What you must know about India Shelter Finance IPO?

India Shelter Finance Corporation Ltd was incorporated in 1998 and offers small and mid-ticket home loans. These loans are typically in the size of ₹5 lakhs to ₹50 lakhs. It provides home loans for construction, purchase, extension and also for renovation. In addition, it also offers loan against property (LAP). It largely caters to the unbanked and under-banked sections of society and has so far disbursed loans worth ₹5,500 crore. The company operates through a network of over 180 branches spread across 15 states with predominant presence in Rajasthan, Maharashtra, Madhya Pradesh, Karnataka, and Gujarat. It also has a full-fledged collection team of more than 300 officials working to keep collections on target and the non-performing assets under control. More than 70% of the borrowers at India Shelter Finance Corporation Ltd are first home loan borrowers. Its portfolio is largely retail focused and hence the yields are also relatively higher. Its focus is largely on the Tier-2 and Tier-3 cities and caters to a growing customer base through a mix of physical and digital presence. Its original model is largely in-house.

The home loans offered by India Shelter Finance Corporation Ltd are for a maximum period of 20 years with interest rate varying between 10.5% and 20% depending on the risk perception of the client. The company does not accept any deposits and all its funds are internally generated. The net proceeds from the IPO fresh issue portion will be utilized for augmenting the capital base (a basic necessity for all financial institutions looking to expand their loan books). The OFS portion is being entirely offered by the investor selling shareholders of the company. The IPO will be lead managed by ICICI Securities, Citigroup Global Markets, Kotak Mahindra Capital, and Ambit Private Ltd. KFIN Technologies Ltd will be the registrar to the issue.

Highlights of the India Shelter Finance IPO issue

Here are some of the key highlights to the public issue of India Shelter Finance Corporation IPO.

• India Shelter Finance Corporation IPO has a face value of ₹5 per share and the price band for the book building IPO has been set in the band of ₹469 to ₹493 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of India Shelter Finance Corporation Ltd will be a combination of a fresh issue and an offer for sale (OFS). As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• Let us start with the fresh issue portion first. The fresh issue portion of India Shelter Finance Corporation Ltd IPO comprises the issue of 1,62,27,181 shares (162.27 lakh shares approximately), which at the upper price band of ₹493 per share will translate into fresh issue size of ₹800 crore.
   
• The offer for sale (OFS) portion of the IPO of India Shelter Finance Corporation Ltd comprises the sale of 81,13,890 shares (81.14 lakh shares approximately), which at the upper price band of ₹493 per share will translate into an offer for sale (OFS) size of ₹400 crore.
   
• The OFS selling will be by the investor shareholders of the company. Among the major investors shareholders offering their shares in the OFS are Madison India Opportunities Fund via Catalyst Trusteeship (₹171.29 crore); Nexus Ventures III Ltd (₹142.50 crore); Madison India Opportunities IV (₹54.43 crore); and MIO Star Rock (₹31.76 crore).
   
• Therefore, the overall IPO of India Shelter Finance Corporation Ltd will comprise of the issue and sale of 2,43,40,771 shares (243.41 crore shares approximately), which at the upper price band of ₹493 per share will translate into total IPO size of ₹1,200 crore.

India Shelter Finance Corporation IPO will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Anil Mehta, West Bridge Crossover Fund, and Aravali Investment Holdings. Currently the promoters hold 56.75% stake in the company, which will get diluted post the IPO to 48.17%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The stock of India Shelter Finance Corporation Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, if any. The anchor portion, will be carved out of the QIB portion and the QIB portion for the public will be reduced proportionately.

Lot sizes for investing in the India Shelter Finance IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of India Shelter Finance Corporation Ltd, the minimum lot size is 30 shares with upper band indicative value of ₹14,790. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of India Shelter Finance Corporation Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for India Shelter Finance Corporation IPO and how to apply?

The issue opens for subscription on 13th December 2023 and closes for subscription on 15th December 2023 (both days inclusive). The basis of allotment will be finalized on 18th December 2023 and the refunds will be initiated on 19th December 2023. In addition, the demat credits are expected to happen on 19th December 2023 and the stock will list on 20th December 2023 on the NSE and the BSE. India Shelter Finance Corporation Ltd will be special for more than one reason. It will test the appetite for financial stocks general and for HFCs with a strong microfinance focus in particular. Let us now turn to the more practical issue of how to apply for the IPO of India Shelter Finance Corporation Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of India Shelter Finance Corporation Ltd

The table below captures the key financials of India Shelter Finance Corporation Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of India Shelter Finance Corporation Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been steady and also growing. That is evident from the expansion of the revenue pool in sync with the growth in loan book of India Shelter Finance Corporation Ltd. The focus on high yielding retail assets has helped the company to retain its yield mojo.
    
2. Being a financial lending company, it is the net profit margin that would really matter and that has been over 25% on a consistent basis and also showing strong traction in terms of NII growth and also in terms of NIM expansion. Return on assets (ROA) is consistently above 3.0% and that is much better than the median for housing finance companies, largely due to a focus on high yield retail assets.
    
3. The company has had below average sweating assets, but it may not too relevant to a financial home loan provider. However, the ROA for the last 3 years at above 3.0% is fairly attractive, but here again, the assumption is that the latest year data sustains.

Let us turn to the valuations part. On the latest year standalone EPS of ₹17.47, the stock is available in the IPO at a P/E of 28.22 times, which is on the higher side and assumes aggressive growth targets for the company. However, on a weighted average basis, the P/E is less attractive. However, strong ROE, robust net margins and ROA of over 3% on a consistent basis are major positives that can be used to justify the premium valuation that the IPO is asking for.

Let us look at some of the qualitative advantages that India Shelter Finance Corporation Ltd brings to the table. The company has shown robust growth in AUM of housing assets and more so with its focus on high yield retail assets. It has the second highest yield on advances in the peer group, which does entitle the company to better valuations in P/E terms. Its strong physical cum digital distribution network will allow the company to scale up its operations in a large way without adding substantially to costs. Strong risk management system has kept NPAs in check. The IPO is a good way to participate in the high growth small and micro home loan sectors. It is a high return business and works best when technology is leveraged. The valuations may look steep, but it is an IPO for the investors willing to take on volatility risk and also willing to wait for the long haul.