Manba Finance incorporated in 1996 is a Non-Banking Financial Company-Base Layer (NBFC-BL) providing financial solutions for new two-wheeler (2Ws) at 91.6% of AUM end March 2024, three wheeler (3Ws), used cars, small business loans and personal loans. Based out of Mumbai, the company has expanded operations to 66 locations connected to 29 branches across six states in western, central and north India.

The company has established relationships with more than 1,100 dealers, including more than 190 EV dealers, across Maharashtra, Gujarat, Rajasthan, Chhattisgarh, Madhya Pradesh and Uttar Pradesh. Manba has also recently expanded the loan portfolio to Used Car Loans, Small Business Loans and Personal Loans and intend to leverage existing network to further penetrate the market with new products.

The focus is on the salaried and self-employed segment customers looking for a quick turnaround time (TAT) for loan sanction and disbursement. The finance is provided upto 85% of the purchase price (on road price) of the vehicle proposed to be acquired by the customer. About 97.90% of the loan portfolio comprises of New vehicle loans with an average ticket size (ATS) of around Rs 0.8 lakh for two-wheeler loans and Rs 1.4 lakh for three-wheeler loans.

The credit team is centralised which remotely reviews loan applications and undertakes credit decisions based on internal credit policies, LTV and the customer’s existing cash-flows, CIBIL score etc. The company has implemented a comprehensive and robust credit assessment, risk management and collections framework to identify, monitor and manage risks inherent in line of business. In-house collection team focuses on recovery of the instalments from customers.

With strong underwriting processes, the company has maintained stable asset quality with Gross NPA at 3.95% and Net NPA at 3.16% end March 2024.

The company has access to diversified sources of funding including term loans and cash credit facilities from public sector banks, private sector banks, small finance banks & other financial institutions and PTC and issuance of privately placed listed and unlisted NCDs to meet capital requirements. The total borrowings were Rs 752.27 crore end March 2024 with average cost of borrowings at 11.98% for FY2024. The net interest margins of the company stood at 11.16% in FY2024.

The capital adequacy ratio (CRAR) of the company stood at 25.17% end March 2024.

Manish Kiritkumar Shah is promoter and Managing Director of the company who oversees functions such as identifying opportunities, building and maintaining relationships with key stakeholders and implementing technology solutions to streamline operations and support growth.

The company has entered a co-lending arrangement with Muthoot Capital Services on an 80:20 fund sharing basis in terms of RBI guidelines, where 80% of the funds are provided by Muthoot Capital Services and the balance 20% is obligation.

The employee base of the company has nearly doubled in last 3 years to 1133 employees end March 2024.

The Offer and the Objects

The initial public offer (IPO) consists of a fresh issue of 1.257 crore equity shares to raise Rs 143.30 crore at the lower band of Rs 143 per share (face value Rs 10 per share) and Rs 150.84 crore at the upper band of Rs 120 per share.

The promoter shareholding will decline to 75% post- IPO from 100% pre-IPO.

The issue is to be made through the book-building process. It will open on 23 September 2024 and close on 25 September 2024.

The net proceeds from the fresh issue will be used for augmenting the capital base to meet future capital requirements. The issue will bring the benefits of listing the equity shares on the stock exchanges, including enhancing brand image among existing and potential customers and creation of a public market for the equity shares in India.

Strengths

The company has established a network of more than 1100 dealerswhich acts as a point of sale in business model. The Dealers play an important role in the vehicle financing ecosystem as vehicle purchase in India is mainly undertaken by the customer visiting the outlet of the Dealer of a particular OEM.

Operating model is technology driven and scalable with quick Turn Around Time (TAT) for loan processing. Most of the systems and processes are in-house or are licensed from known service providers.

Established business processes and technologies have facilitated sanction of more than 85% loans on the same day of the application. Also, dealers prefer to refer finance companies with the ability to turnaround the process from the loan origination to sanction and disbursement in the fastest possible time.

The company provides incentives and organizes dealer conferences and events to further strengthen existing relationships and establish newer relationships with dealers.

AUM has increased at a 3-year CAGR of 21% from FY2021 to FY2024, driven by consistent ATS and steady yields.

The company has access to diversified sources of borrowing through developed long-term relationships with various banks, NBFCs and other financial institutions for funding requirements.

