- Fresh issue of Rs 710 crore plus Rs 300 crore offer for sale – total raise of Rs 1,010 crore.
- Pre‑issue market cap ~Rs 3,184 crore; implied P/E ~14x FY25 earnings.
- Revenue jumped from Rs 623 cr (FY23) to Rs 1,460 cr (FY25); net profit surged to Rs 175 cr.
- Grey market premium flat at ~0%, signalling a fundamentals‑driven pricing.
- Key risks: exposure to micro‑enterprise borrowers and unsecured loan mix.
You’re missing a rare MSME credit play if you dismiss Aye Finance’s IPO.
Why Aye Finance’s Valuation Beats the NBFC Peer Pack
The issue is priced between Rs 122 and Rs 129 per share, translating to an implied price‑to‑earnings (P/E) multiple of roughly 14x based on FY25 earnings. Compared with listed MSME‑focused peers such as SBFC Finance (≈18‑20x) and Five‑Star Business Finance (≈16‑18x), Aye Finance appears cheaper on a earnings basis. The discount reflects two factors: a modest loan‑to‑value (LTV) mix skewed toward secured hypothecation loans, and a relatively conservative risk‑adjusted return profile. For value‑oriented investors, that gap can be a margin of safety, provided the company sustains its profit trajectory.
How MSME Credit Trends Shape Aye Finance’s Growth Prospects
India’s micro, small and medium enterprise (MSME) sector is projected to grow at 10‑12% CAGR over the next five years, buoyed by government credit schemes and digital lending acceleration. Aye Finance’s branch‑led, technology‑enabled model captures “thin‑file” borrowers—businesses that lack formal credit histories but have strong cash‑flow fundamentals. By marrying local market knowledge with data‑driven underwriting, the firm can price risk more accurately than legacy NBFCs that rely on legacy scoring models. The result: a revenue CAGR of ~84% from FY23 to FY25, outpacing the broader NBFC sector’s average of ~20%.
Aye Finance vs. SBFC Finance: Competitive Landscape
Both lenders target the underserved MSME segment, but they differ in loan mix and geographic focus. SBFC Finance leans heavily on unsecured working‑capital loans, which carry higher non‑performing asset (NPA) ratios (≈5%). Aye Finance, by contrast, allocates ~55% of its portfolio to secured hypothecation and mortgage‑backed loans, keeping its NPA ratio under 2% as of FY25. This risk‑mitigation strategy explains the lower valuation multiple yet also moderates return ratios. Investors must decide whether they prefer higher yields with elevated credit risk (SBFC) or steadier growth with a stronger asset cushion (Aye Finance).
Technical Lens: Decoding the 14x P/E Multiple
A P/E of 14x is modest for a high‑growth NBFC, but it must be contextualized. The FY25 earnings estimate of Rs 12.5 cr per share yields an earnings yield of about 7.1%, comparable to the long‑term Indian government bond yield. That parity suggests the market is pricing the stock as a hybrid between a growth equity and a credit instrument. Moreover, the flat grey‑market premium indicates that speculative traders are not inflating the price, leaving room for disciplined investors to benefit from the underlying earnings expansion.
Investor Playbook: Bull vs. Bear Cases
- Bull Case: Continued MSME credit expansion fuels loan book growth; secured loan mix keeps asset quality high; valuation remains attractive relative to peers; potential catalyst from a successful listing on BSE/NSE on Feb 16, unlocking liquidity for early investors.
- Bear Case: Macro‑economic slowdown squeezes MSME cash flows, raising default risk; regulatory tightening on unsecured lending could curtail growth; flat grey market may signal limited demand, leading to muted post‑listing performance.
Bottom line: Aye Finance offers a compelling entry point for investors who trust the fundamentals of India’s MSME credit market and can stomach moderate NBFC‑specific risks. The key is to monitor macro‑economic indicators and the company’s NPA trajectory post‑IPO.