by Tanushree Jaiswal Last Updated: Aug 16, 2023 - 10:20 am 5.2k Views
SBFC Finance IPO GMP (Grey Market Premium)
Brief note on the SBFC Finance IPO issue
SBFC Finance IPO worth ₹1,025 crore comprises of an offer for sale and also of a fresh issue of shares. The offer for sale (OFS) component is by the promoters and early shareholders of the company. Here it must be noted that while the fresh issue component infuses fresh funds into the company, it also is EPS dilutive and equity dilutive. On the other hand, the OFS is just a transfer of shares so there is no fresh infusion of funds, but it also does not dilute the equity. The price band for the book built issue is yet to be finalized and only after that we will know the number of shares to be issued. What we know now is that the total IPO of SBFC Finance will comprise of a fresh issue of shares to the tune of ₹600 crore and an offer for sale of ₹425 crore.
Who is selling in the offer for sale?
Let us now look at the details of the issue of SBFC Finance IPO. The offer for sale of OFS of the company IPO will entail the sale of shares worth ₹425 crore. The promoters selling in the OFS of SBFC Finance Ltd include SBFC Holdings Pte Ltd, Clermont Financial Pte Ltd, Arpwood Partners Investment Advisors LLP, Arpwood Capital Partners, and Eight45 Services LLP. The fresh issue component of the company IPO will be worth ₹600 crore. The NBFC constantly needs to spruce up its capital buffers so that it is adequate to support loan growth. The fresh issue inflow will be purely used to spruce up its capital buffer. Therefore, the overall size of the company IPO will be the combination of the fresh issue and the offer for sale, which would be worth ₹1,025 crore.
The issue opens for subscription on 03rd August 2023 and closes for subscription on 07th August 2023 (both days inclusive). The basis of allotment will be finalized on 10th August 2023 and the refunds will be initiated on 11th August 2023. In addition, the demat credits are expected to happen on 14th August 2023 and the stock is scheduled to list on 16th August 2023 on the NSE and the BSE.
About grey market pricing of the shares
SBFC Finance IPO GMP (Grey Market Premium) trading normally starts about 4-5 days prior to IPO opening and continues till the listing date. In the case of SBFC Finance Ltd, we already have GMP data for the last 3 days, which should give a reasonable picture of the likely listing performance. Needless to say, the real picture would only be evident once the price of the issue is also finalized which will give an idea of the percentage return on listing that is embedded in the GMP.
There are 2 factors that impact the GMP. Firstly, the market conditions have a deep impact on the GMP, which includes the levels of the Nifty and Sensex as well as the general IPO market and macro conditions. Secondly, the extent of subscription for the IPO across the retail and the QIB segments also has a deep impact on the GMP as it is indicative of investor interest in the stock. Generally, strong QIB subscription is a trigger for a spike in GMP.
There is one small point to remember here. The GMP is not an official price point, just a popular informal price point. However, in most cases, it has been observed to be a good informal gauge of demand and supply for the IPO. Hence it does give a broad idea of how the listing is likely to be and how the post-listing performance of the stock would be.
What does the SBFC Finance IPO GMP tell us about likely listing price?
GMP tends to be a good mirror of the real stock story. More than the actual price, it is the GMP trend over time that gives insights about which direction the wind is blowing. Here is a quick GMP summary for SBFC Finance IPO for which the data is available.
In the above case, the GMP trend shows that the grey market premium has opened at around ₹38, but its down by ₹30 Of course, we have to await for the actual subscription numbers to flow in when the issue opens for subscription on 03rd August 2023, as that would have a very significant impact on the GMP. In the past, stocks which got oversubscribed in the IPO also saw a very robust positive shift in the grey market pricing. For a start, SBFC Finance Ltd has shown good traction in the grey market.
Currently ,the price band for the stock has not been fixed yet. Only after that is set, we can use the upper end of the price band to check the percentage returns assumed in the GMP. For now, we only know that the GMP of the stock of SBFC Finance Ltd is ₹38 per share and these are based on assumptions of a certain level of price based on peer group comparison. Obviously, that is still subjective and based on judgement. Hence, one will have to wait for the final price band to be announced and only after that can the percentage gain implied in the GMP be calculated. Of course, one data point to track will be the subscription update on the stock as that would chart the GMP course from here. As mentioned, the institutional QIB subscription is a key trigger for the GMP pricing. The GMP of ₹38 and the listing price it pre-supposes will be based on the final price band agreed upon. That is not possible now. However, the real situation would only be known once the stock of SBFC Finance is listed on the bourses on 16th August 2023. Of course, these are approximations, so you must keep a margin of safety. However, that would depend on the GMP sustaining over the next few days after the issue opens.
GMP (grey market price) is an important indicator, albeit informal, of likely listing price. One cannot take this price at face value However, the GMP tends to be quite dynamic and changes direction with the flow of news and events. Investors must note here that this is just an informal indication and has no official acceptance. The best thing one can do with the GMP is to observe the trend closely as that gives the best hints on listing status. Focus on the time series trend than on numbers.
Background of SBFC Finance Ltd
SBFC Finance Ltd is a systemically important non-deposit taking NBFC. SBFC Finance Ltd was established in 2008, with the primary focus on small business owners, entrepreneurs, self-employed as well as on the salaried persons. Its predominant lending products are the secured MSME loans and gold loans. Today, there are a number of entrepreneurs and small business owners who lack access to traditional sources of bank financing. Most banks insist on a pay slip which is where most of the small businesses take a hit. SBFC Finance intends to fill up this gap, but largely through secured loans only.
SBFC Finance Ltd is spread across 105 cities and towns located across 16 states and these are served through a network of 137 branches. The NBFC will use the proceeds from the fresh issue portion to boost its capital adequacy buffers to enable further growth in the loan book. For the latest financial year ended FY23 the company saw net interest income (NII) grow 49% to ₹379 crore. NIMs are extremely healthy at 9.32%. The issue is being lead managed by ICICI Securities, Axis Capital, and Kotak Mahindra Capital Company. KFIN Technologies will be the registrars to the issue.
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About the Author
DisclaimerInvestment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
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