Arohan Financial Services IPO - 7 Things to Know

Arohan Financial Services has filed the DRHP for its proposed IPO almost a year back and the SEBI approval came in April 2021. Normally, such approvals are valid for a period of 1 year, so the company still has time. However, due to volatile market conditions post the second round of COVID, Arohan Financial Services was not able to zero in on the issue opening date. 

1) Arohan Financial Services has got approval to raise via the IPO route Rs.850 crore through fresh issue of shares. Arohan Financial Services, in addition, will also see the sale of 2.7 crore shares via offer for sale (OFS). Arohan is a very niche microfinance player in the Indian context offering last mile connectivity for financial services delivery.

2) A number of early investors are expected to participate in the OFS portion of the Arohan Financial Service IPO. Some of the existing investors looking to participate in the IPO for partial exit will include Tano India, Michael & Susan Dell Foundation, Maj Invest, TR Capital and Aavishkar Goodwell India Microfinance II (AG-II). 

3) Ahead of the actual IPO states, Arohan Financial Services will also look at raising Rs.150 crore by way of a pre-IPO placement to select investors. If the fund raising via pre-IPO placement is successful, then the actual IPO amount will be reduced to that extent. This portion of pre-IPO placement is distinct from the anchor placement of shares.

4) The total equity of the promoters will dilute on two counts viz. the monetization of holdings via the OFS route and due to expansion of the base capital on account of the fresh issue of shares. However, in this case, the core promoter group of Aavishkar Venture and Intellectual Capital Advisory will not participate in the offer for sale.

5) Ahead of the second wave of COVID, which had forced Arohan Financial Services to put off its IPO plans in April 2021, the company was contemplating pricing the issue at Rs.330 per share. However, these numbers may have to be reworked lower considering the additional stress that the microfinance players are being forced to live under.

6) Arohan is an East based microfinance company that was established in 2006. ASK holdings had been one of the early investors in the company. Its customer group typically comprises independent women entrepreneurs who are looking to raise funds to expand small businesses like tailoring shops, tea stalls, vending stalls etc. Its lending rates at above 20%, do raise the chances of default quite steeply.

7) In FY21, the company took a hit on account of the pandemic. It dipped into a net loss of Rs.160 crore in FY21 compared to profits of Rs.127 crore in FY20. However, the gross NPAs of Arohan Financial Services had surged more than four-fold to 11% in FY21 from just about 2.25% in FY20. This remains a key concern area for Arohan Financial Services.

The issue will me lead managed by Edelweiss Financial, ICICI Securities, Nomura Financial Advisory and SBI Capital Markets. These 4 institutions will also act as the book running lead managers (BRLM) to the proposed issue.

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