Chennai-based microfinance firm Equitas Holdings Ltd has filed its draft herring prospectus with the capital markets regulator Securities and Exchange Board of India for its initial public offering (IPO).
The proposed issue would make Equitas the second microfinance institution (MFI) to go public, after SKS Microfinance listed on the bourses in 2010.
The IPO of SKS Microfinance, once the largest and now the second-largest MFI in the country by loan book, had attracted widespread attention. Its share price shot up soon after listing, but regulatory flux surrounding its once key market Andhra Pradesh punctured the firm's business.
Although SKS has restructured heavily since then to once again emerge as one of the top MFIs by size, its share price is now half its IPO price and a fraction of its all-time high.
Equitas, the fifth-largest MFI behind Bandhan, SKS, Janalakshmi and Ujjivan, is one of the eight microfinance firms to secure a small finance bank licence last month. It would be the first among its small finance bank peers to tap the primary market to raise funds and reduce foreign shareholding to the 49 per cent limit set by the Reserve Bank of India.
The firm plans to raise Rs 600 crore through a fresh issue of shares besides giving part and full exit to several private investors. It said that it may raise Rs 300 crore by selling shares to institutional investors ahead of the IPO.
The firm is yet to freeze its issue price band. But given the two equity deals in the company over the past year the issue, including the offer for sale, would make it one of the biggest IPO in several years. It would trump the just concluded issue of Coffee Day Enterprises Ltd and could be just behind the proposed issue of budget airline IndiGo.
Here's a snapshot of the Equitas IPO:
* Fresh issue of shares to raise up to Rs 600 crore (about $93 million) and an offer for sale of up to 130.8 million equity shares.
* Bankers: Edelweiss, ICICI Securities, Axis Capital and HSBC.
Objects of the issue
Of the total money to be raised through a fresh issue of shares, the company plans to use Rs 520 crore towards investment in subsidiaries to augment their capital base. While Rs 240 crore would go into Equitas Microfinance Pvt Ltd (EMFL) and a similar amount into Equitas Finance Ltd (EFL), the remaining would be used for Equitas Housing finance Pvt Ltd (EHL).
Company
* Incorporated in 2007, Equitas is a diversified financial services provider focused on individuals and micro and small enterprises (MSEs) that are underserved by formal financing channels.
* It is led by PN Vasudevan who holds a 3.17 per cent stake and is selling a small chunk of it as part of the offer for sale. Before founding Equitas, he had served as the head of the consumer banking group at Development Credit Bank Ltd (now DCB), for more than one-and-a-half years. He has also worked for about two decades in Cholamandalam Investment and Finance Co Ltd, part of the Murugappa Group, where he joined as a management trainee and resigned as vice president and business head of vehicle finance.
* Equitas is essentially a holding company and operates through its subsidiaries: EMFL is into microfinance lending, EFL is engaged in vehicle and MSEs lending while EHL is into housing finance.
* As of June 30, 2015, it had 520 branches across 11 states, one union territory and the NCT of Delhi.
Financials
* For the financial year ended March 31, 2015, the company's consolidated revenue was Rs 755.93 crore against Rs 483.52 crore in FY14. Its net profit rose by over 40 per cent last year to Rs 106.6 crore. Its assets under management (AUM) as of June 30, 2015, stood at Rs 4,419.1 crore.
* Its microfinance business AUM increased at a CAGR of 43.6 per cent from Rs 723.9 crore as of March 31, 2012, to Rs 2,143.9 crore last year. This rose to Rs 2,319.4 crore as of June 30, 2015, which represented 52.4 per cent of its aggregate AUM. As of June 30, 2015, there were 2.58 million loan accounts in its microfinance business.
* In the vehicle finance business, its AUM has almost doubled annually over the last two years and ended FY15 with Rs 1,175. crore as of March 31, 2015, which represented 29.31 per cent of its aggregate AUM. Vehicle finance business AUM was Rs 1,248.9 crore as of June 30, 2015 with 45,029 loan accounts.
* The AUM of its MSE finance business increased from Rs 87.4 crore as of March 31, 2014 to Rs 510.9 crore last year. This shot up to Rs 656.1 crore as of June 30, 2015 with 29,627 loan accounts. A majority of its MSE finance business represents cross-sales to eligible higher income microfinance business customers.
* The AUM of its housing finance business has doubled annually for the past two financial years. It grew to Rs 179.5 crore as of March 31, 2015 and to Rs 194.5 crore as of June 30, 2015, spread across 3,360 loan accounts.
Investors
The firm counts around a dozen venture capital, private equity and development financial institutions as private investors. Around 93 per cent stake of the firm is held by foreign investors including overseas incorporated bodies.
IFC, CDC and India Financial Inclusion Fund are the top three shareholders of the firm. In the proposed offer for sale, some like Sequoia Capital, WestBridge, Aavishkaar, Lumen, Aquarius, and MVH are exiting their investments. IFC, FMO, Helion, Creation Holdings, Sarva Capital are part exiting while India Financial Inclusion Fund is offering to sell bulk of its holding.