Manba Finance coming with an IPO to raise Rs 151 crore

Manba Finance

• Manba Finance is coming out with a 100% book building; initial public offering (IPO) of 1,25,70,000 shares of Rs 10 each in a price band Rs 114-120 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on September 23, 2024 and will close on September 25, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 11.40 times of its face value on the lower side and 12.00 times on the higher side.
• Book running lead managers to the issue is Hem Securities.
• Compliance Officer for the issue is Bhavisha Ashish Jain.

Profile of the company

Manba Finance is a Non-Banking Financial Company-Base Layer (NBFC-BL) providing financial solutions for New two wheelers (2Ws,) three wheelers (3Ws), electric two wheelers (EV2Ws), electric three wheelers (EV3Ws), Used Cars, Small Business Loans and Personal Loans with an AUM size of more than Rs 90,000 lakh as on March 31, 2024. About 97.90% of its loan portfolio comprises of New Vehicle Loans with an average ticket size (ATS) of around Rs 80,000 for two-wheeler loans and an average ticket size (ATS) of around Rs 1,40,000 for three-wheeler loans. It provides financial solutions to its target customers who are looking for a quick turnaround time (TAT) for loan sanction and disbursement. It is based out of Mumbai, Maharashtra and operate out of 66 Locations connected to 29 branches across 6 states in western, central and north India. It has established relationships with more than 1,100 Dealers, including more than 190 EV Dealers, across Maharashtra, Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh and Uttar Pradesh. It has recently expanded its loan portfolio to Used Car Loans, Small Business Loans and Personal Loans and it intends to leverage its existing network to further penetrate the market with its new products.

The company has a centralised credit team which remotely reviews loan applications and undertakes credit decisions primarily based on the credit data of the customer. It has implemented a comprehensive and robust credit assessment, risk management and collections framework to identify, monitor and manage risks inherent in its line of business. It bases its credit decisions on certain key factors like its internal credit policies, LTV and the customer’s existing cash-flows, CIBIL score and the collateral, which in case of vehicle finance is the vehicle itself, to assess the ability and capability of the customer to repay the loan to be disbursed by the company. It has established business processes and technologies to facilitate the sanction of more than 85% loans on the same day of the application. It also has an in-house collection team which focuses on recovery of the monthly instalments from its customers. Its collection management process ensures account-level tracking of payments, resolution of queries, and initiation of legal actions, where required. 

Proceed is being used for:

• Augmentation of the company’s capital base to meet its future capital requirements

Industry overview

Over the past decade, banking credit growth lagged systemic credit growth for several years as NBFCs grew at a much faster pace. However, the NBFCs suffered a blow after IL&FS defaulted in September 2018. NBFCs not having the advantage of size, rating and/or parentage had to grapple with a liquidity crisis and as raising funding became difficult. Initially, post the IL&FS crisis, banks were expected to fill the space left out by NBFCs. The credit growth of NBFCs which has trended above India’s GDP growth historically, is expected to continue to rise at a faster pace. NBFCs have shown remarkable resilience and gained importance in the financial sector ecosystem, reaching Rs 412,000,000 lakh at the end of Fiscal 2024. During fiscals 2019 to 2024, NBFC credit is estimated to have witnessed a growth at CAGR ~11%. Rapid revival in the economy is expected to drive consumer demand in Fiscal 2025, leading to healthy growth in NBFCs. Going forward, NBFC credit is expected to grow at 15-17% between Fiscal 2024 and Fiscal 2027 driven by growth in retail segment, and MSME loans in the wholesale segment continuing to be the primary drivers.

While banks are the primary institutions for banking in India, retail loan portfolio forms only 34% of the overall banking credit as of Fiscal 2024. Other focus areas for banks are wholesale lending to large corporates, credit to services sector and agriculture sector. Lower presence of banks in the retail space has created an opportunity for NBFCs to penetrate the segment which has also led to greater financial inclusion as NBFCs also cater to riskier customer profiles with lower income. Compared to that of banks, NBFC credit to retail segment forms more than 48% as of Fiscal 2024 of its portfolio indicating larger focus on retail customers. Rural areas, presents vast market opportunity for NBFCs. NBFCs have played a major role in meeting this need, complementing banks and other financial institutions. NBFCs help fill gaps in the availability of financial services with respect to products as well as customer and geographic segments.

