Monday, with a price band at Rs 853-856 per share. The issue which will close on August 7.
It was subscribed 6 percent on the first day of bidding. The portion reserved for qualified institutional buyers was subscribed 19 percent.
The company plans to raise around Rs 1,200 crore through the public issue, which consists of a fresh issue of Rs 400 crore and offer for sale of Rs 800 crore by promoters and investors.
It proceeds will be utilised for augmenting the company's capital base to meet its future capital requirements.
With asset under management (AUM) size of Rs 4,437 crore as of June 30, 2019, it is the fourth-largest microfinance institution in India. Geographically, the company has 63 percent exposure to four states - Maharashtra, Karnataka, Odisha, and Madhya Pradesh.
Most brokerages recommended subscribing to the issue with a long term perspective.
"The company's successful exit from corporate debt restructuring (CDR) mechanism in March 2017 (well ahead of the scheduled date of Mar’18), consistent profits along with a healthy asset book, builds confidence in the prospects," Centrum Capital said in a note.
Given the low penetration of financial services in rural India, the ability of microfinance institution to reach out to the hinterlands and its high operational efficiencies offers a considerable scope for growth going ahead. Hence, Centrum suggests investors to subscribe to the issue for long term.
Geojit Financial Services also has a 'subscribe' rating on the stock with a long-term perspective.
"The company has maintained a strong track record of financial and operational efficiencies over the years through high rates of customer retention, geographical expansion, improved staff productivity, lower credit cost and growth in customer base led by branch expansion," the brokerage noted.
The company’s NNPA reduced from 2.9 percent to zero with 99 percent collection efficiency from FY17 to FY19. Its average effective cost of borrowing reduced from 16.3 percent in FY17 to 14.7 percent and 12.8 percent in FY18 and FY19, respectively. The lender has a strong capital position with a Capital Adequacy Ratio (CAR) of 39.61 percent as on FY19 compared to the mandated requirement of 15 percent.
According to ICICI Direct, the company focuses on a high degree of client engagement (village/block level centre meetings and client training) through its large employee base and operating procedures. "Based on the above practices, the company has been able to perform better than peers on collection efficiency and asset quality. Further, the company’s strong business process and prudent risk management strategy are adequately designed to tackle various business risks including frauds by employees. As a result, the company’s profitability and asset quality remain one of the best in the industry," it said in a report.
Spandana Sphoorty Financial was incorporated in 2003 as an NBFC with the RBI in 2004 and later as NBFC-Micro Finance Institution in 2015. The lender offers income generation loans under the joint liability group model, predominantly to women from low-income households in rural areas.
The company with its loan products and client-centric approach endeavours to strengthen the socio-economic well-being of low-income households by providing financing on a sustainable basis to improve livelihoods establish identity.