Akme Fintrade (India)
- Akme Fintrade (India) is coming out with a 100% book building; initial public offering (IPO) of 1,10,00,000 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 June 19, 2024 and will close on June 21, 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 manager to the issue is Gretex Corporate Services.
- Compliance Officer for the issue is Manoj Kumar Choubisa.
Profile of the company
The company 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. Its 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 has 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, it strategically focusses on clients in the rural and semiurban sector.
The company’s 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 select group of users for the purpose of User Acceptance Testing (UAT), specifically focusing on Two-wheeler finance as the initial phase. Concurrently, its IT team is actively engaged in developing the product for loan against property, commercial vehicle financing, and secured business loans, which will be introduced in a phased manner. It is rigorously scrutinizing all aspects of Two-wheeler finance and subjecting them to stress testing using various parameters to ensure alignment with 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. The company 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.
Proceed is being used for:
- Augmenting the capital base of the company to fulfil its future capital requirements.
- Meeting Issue related expenses.
Industry overview
Indian NBFC industry is a minor player in global NBFC space, and accounts for less 1% of the total NBFC asset base globally. Between 2002 and 2020, share of India’s NBFC industry in global NBFC asset base have increased by 50 to 60 basis points. This reflects the aggressive credit growth achieved by Indian NBFC sector, as it supplemented the mainstream bank financing segment. During the same period, the size of India’s NBFC sector as a share of the country’s GDP increased from 18% to nearly 60%, underlining the importance of NBFC to the growth of Indian economy. The last eight to ten years has witnessed strong growth in NBFC credit, due to a mix of favourable regulations, innovative product offering, and high credit appetite by consumers. The credit growth in NBFC sector has come at the expense of bank, with whom they are competing in the small sized retail loan segment. The significance of NBFCs can be gauged by the increasing share of NBFC credit to GDP, as against a declining trend visible in Scheduled Commercial Banks (SCBs).
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. There is an increasingly complex web of inter-linkages of the sector with banks, capital market and other financial sector entities, on both sides of the balance sheet. Over the last decade, NBFCs have witnessed phenomenal growth. From being around 12% of the balance sheet size of banks (2010), they are now more than a quarter of the size of banks. While the development of a robust non-bank intermediation channel provides a good ‘spare tyre’ to the economy, uncontrolled growth fuelled by lighter regulatory framework can also lead to potential systemic risks. The Department of Non-Banking Supervision (DNBS) is delegated with the responsibility of regulation and supervision of Non-Banking Financial Companies (NBFCs) under the regulatory and supervisory framework of the Reserve bank which provides for, among other things, registration of NBFCs, prudential regulation of various categories of NBFC, issue of directions on acceptance of deposits by NBFCs and surveillance of the sector through off-site and on-site supervision. Deposit taking NBFCs and Systemically Important Non-Deposit Accepting Companies are subjected to a greater degree of regulation and supervision. The focus of regulation and supervision is threefold as mentioned below: depositor protection, consumer protection and financial stability.
Pros and strengths
Proven execution capabilities with a strong rural and semi-urban focus: Rural and semi-urban Areas in India are a highly under-served market for formal banking services in terms of access, availability, and suitability of products and services. The company 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, it strategically focusses on clients in the rural and semi-urban sector. Its loan portfolio in rural areas and semi-urban areas was 60.70%, 61.19 %, 60.22% and 61.21% in Fiscal Years 2021, 2022 and 2023 and the nine months period ended December 31, 2023, respectively.
Well established Vehicle Finance, small businesses lending business: The company has established a strong Market of Vehicle Finance Business and business lending which Include Small business, MSME and SME businesses. It has achieved growth while maintaining core focus on conservative credit assessment and risk management, and ensuring, among other criteria, that it lend to borrowers with proven track record and strong cash flow, it obtains sufficient collateral. It has also built a strong Vehicle Finance Business and small business owners lending business focused on extending secured loans to small and medium size enterprises, including businessmen, traders, manufacturers and self-employed professionals. The growth of its Vehicle Finance Business and small business is attributable to its reach to rural and semi-urban areas through its network, comprising strong presence in 4 states including Rajasthan, Maharashtra, Gujarat and Madhya Pradesh including 12 branches and various other locations it is present which are key markets in India for Vehicle Finance business and small business lending business. In addition, all its loans are secured against collateral, granted at competitive rate of interest, and involve monthly and quarterly loan repayment schedule. Its Vehicle Finance Business and business lending businesses provide it with a strong platform for expanding into various geographies in India and new innovative products.
