The initial public offering (IPO) of Manba Finance is scheduled to open for bidding on Monday, September 23, and will remain open until Wednesday, September 25.

The company aims to raise ₹150.84 crore through this offering, which is entirely a fresh issue of 1.26 crore shares. The IPO price band is set between ₹114 and ₹120 per share, with a lot size of 125 shares for retail investors. At the upper end of the price band, the cost for one lot is ₹15000. Retail investors can apply for a maximum of 13 lots.

The net offer is allocated as follows: 50 percent reserved for qualified institutional buyers, 15 percent for non-institutional investors, and 35 percent for retail investors.

In this article, we break down key highlights from the draft red herring prospectus (DRHP), offering crucial details to help make an informed decision about this IPO.

Overview of the company

The company is a Non-Banking Financial Company-Base Layer (NBFC-BL) offering financial solutions across various vehicle categories and personal lending. It provides financing for new two-wheelers (2W), three-wheelers (3W), electric two-wheelers (EV2Ws), electric three-wheelers (EV3Ws), used cars, small business loans, and personal loans.

Headquartered in Mumbai, Maharashtra, the company operates through 66 locations connected to 29 branches across six states in western, central, and northern India. Approximately 97.90% of its loan portfolio is dedicated to new vehicle loans, with an average ticket size (ATS) of ₹80,000 for two-wheelers and ₹1,40,000 for three-wheelers.

Utilization of net proceeds

The company plans to use the net proceeds to strengthen its capital base, addressing future capital needs. Additionally, the listing of our equity shares on the stock exchanges is expected to enhance the company’s brand presence and establish a public market for our shares in India.

Dealer network and strategic relationships

The company has built a strong network of over 1,100 dealers, including more than 190 EV dealers, across six key states: Maharashtra, Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh, and Uttar Pradesh.

The company employees are present at these dealers’ premises to assist potential customers looking to purchase two-wheelers, three-wheelers, or electric vehicles. This dealer network plays a crucial role in the company’s business model, acting as a point of sale for its financial products.

Growth in AUM and business model

The company’s AUM has grown significantly, from ₹49,582.62 lakh in Fiscal 2022 to ₹93,685.54 lakh in Fiscal 2024, reflecting a CAGR of 37.46%. This growth has been primarily driven by volume, with consistent ATS and steady yields.

It attributes its success in new vehicle loans to its customer- and dealer-centric business model. Through special incentives and schemes, it addresses issues faced by both dealers and customers, offering tailored solutions. The company has also developed robust systems and processes that enable it to identify local opportunities, ensure careful customer selection, approve loans quickly, and monitor collections in real time.

Diversification into new loan products

In a bid to diversify its portfolio, the company is expanding into used car loans, small business loans, and personal loans. For used car loans, the ticket size will range from ₹2.00 lakh to ₹6.00 lakh, targeting existing 2W/EV2W customers who are looking to upgrade or add a vehicle.

By leveraging its existing customer database and relationships, the company expects to rapidly expand this product offering. Additionally, the company is forming tie-ups with used car dealers to finance their customers.

The company has also recently introduced small business loans under the “MANBA Vyaapaar” brand in Maharashtra. These loans will have a ticket size ranging from ₹0.75 lakh to ₹10.00 lakh, while personal loans will be offered up to ₹1.00 lakh.

These products are initially being offered to existing vehicle finance customers, leveraging the company’s in-depth knowledge of their financial needs, borrowing capacity, and repayment history. To ensure success, the company has hired experienced professionals with extensive expertise in MSME lending and personal loans.

Funding Sources

The company secures its funding from a diversified range of sources, including term loans and cash credit facilities from public and private sector banks, small finance banks, other financial institutions, and the issuance of privately placed listed and unlisted NCDs.

This funding strategy helps meet its capital requirements. As of Fiscals 2024, 2023, and 2022, the company’s total borrowings amounted to ₹75,227.24 lakh, ₹59,593.01 lakh, and ₹39,439.73 lakh, respectively.

The average cost of borrowings over these years stood at 11.98%, 11.19%, and 11.61%. Additionally, the company uses the PTC (pass-through certificates) mechanism to securitize its loan assets. These loans are bundled into portfolios, transferred to a Special Purpose Vehicle (SPV) for securitization, which then issues PTCs against the cash flows generated by the underlying pool of loans.

Financials

The company’s revenue from operations rose by 43.71%, reaching ₹19,158.61 lakhs for Fiscal 2024, up from ₹13,331.64 lakhs in Fiscal 2023. This growth was driven primarily by a 34.73% increase in interest income, which grew to ₹16,835.76 lakhs in Fiscal 2024 from ₹12,496.17 lakhs in Fiscal 2023.

Additionally, profit after tax for the year surged by 89.50%, climbing to ₹3,141.97 lakhs in Fiscal 2024, compared to ₹1,658.01 lakhs in Fiscal 2023.

Key risks

Geographical Concentration Risk: The company’s operations are concentrated in six states across western, central, and northern India. Any adverse developments in these regions could negatively impact the business and its results of operations.

Competitive Market Environment: The company operates in highly competitive markets with continuously evolving customer needs. If it does not compete effectively with established companies and new market entrants, it could face challenges that may affect its business, results of operations, cash flows, and financial condition.

Operational Risks from Cash Recoveries: A small portion of the company’s aggregate recoveries is received in cash from dispersed locations. This exposes it to operational risks, including employee negligence, fraud, petty theft, burglary, and embezzlement, which could negatively impact its results of operations and financial position.

Listing and allotment details

The allotment for the Manba Finance IPO is expected to be finalised on Thursday, September 26, 2024. The shares are scheduled to be listed on both the NSE and BSE, with a tentative listing date of September 30, 2024.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.