IBL Finance
- IBL Finance is coming out with an initial public offering (IPO) of 65,50,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 51 per equity share.
- The issue will open on January 9, 2024 and will close on January 11, 2024.
- The shares will be listed on NSE Emerge Platform.
- The share is priced at 5.10 times higher to its face value of Rs 10.
- Book running lead manager to the issue is Fedex Securities.
- Compliance Officer for the issue is Dilipbhai Chauhan.
Profile of the company
IBL Finance commenced its lending business to self-employed professional and small business entrepreneurs during the financial year March 31, 2019. Subsequently, from the Fiscal 2020 it migrated to fintech based financial services platform. As a technology-driven fintech company, it leverages technology and data-science to make lending quick and easy. The company through its mobile App provides instant personal loans which is almost 100% digital process. It launched personal loans business to fulfil the needs of the underserved Indian population. Its digital personal loan offering is well-suited to address the needs of the growing digitally connected Indians.
The company’s digital lending process is the key differentiators driving business growth. The process of downloading the IBL: Instant Personal Loan App, completing the entire loan application and receiving the approval in under 5 minutes and disbursement of the proceeds of the loan in their bank account is within 24 hours. Its personal loan is repaid in equal monthly installment basis (EMI) over the tenure of the loan. Its extensive range of ticket sizes and tenors of loans can address a large number of use cases such as: (a) planned personal expenses, e.g., home renovation, travel, high ticket purchases and weddings, (b) emergency medical expenses, and (c) short-term business needs.
To ensure its growth is sustainable and profitable, it places strong focus on both credit quality and pricing. It has been successful in building its underwriting platform that help it aggregate data from different mediums and generate a credit report with over 500 data points. As of March 31, 2023, over 91% of its personal loan customers had Equifax credit scores of above 700. It adopts an innovative cohort-based approach that segments customers based on a variety of factors including yield, risk, ticket size, and acquisition cost to identify low risk and profitable cohorts. This approach is supplemented with regular customer research and sophisticated data analytics for it to provide tailored products to its customers. Profiling and pricing each borrowers is a major driver in creating a profitable lending business.
Proceed is being used for:
- Augmenting the company’s Tier - I capital base to meet the company’s future capital requirements, arising out of the growth of its business and asset.
- General corporate purposes.
Industry Overview
India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The banking regulator has allowed new entities such as payment banks to be created recently, thereby adding to the type of entities operating in the sector. However, the financial sector in India is predominantly a banking sector with commercial banks accounting for more than 64% of the total assets held by the financial system. The Government of India has introduced several reforms to liberalise, regulate and enhance this industry. The Government and Reserve Bank of India (RBI) have taken various measures to facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs). These measures include launching Credit Guarantee Fund Scheme for MSMEs, issuing guidelines to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With a combined push by Government and private sector, India is undoubtedly one of the world's most vibrant capital markets.
As of January 2023, AUM managed by the mutual funds industry stood at Rs. 39.62 trillion ($478.08 billion). Inflow in India's mutual fund schemes via systematic investment plan (SIP) stood at Rs. 1.5 lakh crore (US$ 18.09 billion). Equity mutual funds registered a net inflow of Rs. 22.16 trillion ($294.15 billion) by end of December 2021. The net inflows were $888 million (Rs 7,303.39 crore) in December as compared to a 21-month low of $274.8 million (Rs 2,258.35 crore) in November 2022. Another crucial component of India’s financial industry is the insurance industry. The insurance industry has been expanding at a fast pace. The total first-year premium of life insurance companies reached $32.04 billion in FY23. In FY23 (until December 2022) non-life insurance sector premiums reached at Rs. 1.87 lakh crore ($22.5 billion).
India’s financial services industry has experienced huge growth in the past few years. This momentum is expected to continue. India’s private wealth management Industry shows huge potential. India is expected to have 6.11 lakh HNWIs by 2025. This will indeed lead India to be the fourth largest private wealth market globally by 2028. India’s insurance market is also expected to reach $250 billion by 2025. This will further offer India an opportunity of US$ 78 billion of additional life insurance premiums from 2020-30. India is today one of the most vibrant global economies on the back of robust banking and insurance sectors. The relaxation of foreign investment rules has received a positive response from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players.
Pros and strengths
Mobile first approach driving better customer engagement and experience: The company operates a mobile-first, app-only model for its personal loans. This model enables it to (a) cater to digitally connected Indians, (b) avoid intermediation and reach customers directly in tier-1 cities and beyond, and (c) offer an unassisted buying journey with one of the lowest turnaround times. The company’s mobile-first approach enables to serve customers in a much quicker time frame. The TAT for its fastest approval of instant personal loans is under 5 minutes. Moreover, the company has designed the IBL: Instant Persona Loan App with the aim of making the customer journey seamless, with simple and easy-to- understand products.
