What you must know about Akme Fintrade India IPO?

About the Akme Fintrade India Ltd

Akme Fintrade India Ltd was incorporated in the year 1996  as a non-banking finance company (NBFC) specialized in lending to rural and semi-urban areas in India. These are largely the unbanked population of India, unlike the urban centres. Its lending portfolio comprises of vehicle finance and business finance for small business owners. The company offers customized solutions to clients for their funding needs. Its focus is on the rural and semi-urban markets of 4 states viz. Rajasthan, Maharashtra, Madhya Pradesh, and Gujarat. The company has its registered office in Udaipur and corporate office in Mumbai with a network consisting of 12 branches and more than 25 points of presence (POP). Akme Fintrade India Ltd has an omnichannel approach; combining its physical network and digital reach to serve more than 2 lakh customers. 

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. Its products are branded under the “Aasaan” franchise and their offerings include Aasaan vehicle loans, Aasaan loan against property, Aasaan Saral Udyog loan, Aasaan farm equipment loan, and Aasaan Mahila Udyog loan. Aasaan Loans is a digital platform that gathers and analyses business data from multiple sources. This data stack is used to draw insights to take a call on their creditworthiness, past and current performance in the context of the industry in which they operate. This differentiated approach aids in the identification of businesses with low risk and high promise. This is important since traditional methods of credit appraisal may not work in such cases. Akme Fintrade India Ltd brings a rich 25 plus years of experience in the Indian rural markets.

The fresh funds will be used for augmenting the capital base of the company to support future growth in the asset book. The promoters of the company include Nirmal Jain, Manju Jain, Dipesh Jain, and Nirmal Kumar Jain HUF. The promoters currently have a 56.01% stake in the company, which will get diluted post IPO to 41.57%. The IPO will be lead managed by Gretex Corporate Services Ltd; while Bigshare Services Private Ltd will be IPO registrar.

Highlights of the Akme Fintrade India IPO Issue

Here are some of the key highlights to the public issue of Akme Fintrade IPO.

•    Akme Fintrade IPO will be open from June 19th, 2024 to June 21st, 2024; both days inclusive. The stock of Akme Fintrade India Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹114 to ₹120 per share. 

•    The IPO of Akme Fintrade India Ltd will be entirely a fresh issue of shares with no offer for sale (OFS) component. The fresh issue brings in fresh funds into the company, but is also EPS and equity dilutive. OFS is just a transfer of ownership.

•    The fresh issue portion of the IPO of Akme Fintrade India Ltd comprises the issue of 1,10,00,000 shares (110.00 lakh shares), which at the upper price band of ₹120 per share will translate into a fresh issue size of ₹132.00 crore.

•    Since there is no offer for sale portion, the fresh issue portion will also double up as the total issue size. Therefore, the total IPO of Akme Fintrade India Ltd will comprise of a fresh issue 1,10,00,000 shares (110.00 lakh shares) which at the upper end of the price band of ₹120 per share aggregates to total issue size of ₹132.00 crore.
The IPO of Akme Fintrade India Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Key dates for Akme Fintrade India Ltd IPO and how to apply?

Akme Fintrade India IPO opens on Wednesday, 19th June 2024 and closes on Friday, 21st June 2024. The Akme Fintrade India Ltd IPO bid date is from 19th June 2024 at 10.00 AM to 21st June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 21st June 2024.

Data Source: Company RHP

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on June 25th 2024, will be visible to investors under the ISIN Code – (INE916Y01019). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

Promoter holdings and investor quota allocation 

The promoters of the company include Nirmal Jain, Manju Jain, Dipesh Jain, and Nirmal Kumar Jain HUF. The promoters currently have a 56.01% stake in the company, which will get diluted post IPO to 41.57%. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is an employee quota of up to 5.50 lakh shares communicated by the company as the shares reserved for employees in its red herring prospectus (RHP). Such shares could be offered at a discount, which will be announced by the company later (if any). The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Akme Fintrade IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Akme Fintrade India Ltd, the minimum lot size is 125 shares with upper band indicative value of ₹15,000. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the Akme Fintrade India IPO.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Financial Highlights of Akme Fintrade India Ltd

The table below captures the key financials of Akme Fintrade India Ltd for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Akme Fintrade India Ltd which can be enumerated as under:

a)    In the last 3 years, revenue growth has been rather volatile due to the cyclicality of the business. Sales revenues in FY23 are actually lower than the level recorded in FY21, as are the net profits; although the net margins are relatively higher. Due to this volatility, data comparisons may not add value but net margins at 22.73% in the latest year is quite impressive.

b)    While the net margins of the company have been robust, the ROE at 7.72% and the ROA at 4.05% are relatively high by industry standards. The lending sector normally sees pressure on the ROE, but ROA of above 4% is impressive.

c)    The company has relatively lower sweating of assets at just around 0.18X in the latest year, and the previous year sweating (asset turnover) also converging around that level. However, this is a spread business where sweating is not too critical. The net margins show that the company has maintained healthy NIMs.

Overall, the company has reported volatile growth in sales and profits while the net margins and the capital margins are relatively strong. A secular growth story may still be missing in the narrative for the stock.

Valuation metrics of the Akme Fintrade India IPO

Let us turn to the valuations part. On the latest year diluted EPS of ₹5.85, the upper band stock price of ₹120 gets discounted at a P/E ratio of 20-21 times. Normally, for businesses with such a strong rural franchise, these are normal valuations, and even leave something on the table for investors. If you look at the numbers for the first 9 months of FY24, the EPS is at ₹3.87, so full year EPS can be extrapolated to ₹5.16 per share. This does not make any big difference to the valuation. While ROE may be low, the net margins are high and that is explained by the high yield on their gross loan book at 17.89%. The net interest margins (NIMs) at 10.05% is a good base and can take care of the relatively high net NPAs of 3.45% and the average cost of borrowing at 13.56%. High costs are a normal risk for NBFCs with a strong rural high-risk portfolio.

Here are some qualitative advantages that Akme Fintrade India Ltd brings to the table:

•    In the last few years, the company has demonstrated to undertake in-depth credit appraisal and disbursement in rural areas. This model is hard to replicate and that becomes an entry barrier for the company.

•    The mix of digital and physical approach to the lending business will not only give an omnichannel advantage to the company but also the ability to scale up the business in future at minimal incremental costs. 

If you add up the qualitative factors and the valuation metrics of the stock, the story look to be reasonably good; although it is not too clear how the growth will be managed in top line and bottom line. Also, considering their high cost of funding at over 13%, spreads may come under pressure in the future. Investors must look at the business franchise from a long term investment perspective but only if they have a higher risk appetite and the ability to wait for over a year for the financials to deliver the numbers to justify the narrative