SBFC Finance - High Visibility On AUM Growth In Near Term: ICICI Securities Initiates Coverage With A 'Buy'

ICICI Securities Report

SBFC Finance Ltd. is a direct play on ‘increasing formalisation of micro, small and medium enterprise financing,’ with its-

1. most diversified distribution network (presence in more than 15 states with no single state contributing more than 20% of assets under management), targeting formal MSME customers (income tax return is mandatory for all borrowers),

2. in-house operations divided into six independent verticals, and

3. highly experienced management team having the potential to drive more than 25% AUM growth in the near term.

Further, SBFC Finance's strong focus on collection (average more than one collection person per branch) and score-card based underwriting could help credit cost remain at less than 100 bps in the near term.

We build in 36% AUM compound annual growth rate over FY23-25E with return on asset /return on equity at 3.8%/10.4% by FY25E.

We initiate coverage on the stock with a 'Buy' rating and a target price of Rs 115, valuing it at four times FY25E price-book value.

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