Manba Finance IPO Analysis: Manba Finance is launching its IPO with a fresh issue worth ₹150.84 crores. The IPO opens on September 23, 2024, and closes on September 25, 2024, with the listing scheduled for September 30, 2024. In this article, we will dive into the details of the Manba Finance IPO 2024, exploring its strengths and potential challenges. Read on to learn more about the company.
Manba Finance
Founded in 1998, Manba Finance is a Non-Banking Financial Company (NBFC) providing a wide range of loans, including for two-wheelers, three-wheelers, electric vehicles, used cars, small businesses, and personal needs. The company operates across six states in India through 66 locations and 29 branches, with a network of over 1,100 dealers, including 190 EV dealers. Their average loan ticket size stands at around Rs. 80,000 for two-wheelers and Rs. 1,40,000 for three-wheelers.
Manba Finance emphasizes swift loan approvals, often disbursing loans on the same day of application. It caters to both salaried and self-employed customers, offering tailored financing schemes. The company has a solid credit assessment and risk management framework, which has proven effective in controlling defaults and minimizing non-performing assets.
In fiscal year 2024, the company saw its Assets Under Management (AUM) grow to Rs. 936.85 crore. With diversified funding sources and strong credit ratings, Manba Finance plans to further expand its offerings, focusing on used car loans, small business loans, and personal loans, leveraging its established network for continued growth.
Industry Overview
India’s NBFC sector has been growing rapidly, surpassing GDP growth. By the end of fiscal 2024, the sector’s size reached Rs. 41.2 lakh crore, with credit expanding at a CAGR of around 11% from 2019 to 2024. Looking ahead, CRISIL MI&A expects NBFC credit to grow by 15-17% between fiscal 2024 and 2027, fueled by retail and MSME lending.
Over the years, NBFCs have transformed in terms of size, operations, and technological advancements. The rise of digital tools has revolutionized financial services, particularly in credit distribution. The retail segment, a key driver of NBFC growth, is expected to grow by 14-16% from fiscal 2024 to 2027, further supporting overall credit expansion.
Meanwhile, the two-wheeler market is set to improve by 9-10% in fiscal 2025, building on the 14% growth seen in fiscal 2024. Recovery in rural and semi-urban markets, along with rising demand for electric scooters, will drive sales. However, volumes will likely remain about 10% lower than the 2019 peak due to significant price hikes.
Financial Highlights
Manba Finance posted a Net Interest Income of ₹87.61 crores in FY24, up from ₹69.54 crores in FY23. Net profits for FY24 reached ₹31.41 crores, compared to ₹16.58 crores in FY23. The primary expense remains finance costs, with additional operating expenses including dealer incentives, employee benefits, and other costs.
In FY24, Net Interest Margins (NIM) stood at 11.16%, down from 12.31% in FY23. Despite this dip, the company saw significant growth in Basic Earnings Per Share (EPS), which rose to Rs. 8.34/share in FY24 from Rs. 4.40/share in FY23. This is a notable increase from Rs. 2.59/share in FY22, indicating a more than two-fold jump in EPS since FY22, reflecting growing value for shareholders.
The Return on Equity (RoE) showed a marked improvement, rising to 15.66% in FY24 from 9.84% in FY23. This increase was primarily driven by higher net income and profits. Additionally, the Capital to Risk Assets Ratio (CRAR) was 25.17% in FY24, down slightly from 27.02% in FY23, but still well above the regulatory requirement of 15%, showcasing the company’s strong capital position.
The Return on Total Average Assets improved to 3.57% in FY24, up from 2.46% in FY23. This upward trend in returns reflects the company’s increasing profitability, reinforcing its positive growth trajectory.
Manba Finance generates revenue primarily from its financing activities. In FY24, the breakdown of Total Income was dominated by Two-Wheeler loans contributing 89.55%, followed by Three-Wheeler loans at 0.61%, Personal Loans at 0.71%, Used Two-Wheeler loans at 0.38%, Small Business Loans at 0.19%, and Used Car Loans at 0.02%. Other operating income made up 8.52%, while other income accounted for 0.02%.
On the asset quality front, the Net Non-Performing Assets (NNPA) ratio stood at 3.16% in FY24, slightly up from 3.14% in FY23. The Gross Non-Performing Assets (GNPA) increased to 3.95% in FY24, from 3.74% in FY23. However, the provisional coverage ratio (PCR) improved to 20% in FY24, up from 16% a year earlier, providing greater financial resilience against potential future losses despite the rise in GNPAs.