The NBFC sector has, over the years, evolved considerably in terms of size, operations, technological sophistication, and entry into newer areas of financial services and products. The number of NBFCs as well as the size of the sector have grown significantly, with a number of players with heterogeneous business models starting operations. The increasing penetration of neo-banking, digital authentication, and mobile phone usage as well as mobile internet has resulted in the modularization of financial services, particularly credit. Overall NBFC credit during fiscals 2019 to 2024, is estimated to have witnessed a CAGR of 11% which was majorly led by retail segment which is estimated to have witnessed a CAGR of 14%, while NBFC non-retail credit is estimated to have witnessed a growth of 9% during the same time period. Going forward, growth in the NBFC retail segment is expected at 14-16% from Fiscal 2024 to Fiscal 2027 which will support overall NBFC credit growth, with continued focus on the retail segment and multiple players announcing plans to reduce wholesale exposure.

Pros and strengths

Established relationships with the Dealers: The company commenced its business in 1998 as a NBFC from Mumbai, Maharashtra and scaled up its operations from 2009 with vehicle financing. The company has established strong relationships with more than 1,100 Dealers, including more than 190 EV Dealers, across Maharashtra, Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh and Uttar Pradesh, where its employees are present at the dealer’s premises to attend to the prospective customer who comes for the purchase of a 2Ws/3Ws/2EVWs/3EVWs. Its Dealer network acts as a point of sale in its business model. The Dealers play an important role in the vehicle financing ecosystem as vehicle purchase in India is mainly undertaken by the customer visiting the outlet of the Dealer of a particular OEM or a Dealer selling 2Ws/3Ws of multiple OEMs.

Ability to expand to new underpenetrated geographies: The company scaled up its operations from 2009 with vehicle financing and are now present in 66 Locations spread across six states in western, central and north India. It initially focused itself on Maharashtra and after gaining the necessary knowledge and experience, it expanded its operations to other states like Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh and Uttar Pradesh. Before setting up a branch or location, it generally studies the market dynamics of the area like its population, financial literacy levels of the people, access to banks and other NBFCs, nature of competition in these areas, existing Dealer networks, demand of any particular OEMs products in the area, existing tie-ups of banks and other financial institutions with Dealers and other considerations like population and market size data analysed from Vahan and FADA portals. Further, it has established systems and processes that enable it to identify local level opportunities, ensure careful customer selection, timely loan approval & disbursals and efficient real time monitoring of collections.

Access to diversified and cost-effective long-term borrowing: The company secures its funding from diversified sources including term loans and cash credit facilities from public sector banks, private sector banks, small finance banks & other financial institutions and PTC and issuance of privately placed listed and unlisted NCDs to meet its capital requirements. It has over the years developed long term relationships with various banks, NBFCs and other financial institutions for its funding requirements. It borrows funds from these sources and together with its own fund lend to the customers for their asset acquisition or funding requirements. It uses various financial structures and issue various financial instruments for cost effective borrowing of funds from these institutions. Financial instruments like NCDs and PTC help it in achieving optimum levels of financial management and controls. It has entered into a co-lending arrangement with Muthoot Capital Services Limited on an 80:20 fund sharing basis in terms of RBI guidelines, where 80% of the funds are provided by Muthoot Capital Services Limited and the balance 20% is its obligation.

Extensive collections infrastructure and processes leading to maintenance of asset quality: While the company’s underwriting model contributes to suitable customers being on-boarded on a quick TAT basis, it has also focused its resources in creating an extensive on-ground collections infrastructure to ensure that it maintains an appropriate asset quality. More than 80% of its monthly collection are received through NACH on the scheduled EMI date. It has an in-house collections team, responsible for detecting likely default early, thereby keeping a check on low Gross NPA. It has a three-tier collections infrastructure, comprising of (i) tele-calling; (ii) field collection; and (iii) legal recovery in order to optimize collections and minimize NPAs. Additionally, it deploys external collection agencies to assist its in-house collections team in the collection or recovery of outstanding dues from customers, where required, in accordance with RBI Guidelines.

Risks and concerns

New Vehicle Loans constitute 97.90% of its AUM: New Vehicle Loans constitute 97.90% of its total AUM. It has over the period of time established itself as a NBFC focused on vehicle finance, especially 2Ws/3Ws. It will continue to focus on this market which is changing and evolving on a continuous basis with new products like EV2Ws and EV3Ws, which are now being increasingly preferred by customers due to the various benefits that EV2Ws/EV3Ws provides in an era of high fuel prices. It has recently diversified into Used Car Loans, Small Business Loans and Personal Loans. It cannot assure that its loan portfolio diversification into Used Car Loans, Small Business Loans and Personal Loans will be successful or that it will be able to continue to grow further, at the same rate or at all. The company’s inability to manage this diversification or any failure in the success of these new products could have an adverse effect on its business, operations and financial condition.