Extensive collections infrastructure and processes leading to maintenance of stable asset quality

Weaknesses

The business is dependent on dealers which contributed a significant portion of new vehicle loans disbursements at 89.1% in FY2024.

The top 5 dealers contributed 6.36% and the top 10 dealers accounted for 10.75% of business in FY2024. Arrangements with dealers are on a non-exclusive basis and they may also work for competitors.

The company has recently diversified into a highly competitive used car loans, small business loans and personal loans segment and there is no track record of these businesses available for the company.

There is a high employee attrition rate of more than 30% due to business target and incentive driven nature of sales jobs in the segment where company operates.

A significant portion of the liabilities of the company at 63.4% are fixed interest rate liabilities and the benefit of reduction in the policy rates would accrue only in the long term.

The operations are mainly concentrated in Maharashtra accounting for 64.6% of AUM, followed by Gujarat at 23.2% end March 2024. Any adverse developments in these regions may have an adverse effect on business.

The company operates in a highly competitive consumer lending space with competitors like established Indian commercial banks, NBFCs, small finance banks, lending platforms, e-commerce companies and payment service providers and the private unorganized and informal financiers.

The company operates in a seasonal industry with high festive sales and slack sales during holidays.

About 98.20% of Gross Loan Book was secured. However, the depreciation in the value of the vehicle may result in losses on seizure and sale of the vehicle.

The self-employed segment accounted for a significant 57.9% of loans disbursed in FY2024. This segment of customers is higher credit risk and less financially resilient due to their increased exposure to fluctuations in cash flows due to adverse economic conditions.

A significant majority of the customer base belongs to the low to middle income group, who may be more likely to be affected by declining economic conditions.

First time borrowers accounted for 43.2% of loans disbursed in FY2024. Such customers generally may have higher risk due to many reasons like inexperience of loan servicing, business failure, insolvency, lack of liquidity, loss of employment or personal emergencies etc.

Valuation

Manba Finance is a small-sized two-wheeler financier, which has recently started expanding into used car loans, personal loans and small business loans along with expansion to newer geographies. The company exhibited a healthy earning show in FY2023 and FY2024. It has recorded a strong 20% CAGR growth in revenues and 50% jump in net profit for FY2024 from FY2021. The AUM of the company has increased at 3-year CAGR of 21% in FY2024.

EPS on post-issue equity works out to Rs 6.3 for FY2024. At the price band of Rs 114 to Rs 120, the P/E works out to 18.2 to 19.2 times of EPS for FY2024.

Post-issue, the book value (BV) will be Rs 70.0, while the adjusted BV (ABV) net of net NPAs works out to Rs 64.9 per share at the upper price band. The scrip is being offered at price to Adj BV multiple of 1.8 times at the upper price band.

Among peer NBFCs catering to two-wheeler finance, Muthoot Capital Services is trading at P/ Adj BV multiple of 1.1 times, Arman Financial Services at 2.3 times and MAS Financial Services at 2.7 times.

In terms of PE, Muthoot Capital Services is trading at 5.5 times of EPS for FY2024, MAS Financial Services at 20.7 times and Arman Financial Services at 10.8 times.

On profitability front, the ROA of Manba Finance was healthy at 3.2% in FY2024. Among the peers, the RoA of MAS Financial Services was at 2.7%, Muthoot Capital Services was at 5.4% and Arman Financial Services at 6.8%.

ROE for Manba Finance was 15.7% for FY2024. RoE of Muthoot Capital Services was at 20.1%, MAS Financial Services was at 13.9% and Arman Financial Services at 21.4% for FY2024.

Manba Finance has posted strong 48% year on year growth in AUM to Rs 937 crore end March 2024. The AUM of Muthoot Capital Services rose 1% to Rs 2018 crore, while that of Arman Financial Services increased 21% to Rs 2594 crore and MAS Financial Services 25% to Rs 10126 crore end March 2024 over March 2023.

The GNPA ratio of Manba Finance was at 3.95% end March 2024. Among the peers, the GNPA ratio of Arman Financial Services was at 2.90%, MAS Financial Services 2.25% and Muthoot Capital Services was higher at 9.84% end March 2024.

The NNPA ratio of Manba Finance was at 3.16% end March 2024, while that of Arman Financial Services was at 0.3%, MAS Financial Services 1.51% and Muthoot Capital Services was at 3.41% end March 2024.