Customer centric approach and deep understanding of target customers: The company has gained a deep understanding of its market and customer base over the years that enables it to meet the financial requirements of its existing and potential customers. Customers prefer a single source for multiple financial services, and accordingly offer a range of credit products and services to address a variety of financing requirements of the customer through its network. These practices helped it to achieve its endeavour of having primary lending relationship. Its main focus is on providing its products and services to lower and middle income group segment customers in its areas of operations. It is a one-stop financial hub for its customers for its financial needs where it operates. As the majority of its customers are individuals from lower and middle income group segments, it has designed its products in a manner such that they are simple to understand, which contributes to their popularity amongst customers. It strategically follows hub and spoke business acquisition strategy which helps it to identify the customer needs effectively and respond with solutions.
Robust underwriting process and risk management policies: Currently the company’s risk management division is divided into separate teams that are respectively dedicated to managing and mitigating credit risk, market risk and operational risk, and which are subject to oversight by its Risk Management Committee and its Board of Directors. Its customer due diligence procedures encompass multiple levels of checks and controls designed to assess the quality 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 as well as thorough group training sessions and knowledge testing. It utilizes credit bureau data to verify customer details and obtain information on past credit behaviour. Further, it employs proactive practices that involve frequent evaluations of portfolio risk levels on a periodic basis and rigorous monitoring and analysis of cash disbursements and collection, roll rates and customer retention at both branch and head office levels, which minimize the incidence of bad debts. It is further supported by its robust internal controls and processes as well as advanced technology solutions, which ensures proper loan appraisals and sound portfolio management.
Risks and concerns
Significantly depend on business Loans: Since the company’s business significantly depends on financing under business loans and Vehicle loans. Any adverse developments in these business segments could adversely affect its business, results of operations, cashflows and financial conditions. Consequently, its financial performance significantly depends on its business loans division. Business loans are affected by many other external factors too that are not within the control of the Company. Business finance sectors, particularly the micro and small borrowers, may be negatively impacted by various factors, including due to pandemics, industry downturns, natural disasters, calamities, political and social risks, including any adverse publicity or litigation relating to these loan products thereby adversely impacting the ability of borrowers to repay their loans availed from it. Moreover, it lends to medium enterprises operating in various diverse industries and if it does not develop the requisite industry understanding and expertise, its ability to lend in such industries may be limited. Further, any adverse development in the industries, could adversely affect their ability to repay it, which in turn could have an adverse effect on its business, result of operations, financial condition and cash flow.
The company may face asset-liability mismatches: The company faces potential liquidity risks because its assets and liabilities mature over different periods. Asset and liability mismatch (ALM), which represents a situation when the financial terms of an institution’s assets and liabilities do not match, is a key financial parameter for it. It carefully monitors the contractual maturity periods of its assets and liabilities and categorize them on the basis of the number of years in which they mature. Although it had a positive asset-liability position as of March 23, 2023 across various maturities and had no cumulative mismatch in ALM up to the five years maturity, it cannot assure that it will be able to continue to maintain a favourable asset-liability maturity profile in the future. As on March 2023 the short-term assets of the company were adequate to meet the company’s short term liabilities demand and the long term assets of the company were adequate to meet the company’s long term liabilities demand. So as on March 2023, company has adequate resources to meet company’s all liability demand. It meets a significant portion of its financing requirements through term loans and working capital facilities; proceeds from loans securitized; proceeds from the issuance of NCDs; and principal protected market linked debentures from banks, financial institutions, mutual funds, and other domestic and international development financial institutions. Any ALM in the maturity profile may lead to a liquidity risk and have an adverse effect on its business, cash flows and results of operations.