Competitors
Manba Finance’s listed peers include Baid Finserv Limited, Arman Financial Services Limited, and MAS Financial Services Limited. In terms of Assets Under Management (AUM), Manba’s AUM stands at ₹936.85 crore, which is on the lower end compared to its peers. The AUM range for these companies varies from ₹365 crore to ₹10,700 crore, with MAS Financial leading and Baid Finserv at the bottom.
Manba’s net NPA is approximately 3.16%, placing it at the higher end of the range compared to its peers, which varies from 0.31% to 3.16%. In terms of asset quality, Manba ranks higher in NPAs, while other companies maintain a stronger position with lower NPAs.
Arman Financial Services had a notably high Capital Adequacy Ratio (CAR) of around 62.74% in FY24, while Manba’s ratio stood at 25.17%. Peers’ CARs ranged from 24% to 62%, making Manba’s adequacy ratio comparatively lower.
When comparing profitability, Manba outperformed in PAT to Average AUM with a 4% margin in FY24, placing it in the mid-range, suggesting potential for growth. While Manba performs on par with its peers in some areas, it underperforms in others.
Strengths
- Customer Relations: The company maintains strong ties with over 1,100 dealers across six states. Their representatives are present at dealerships to assist customers, offering quick loan processing, dealer incentives, and marketing support to become the preferred finance partner.
- Business Acumen: Manba expands into new markets after thorough analysis, considering factors like financial literacy, population, dealer networks, and competition. Their growth is driven by volume with stable ticket size and yields, supported by an efficient customer selection and loan monitoring system.
- Diverse Funding: They source funding from various banks and financial institutions, using different financial instruments to reduce borrowing costs. The company also has a co-lending arrangement with Muthoot Capital Services Limited, with an average borrowing cost of 11.98% for FY2024.
- Tech-enabled Services: The company utilizes technology-driven systems for risk management, loan processing, and collections. They employ cloud-based platforms, marketing automation tools, and in-house systems, allowing for fast loan approvals, enhanced data monitoring, and efficient customer service.
- Collection Process: Asset quality is maintained through a three-tier collections system: tele-calling, field collection, and legal recovery. Over 80% of monthly collections are through NACH, with a gross NPA of 3.95% for FY24.
Weaknesses
- Dependence on Automobile Industry: Manba relies heavily on non-exclusive dealer relationships for new vehicle loans. Any disruption in these relationships could affect business, as 89.13% of FY24 disbursements came from dealers.
- Loan Portfolio Concentration: Approximately 97.90% of their total AUM consists of new vehicle loans, making them vulnerable to market changes in the vehicle finance industry and limiting growth potential.
- Geographic Concentration: Their operations are focused in six states in western, central, and northern India, increasing exposure to regional disruptions.
- Seasonal Industry Fluctuations: Manba’s sales peak during festive periods, making revenue growth difficult to predict and posing challenges in managing increased seasonal demand, which could affect borrowing costs.
- High Employee Attrition: With a 34% attrition rate in FY24, particularly in sales and collections, high turnover disrupts operations, raises training costs, and could impact customer relationships.
GMP
As of September 17, 2024, Manba Finance Ltd’s shares were trading at a 0% premium in the grey market. The shares were priced at Rs. 120, matching the cap price with no premium per share.
Key IPO Information
| Particulars | Details |
| IPO Size | Rs. 150.84 Cr |
| Fresh Issue | Rs. 150.84 Cr |
| Offer for sale (OFS) | – |
| Opening date | 23 September 2024 |
| Closing date | 25 September 2024 |
| Face value | Rs. 10 |
| Price band | Rs. 114 – Rs. 120 |
| Lot size | 125 Shares |
| Minimum Lot Size | 1 Lot (125 Shares) |
| Maximum Lot Size | 13 Lots (1,625 Shares) |
| Listing date | 30 September 2024 |
Promoters: Manish Kiritkumar Shah, Nikita Manish Shah, Monil Manish Shah, Manba Investments and Securities Pvt. Ltd., Avalon Advisory and Consultant Services Pvt. Ltd., Manba Fincorp Pvt. Ltd., Manba Infotech LLP, and Manish Kiritkumar Shah (HUF).
Book Running Lead Manager: Hem Securities Limited.
Registrar to the Offer: Link Intime India Private Limited.
Conclusion
Manba Finance Limited primarily focuses on two-wheeler financing and has established a presence in several major states across India. However, their geographical diversification remains limited, and there is a need for improvement in asset quality. Growth can fluctuate with the seasonal trends of the vehicle industry, which may also depend on the availability of funds.
The competition with traditional finance players is intense, as many lenders benefit from lower borrowing costs, enabling them to offer more competitive interest rates. Despite this challenge, India’s growth stage presents significant opportunities in the vehicle finance sector, allowing for coexistence among various players in the market.