Risk management, data science and machine learning leveraged operating mode: To ensure the company’s growth is sustainable and profitable, it places strong focus on both credit quality and pricing. The company has been successful in building advanced data science-driven underwriting algorithms that help its aggregate data from different mediums and generate a credit report with over 500 data points available. This provides it a significant advantage over traditional lenders who, are largely dependent on excessive paperwork and manual evaluation which can be tedious and time-consuming. A large portion of the Indian population have no access to the formal credit system because of low or no credit history. It utilizes artificial intelligence and machine learning to go beyond using only credit scores as a method of underwriting. The company’s models incorporate more than 500 variables and learn from a rapidly growing training dataset.
Stable and experienced management team: The long-standing industry experience of its Promoters and its management team provides it with an understanding of the needs and behaviour of the clients particularly in rural and semi-urban Areas, the nuances of lending to these clients and issues specific to the NBFC industry in India. This expertise gives it a competitive advantage in this industry and has helped it in maintaining its resilience through industry cycles including covid period. It has a strong, experienced and dedicated management team, including KMPs with significant industry experience and who have demonstrated their ability to deliver growth and profitability, across business cycles.
Risks and concerns
Subject to customer default risks: The company’s business involves lending money and accordingly it is subject to customer default risks including default or delay in repayment of principal and/or interest on its loans. Customers may default on their obligations to it as a result of various factors including bankruptcy, lack of liquidity, lack of business, termination from their job, and operational failure. If borrowers fail to repay loans in a timely manner or at all, its financial condition and results of operations will be adversely impacted. In addition, the company’s customer portfolio consists of individuals and other group of the under banked community, who may or may not have easy access to financing from commercial banks or other organized lenders and often have limited credit history. Such borrowers generally are less financially resilient than larger corporate borrowers, and, as a result, they can be more adversely affected by declining economic conditions.
Business operations involve transactions with relatively high-risk borrowers: A certain portion of the company’s target customers typically have limited access to credit with limited to or no prior credit history. As a result, it is more vulnerable to customer default risks including delay in repayment of principal or interest on its loans. Although the company has its own customised due diligence and credit analysis procedures, there can be no assurance that It will be able to ensure a lower delinquency rate. The company’s profitability depends on its ability to evaluate the right income levels of its customers, assess the credit risks and to price its loans accordingly. The company’s customers may default on their obligations as a result of various factors including bankruptcy, insolvency, lack of liquidity and/or failure of the business or commercial venture in relation to which such borrowings were sanctioned. Failure to maintain sufficient credit assessment policies, particularly for small and medium enterprise borrowers, could adversely affect its credit portfolio which could have a material and adverse effect on its results of operations and financial condition.
All the loans granted are short term in nature: All of the loans it grants are due within one year of disbursement or are to be renewed within one year if need be. The relatively short-term nature of its loans means that its long-term interest income stream is less certain than if a portion of its loans were for a longer term. In addition, the company’s borrowers may not obtain new loans from it upon maturity of their existing loans, particularly if competition increases. The potential instability of its interest income could materially and adversely affect its results of operations and financial position.
Outlook
IBL Finance Limited is a fintech-based financial services platform that uses technology and data science to make lending easier and faster. As of August 2023, the company has 7 branches in major cities of Gujarat and Maharashtra. The company's advanced underwriting algorithms use data from many sources to generate a credit report with over 500 data points. Keeping the language simple and concise to ensure the customers can easily understand the information the company provides. On the concern side, the company’s business operations involve transactions with relatively high-risk borrowers. Any default from its customers could adversely affect its business, results of operations and financial condition. Moreover, high levels of customer defaults or delays in repayment of loans could adversely affect its business, financial condition and results of operations.
The company is coming out with an IPO of 65,50,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 51 per equity share to mobilize Rs 33.41 crore. On performance front, the company’s total revenue increased by 308% from Rs 327.08 lakh for the Financial Year ended March 31, 2022 to Rs 1,333.13 lakh for the Financial Year ended March 31, 2023. This increase was primarily due to increase in revenue from operations. Moreover, the company recorded a profit after tax of Rs 192.83 lakh for the Financial Year ended March 31, 2023 from a profit of Rs 42.73 lakh for the Financial Year ended March 31, 2022.
Meanwhile, the company strives to be a low-cost, lean, and efficient digital lending company having presence currently in two states that leverages technology and its existing distribution network to channel its products and services. Currently, the company operates through its registered office located at Surat, Gujarat and its digital presence is around 8 states in India. The company plans to further grow its business operations by mining deeper and attracting new customers in its existing markets that remain relatively untapped as well as by entering new regions PAN India where borrowers are underserved and there is lower penetration by finance companies. It has diversified into on-line/off-line model by setting up its branches which provide it the flexibility to increase its loan size. In addition, the company would seek to establish new branches in areas that are adjacent states to its existing markets, or which may have similar customer demographics and financing needs.
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