Spandana Sphoorty IPO: All You Need To Know

Spandana Sphoorty Financial Services Ltd. will launch its three-day initial public offering on Monday as promoters plan to pare stake in the microfinance lender.

The company, looking to augment its capital base to meet future requirements, aims to raise Rs 1,201 crore through the maiden offer, according to its red herring prospectus. The offer comprises a fresh issue of Rs 400 crore and an offer-for-sale of up to 93 lakh shares to raise nearly Rs 801 crore. The price is fixed at Rs 853-856 apiece.

The microlender has raised Rs 360 crore from 18 anchor investors at Rs 856 a share. It issued 42 lakh shares to the anchor investors, including Goldman Sachs, Aditya Birla Sunlife Insurance Company Ltd., and Citigroup Global Markets Mauritius Pvt. Ltd.

After listing, the company will be valued at Rs 5,487-5505 crore at the upper end of the price band, BloombergQuint’s calculations showed. The promoter holding, according to ICICI Direct, is expected to fall to 62.58 percent from 81.22 percent.

Business And Financials

Spandana Sphoorty is the nation’s fourth-largest non-bank finance company-microfinance institution, with assets under management of Rs 4,437 crore as of June 30, according to its red herring prospectus.

The company, a rural-focused micro-lender, has a diversified presence across the country. It offers loans under the joint liability group model, primarily to women from low-income households.

Spandana Sphoorty had 7,062 employees, including 5,051 credit assistants, operating out of 929 branches as of June, the red herring prospectus said. It’s present in 269 districts across 15 states and one union territory.

The micro-lender was referred for corporate debt restructuring after loan collections dropped in Andhra Pradesh and its asset quality deteriorated. The company, however, exited the CDR mechanism in March 2017.

Spandana Sphoorty, according to ICRA Research, is one of the only two major micro-lenders that successfully exited the CDR mechanism. After its exit from CDR, Axis Capital said, the company was able to optimise ticket sizes and acquire new clients. That aided its AUM in the financial year ended March 2018.

Valuations

At the upper end of the price band, Spandana Sphoorty’s FY19 price-to-book value stands at 2.4 times. That, according to Emkay Research, is a “comfortable valuation”. CreditAccess Grameen Ltd., direct listed peer of Spandana Sphoorty, trades at about 3.2 times its FY19 price-to-book value.

However, Spandana Sphoorty’s stock is at a premium compared with small finance banks such as Equitas Small Finance Bank Ltd. and Ujjivan Small Finance Bank Ltd., Emkay Research said.

Spandana Sphoorty has a return on assets of about 8.1 percent and return on equity of nearly 18.8 percent for FY19 (before dilution), the brokerage said.

Key Risks

• Higher exposure in Odisha poses a risk to the company’s asset quality in the event of rain-related natural disasters. Odisha contributed nearly 20 percent of its gross AUM as of March. The state also forms about 19.4 percent of the company’s active customer base.
• Rising competition from banks, small finance banks and other microfinance institutions.
• Any potential regulatory risks in future.

(The risks have been compiled from the research reports of Axis Capital, ICICI Direct and Emkay Global.)