Dependent on dealers for significant portion of its New Vehicle Loans business: It is a Non-Banking Company - Base Layer (NBFC-BL) providing tailored financial solutions for two wheelers, three wheelers, electric two wheelers, electric three wheelers, Used Cars Loans, Small Business Loans and Personal Loans with an AUM size of more than Rs 90,000 lakh as on March 31, 2024. The company has established strong relationships with more than 1100 Dealers, including more than 190 electric vehicle (EV) Dealers, across Maharashtra, Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh and Uttar Pradesh who refer and recommend the company to customers who are in the process of purchasing new two wheelers/ three wheelers / electric two wheelers/ electric three wheelers or used cars. The company cannot assure that it will be successful in continuing its relationships with its Dealers and receive uninterrupted referrals from them. Any disruption, negligence or inefficiency in services provided by it to the customers or its Dealers could adversely affect its business, financial result and reputation.

Geographical constrain: The company conducts its operations out of 66 Locations connected to 29 branches in the states of Maharashtra, Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh and Uttar Pradesh. Of this, AUM from Maharashtra constitute 64.63%, 68.91% and 78.50% in FY24, Fy23 and FY22 respectively. Consequently, any significant social, political or economic disruption, or natural calamities or civil disruptions in Maharashtra, or changes in the policies of the state or local governments of the state, could disrupt its business operations, require it to incur significant expenditure and change its business strategies. The occurrence of or its inability to effectively respond to any such event, could have an adverse effect on its business, results of operations, financial condition and cash flows.

Operates in seasonal industry: The company has historically experience seasonal fluctuations in its sales, with higher sales volumes associated with the festive sale period in the third quarter of each Fiscal, which encompasses holidays such as Diwali and Christmas. It expects to continue to experience seasonal trends in its business, making results of operations variable from quarter to quarter. This variability can make it difficult to predict sales and can result in fluctuations in its revenue or profitability between periods. Any failure by the Dealers to stock or restock popular vehicles in sufficient quantity to meet consumer demand during periods of seasonal or peak demand, could adversely affect costumer experience and its results of operations.

Outlook

Manba Finance commenced its business in 1998 as a NBFC from Mumbai, Maharashtra and scaled up its operations from 2009 with vehicle financing and presently operate out of 66 Locations across six states, Maharashtra, Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh and Uttar Pradesh, providing financial services to its target customers being the salaried and self-employed. It intends to further penetrate its existing markets by not only offering 2Ws/3Ws/EV2Ws/EV3Ws loans but also diversify its loan portfolio to new products such as Used Car Loans, Small Business Loans and Personal Loans to customers. On the concern side, the company’s business and future prospects could get adversely affected if it is not able to maintain relationships with its Dealers from whom it derives significant portion of its New Vehicle Loans business. New Vehicle Loans constitute 97.90% of its AUM. Lack of diversity in its loan products may affect its growth, prospects and financial condition.

The company is coming out with a maiden IPO of 1,25,70,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 114-120 per equity share. The aggregate size of the offer is around Rs 143.30 crore to Rs 150.84 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 43.71% to Rs 19,158.61 lakh for Fiscal 2024 from Rs 13,331.64 lakh for Fiscal 2023, primarily due to an increase in interest income by 34.73% to Rs 16,835.76 lakh for Fiscal 2024 from Rs 12,496.17 lakh for Fiscal 2023. Moreover, its profit after tax for the year increased by 89.50% to Rs 3,141.97 lakh for Fiscal 2024 from Rs 1,658.01 lakh for Fiscal 2023. Meanwhile, the company intends to continue the progress made through expansion of its operations in the six states. It has begun its operations in the city of Lucknow, Uttar Pradesh and will slowly move towards other parts of Uttar Pradesh. It has already appointed senior personnel for this expansion and formed a team. It has successfully tried and tested this model in other states and its strategy can be replicated successfully in Uttar Pradesh as well. With an increased portfolio of product offerings, the company will be able to increase its penetration in existing markets and also expand its reach to newer markets like Uttar Pradesh.