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Spandana Sphoorty IPO review (May apply)

Review By Dilip Davda on July 31, 2019

 •    SSFL is NBDC-MFI focusing rural women for its lending.
•    Its cost of borrowing has declined in the last three fiscals.
•    In the last two fiscals, SSFL posted CAGR of 85% for AUM and 222% for PBT.
•    Investment may be considered for the long term.
Spandana Sphoorty Financial Ltd. (SSFL) is a leading, rural-focused NBFC-MFI with a geographically diversified presence in India. The company offers income generation loans under the joint liability group model, predominantly to women from low-income households in Rural Areas. As of March 31, 2019, SSFL was the fourth largest NBFC-MFI and the sixth-largest amongst NBFC-MFIs and SFBs in India, in terms of AUM (Source: ICRA Research).  Further, according to ICRA Research, SSFL's operating expense to average managed assets ('AMA') ratio was better than the industry as a whole for Fiscal 2019.
As of June 30, 2019, the company had 7,062 employees (including 5,051 credit assistants) operating out of 929 branches in 269 districts across 16 states and 1 union territory in India. Through its loan products and client-centric approach, the company endeavour to strengthen the socio-economic well-being of low-income households by providing financing on a sustainable basis in order to improve livelihoods, establish identity and enhance self-esteem.
SSFL yielded the desired result with its cost-cutting measures that lead to a reduction in its cost of borrowings from 16.31% in FY17 to 12.84% in FY19. On a consolidated basis, its gross AUM increased from Rs. 3166.79 cr. for FY18 to Rs. 4437.28 cr. for FY19.  For the said periods, its net worth increased from Rs. 1390.64 cr. to Rs. 1889.44 cr. (on a consolidated basis).
To augment its capital base to meet future capital requirements and listing benefits,  SSFL is coming out with a maiden combo offer of fresh equity issue as well as Offer for Sale via book building issue. It has fixed the price band of Rs. 853 – Rs. 856 per share having a face value of Rs. 10 per share. Minimum application is to be made for 17 shares and in multiples thereon, thereafter. The issue opens for subscription on 05.08.19 and will close on 07.08.19. Post allotment, shares will be listed on BSE and NSE.
The company mulls issuing fresh equity worth Rs. 400 cr. (Approx. 4672897 shares at the upper price band). It is also offering 9356725 shares via offer for sale from the existing stakeholders. Thus the total issue size will be approx. 14029622 shares are being issued to mobilize Rs. 1196.73 cr. - Rs. 1200.94 cr. (based on lower and upper price bands).
BRLMs to this issue are Axis Capital Ltd., ICICI Securities Ltd., IIFL Securities Ltd., JM Financial Ltd., IndusInd Bank Ltd. and Yes Securities (India) Ltd. Karvy Fintech Pvt. Ltd. is the registrar to the issue. Post issue SSFL's current paid-up equity capital of Rs. 59.63 cr., will stand enhanced to Rs. 64.3 cr. approx. Thus the issue consists of dilution of 21.82% of the post issue paid-up equity capital.
Having issued initial equity at par, SSFL raised further equity in the price range of Rs. 12 to Rs. 656.95 between August 2007 and June 2018. It has also issued bonus shares in the ratio of 2.5 shares for every 1 share held in November 2005.
The average cost of acquisition of shares by the promoters is Rs. 108.96 and Rs. 237.47 per share while the selling stakeholder is Rs. 3.33, Rs. 237.47, Rs. 279.21, Rs. 304.05 and Rs. 322.81 per share.


On the financial performance front, on a consolidated basis, SSFL has posted revenue/net profits of Rs. 587.31 cr. / Rs. 187.95 cr. (FY18) and Rs. 1043.10 cr./ Rs. 311.90 cr. (FY19). On a standalone basis, for the last three fiscals, it has posted revenue/net profits of Rs. 377.06 cr. / Rs. 443.41 cr. (FY17), Rs. 587.27 cr. / Rs. 187.97 cr. (FY18) and Rs.1036.28 cr. / Rs. 308.75 cr. (FY19). According to management, super-profits for FY17 were on account of restated differed tax provisions. Its AUM posted 85% CAGR while PBT 222% CAGR for these periods. Its gross and net NPAs were 0.01% sd on 31.03.19.
For the last two fiscals, on a consolidated basis, SSFL has posted an average fully diluted EPS of Rs. 49.74 and an average RoNW of 15.51%.  The issue is priced at a P/BV of 2.70 on the basis of its consolidated NAV of Rs. 316.84 as on 31.03.19. If we consider the latest earnings and attribute it on a fully diluted equity post issue, then asking to price it at a P/E of around 17.6 against the industry average of 21.3. Thus issue appears fully priced.
As per offer documents, it has shown Bharat Financial, Satin Creditcare, Ujjivan Financial, Bandhan Bank, Bajaj Finance, Cholamandalam Inv. Shriram City, Sundaram Finance and M & M Fin Services as its listed pers. These peers are currently trading at a P/E s of around 13, 7, 148, 26, 45, 17, 9, 24 and 14 (as on 31.07.19).  None of them is truly comparable on an apple to apple basis as SSFL is focusing only for MFI segment.
Credit Access (CAGL) is much nearer listed peer that is currently trading at a P/E of around 23 (as on 31.07.19)
On BRLM's front, six merchant bankers associated with this offer have handled 47 public issues during the last three fiscals including ongoing one. Out of which 16 public issues closed below the issue/offer price on listing date.

Conclusion / Investment Strategy

SSFL is the most efficient micro-finance company with a cost to income ratio of 25% and the industry-leading opex ratio of 4.6% for FY19. Its AUM posted 85% CAGR and PBT posted 222% CAGR in last two years with just 0.01% NPAs as on 31.03.19. SSFL offer appears cheap against its close peer CAGL. Considering these, investors may consider investment for the long term.

Review By Dilip Davda on July 31, 2019

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

Spandana Sphoorty IPO FAQs

  1. 1. Why Spandana Sphoorty IPO?

    The initial public offer (IPO) of Spandana Sphoorty Financial Ltd offers an early investment opportunity in Spandana Sphoorty Financial Ltd. A stock market investor can buy Spandana Sphoorty IPO shares by applying in IPO before Spandana Sphoorty Financial Ltd shares get listed at the stock exchanges. An investor could invest in Spandana Sphoorty IPO for short term listing gain or a long term.

  2. 3. Spandana Sphoorty IPO what should investors do?

    Spandana Sphoorty IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Spandana Sphoorty IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is Spandana Sphoorty IPO good?

    Our recommendation for Spandana Sphoorty IPO is to subscribe for long term.

  4. 5. Is Spandana Sphoorty IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Spandana Sphoorty IPO.

  5. 6. When will Spandana Sphoorty IPO allotment status?

    The Spandana Sphoorty IPO allotment status will be available on or around August 14, 2019. The allotted shares will be credited in demat account by August 16, 2019. Visit Spandana Sphoorty IPO allotment status to check.

  6. 7. When will Spandana Sphoorty IPO list?

    The Spandana Sphoorty IPO will list on Monday, August 19, 2019, at BSE, NSE.