Company Overview
Incorporated in 1996, Akme Fintrade India Ltd. is a non-deposit taking non-systematically important NBFC registered with the RBI and offers lending solutions to rural and semi-urban populations. The company has a portfolio of offerings which primarily include vehicle and business finance products to small business owners. The company has over two decades of experience in the industry, with a strong track record of financial performance, and higher customer retention which reflects operational efficiency. The company has its footprint in the states of Rajasthan, Madhya Pradesh, Gujarat, and Maharashtra, having over 12 branches and over 25 points of presence both digital and physical and has served over 2,00,000 customers till date. The company has two business verticals namely vehicle financing and business financing to small business owners. The vehicle financing vertical primarily involves providing finance for the purchase of two-wheeler and three-wheeler passenger vehicles. With customers mainly being transporters, small businesses, self-employed and salaried individuals, they generally contribute 10-30% of the purchase price and the rest is funded by the company. As of 31 December 2023, the credit exposure for the segment stood at Rs. 78.8 crores where the loans are mostly secured through hypothecation of the purchased assets. The company’s lending business involves lending to small business owners including SME and MSME businesses, businessmen, traders, manufacturers, and self-employed professionals. The property securing these loans is typically completed and largely self-occupied residential and commercial property. As at 31 December 2024, the company’s total credit exposure stood at Rs. 379.5 crores, out of which 79.2% of total credit exposure is of SME/ business loan.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- The company proposes to utilize the Net Proceeds from the Issue towards augmenting the capital base of the company to fulfil its future capital requirements, which are anticipated to arise as a result of the expansion of the business and assets. Further, a portion of the proceeds from the Issue will be used towards meeting Issue-related expenses.
Investment Rationale:
Proven execution capability with a strong rural and semiurban focus
The company has a long history of serving rural and semi-urban markets with high growth potential and has a sustained track record of financial performance and operational efficiency through consistently high rate of customer acquisition and retention and low-cost expansion into underpenetrated areas. This corroborates with its focus on clients in the rural and semi-urban areas. The importance of the rural market is underlined by the fact that despite the pace of urbanization and rural to urban migration that has happened in India for the past two decades, 70% of the total population and approximately 65% of the total households in India are still concentrated in the rural market. Also, the current institutional credit agencies primarily meet the agri-credit needs of the population while their non-agri-credit needs are yet untapped which provides a huge opportunity for the company.
Well-established vehicle finance business and small business lending model
Various factors that have contributed to the continued growth and success of the company’s business model includes the experience and expertise of the company in identifying and sourcing potential clients, ability to offer customized solutions to address the customer’s financial needs and the company’s ability to structure its loan products in a way where the company enjoys a relatively higher internal rate of return. The company has maintained a core focus on conservative credit assessment and risk management, thereby offering loans to clients with proven track records and ensuring the associated risk remains low. The company’s focus on stringent cash flow-based borrower assessment and collateralizing the loan through completed and mostly self-occupied properties has provided sustained and continued growth to the company.
Valuation
With India’s economy showing signs of resilience and GDP growing at an estimated 7.3% in FY24, the capacity utilization in the Indian manufacturing sector is recovering as industries have stepped up their production volumes. Following a 7.2% GDP growth in FY23, the industrial production index showed a growth of 5.2% in FY23. However, amidst a difficult and uncertain external environment, the government’s union budget appears to be balanced as it focuses on achieving inclusive and sustainable growth. Also, a sustained momentum in economic activity supported by domestic drivers point towards the rising confidence of households. Such confidence is also witnessed by strong growth in NBFC credit due to a mix of favorable regulations, innovative product offerings, and high credit appetite by consumers. When analyzed, around 37% of NBFC credit is concentrated in the industrial sector, and among the sector 82% is concentrated in large industries, thereby the MSME sector remaining unpenetrated by institutions. However, with vehicle financing dominating the retail loan portfolio of the NBFC industry in FY23, the retail credit segment witnessed aggressive growth. Such dominance can be attributed to the NBFC industry’s leadership position in the two-wheeler loan segment where it has the majority market share. With the average debt situation in rural households ranging between Rs. 60,000-Rs. 88,000, the institutional credit mechanism to meet the non-agriculture credit demand in rural India is poorly developed. Also, the higher transaction cost, low ticket size, risk profile, and lack of collaterals have made this segment unattractive for formal credit agencies. However, the situation seems to have improved due to the introduction of microfinance services which has improved the credit flow to the rural markets. Although it has made lower progress compared to the banking and NBFC sectors in the urban market, there exists ample untapped opportunity in the rural market for a structured credit product that will directly benefit the company in the future period. On the financial performance front, the company’s Revenue/EBITDA/PAT degrew to Rs.695 million/Rs.482 million/Rs.158 million in FY 2023 from Rs.862 million/Rs.673 million/ Rs.163 million in FY 2021. On the upper price band, the issue is valued at a P/E of 20.5x based on FY2023 earnings. Though the prospect for the company’s business segments look promising, we would look for more clarity and confirmation on the financial performance trajectory. We, therefore, recommend high risk-appetite investors to “Subscribe” to the issue for listing gains.
