Au Financiers IPO / Au Small Finance Bank IPO – Should you invest in this IPO?
Jaipur based Au Financiers IPO / Au Small Finance Bank IPO would open for subscription on 28th June, 2017. Au Small Finance Bank Ltd (earlier called as Au Financiers (India) Ltd) is a leading retail focused non-banking finance company. Its revenues grew at 46% CAGR in last 5 years. It earned good profits of over 23.5% for FY16. What are the positive factors in Au Financiers IPO? Are there any hidden factors in Au Financiers Ltd IPO / Au Small Finance Bank IPO? Is Au Financiers IPO Price is reasonably priced? In this article, I would provide some interesting insights and do Au Financiers IPO Review.
About Au Financiers (India) Ltd
They are a prominent, retail focused non-banking finance company primarily serving low and middle income individuals and businesses that have limited or no access to formal banking and finance channels. They operate in three business lines: vehicle finance; micro, small and medium enterprises loans; and small and medium enterprises loans. Company Company is categorized as a “Systemically Important, Non-Deposit Accepting Asset Finance Company” by the Reserve Bank of India. They received a license from the RBI to set up a ‘small finance bank’ (SFB) on December 20, 2016 and they are the only NBFC categorized as an asset finance company to obtain such license. Going forward, they intend to expand and strengthen company business model to offer a diverse suite of banking products and services by leveraging company asset based lending strengths, existing customer base and cost efficient, technology driven hub-and-spoke branch operating model to create a successful new SFB. they believe that transitioning to an SFB offers us significant growth potential and they aim to be a retail focused, preferred trusted SFB offering integrated and tailored solutions to customers
Au Small Finance Bank IPO / Au Financiers IPO Issue details
- IPO open date: 28-Jun-2017
- IPO close date: 30-Jun-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 355 to Rs 358 per share
- Issue size: Rs 800 Crores approx
- Au Financiers IPO Lot size: 41 shares and in multiples of 41 shares there-of.
- Minimum investment: Rs 14,740 on lower price band
- Leading Managers: HDFC Securities, ICICI Securities, Motilal Oswal Securities and Citigroup Global Markets
- Listing: BSE / NSE
- Download Au Financiers IPO RHP Prospectus at this link.
Objects of the Au Small Finance Bank IPO / Au Financiers (India) Ltd IPO issue
1) The Offer for Sale: Company will not receive any proceeds from the Offer for Sale by the Selling Shareholders and the proceeds received from the Offer for Sale will not form part of the Net Proceeds.
2) General corporate purposes.
3) Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges.
Company Financials (reinstated-standalone)
- The company generated revenue of Rs 230.6 Crores for the year ended Mar-12 and Rs 1,051.9 Crores for the year ended Mar-16. For 6 months ended Dec-16, it earned revenue of Rs 694.3 Crores.
- The company posted profit of Rs 37.2 Crores for the year ended Mar-12 and profit of Rs 247.1 Crores for the year ended Mar-16. For 6 months ended Sep-16, its profits are Rs 685.2. Profits are abnormal due profits on sale of investment in subsidiary companies.
- Its restated basic EPS for FY ending Mar-16 is Rs 9.34 and last 3 years EPS was Rs 6.94 (Excluding abnormal profits).
What are Au Financiers Key Strenghts?
Here are Au Financiers strengths.
- Diversified Product Portfolio and Revenue Streams
- Customer Centric Organizational Commitment
- Significant Presence in Rural and Semi-Urban Markets with Focus on Low and Middle Income Customers
- Robust and Comprehensive Credit Assessment and Risk Management Framework
- Access to Diversified Scompanyces of Funding over the Years
- Experienced Management Team and Qualified Operational Personnel
What are its Key Strategies?
Company is focusing on few key strategies.
- Leverage company Existing Capabilities and Customer Base as they Transition into a Retail Focused SFB
- Grow company SFB Branch Network in company Existing Markets
- Provide a Comprehensive Suite of Banking Services
- Leverage Technology to Grow company Business
- Enhance company Brand Presence
Reasons to invest in Au Small Finance Bank IPO
- Company revenues grew at 46% CAGR in last 3 years.
- Company profits are in increasing good. It is earning good profits. It earned 23.5% profits for FY2016.
- They received a license from the RBI to set up a ‘small finance bank’ (SFB) and are the only NBFC categorized as an asset finance company to obtain such license.
Risk Factors / Reasons not to invest in a Au Small Finance Bank IPO / Au Financiers (India) Ltd IPO
- Company inability to successfully transition from an NBFC to an SFB may have an adverse effect on company business, results of operations, financial condition and cash flows.
- As an SFB, they will be unable to access some of the sources of funds available to us as an NBFC and company inability to replace such sources of funds in an acceptable and timely manner, or at all, may have an adverse effect on company business, results of operations, financial condition and cash flows.
- Company inability to comply with laws and regulations applicable to an SFB may have an adverse effect on company business, results of operations, financial condition and cash flows.
- If company customers default in their repayment obligations, company business, results of operations, financial condition and cash flows may be adversely affected.
- They are yet to obtain consent from some of company lenders for the Offer and are subject to certain conditions and restrictions in terms of company financing arrangements, which restrict company ability to conduct company business and operations in the manner they desire.
- Any downgrade in company credit ratings could increase company finance costs and adversely affect company business, results of operations, financial condition and cash flows.
- Company inability to manage interest rate risk may adversely affect company business, results of operations, financial condition and cash flows.
- They may face asset-liability mismatches, which could affect company liquidity and consequently may adversely affect company operations and profitability.
- They intend to introduce several new products and services as an SFB and they cannot assure you that such products and services will be profitable in the future.
- They are in the process of upgrading company information technology systems for company SFB operations and any disruptions in such systems, or breach of data, could adversely affect company operations and reputation.
- Company financial statements for historic periods may not be indicative of company financial position for any future periods as they transition to an SFB.
- Other risk factors (Internal and external) can be viewed in the draft prospectus.
Recommendation / Investment strategy – Au Small Finance Bank IPO
On the upper price band of Rs 358 and on standalone FY16 EPS of Rs 9.34, P/E ratio works out to 38x. Even based on last 3 years standalone EPS of Rs 6.94, P/E ratio works out to 51x. Means, company is asking higher price band of Rs 358 in the P/E ratio of 38x to 51x. Its listed peers like RBL Bank is trading at P/E of 41 (Highest) and Ujivan Financial Services at P/E Ratio of 18x (Lowest). Hence Au Financiers IPO Price is slightly on higher side.
Company revenues grew at strong 46% CAGR in last 5 years. It is earning good profits. Its IPO price is on slightly higher side. Obtaining SFB license would create potential growth in the business. I would have been excited if issue price is on slightly lower side. However considering the potential the company has, one can take risk on issue price. Considering all these positive factors, I would personally like to invest in this IPO.
Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Au Small Finance Bank (formerly Au Financiers IPO) – Should you invest