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Review By Dilip Davda on September 18, 2024

•    MFL is primarily in the funding business for two and three wheelers.
•    It has expanded its services for personal loans, business loans, used car loans. Small business loans.
•    The company is offering its services through 1100+ dealers across 6 states.
•    It marked steady growth in its top and bottom lines.
•    Based on FY24 earnings, the issue appears fully priced.
•    Investors may park funds for long term. 

ABOUT COMPANY:
Manba Finance Ltd. (MFL) is a Non-Banking Financial Company-Base Layer (NBFC-BL) providing financial solutions for New two wheelers (2Ws,) three wheeler (3Ws), electric two wheeler (EV2Ws), electric three wheeler (EV3Ws), Used Cars, Small Business Loans and Personal Loans with an AUM size of more than Rs. 900 cr. 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 target customers who are looking for a quick turnaround time (TAT) for loan sanction and disbursement. MFL is based out of Mumbai, Maharashtra and operate out of 66 Locations connected to 29 branches across six (6) states in western, central and north India. The company 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 loan portfolio to Used Car Loans, Small Business Loans and Personal Loans and intends to leverage its existing network to further penetrate the market with new products.

MFL's target customers are mainly (i) salaried; and (ii) self-employed. It customises offerings as per each of these categories of customers and prepare tailor-made schemes to attract them to avail loans. The company normally funds up to 85% of the purchase price (on road price) of the vehicle proposed to be acquired by the customer and prefer the customer to contribute the balance. This is the ideal funding proportion and equity commitment for the purchase of the vehicle as it ensures financial discipline on the part of the customer and reduces defaults. MFL's underwriting process has allowed it to manage defaults and NPAs for Fiscals 2024, 2023 and 2022.

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 capital requirements. As of March 31, 2024, it had 1344 employees' on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 12570000 fresh equity shares worth Rs. 150.84 cr. at the upper cap. The company has announced a price band of Rs. 114 - Rs. 120 per share of Rs. 10 each. The issue opens for subscription on September 23, 2024, and will close on September 25, 2024. The minimum application to be made is for 125 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The IPO constitutes 25.02% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 138.77 cr. augmenting the capital base and future capital requirements.

The sole Book Running Lead Manager (BRLM) to this issue is Hem Securities Ltd., while Link Intime India Pvt. Ltd. Is the registrar to the issue. 

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 20 - Rs. 122 between March 2001, and March 2020. It has also issued bonus shares in the ratio of 10 for 9 in October 2002, 1 for 1 in March 2005, 1 for 5 in March 2020, and 2 for 1 in January 2024. The average cost of acquisition of shares by the promoters is Rs. 13.24, Rs. 13.86, Rs. 15.25, Rs. 19.44, Rs. 24.25, Rs. 27.87, Rs. 29.49, and Rs. 31.63 per share. 

Post IPO, company's current paid-up equity capital of Rs. 37.67 cr. will stand enhanced to Rs. 50.24 cr. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 602.87 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 106.62 cr. / Rs. 9.74 cr. (FY22), Rs. 133.32 cr. / Rs. 16.58 cr. (FY23), and Rs. 191.63 cr. / Rs. 31.42 cr. (FY24). 

For the last three fiscals, the company has reported an average EPS of Rs. 6.07, and an average RoNW of 12.18%. The issue is priced at a P/BV of 2.25 based on its NAV of Rs. 53.26 as of March 31, 2024, and at a P/BV of 1.72 based on its post-IPO NAV of Rs. 69.95 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 19.2. and based on FY23 earnings, the P/E stands at 36.36. The issue relatively appears fully priced.

The company reported PAT margins (to average AUM) of 1.90% (FY22), 2.94% (FY23), 4.00% (FY24), and RoCE margins of 6.42%, 9.84%, 15.66% for the referred periods, respectively. It has posted net interest margins of 9.28% (FY22), 12.31% (FY23), and 11.16% (FY24). 

Company's net NPA has been at 4.30% (FY22), 3.14% (FY23), and 3.16% (FY24).  According to the management, this is attributed to its financing JV with Muthoot group, but on standalone basis, the NPAs are just around 1%. Its average borrowing cost as of March 31, 2024 stood at 11.98%, whereas lending is done at an average rate of 20+%.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in January 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Baid Finserve, Arman Financial, and MAS Financial as their listed peers. They are trading at a P/E of 18.7, 11.3, and 20.2 (as of September 18, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The BRLM associated with this issue has handled 58 SME issues in the past three fiscals (including the ongoing one), out of which one issue closed below the offer price on the listing date.

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