Usha Financial Services coming with IPO to raise Rs 98.45 crore

Usha Financial Services

• Usha Financial Services is coming out with an initial public offering (IPO) of 58,60,000 equity shares in a price band Rs 160-168 per equity share.
• The issue will open on October 24, 2024 and will close on October 28, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 16.00 times of its face value on the lower side and 16.80 times on the higher side.
• Book running lead managers to the issue are Narnolia Financial Services and Unistone Capital.
• Compliance Officer for the issue is Kritika Goswami.

Profile of the company

Usha Financial Services is a non-banking finance company (NBFC) incorporated in the year 1995 registered with the Reserve Bank of India as a NBFC-ICC (Investment & Credit) - base layer- non-systemically important non-deposit taking NBFC with over 9 years of lending experience. It provides lending solutions to fellow NBFCs and corporates, MSMEs, and individual, particularly to women entrepreneurs. Its services also extend to Electric vehicle (EV) financing. It provides a diversified range of financial products to individuals, body corporates, NBFCs and MSMEs.

The company evaluates borrowers before providing them with the loans and financing. It has a dedicated team to conduct the evaluation. Its customer due diligence procedures encompass multiple levels of checks and controls designed to assess the capacity of customers and to confirm that they meet its stringent selection criteria and include comprehensive evaluation of repayment capacity and detailed cash flows analysis of the customer. The company ensures that the loan disbursement process is efficient, smooth, and transparent, with a quick turnaround time (TAT) and a strong focus on customer satisfaction. These loans are EMI-based with competitive interest rates and other favourable terms. All disbursements are conducted through banking channels, directly into the customer’s account.

The company’s loan management system is integral to overseeing its loan portfolio effectively, offering essential decision-making and operational support. This system comprehensively covers asset management, core financial functions, risk management, document handling, and customer service throughout the loan lifecycle. It utilizes Vexil software, developed by Vexil Infotech, as its primary financial software solution to meet all operational needs. This software enhances efficiency in managing loans, supporting activities such as collections management, field staff tracking, and reporting of collection data. Its technical team oversees the software's implementation and daily use, ensuring its staff are well-trained and proficient in its functionalities. 

Proceed is being used for:

• Augmenting the capital base of the company
• Meeting out the general corporate purposes
• Meeting out the issue expenses

Industry Overview

The Non-Banking Financial Companies (NBFCs) sector in India remains a pivotal component of the financial landscape, demonstrating significant growth despite global economic uncertainties. The sector has continued to expand, capitalizing on digital innovations and a broadening customer base. With a recorded year-on-year growth rate of 25.8% in August 2024, NBFCs have significantly outpaced many other sectors of the Indian economy. The NBFC sector in India has recorded a year-on-year growth rate of 25.8% as of 2024 and projections indicate a compound annual growth rate (CAGR) of 13-15% over the next few years.

The NBFC sector in India has seen substantial growth over recent years, which is evident from the expansion in their assets and market presence. From FY 2021 to FY 2026, the NBFC sector is projected to grow at a compound annual growth rate (CAGR) of approximately 18.5%, driven by a combination of factors including increased demand for credit, governmental financial inclusion initiatives, and widespread digitalization. In more specific terms, as of the financial year ending in 2023, the NBFC sector witnessed significant growth in their assets under management (AUM), with an expected increase in their annual growth rate by about 13-14% compared to the single-digit growth observed in the previous years from 2020 to 2022. This acceleration indicates a robust recovery and an optimistic outlook for the sector, primarily fuelled by improving economic activities and stronger balance sheet conditions.

The future of NBFCs in India remains promising, with several opportunities for further expansion and innovation. The continued focus on digital transformation, coupled with supportive government policies aimed at financial inclusion, is expected to drive further growth in the sector. Additionally, the increasing consumer demand for convenient and fast financial services suggests that NBFCs that continue to innovate and adapt to digital trends will thrive. In conclusion, the NBFC sector in India is poised for continued growth, powered by technological advancements, regulatory support, and a deep understanding of consumer financial needs. As they navigate through the complexities of the financial landscape, NBFCs are expected to play an even more critical role in India's economic development, particularly in fostering financial inclusion across diverse demographic segments. 

Pros and strengths

Business partnership / Correspondent’s arrangements: The company has established strategic agreements with several NBFCs (Non-Banking Financial Companies) and other entities, referred to as its business partners/ correspondents. These partnerships are pivotal in its retail lending business, as they provide access to extensive networks of borrowers. These business partners leverage their existing relationships and networks to generate leads for its retail lending operations. They play a crucial role in identifying potential borrowers who may benefit from its financial products and services. Through these arrangements, it expands its reach into various markets including urban, semi-urban, and rural regions across India. This collaborative approach fosters synergies and enhances its ability to meet the diverse financial needs of customers efficiently.

