Recommendation from Finance Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon. 

SBFC Ltd : RIDING MSME CREDIT BOOM WITH SECURED LENDING FOCUS

HERE IS WHY
✓ Strong MSME credit demand
✓ Robust AUM & PAT growth
✓ RBI rate cut & liquidity boost

India’s NBFC sector has become a vital pillar of the financial ecosystem, expanding credit access to underserved and underbanked segments. As the third-largest NBFC market globally, it plays a crucial role in financing infrastructure, MSMEs, and housing. MSMEs, in particular, are the backbone of the Indian economy, contributing over 30 per cent to GDP and employing more than 24 crore individuals. Despite their importance, MSMEs face a significant credit gap, with total funding needs projected at ₹134.40 lakh crore.

The top-growing segment within this market is the ₹5–30 lakh loan category, which holds a 31 per cent market share and is growing at a robust CAGR of 24.4 per cent. In contrast, the ₹1 crore+ segment, while commanding the largest share at 40 per cent, is expanding at a slower CAGR of 13.7 per cent. NBFCs have emerged as key players in bridging this credit gap, especially for MSMEs.

Incorporated in 2008, SBFC Finance Ltd is a systemically important NBFC (NBFC-ND-SI) focused on Secured MSME Loans and Gold Loans. As of FY25, it operates 205 branches across 164 cities in 16 states and 2 union territories, with a strong focus on Tier II and III locations.

The company caters to underserved small businesses, with the majority of its AUM in the ₹5–30 lakh segment. Regionally, its AUM is split across South (37.7 per cent), North (34.0 per cent), West (15.3 per cent), and East (13.0 per cent).

MSME loans form 83 per cent of the portfolio, and loans against gold form 17 per cent. SBFC uses 100 per cent in-house loan origination and has a co-origination agreement with ICICI Bank. In FY25, 20 per cent of disbursements were via co-origination, with AUM from this channel at ₹1,481 crore.

SBFC is well-positioned to capture the fast-growing ₹5–30 lakh MSME loan segment. With 87 per cent of its AUM in this space and 100 per cent asset-backed lending, SBFC combines growth with strong risk management. AUM grew 28 per cent YoY in FY25, with steady margins (8.53 per cent spread) and improving profitability. Regulatory clarity on gold loans and stable asset quality (GNPA at 2.74 per cent) add further confidence. Management’s disciplined execution, focus on digital innovation (paperless gold loans, AI underwriting), and consistent 5–7 per cent QoQ AUM growth guidance are some of the key positives. RBI’s recent 50 bps rate cut and CRR-driven liquidity infusion are set to boost NBFCs by lowering funding costs and widening lending margins.

In FY25, SBFC delivered robust YoY performance across key metrics. AUM rose 28 per cent to ₹8,747 crore, driven by a 27 per cent growth in Secured MSME AUM to ₹7,249 crore. PAT surged 46 per cent YoY to ₹345 crore, supported by a 72 bps rise in spread to 8.42 per cent, reflecting improved operating efficiency and cost management. Asset quality remained stable despite rapid growth, GNPA stood at 2.74 per cent (up 4 bps QoQ), and NNPA at 1.51 per cent (down 12 bps QoQ), indicating prudent underwriting and strong recovery mechanisms.

SBFC Finance Ltd trades at a Price to Book (P/B) ratio of 3.83x, a premium compared to the industry average of 1.87x. The company has reported a healthy Return on Assets (ROA) of 4.41 per cent and a Return on Equity (ROE) of 11.6 per cent. Backed by a strong growth trajectory, SBFC has posted a three-year sales growth of 35.1 per cent and a significant three-year profit growth of 74.8 per cent. Given the positive industry outlook, robust asset quality metrics, and strong growth in profits, we recommend a BUY on SBFC Finance Ltd.