My Mudra NSE SME IPO review (May apply)

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Review By Dilip Davda on September 1, 2024

•    The company is providing financial matter related services as DSA/Channel Partner.
•    It is operating in a highly competitive and fragmented segment.
•    The company marked steady growth in its top and bottom lines for the reported periods.
•    Based on FY24 super earnings, the issue relatively appears fully priced.  
•    Well-informed investors may park moderate funds for medium term.

ABOUT COMPANY:
My Mudra Fincorp Ltd. (MMFL) functions as a Channel Partner/Direct Selling Agent (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 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 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, MMFL present 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.

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

The Company serves a diverse clientele, including individuals, corporates, and professionals like CSs), and architects. Loan amounts are based on their degrees and years of practice, with longer practice periods qualifying for higher amounts and minimal financial documentation. 

With a commitment to excellence and customer satisfaction, the Company empowers individuals, corporates, Business and professionals to achieve their financial goals with confidence and convenience. As of May 31, 2024, it had 143 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3024000 equity shares of Rs. 10 each to mobilize Rs. 33.26 cr. at the upper cap. It has announced a price band of Rs. 104 - Rs. 110 per share. The issue opens for subscription on September 05 2024, and will close on September 09, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.55% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 7.00 cr. for working capital, Rs.  6.25 cr. for repayment of certain borrowings, Rs. 6.60 cr. for investment in technology development and digital infra, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. HEM Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 5268.00 - Rs. 14008.62 between December 2018 and May 2024. It has also issued bonus shares in the ratio of 699 for 1 in May 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, and Rs. 0.02 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.37 cr. will stand enhanced to Rs. 11.39 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 125.31 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 28.46 cr. / Rs. 0.47 cr. (FY22), Rs. 53.56 cr. / Rs. 3.47 cr. (FY23), Rs. 71.14 cr. / Rs. 8.36 cr. (FY24). The company has posted steady growth in its top and bottom lines. 

For the last three fiscals, it has reported an average EPS of Rs. 6.55, and an average RoNW of 40.34%. The issue is priced at a P/BV of 5.42 based on its NAV of Rs. 20.29 as of March 31, 2024, and at a P/BV of 2.50 based on its post-IPO NAV of Rs. 43.94 per share (at the upper cap). 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 15.01. 

For the reported periods, the company has posted PAT margins of 1.65% (FY22), 6.49% (FY23), 11.76% (FY24), and RoCE margins of 13.86%, 44.12%, 45.98% respectively for the referred periods. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Akiko Global as their listed peers. It is trading at a P/E of 15.5 (as of August 30, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 52nd mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 16.35% to 165.22% on the date of listing.

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