The initial public offering (IPO) of SKS Microfinance was oversubscribed 13.69 times at its close today, as the asset quality of the company and uniqueness of its issue lured investors, despite concerns over high valuations.
The success of India’s biggest microfinance company in tapping the capital market is likely to spur other companies in this space to come out with IPOs, according to experts.
According to industry sources, Spandana Sphoorty Financial, the country’s second largest microfinance institution (MFI), is next to go public. Padmaja Reddy, managing director of Spandana, could not be contacted. Other large MFIs likely to go public are SHARE Microfin and Asmitha Microfin.
“Beyond a certain loan book size, which is about Rs 3,000-4,000 crore, it becomes very difficult for MFIs to raise capital even from private equity investors. Once they reach this stage, an IPO becomes inevitable,” said Vijay Mahajan, chairman of BASIX, the holding company of Bhartiya Samruddhi Finance.
SKS Microfinance’s Rs 1,654-crore IPO was oversubscribed 20.38 times in the qualified institutional buyer category, for which bidding was closed on Friday. The category reserved for high net-worth individuals was oversubscribed 18.26 times, while that for retail investors was oversubscribed 2.81 times, at the time of going to press. The price band for the issue was Rs 850-985 a share.
“Investors have liked the disciplined landing model of the company, reflected by its good asset quality,” said Abhijit Vaidya, associate director at Kotak Mahindra Capital, one of the book running lead managers of the issue.
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As of March 31, the net non-performing assets (NPA) of SKS Microfinance were Rs 4.80 crore, equivalent to 0.16 per cent of the loans. The loan book of the company grew at a compounded annual growth rate of 122 per cent during FY07-10 to Rs 2,975 crore from Rs 271 crore.
“SKS Microfinance’s IPO was one of its kinds in India,” said Mayank Shah, chief executive officer of Anagram Stock Broking. “The company’s very good margin and low delinquency ratio were other reasons behind its successful IPO.”
A large section of market experts said SKS Microfinance’s IPO was overpriced. “Lot of hype was created around this issue. However, purely on a fundamental basis, I am not convinced,” said SP Tulsian, independent investment analyst.