Robust underwriting process and risk management policies: The company has a risk management committee which is responsible for managing and mitigating all the risks associated with its business, which are subject to oversight by its Risk Management Committee and its management. Its customer due diligence procedures encompass multiple levels of checks and controls designed to assess the quality of customers’ product and services and to confirm that they meet its stringent selection criteria and include comprehensive evaluation of repayment capacity and detailed cash flows analysis of its customer as well as thorough group training sessions and re- training session. It utilizes credit bureau data to verify customer details and obtain information on past credit behavior. Its internal audit team is supervised by its Audit Committee, which is responsible for monitoring and evaluating internal controls and ensuring statutory and regulatory compliance, and its Board of Directors.

Experienced and qualified management team: The company’s management team is qualified and plays a pivotal role in the growth of its business and operations. Its Promoters and Management team have more than 25 years of experience collectively in the industry and have been instrumental in driving its growth since the inception. Its motivated team of management and key managerial personnel along with its internal systems and processes complement each other to enable it to deliver high levels of client satisfaction.

Risks and concerns

Significant revenue comes from few customers: The company derives most of its revenues from interest income on loan to a limited number of customers. The company garnered revenue of 17.73%, 22.53% and 25.91% from top 10 customers in FY24, FY23 and Fy22, respectively. As its business is currently concentrated among relatively few significant customers, it may experience reduction in cash flows and liquidity and its business would be negatively affected if it loses one or more of its major customers or if the amount of business from one or more of them is significantly reduced for any reason, including as a result of a dispute with or disqualification by a major customer.

Geographical constrain: The company operates its business operations from its registered office in Delhi. The company has its presence allover India, but garnered majority of revenue from Delhi and West Bengal. The company generated 23.16%, 29.45% and 28.59% of revenue from Delhi and 19.21%, 13.17% and 11.86% revenue from West Bengal in FY24, FY23 and FY22, respectively. Any factors relating to political and geographical changes, growing competition and any change in demand may adversely affect its business. It cannot assure that it shall generate the same quantum of business, or any business at all, from these states, and loss of business from one or more of them may adversely affect its revenues and profitability.

Require substantial capital for its business: The company’s business depends on its ability to raise equity and debt capital from external sources on acceptable terms and in a timely manner. Its financing requirements have historically been met from several sources, including from proceeds of loans, and non-convertible debentures, etc. Its ability to raise funds in a timely manner on acceptable terms, or at all, depends on several factors including, its current and future results of operations, its risk management policies, its credit ratings, the regulatory environment and policy initiatives in India. While it has not faced any instances of delays in repayment of its outstanding borrowings in the last three Financial Years, it cannot assure that its business will continue to generate sufficient cash flows to enable it to service its existing and future borrowings or to fund its other liquidity needs. Any inability to raise capital could have an adverse effect on its business, results of operation, financial condition and cash flows.

Outlook

Usha Financial Services is a non-banking finance company providing lending solutions to other NBFCs, corporates, MSMEs, and individuals, particularly women entrepreneurs. The company has an AUM of Rs 30,695.76 lakh and a Net worth of Rs 10,602.63 lakh. It maintains a CRAR of 33.03% and a D/E Ratio of 1.71. The company has maintained long-term relationships with its lenders. As of September 30, 2024, the company’s lenders included 4 banks and 15 NBFCs, among others. On the concern side, the company is dependent on a limited number of customers for a significant portion of its revenues. The loss of a major customer or significant reduction in demand from any of its major customers may adversely affect its business, financial condition, results of operations and prospects. Moreover, its top two states contribute major revenue for the period ended September 30, 2024 and year ended March 31, 2024, 2023, 2022. Any loss of business from one or more of these states may adversely affect its revenues and profitability.

The company is coming out with a maiden IPO of 58,60,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 160-168 per equity share. The aggregate size of the offer is around Rs 93.76 crore to Rs 98.45 crore based on lower and upper price band respectively. On performance front, total income for the year ended March 31, 2024, stood at Rs 6,396.05 lakh whereas in Financial Year 2022-23 it stood at Rs 4,618.73 lakh representing an increase of 38.48%. The increase in total income of the company is due to a significant increase in the revenue of the company and general growth in the business operations of the company. Moreover, the restated profit after tax for the year ended March 31, 2024, stood at Rs 1,344.95 lakh whereas in Financial Year 2022-23 it stood at Rs 1,016.55 lakh representing an increase of 32.31%.

Currently, the company does not utilize any software specifically tailored for loan origination in green financing. However, it is building an app for the customer on boarding process and loan application processing functionality, Implement features for dealers and admin functionalities for green financing. The vendor selection process has been completed, and development of the application is currently under process. Going forward, the company seeks to expand its portfolio of financial products and services with the funds raised through IPO proceeds. It continuously seeks to diversify and enhance its offerings to cater to evolving customer needs and market opportunities.