A QIP is a sale of securities to institutional investors by listed companies.
“The company has been in talks with several merchant bankers over the last few weeks. They are looking to raise around ₹ 500-600 crore through the QIP," said one of the persons cited above, requesting anonymity because the talks are private.
The fund-raising will help the company shore up its capital base, which will help it increase its lending ability, the first person added.
Microfinance firms such as Bharat Financial typically borrow from banks and financial institutions and provide small loans to individuals and small businesses that typically do not have access to the banking system.
On 4 May, the company’s board of directors approved raising of capital through a sale securities to the extent of ₹ 750 crore in one or more tranches, the company said in a filing to stock exchanges.
In May 2014, Bharat Financial raised ₹ 400 crore through a QIP. In July 2012, it raised ₹ 230 crore, also through a QIP.
From a timing perspective, the QIP makes good sense, said the second person cited above, also requesting anonymity. “The thought process is that investors are keen on the microfinance space, which is evident from the response received by the initial public offers (IPO) of small finance bank licensees Equitas Holdings Ltd and Ujjivan Financial Services Ltd," he said.
Ujjivan and Equitas, erstwhile microfinance companies, are now transforming into small finance banks, having received in-principle approval from the Reserve Bank of India in September 2015.
In April, when Equitas Holdings went public, its ₹ 2,172 crore IPO was subscribed 17 times. In May, Ujjivan Financial Services received demand for 40 times the ₹ 885 crore of shares it offered in its IPO.
These stocks have climbed significantly from their IPO price, richly rewarding investors, reinforcing the positive sentiment among investors for the microfinance sector, the second person added.
Ujjivan’s stock price has risen 90.5% to ₹ 400.2 from its IPO price of ₹ 210 per share. Equitas shares have risen 58.6% to ₹ 174.5 from its IPO price of ₹ 110.
Bharat Financial itself has seen its stock price rise by almost 53% to ₹ 762 from ₹ 498.9 at the start of the calendar year.
“Therefore, from a timing perspective it makes sense for the company to raise funds as the valuation is good. You don’t want to dilute equity when valuations are low," said the third person, who also requested anonymity.
Bharat Financial did not respond to e-mails seeking comment.
So far this year, four companies have raised around ₹ 528 crore through the QIP route, according to data from primary market tracker Prime Database. In 2015, 32 companies raised ₹ 19,064 crore through QIPs.
Bharat Financial Inclusion is among the largest microfinance companies in India with a presence across 18 states covering almost 100,000 villages. The larger states where the company has operations include Andhra Pradesh, Telangana, Karnataka, Maharashtra, Odisha, Madhya Pradesh, Bihar, Uttar Pradesh, Rajasthan and West Bengal.
The company’s revenue increased 64% to ₹ 1,321 crore in the financial year ended 31 March from ₹ 803 crore in the previous year. Net profit increased 61% to ₹ 303 crore from ₹ 188 crore in the same period.
In the last fiscal year, the company provided loans worth ₹ 7,317 crore.
The microfinance industry has been growing at a fast clip. In financial year 2015-16, the gross loan portfolio of microfinance institutions rose 84% to ₹ 53,233 crore, from ₹ 28,940 crore in the previous year, according to data from Micrometer, a quarterly report on the sector’s performance.
The growth was fueled by bigger loans and increased bank funding for microfinance companies, the report said.
“Today, more and more people find microfinance a much safer source of funds, at decent interest rates, compared to traditional money lenders. While the ticket sizes are small, microfinance operates in different segments such as entrepreneurship loans, loans for personal needs etc., thus the coverage that it has is very wide," said Khushroo Panthaky, director at Grant Thornton Advisory Pvt. Ltd.