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Equitas IPO Offer: Some Key Points to Ponder

Equitas, a microfinance institution from Chennai is offering the Initial Public Offer (IPO) from today, Tuesday, April 5, 2016 to raise Rs. 2,200 crore at higher end of issue price band of Rs 110 per share.

Equitas has raised Rs 652 crore from 16 anchor investors by selling 5.92 crore equity shares at a price of Rs 110 apiece on Monday, which include Franklin Templeton MF, Birla Sun Life, SBI Mutual Fund, UTI MF, ICICI Prudential MF, Kotak Mahindra MF, HDFC Standard Life Insurance, Tata AIA Life Insurance, Sundaram MF and Reliance Life Insurance among others.

IPO shares aggregate another Rs 720 crore and an offer for sale of up to 13.24 crore equity shares by shareholders and investors. The issue of Equitas Holdings, which has a licence for a small finance bank from RBI this year, will be open only for 3 days. close on April 7. Bids can be made for minimum 135 shares and in multiples of 135 shares thereafter.

The proceeds from the IPO are expected to be used for IT infrastructure for the new bank and to lend micro-credit to customers.

Of the total money to be raised through a fresh issue of shares, the company plans to use Rs 520 crore towards investment in subsidiaries to augment their capital base. While Rs 240 crore would go into Equitas Microfinance Pvt Ltd (EMFL) and a similar amount into Equitas Finance Ltd (EFL), the remaining would be used for Equitas Housing finance Pvt Ltd (EHL).

–Since 2007, Equitas has been providing microfinance loans, individual loans to micro and small enterprises (MSEs) that are not served by formal financing channels. The man behind Equitas success is Mr. PN Vasudevan, who had served for two decades in Cholamandalam Investment and Finance Co Ltd, part of the Murugappa Group, who had given him seed capital to start his new venture.

–Equitas Holdings has three subsidiaries: EMFL for microfinance lending, EFL for vehicle loans and for MSEs lending and the third subsidiary EHL is into housing finance. As of June 30, 2015, it had 520 branches across 11 states, one union territory and the NCT of Delhi.

–In FY 2014-15, Equitas made a consolidated revenue of Rs 755.93 crore against Rs 483.52 crore in FY2013-14. Its net profit rose by 40% to Rs 106.6 crore and its assets under management (AUM) as of June 30, 2015, stood at Rs 4,419.1 crore. Its microfinance business AUM registered an impressive increase at a CAGR of 43.6% from Rs 723.9 crore as of March 31, 2012, to Rs 2,319.4 crore as of June 30, 2015, which represented 52.4 per cent of its aggregate AUM. As of June 30, 2015, there were 2.58 million loan accounts in its microfinance business.

–In the vehicle finance business, its AUM has doubled annually over the last two years and ended FY2014-15 with Rs 1,175. crore, representing 29.31% of its aggregate AUM. Vehicle finance business AUM was Rs 1,248.9 crore as of June 30, 2015 with 45,029 loan accounts. The AUM of its MSE finance business also increased from Rs 87.4 crore as of March 31, 2014 to Rs 510.9 crore as of March 31, 2015. It touched Rs 656.1 crore as of June 30, 2015 with 29,627 loan accounts. A majority of its MSE loans are given to eligible higher income microfinance business customers.

–The AUM of its housing finance business has doubled annually in the last two fiscal years growing to Rs 179.5 crore as of March 31, 2015 and to Rs 194.5 crore as of June 30, 2015, with 3,360 loan accounts.

–Once the IPO raises funds, its current 93% of stake being held by foreign investors will be reduced to 49%. In the proposed offer for sale, investors such as Sequoia Capital, WestBridge, Aavishkaar, Lumen, Aquarius, and MVH will exit while IFC, FMO, Helion, Creation Holdings, Sarva Capital will reduce their stake and the India Financial Inclusion Fund is offering to sell its entire holding.

[tags, IPO today, equitas holdings ipo, equitas microfinance, key points, analysis, equitas past record, insights, highlights]

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