Recommendation from Finance Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

SG FINSERVE LTD : BUILDING INDIA'S MSME FINANCING ECOSYSTEM

HERE IS WHY
✓  Asset-Light Supply Chain Finance Model
✓  Best-in-Class Asset Quality
✓  Long Growth Runway Ahead

I ndia’s MSME sector contributes nearly 30 per cent of the country’s GDP and accounts for more than 45 per cent of exports. However, limited access to timely working capital remains a major structural constraint for small businesses. Supply chain finance addresses this gap by allowing MSMEs to unlock funds tied up in receivables from large corporate customers. SG Finserve Ltd. is positioned to benefit from the growing demand for organised supply chain financing. By improving liquidity, shortening payment cycles and enabling smoother transactions, SG Finserve plays a critical role in strengthening the financial efficiency of the supply chain. With the formalisation of MSMEs and rising adoption of technology-driven lending solutions, the company has a sizeable opportunity to scale its loan book. Against this backdrop, we recommend SG Finserve Ltd. as our Choice Scrip. SG Finserve is a digital-first, MSME-focused NBFC specialising in supply chain finance, working capital loans, factoring and TReDS solutions. Unlike traditional lenders, it follows an anchor-led financing model that leverages the payment capability of large corporates, helping lower credit risk. The company has expanded beyond the APL Apollo ecosystem and now has relationships with 52 anchor corporates.

The company delivered another outstanding quarter in Q1FY27, reflecting strong business momentum and disciplined execution. Loan AUM surged 82 per cent YoY to ₹4,552 crore, while gross disbursements crossed ₹7,300 crore, up 39 per cent. Operating income more than doubled to ₹136 crore, and net profit increased 119 per cent to ₹54 crore.

SG Finserve's anchor-led lending model remains its key differentiator. Instead of relying solely on the borrower's credit profile, financing is backed by receivables from large corporate customers, helping lower credit costs and improve liquidity across the supply chain.

Management estimates that nearly 1,000 large corporates in India generate receivables of approximately ₹25 lakh crore, presenting a significant long-term opportunity. Despite this, SG Finserve currently has only 52 anchor mandates, indicating ample scope for expansion. Beyond supply chain finance, the company is gradually expanding into LAP, digital-first lending initiatives and adjacent lending products. Management expects the portfolio to eventually comprise one-third APL Apollo ecosystem financing, one-third nongroup working capital financing and one-third lending beyond traditional supply chain finance. This strategy should broaden the addressable market while reducing concentration risk.

Asset quality remains one of SG Finserve's biggest strengths. The company reported nil Gross NPAs, supported by disciplined underwriting and a digital-first operating platform. Capital adequacy remains strong at 32 per cent, while the debt-to-net-worth ratio is below 2.2x. Management expects AUM to grow at 25 to 30 per cent CAGR and profits at 30 to 35 per cent CAGR over the next three to four years.

Looking ahead, SG Finserve aims to build a ₹10,000 crore loan book by FY30, while maintaining ROA around 5 per cent and improving ROE towards 16 per cent. At around 3.0x Price-to-Book, SG Finserve commands a premium valuation, supported by its high-growth, asset-light business model, superior asset quality and healthy capital position. With a differentiated supply chain financing platform, expanding product portfolio, robust growth guidance and a large underpenetrated market, the company appears well placed to sustain its earnings trajectory. We therefore recommend a BUY on SG Finserve Ltd.

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