ECONOMYNEXT – Stock in an initial public offer of Sri Lanka’s Sarvodaya Development Finance has been
priced below peers and the companies expected to grow faster after capital constraints are removed, NDB
Investment Bank managers of the share sale said.
“When we looked at the peer multiples, Diversified Financials as per the CSE classification, when you look at the price to book value (of that sector it is about 1.8 times. We have priced SDF at 1.05 price to book value compared to it,” NDBIB Chief Executive Dharshan Perera said.
“So you will see a significant discount of 40 percent. “Even if you look at peer group, where SDF operates directly in NBFI sector, especially looking at as a book of less than 35 billion still the PB multiples are around 1.2 plus”
Perera said Sarvodaya DF earlier in 2021 had raised 800 million rupees from a share sale.
“It was also at 22 rupees per share and, so based on that only we have come up with the same pricing,” Perera said.
“We think there is ample room for growth and based on our valuations, the techniques that we have used, we see an upside of about 18 percent for an investor who will be coming through the IPO. ”
SDF is going for billion rupee IPO selling down 30 percent stake of the company to boost its regulatory capital which will allow it to grow faster.
“All this time, they were not actually meeting the capital requirements” Perera said. “So they have a certain constraint for their growth.
“But with the expectation of meeting these capital requirements, those constraints will be sort of eased out. And as a result, they’ll be able to grow.”
Officials have said a listing will also make it easier to raise international funds.
Perera said due to the relatively smaller size, the growth will be higher due to a low base and expects a significant growth in the next seven to eight years.
“We think over seven to eight years with a compound annual growth of 20 -25 percent,” he said.
“Probably as at book, growing from about 9 billion to about 35 billion rupees.:
Sarvodaya has built a strong brand and has franchise of 5,400 societies.
The firm focuses on the rural entrepreneurs of this country and SDF offers products ranging from microfinance loans to SME loans and then leasing.
“They have been actually following the life cycle of our typical rural entrepreneur,” Perera said. “So towards that they have been able to leverage on the strong Sarvodaya brand name”.
SDF caters to the bottom of the pyramid market through over 5,400 community-based organizations
called Sarvodaya Societies.
As of now, 52 percent of the SDF is owned by Sarvodaya Economic Enterprises Development Services
(SEEDS) Limited, 22 percent by Sarvodaya related entities, and 13 percent each by Japanese Gentosha
Total Asset Consulting Inc. and other existing shareholders.
The SDF has 30 branches and 21 service centers island wide and its profit after tax in the past four years
(2018/2021) has shown a growth of 23.4 percent calculated on a three-year compounded annual growth
“If you look at the cost to income ratios there is no plan of putting up brick and mortar facilities,” Perera said.
“They will not actually have to incur a lot of costs with their digitalization, which is a very important and they have been able to improve on their efficiencies, and bring the connectivity between the customers and the company, when it comes to repayments [and] deployment of disbursements.
The profit after tax in the last financial year ended on March 31 rose 80.3 percent year-on-year to 183.4
million rupees, the company data showed.
The total asset and equity also have expanded at 12.4 percent and 24.5 percent compiled on the same
three-year CGAR basis.
The loan growth, which was at 2.76 billion in 2016 had almost tripled in the last financial year ended in
March 31, 2021 to 7.9 billion rupees.
It also had a total deposit of 4.55 billion rupees from customers by the end of 2018/19 financial year.