Akme Fintrade IPO review (Avoid)

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Review By Dilip Davda on June 14, 2024

•    AFIL is RBI registered NBFC having north centric business of financial services offerings.
•    It posted inconsistency in its top and bottom lines for the reported periods. 
•    It marked severe setback for FY22 following the pandemic. 
•    Based on FY24 annualized earnings, the issue appears aggresively priced. 
•    There is no harm in skipping this pricey issue.

ABOUT COMPANY:
Akme Fintrade India Ltd. (AFIL) is a non-banking finance company ("NBFC") incorporated in the year 1996 registered with the Reserve Bank of India as a Non-systemically important non-deposit taking company with over two decades of lending experience in rural and semi-urban geographies in India. It is primarily engaged in rural and semi-urban centric lending solutions to look after the needs and aspirations of rural and semi-urban populace. Company's portfolio includes Vehicle Finance and Business Finance Products to small business owners. 

It has a long history of serving rural and semi-urban markets with high growth potential and have maintained a track record of financial performance and operational efficiency through consistently high rates of customer acquisition and retention and low cost expansion into underpenetrated areas. Therefore, AFIL strategically focuses on clients in the rural and semi-urban sector. Its digital lending platform www.aasaanloans.com is currently under development and will be rolled out in a phased manner. This digital lending platform, www.aasaanloans.com, has been currently deployed to a the anticipated credit standards before expanding the rollout to a broader audience at its branches.

As a preliminary measure, it has taken the initiative of launching the website aasaanloans.com. This distinct approach facilitates the identification of businesses with low risk and high potential, thereby offering opportunities to individuals who previously lacked access to both short-term and long-term financing options. AFIL has its footprints in rural and semi-urban geographies in 4 Indian states Rajasthan, Maharashtra, Madhya Pradesh and Gujarat through registered office located at Udaipur, Rajasthan, its Corporate Office located in Mumbai, Maharashtra, 12 branches and over 25 points of presence including digital and physical branches having served over 2,00,000 customers till date. As of December 31, 2023, it had 125 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book-building route IPO of 11000000 equity shares of Rs. 10 each to mobilize Rs. 132 cr. at the upper cap of the price band. The company has announced a price band of Rs. 114 - Rs. 120 per share. The issue opens for subscription on June 19, 2024, and will close on June 21`, 2024. The minimum application to be made is for 125 shares and in multiples thereon, thereafter. The issue constitutes 25.78% of post-IPO paid-up capital of the company. Post allotment, shares will be listed on BSE and NSE. From the net proceeds of the IPO, the company will utilize the entire amount for augmenting its capital base to meet future requirements. 

The company has reserved 550000 equity shares for its eligible employees and from the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs, and not less than 35% for Retail investors. 

The issue is solely lead managed by Gretex Corporate Services Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 30 - Rs. 800 between March 2004 and December 2022. It has also issued bonus shares in the ratio of 0.18 for 1 in September 2017, 4 for 1 in February 2020, and 0.13 for 1 in July 2022. The average cost of acquisition of shares by the promoters is Rs. 1.77, Rs. 1.82, Rs. 11.49, and Rs. 26.09 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 31.68 cr. will stand enhanced to Rs. 42.68 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 512.10 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has reported a total income/net profit of Rs. 86.79 cr. / Rs. 16.31 cr. (FY21), Rs. 67.50 cr. / Rs. 4.12 cr. (FY22), and Rs. 69.57 cr. / Rs. 15.80 cr. (FAY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 12.25 cr. on a total income of Rs. 53.45 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 4.60 and an average RoNW of 7.92%. The issue is priced at a P/BV of 1.75 based on its NAV of Rs. 68.51 as of December 31, 2023, and at a P/BV of 1.47 based on its post-IPO NAV of Rs. 81.78 per share (at the upper cap).

If we attribute FY24 earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 31.33. Thus the issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 18.92% (FY21), 6.11% (FY22), 22.73% (FY23), 22.93% (9M-FY24), and RoTE (Return on Tangible Equity) 13.81%, 3.14%, 9.37%, 5.89% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It adopted a prudent dividend policy in January 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown MAS Financial, Shriram Finance, Cholamandalam Investment, Arman Financial, and CSL Finance as their listed peers. They are trading at a P/E of 20.3, 14.0, 35.5, 14.8, and 16.5 (as of June 14, 204). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 23rd mandate from Gretex Corporate in the last three fiscals (including the ongoing one).  This is the 1st mainboard mandate from the LM in the ongoing fiscal.  It had 22 mandates in the last three fiscals, out of which 5 issues closed below the offer price on listing date.

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