IPO of Sabaiko Laghubitta opens from Shrawan 1; Things to know before applying

Company profile 

Sabaiko Laghubitta Bittiya Sanstha is a class D Microfinance Institution incorporated on Baisakh 25, 2074. The microfinance started its operation from Ashad 30, 2074. The registered headquarter of Sabaiko Laghubitta is located at Bandipur-01, Dumre, Tanahun.

It is a national-level financial institution currently operating from 38 branches in 22 districts of Nepal.

The microfinance collected Rs.33.65 Crore as deposits and floated Rs.1.41 Arba as loans and advances by the end of the third quarter of the current fiscal year. The Non-Performing Loan (NPL) of the microfinance company stands at 0.19%.

It has reported its net interest income as Rs.5.04 Crore with Rs.3.44 Crore as operating profit for the third quarter. The company has existing paid up capital Rs 11.20 crore and reserve of Rs.2.30 crore.

In the third quarter of the fiscal year 2075/76, the net profit of the company has been reported to be Rs.2.19 Crore compared to a net loss of Rs.32.20 Lakhs reported in the corresponding quarter of the previous year.

Objective

About the issue

Sabaiko Laghubitta Bittiya Sanstha Limited is issuing 5,30,000 units ordinary shares worth Rs 5.30 crore to the general public from Shrawan 1, 2076. The early closing date of this IPO issue is on Shrawan 5, 2076 and if the issue is not subscribed till Shrawan 5 then this issue can be extended upto Shrawan 30, 2076.

Out of the offered 5,30,000 units; 0.5% of issue capital i.e. 8,250 units have been set-aside for the employees of the company and 5% of total offered share to general public i.e. 26,500 units have been set-aside for the mutual funds. The remaining 4,95,250 units are for the general public.

Applications can be place for minimum 10 units and maximum 2,000 units.

NIBL Ace Capital Limited has been appointed as the issue manager for the IPO issuance.

Capital structure

Shareholding composition

Primary shareholders

Board of Directors

Management team

*The company has 177 employees in total.

ICRA Rating

ICRA Nepal has assigned [ICRANP] IPO Grade 4, indicating below-average fundamentals to the proposed initial public offering (IPO) of Sabaiko Laghubitta Bittiya Sanstha Limited (SLBSL). The proposed issue is being made to adhere the regulatory provision, that requires a microfinance institution (MFI) to issue an IPO within three years of coming into operation.

Strengths and opportunities

• Ability to achieve healthy portfolio growth in its initial years of operation which has supported its profitability indicators
• Adequate network coverage of 33 branches across 22 districts along with the expansion plans over new geographies remain positive from a growth perspective
• Adequate capitalization profile (CRAR 31% as of mid-January 2019 against regulatory minimum of 8%)
• Experienced management team
• Large below poverty population who are still outside the reach of mainstream banking
• Healthy asset quality indicators (non-performing loans (NPLs) of 0.03% and delinquencies of 0.39% as on Mid-January 2019)
• Ability to maintain sustainable growth and generate scale economies through geographical expansion while maintaining commensurate risk mitigation practices would remain critical for its overall financial profile.

Weakness and threats

• Limited track record (operating since July 2017) and small scale of operations (assets base of NPR 1,279 million as of mid-January 2019)
• Competition from larger/established peers
• Relatively high cost of funds among peers at ~12% for H1 FY2019 could impact its lending spreads given the increasing competition in the sector
• Company’s relatively higher loan ticket size (average unsecured loan of NPR 90,000 as of mid-January 2019)
• Relatively high exposure to high-ticket collateral-based based loans (~23%) to inferior borrower profile
• Increased ticket size by regulations, presence of large number of players in the industry (including cooperatives)
• Absence of centralised credit information for MFIs raises concerns of overleveraging for the sector
• Track record of profitability over a longer time frame also remains to be seen, especially given the expected dilution from capitalisation of proposed IPO
• Frequent changes in regulation impacting the spreads and funding sources for MFI sector
• The ability to increase its scale of operations while maintaining healthy asset quality indicators, by enhancing its credit appraisal capabilities and improving the internal controls, would have a bearing on its overall financial profile.

Source: https://icranepal.com/releases.php

Financials

Source: Company prospectus and ICRA Nepal Rating report