If affordable housing was the buzzword for initial public offerings (IPOs) during the pandemic, the current flavour is SME lending or financiers focused on lending to small businesses. SBFC Finance, at a loan book of ₹4,400 crore is one of the popular names in the segment, hitting the street with ₹1,025 crore IPO. It’s a mix of offers for sale, with Arpwood and Eight45 Services LLP, two of its private equity investors, selling out and a fresh issue of ₹600 crore. Priced at 2.3x FY24 estimated book on a post-money basis, the issue is at a reasonable discount to Five Star Business Finance (operating at the lower ticket SME lending segment) trading at over 4x FY24 estimated book.

This makes SBFC’s IPO an option worth considering for investors wanting to bet on newer names in the NBFC segment.


There are three important positives which work in SFBC’s favour.

However, nearly 100 per cent of its loan is secured under two categories. The pureplay secured MSME book constitutes 79 per cent of the lender’s loan book, while a loan against gold accounts for 17 per cent. A small portion of the loan book (around 3 per cent) is unsecured but is being run down because the lender doesn’t find comfort in this segment. SFBC’s decision to pare its share of unsecured loans reflects good credit underwriting practices.

Secondly, 82 per cent of SBFC’s loan book is constituted by borrowers with 700 plus credit scores. This implies that new to credit customers aren’t the primary target. Consequently, while in-line with the overall industry, the lender faced asset quality issues during Covid, at 2.4 per cent gross non-performing assets and 1.4 per cent net NPA in FY23, it reflects a good comeback on this front. Gross and net NPA stood at 2.7 per cent and 1.6 per cent in FY22 and 3.2 per cent and 2 per cent, respectively, in FY21.

Thirdly, SBFC operates in the ₹5–30 lakhs segment, largely populated by NBFCs but also fiercely fought by banks, especially the smaller players. This is a sweet spot because it isn’t vulnerable to exuberant pricing, and the purpose or the end-use is more evident to track. Typical borrowers of SFBC would be those in the retail, distribution, or service sectors, with around 80 per cent offering self-occupied residential houses as security for the loan. Also, the loan book has no geographic or sector-exposure concentration risk.


 At about ₹4,900 crore of assets under management and ₹4,400 crore of loan book on March 31, 2023, SFBC’s annualised assets growth has been 49 per cent from FY21-FY23. Revenues have compounded at 20.3 per cent , and net profit at 32 per cent during this period. Yield and net interest margin at 15.9 per cent and 9.6 per cent, respectively, in FY23 hold well, and even if there must be compression in margin owing to an increase in the cost of borrowings, there is enough headroom for absorbing the same. That said, the cost of borrowing (helped by A+ credit rating) at 8.2 per cent in FY23 may not lead to a steep increase in the company’s funds cost .


At 2.3x FY24 estimated price to book on a post-money basis, SFBC is at a discount to some listed players, including Home First Finance and Aptus (engaged in loan against property) trading upwards of 3x FY24 estimated book. Therefore, the lender’s asking price seems reasonable.


Often in the NBFC segment, loan growth up to ₹10,000 crore tends to be fast and easy to achieve. The pressure starts and intensifies upon reaching the ₹15,000 crore AUM threshold. Listed players in the affordable housing segment are already facing this issue. Therefore, while the market potential may be abundant and SFBC is still quite far from these levels, sustaining the momentum post-listing will be critical.