My Mudra Fincorp coming with IPO to raise Rs 33.26 crore

My Mudra Fincorp

• My Mudra Fincorp is coming out with an initial public offering (IPO) of 30,24,000 equity shares in a price band Rs 104-110 per equity share.
• The issue will open on September 05, 2024 and will close on September 09, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 10.40 times of its face value on the lower side and 11.00 times on the higher side.
• Book running lead manager to the issue is HEM Securities.
• Compliance Officer for the issue is Piyushi Jindal.

Profile of the company

Established in 2013, My Mudra Fincorp functions as a Channel Partner (DSA) for major Banks and NBFCs operating in India. Its business model integrates tele-calling, advertising, direct marketing, referrals, networking, and a combined physical and digital (physital) marketing approach to acquire customers for the banks and NBFC’s. Specializing in the distribution and sales of a diverse range of financial products as channel partner, it offers secured loans such as home loans and loans against property, unsecured loans like business loans and personal loans, professional loan as well as credit cards to the procured customers. Recently, it has expanded its services to include the distribution of insurance products. Through its dedication to offering exceptional financial solutions and consultancy services, it has distinguished itself in the highly competitive and ever-evolving Indian financial services sector.

It provides its customers with the ability to research and compare a wide range of lending and insurance products offered by its lending and insurer partners, enhancing choice and transparency. Once customers share their requirements, it presents multiple options, detailing related costs and features in a clear and simple manner, enabling informed decisions for applications to the appropriate financial institutions, such as banks or NBFCs. Upon credit approval, the loan is conveniently sanctioned. The company ensures faster service and disbursement of loans at the most competitive interest rates and terms acceptable to the customers.

It generates revenues from the commissions it receives through its various business segments. For its loan-related business, it earns commissions from its lending partners. In its credit card-related business, it receives commissions and fees from the credit card providers. Additionally, it has recently started an insurance business, from which it will receive revenue through commissions from its insurer partners. These sources form the backbone of its revenue generation strategy, ensuring a steady stream of income from its diverse financial product offerings.

Proceed is being used for:

• Repayment of a portion of certain borrowing availed by the company
• Investment in technology development and digital infrastructure
• Meeting working capital requirements
• General corporate purpose

Industry Overview

The Indian banking industry has been on an upward trajectory aided by strong economic growth, rising disposable incomes, increasing consumerism and easier access to credit. Bank accounts opened under GoI Pradhan Mantri Jan Dhan Yojana have deposits of over $25.13 billion in beneficiary accounts. 51.11 crore beneficiaries banked till December 15, 2023. Demand has grown for both corporate and retail loans. Services, real estate, consumer durables and agriculture allied sectors have led the growth in credit. India is one of the fastest-growing Fintech markets in the world. There are currently more than 2,000 DPIIT recognized Financial Technology (FinTech) businesses in India, and this number is rapidly increasing. In recent years India has experienced a rise in fintech and microfinancing. India’s digital lending stood at $75 billion in FY18 and is estimated to reach $1 trillion by FY23 driven by the five-fold increase in digital disbursements. The Indian fintech market has attracted $29 billion in funding over 2,084 deals so far (January 2017-July 2022), accounting for 14% of global funding and ranking second in terms of deal volume. By 2025, India’s fintech market is expected to reach Rs 6.2 trillion ($83.48 billion).

Meanwhile, as per the Insurance Regulatory and Development Authority of India (IRDAI), India will be the sixth-largest insurance market within a decade, leapfrogging Germany, Canada, Italy and South Korea. The regulatory developments would furthermore contribute to the growth. The recent pandemic has emphasized the importance of healthcare on the economy, and health insurance would play a critical role in the effort to strengthen the healthcare ecosystem.  According to Reserve Bank of India (RBI) data, in April 2023, over 8.6 crore credit cards were outstanding. This is a growth of about 15 percent from the 7.5 crore outstanding credit cards in April 2022. According to the RBI data, in April 2023, the industry average was Rs 5,120 per transaction. The industry average monthly spend per card was Rs 15,388. In April 2022, the industry average spend per card was Rs 14,070, and the average transaction was Rs 4,731.

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. The Association of Mutual Funds in India (AMFI) is targeting a nearly five-fold growth in AUM to $1.15 trillion (Rs 95 lakh crore) and more than three times growth in investor accounts to 130 million by 2025. 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 16.57 lakh HNWIs in 2027. 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 $78 billion in additional life insurance premiums from 2020-30.

Pros and strengths

Strong portfolio and diverse range of products across consumer preferences: The company offers a comprehensive range of financial products, including secured loans (home loans and loans against property), unsecured loans (business loans and personal loans), Professional loan, credit cards, and recently, insurance products. This helps the company in creating trust and consistency for its customer services where it can serve to them as per their needs and preferences. Customers also get facility to compare the proposal for different banks and can choose upon from the option best suited for them.

