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DRChoksey Report

Aye Finance Ltd. launched its initial public offering today, February 9 and will close for subscription on Feb 11.

The Rs 1,010-crore IPO comprises of fresh equity shares worth up to Rs 710 crore and an Offer For Sale (OFS) of up to Rs 300 crore by current shareholders.

The non-banking financial company specialising in small-ticket business loans to micro, small, and medium enterprises has fixed a price band of Rs 122-129 per share.

Retail investors can apply for the issue in a lot size of 116 shares and multiples thereof, translating into a minimum investment of Rs 14,964 at the upper end of the price band.

Aye Finance is scheduled to list on the BSE and NSE on Feb. 16. 

Axis Capital, IIFL Capital, JM Financial and Nuvama Wealth are the book-running lead managers, while KFin Technologies is the registrar to the issue.

The net proceeds from the fresh issue will be used to augment the company's capital base to support future requirements driven by the growth of its business and assets. Specifically, these funds will increase the tier-I capital base to facilitate onward lending and ensure ongoing compliance with regulatory capital adequacy ratios.

Outlook:

Aye Finance operates in the high-growth MSME lending segment, benefiting from India's push for financial inclusion and formalization of small businesses. The company boasts strong AUM growth and expanding geographic footprint, although at 5.2% credit cost as of FY25.

The ROA/ROE hasn't been consistent which translate to discounted multiple, unless there is clear visibility of sustained improvement ahead. The operating model strain with high people churn which can be seen at 65% Attrition (FY25 and similar). That's a flashing red light in a people-heavy underwriting/collections business. High churn often translates to weaker credit discipline + higher opex + more fraud/operational drift risk.

Also there is funding disadvantage for AYE compared to peers due to weaker credit rating.

Valuation:

The company at upper price band of Rs 129 imply a market cap of 3,184 crore which translate to ~1.3x Adj P/B ratio which is at 20-30% discount to listed peers which the brokerage believes is justified given the above mentioned reasons. DRChoksey  believes the IPO is appears fully priced in.

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ALSO READ: Aye Finance IPO Day One: Check Subscription Status, Latest GMP And More

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