The risk of non-payment or default by borrowers: The company primarily serves customers in the low and middle-income groups, with majority of its borrowers being small business owners, salaried or working class individuals, and self-employed individuals. A significant portion of its customer base is typically less economically stable than large corporates, and as a result, is usually adversely affected by declining economic conditions. Earning capacity of customers in these segments depends on various macro and micro economic factors that affect them from time to time. Its customers may default on their repayment obligations due to various reasons including business failure, insolvency, lack of liquidity, loss of employment or personal emergencies such as the death of an income-generating family member, including on account of events such as the COVID-19 pandemic. In addition, its customers may have limited credit histories that would enable it to assess their creditworthiness. Further, it may not receive updated information regarding change in the financial condition of its customers and may receive inaccurate or incomplete information as a result of any misrepresentation by its customers or employees. It may therefore be difficult for it to carry out the necessary credit risk analysis on all of its customers. Although it follows procedures to evaluate the credit profiles of its customers prior to sanctioning a loan, it also relies on the value of the property provided as underlying collateral valued by valuer in the case of business loans and value of vehicle hypothecated in favour of company in case of vehicle loans.
Operate in highly competitive industry: The company operates in a highly competitive industry. Given the diversity of its businesses, and the products and services which each of those issue, it faces competition from the full spectrum of public sector banks, private sector banks (including foreign banks), small finance banks, financial institutions and other NBFCs who are active in business finance and vehicle finance. Many of its competitors have greater resources than it does, may be larger in terms of business volume and may have significantly lower cost of funds compared to it. Many of them may also have greater geographical reach, long-standing partnerships and may issue their customers other forms of financing that it may not be able to provide. The competition it faces from other NBFCs is increasing as more NBFCs are targeting products and services similar to its. Competition in its industry depends on, among other things, the ongoing evolution of government policies, the entry of new participants and the extent to which there is consolidation among other financial institutions in India.
Outlook
Incorporated in 1996, Akme Fintrade (India) is a non-banking financial company (NBFC) with over 20 years of experience in lending to rural and semi-urban areas in India. The company mainly provides lending solutions tailored to the needs and aspirations of rural and semi-urban populations. Its portfolio comprises Vehicle Finance and Business Finance Products for small business owners. The company operates in rural and semi-urban areas across four Indian states - Rajasthan, Maharashtra, Madhya Pradesh, and Gujarat. The company finances the purchase of new two-wheelers and three-wheelers, such as scooters, motorcycles, and auto rickshaws, for salaried professionals and self-employed non-professionals. It finances the purchase of used commercial vehicles, including light commercial vehicles (LCVs), which carry goods and passengers, and heavy commercial vehicles (HCVs), which carry goods. Its lending business to small business owners including SME and MSME lending business, primarily involves it extending secured loans for business purposes to small and medium size enterprises, including businessmen, traders, manufacturers and self-employed professionals. On the concern side, at branches in rural and semi urban markets, the company may face difficulties in conducting operations, such as accessing resources, monitoring, and collections. It may also face increased costs and expenses in conducting its business and operations and implementing risk management measures. Besides, the company’s concentration in Rajasthan exposes it to any adverse geological, ecological, economic and/or political circumstances in Rajasthan. If there is a sustained downturn in the economy of Rajasthan or a sustained change in financial patterns in Rajasthan for any reason, its financial position may be adversely affected.
The company is coming out with an IPO of 1,10,00,000 equity shares of face value 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 125.40 crore to Rs 132.00 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 3.07% from Rs 6,744.13 lakh in Fiscal 2022 to Rs 6,951.37 lakh in Fiscal 2023. The company’s profit after tax increased by 283.49% from Rs 412.07 lakh in Fiscal 2022 to Rs 1,580.27 lakh in Fiscal 2023. Meanwhile, the company intends to enter in the areas of latest upcoming new age technology. This will enable it to further strengthen its relationships with its clients requiring setting up of new infrastructure or up gradation of the existing one. It seeks to develop new product adjacencies based on the needs of its customers and that complement its existing loan categories. It intends to enter into agreements with IT companies to assist it in setting up its IT infrastructure for its operations. It seeks to provide a differentiated technology framework, enhancing convenience for its customers and reducing operational expenditure at its branches.