Diversified revenue from multiple locations and geographies of India: The company has diversified revenue from multiple geographical locations across India. Further, for the period and financial year ended March 31,2024, March 31, 2023 & March 31, 2022 respectively, it has generated around 85.94%, 89.05% and 90.87% of its total revenue from sales in top 5 geographical regions in India. The company reaches out to all the class of persons to fulfill their needs of any kind of credit facilities. Hence, with its expanded geographical outreach across India, it has the ability to quickly respond to increasing demand. Its presence in multiple geographies not only helps it in expanding its client base but also helps it by keeping itself in tune with the latest technological and behavioral changes/advancements world-wide.

Capital efficient model with low operating costs: As the company aggregates and distributes insurance and personal credit products offered by insurers and lenders and does not create its own products, it does not carry any corresponding Underwriting or credit risks. Further, as its brand continues to grow stronger, a larger percentage of users will use its platform directly or without marketing costs. As its platform and Consumer cohorts continue to develop, it expects a larger proportion of Consumers to buy either unassisted or with reduced levels of assistance, which should increase its capital and operational efficiency.

Risks and concerns  

Substantial portion of the revenue is generated from its banking partners and financial institutions: The company derives a substantial portion of its revenue from partnerships with banks and Non-Banking Financial Companies (NBFCs), making the success of its operations dependent on these relationships. These partnerships enable it to distribute a variety of financial products, including secured and unsecured loans, personal loans, business loans, and insurance services. The banking partners or financial institutions it works with are obligated to adhere to rules and comply with the requirements set by different government bodies, such as the Reserve Bank of India (RBI). If the RBI introduces new rules or regulations regarding its business arrangements with these partners, including imposing conditions that require it to modify or adjust its business activities or obtain authorizations, it may adversely affect its business operations and future prospects.

Maximum revenue comes from top 10 customers: The company’s top ten customers contribute approximately 63.56%, 77.97% and 84.79% and its top 5 customers contribute approximately 42.54%, 55.40% and 64.09% of its revenues for the financial year ended March 31, 2024, 2023 and 2022 respectively. Any decline in its market share, growing competition and any change in the demand for its services by these customers may adversely affect its ability to retain them. The company cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Limited experience in services related to distribution of insurance products and credit cards: The company functions as a channel partner (DSA) for major Banks and NBFCs, engaged in the distribution and sale of various financial products. These include secured loans such as home loans and loans against property, unsecured loans like business loans and personal loans, and credit cards. Additionally, the company has expanded its services to include the distribution of insurance products. It acknowledges that its relatively short-term experience may impact its ability to manage and grow its business as projected in the coming years. Any inability to effectively manage its operations could negatively affect its business prospects, financial condition, and overall results.

Outlook

My Mudra Fincorp acts as a Channel Partner (DSA) for major banks and NBFCs in India. The company specializes in the distribution and sale of a wide range of financial products. As a channel partner, the company offers secured loans such as home and property loans, unsecured loans such as business and personal loans, professional loans as well as credit cards to the referred customers. The company has also expanded its services to include the sale of insurance products. The company has established strong partnerships with major Banks and NBFCs. These alliances enable the company to provide its customers with competitive and attractive financial solutions, ensuring they have access to the most competitive terms and rates. On the concern side, the company generates substantial portion of the revenue from its banking partners and financial institutions. Its banking partners and financial institutions are regulated by the Reserve Bank of India (RBI) and any change in the RBI’s policies, decisions and regulatory framework could adversely affect its business, cash flows, results of operations and financial condition. Moreover, the company’s top ten and top five customers contribute approximately 63.56% and 42.54% respectively of its revenues for the financial year ended March 31, 2024. Any loss of business from one or more of them may adversely affect its revenues and profitability. 

The company is coming out with a maiden IPO of 30,24,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 104-110 per equity share. The aggregate size of the offer is around Rs 31.45 crore to Rs 33.26 crore based on lower and upper price band respectively. On performance front, during the FY24, the net revenue from operation of the company increased to Rs 7107.24 lakh as against Rs 5346.00 lakh in the FY23 representing an increase of 32.95%. The main reason of increase was due to increase in the commission income from sale of loans and credit cards by the company. Moreover, the company reported restated profit after tax for the financial year 2023-24 of Rs 835.52 lakh in comparison to Rs 346.75 lakh in the financial year 2022-23, representing an increase of 140.96%.

The company endeavours to attract new Consumers while deepening its relationship with its current consumers for both existing and new customers. It intends to cater to the requirement of the customers by assisting them in choosing the best proposal for them from the available options by various Banks and NBFCs. The company plans to extend its geographies to reach rural areas too by opening new branch/ offices there so as to give assistant to the people there one to one to close the deal and attend the requirement of the customer upto their satisfaction. Going forward, the company strives to deepen its relationships with banks to further bolster its business. This collaboration will provide a competitive edge and open doors to exclusive products and features for its customers by showcasing its expertise, exceptional customer support, and innovative approach to marketing. It aims to become a preferred partner for banks in their credit card and personal loan offerings.