Asirvad Microfinance wanted to do an IPO worth Rs 1,500 crore, but the market regulator SEBI said they couldn’t go ahead with their plans. For now, the public offering has been put on hold. As soon as the news got out, shares of Manappuram Finance, which is the parent company of Asirvad, dropped up to 8%.
Why Did SEBI Put The IPO on Hold?
SEBI asked three questions about Asirvad’s IPO draft red herring prospectus (DRHP), which was filed in November, according to sources.
The microfinance company has already answered two of the three questions. The third one needs a law opinion, which could take anywhere from 15 to 30 days.
It looks like SEBI has asked Asirvad to be more clear about some things before it can give the go-ahead for the IPO to begin. Analysts think SEBI might be worried about Asirvad’s finances or value, but the specifics have not been made public yet.
What Next For Asirvad Microfinance?
Asirvad is hoping that getting SEBI’s final thoughts on the DRHP won’t take too long since two of the questions have already been answered.
The company is working hard to hire a lawyer who can help them answer the third question that the market inspector brought up.
According to sources, Asirvad has told SEBI that it will take 15 to 30 days to get the legal opinion it needs and react properly. The IPO might not happen until late February or early March 2024 because of this.
Why the Delay is Worrisome
Unpredictability is bad for markets. SEBI has added a level of doubt that makes investors nervous by delaying Asirvad’s IPO until more information is available.
The way the stock of Manappuram Finance responded shows that the markets are unhappy with how SEBI’s reason for delaying the IPO has not been made clear.
Also, delays are never a good thing because they make it more expensive for the company to issue notes. India will be holding elections until 2024, which means that there may not be many IPOs in the first half of 2024. This is something that Asirvad would like to avoid.
Asirvad Microfinance – Fast Growth but Profitability Concerns?
Asirvad is one of the 10 biggest NBFCs and MFIs in India, and it has grown very quickly over the last five years. But the microfinance sector has had to deal with political backlash in some states and higher loan costs.
Asirvad has mostly kept bad loans in check, with net NPAs at 0.83%. But its running expense ratio has gone up to 8.4%, which is a lot higher than its peers like CreditAccess Grameen, which is run much better.
SEBI might want more information about Asirvad’s plans to make money before the company gets Rs 1,500 crore from the public.
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What Should Investors Do?
Asirvad Microfinance’s initial public offering (IPO) was expected to get a lot of interest from investors because it had an interesting theme of financial inclusion. But because of SEBI’s ruling, people should be careful and wait.
Investors should wait for the company to give them more information about the specific issues that SEBI raised and when they will be fixed. If real answers aren’t given, the IPO might be best avoided when it finally comes out on the market.
If Asirvad, on the other hand, responds quickly and satisfactorily, the delays might be a good chance for investors to make long-term investments.
A lot of changes could happen in the short term for Manappuram Finance investors until Asirvad’s IPO gets back on track. Even though Manappuram’s base gold loans business is still strong, it might be smart to take gains on rallies.