IBL Finance NSE SME IPO review (Avoid)

•    The company is engaged in financing self-employed with fintech based financial services.
•    It marked sudden boost in its top and bottom lines for the last 16 months.
•    Even with super annualized earnings of FY24, the issue is aggressively priced. 
•    The sustainability of superior margins going forward is a major concern.
•    There is no harm in skipping this pricey issue. 

ABOUT COMPANY:
IBL Finance Ltd. (IBLFL) commenced lending business to self-employed professional and small business entrepreneurs during the financial year March 31, 2019. Subsequently, from the Fiscal 2020 it migrated to fintech based financial services platform. As a technology driven fintech company it leverages technology and data-science to make lending quick and easy. 

The Company through its mobile App provides instant personal loans which is almost 100% digital process. IBLFL launched personal loans business to fulfil the needs of the underserved Indian population. Its digital personal loan offering is well-suited to address the needs of the growing digitally connected Indians.

The company launched mobile App based personal loans business under the "IBL: Instant Personal Loan" brand. Under personal loan lending business, it extends instant personal loans up to Rs. 50,000 with tenors of up to 12 months through an entirely digital mobile App-only process. Since launch and up to March 31, 2023, it has disbursed 1,63,282 personal loans amounting to Rs. 71.05 cr. As of March 31, 2023, its personal loan business had an AUM of Rs. 14.61 cr. and disbursed 1,22,078 personal loans amounting to Rs. 52.35 cr. with an average ticket size of approx. Rs. 4500. The average tenor of loans which is outstanding at the end of Fiscal 2023 is 5 months.

Its digital lending process is the key differentiators driving business growth. Its personal loan are repaid in equal monthly installment basis ("EMI") over the tenure of the loan. As of the date of filing this offer document, it had 82 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 6550000 equity share of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 33.41 cr. The issue opens for subscription on January 09, 2024, and will close on January 11, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.49% of the post-IPO paid-up capital of the company. IBLFL is spending Rs. 1.75 cr. for this issue process and from the net proceedings it will utilize Rs. 23.97 cr. for augmenting Tier-I capital base, and Rs. 7.69 cr. for general corporate 

The issue is solely lead managed by Fedex Securities Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. Market Hub Stock Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 85 - Rs. 195 between February 2023 and March 2023. It has also issued bonus shares in the ratio of 5 for 4 in March 2023, and 1 for 1 in June 2023. The average cost of acquisition of shares by the promoters is Rs. 3.72, Rs. 3.77, Rs. 4.50, Rs. 4.51, and Rs. 5.60 per share. 

Post-IPO, company's current paid-up capital of Rs. 18.18 cr. will stand enhanced to Rs. 24.73 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 126.13 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted total revenue/net profit/- (loss) of Rs. 1.13 cr. / Rs. - (0.10) cr. (FY21), Rs. 3.27 cr. / Rs.0.43 cr. (FY22), and Rs. 13.33 cr. / Rs. 1.93 cr. (FY23).  For the first four months of FY24 ended on July 31, 2023, it earned a net profit of Rs. 1.21 cr. on a total revenue of Rs. 4.93 cr. Thus the bumper top and bottom lines for the last sixteen months raises eyebrows and concern over the sustainability as it is operating in a highly competitive and fragmented segment.

For the last three fiscals, the company reported an average EPS of Rs. 0.66 and an average RoNW of 8.19%. The issue is priced at a P/BV of 1.07 based on its NAV of Rs. 47.73 as of July 31, 2023, and at a P/BV of 2.29 based on its post-IPO NAV of Rs. 22.28 per share. 

If we attribute FY24 annualized super earnings to post-IPO fully diluted paid-up capital of the company, then the asking price is at a P/E of 34.93. Thus the issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of - (8.88) % (FY21), 13.06% (FY22), 14.49% (FY23), and 24.48% (4M-FY24), and RoCE margins of - (3.01) %, 6.32%, 18.88%, and 7.18% for the referred periods respectively.

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown MAS Financial, Arman Financial, Apollo Finvest, CSL Finance, and Ugro Capital as their listed peers. They are trading at a P/E of 21.97, 82.22, 40.20, 19.55, and 32.38 (as of January 05, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 18th mandate from Fedex Securities in the last four fiscals. Out of the last 10 listings, 3 opened at discount and the rest with premiums ranging from 6.49% to 76.19% on the date of listing.