Know Your IPO: SRG Securities Finance

Rajasthan-based company SRG Securities Finance has filed a DRHP on the BSE SME exchange to raise an amount of Rs 5.02 crore by issuing 25.08 lakh fresh equity shares. The offer will be in the nature of a fixed price issue at Rs 20 per share. It also includes reservations of 3.90 lakh equity shares and 1.38 lakh equity shares for promoters and market makers respectively. The lead manager for this issue is Aryaman Financial Services.

SRG Securities Finance is a Non-Banking Financial Company (NBFC) registered with the RBI. The company has a presence in Rajasthan and other adjoining areas. It provides loans in three segments – equipment finance, vehicle finance and business finance.

On the financial front, the company's topline for FY13 stood at Rs 108 lakh, which is majorly contributed by the increase in interest on advances. During this period, its operating expenses jumped as a result of higher other expenses followed by a hike in employee expenses. The overall operating expenses for the company for the fiscal jumped by 64% to Rs 33 lakh.

Furthermore, its EBITDA came in at Rs 75 lakh in FY13, a growth of 20% on a YoY basis. The bottomline stood at Rs 15 lakh over Rs 11 lakh in FY12. The company's loan book for the fiscal stood at Rs 4.54 crore.

Through this issue, SRG Securities Finance is looking to raise funds to fulfil its working capital requirement and to gain the benefits of listing. The company intends to utilise a sum of Rs 4.5 crore from the net proceeds for its capital requirement, and the remaining amount of Rs 48 lakh to meet the issue-related expenses.

Moving on to valuations, with the offered issue price of Rs 20 per share, the shares will be valued at a FY13 PE of 8x. Its peer companies in the listed space like Magma Fincorp, Sundaram Finance, India Infoline, Motilal Oswal Financial Services and Capital First are trading at a FY13 PE of 11x, 9.5x, 11x, 18.6x and 1.02x respectively.

SRG Securities has seen a moderate CAGR for the period of five years (FY09-FY13) on both the revenues (18% growth) and profits (24% growth) front. Though, there has been growth in its previous years, accessing adequate finance at easy terms is still a concern for small and medium enterprises. As the company has no brand recognition in the market, it will be faced by tough competition from the large listed players in this sector. Hence, we advise investors not to subscribe to this issue.