While investing in a IPO always try to go through the red-herring to understand the financials and risks.Usually IPO's are dressed up for sale so I avoid them unless the logic is compelling. Had a look at SKS, its india's biggest micro- finance company as per its current loan book.(about 3000 crore loans outstanding)
Positives
1. Expertise in micro finance.
2. Company seems to be sound and growing fast, over 100% CAGR
3. Business logic is strong (rural growth) and high asset quality(low NPA.)
4. Backed by savvy personalities like Soros and Narayana morthy (Infy)
Negatives
1. High valuations. Over 5 to 6 times BV
2. Business will be debt heavy and will need capital infusion periodically (dilute returns)
3. The company will need to charge high interest rate from borrowers because it does not issue long term loans.
Opinion:
I would avoid it unless playing for listing gains which are likely because there is no other listed NBFC in micro-finance space. The valuations are high( its being offered at 3 times the cost to pre-ipo investors) but market loves novelty and ‘x’ factor is boosted by high profile names attached to the company
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