Dar Credit NSE SME IPO review (Avoid)

•    The company is offering financial products specially for MSMEs and weaker section of the society.
•    Major portion of its funding is towards unsecured finance to MSMEs, that has lion share in its total lending.
•    It has reported unrealistic and unbelievable margins, but poised for higher risk as it is operating in a highly competitive and fragmented segment.
•    Based on its financial data, the issue appears aggressively priced.
•    There is no harm in skipping this “High Risk/Low Return” bet in languishing segment.

ABOUT COMPANY:
Dar Credit & Capital Ltd. (DCCL) offers three primary types of financial products: (i) Personal Loans, (ii) Unsecured MSME Loans, and (iii) Secured MSME Loans. The Company specializes in offering credit solutions to low-income individuals, particularly those in class-four (Group D) employment rolls such as cleaners, sweepers, and peons working in municipalities. Ther Company also extends credit to small-scale shopkeepers and vendors, with a strong focus on empowering women entrepreneurs. 

With extensive experience in the financing and investment sector in India, DCCL has built a deep understanding of the market since its inception. In addition to its headquarters in Kolkata and regional office in Jaipur, DCCL operates through its branch offices across West Bengal, Rajasthan, Bihar and Jharkhand, also Camp Offices are set up in the States of Madhya Pradesh and Gujarat. Over the past 30 years, it has developed a profound understanding of the financial needs of underbanked and underserved customers. Throughout this journey, the Company has not only gained insights into customer behaviour and requirements within this segment but have also implemented various initiatives to enhance the customer experience. These improvements have been driven by measures such as the adoption of digital sourcing and the digital disbursement of loans. 

In line with its vision, it has been constantly upgrading technology platforms. A significant proportion of sourcing and collections across assets and liabilities are digitalized using mobile phones / tablets, with an emphasis on Straight Through Processing (STP) while incorporating fraud and regulatory checks. PAN validation, e-KYC, Credit Bureau Data checks supporting multiple bureaus, and checks are fully automated using a robust integration layer.

DCCL had 24,608 active customers, who are served by 27 branches and Camps across 64 districts in 6 states in India, as of December 31. Further, it also serves around 0.01 Lakhs customers under managed portfolio. As of December 31, 2024, it had 224 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4276000 equity shares of Rs. 10 each to mobilize Rs. 25.66 cr. at the upper cap. It has announced a price band of Rs. 57 – Rs. 60 per share. The issue opens for subscription on May 21, 2025, and will close on May 23, 2025. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.95% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 22.00 cr. for augmenting the capital base, and the rest for general corporate purposes. 

The IPO is solely lead managed by GYR Capital Advisors Pvt. Ltd., and KFin Technologies Ltd., is the registrar to the issue. SMC Global Securities Ltd., is the Market Maker for the company. GYR Capital Advisors is also a syndicate member, and Intellect Stock Broking Ltd. is a sub-syndicate member.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 14 – Rs. 66 per share between March 2000, and January 2019. It has also issued bonus shares in the ratio of 10 for 9 in August 2019. The average cost of acquisition of shares by the promoters is Rs. 2.00, Rs. 3.72, and Rs. 5.58 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 10.00 cr. will stand enhanced to Rs. 14.28 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 85.66 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 24.42 cr. / Rs. 2.50 cr. (FY22), Rs. 25.57 cr. / Rs. 2.93 cr. (FY23), and Rs. 33.01 cr. / Rs. 3.97 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 4.92 cr. on a total income of Rs. 31.03 cr. Bumper performance in a pre-IPO period appears to be a window dressing to fetch fancy valuations. Margins reported by the company appears cooked as no peers are enjoying such margins. It is operating in a highly competitive and fragmented segment. Its unsecured MSME loans raises alarm.

For the last three fiscals, the company has reported an average EPS of Rs. 3.38 and an average RoNW of 5.32%. The issue is priced at a P/BV of 0.86 based on its NAV of Rs. 69.67 as of December 31, 2024, but the offer document is missing its post-IPO NAV data.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 13.07. Based on FY24 earnings, the P/E stands at 21.58. The issue relatively appears aggressively priced.

For the reported periods, the company has posted PAT margins of 10.26% (FY22), 11.82% (FY23), 12.38%, (FY24), 16.35% (9M-FY25), and RoCE margins of 9.21%, 8.78%, 9.22%, 9.70%, respectively for the referred periods.  Its debt-equity ratio of 2.07 as of December 31, 2024 raises concern.

DIVIDEND POLICY:
The company has paid a dividend of 5% for the last three fiscals and 9M of FY25. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Spandana Sphoorty, Muthoot Microfin, Credit Access Grameen, Fusion Micro, and Satin Creditcare as their listed peers. They are trading at a P/E of 14.2, NA, 36.2, NA, and 10.2 (as of May 16, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 41st mandate from GYR Capital in the last four fiscals including the ongoing one.  From the last 10 listings, 1 opened at par, and the rest listed with a premium ranging from 4.18% to 90.0% on the listing date.