IPO Analysis

Date Heading Details
03-Aug-2019   15:06 Hrs IST Sterling and Wilson Solar coming with an IPO to raise upto Rs 3145.16 crore <p align="justify"><strong>Sterling and Wilson Solar</strong> <ul><li><div align="justify">Sterling and Wilson Solar is coming out with a 100% book building; initial public offering (IPO) of 4,03,22,580 shares of Rs 1 each in a price band Rs 775-780 per equity share.&nbsp; </div></li><li><div align="justify">Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.</div></li><li><div align="justify">The issue will open for subscription on August 6, 2019 and will close on August 8, 2019.</div></li><li><div align="justify">The shares will be listed on BSE as well as NSE.</div></li><li><div align="justify">The face value of the share is Rs 1 and is priced 775.00 times of its face value on the lower side and 780.00 times on the higher side.</div></li><li><div align="justify">Book running lead managers to the issue are ICICI Securities, Axis Capital, Credit Suisse Securities (India), Deutsche Equities India, IIFL Holdings and SBI Capital Markets.</div></li><li><div align="justify">Compliance Officer for the issue is Jagannadha Rao Ch. V.</div></li></ul><p align="justify"><strong>Profile of the company</strong> <p align="justify">The company was originally incorporated at Mumbai on March 9, 2017 as Rashmika Energy Private Limited, as a private limited company under the Companies Act, 2013, pursuant to a certificate of incorporation dated March 10, 2017 issued by the Registrar of Companies, Maharashtra at Mumbai (RoC). Subsequently, the Solar EPC Division of Sterling and Wilson Private Limited was demerged into Company pursuant to the order dated March 28, 2018 of the National Company Law Tribunal, Mumbai Bench with the appointed date for the transfer of such Solar EPC Division being April 1, 2017. Thereafter, to reflect the association of Company with the Sterling and Wilson group, the name of Company was changed to Sterling and Wilson Solar Private Limited pursuant to the resolution passed by its Shareholders at their extra-ordinary general meeting held on March 29, 2018 and the certificate of incorporation pursuant to change of name was issued by the RoC on April 24, 2018. Subsequently, Company was converted into a public limited company pursuant to the approval of Shareholders at an extra-ordinary general meeting held on January 11, 2019. Consequently, the name of Company was changed to Sterling and Wilson Solar Limited and a fresh certificate of incorporation consequent upon conversion from private company to a public company was issued by the RoC on January 25, 2019. <p align="justify">The company is a global pure-play, end-to-end solar engineering, procurement and construction (EPC) solutions provider, and was the world's largest solar EPC solutions provider in 2018 based on annual installations of utility-scale photovoltaic (PV) systems of more than five mega-watt peak (MWp). It provides EPC services primarily for utility-scale solar power projects with a focus on project design and engineering and manage all aspects of project execution from conceptualizing to commissioning. It also provides operations and maintenance (O&amp;M) services, including for projects constructed by third-parties. It commenced operations in 2011 as the Solar EPC Division of SWPL and demerged from SWPL with effect from April 1, 2017. Over a span of seven years, it became the largest solar EPC solutions provider in each of India, Africa and the Middle East and currently has a presence across 26 countries. As of March 31, 2019, it had 205 commissioned and contracted solar power projects with an aggregate capacity of 6,870.12 MWp. Its order book, which it define as the value of solar power projects for which it has entered into definitive EPC contracts minus the revenue already recognized from those projects, was Rs 38,315.77 million as of March 31, 2019.<p align="justify">The company offers a complete range of customized solutions for solar power projects. Its customers include leading independent power producers (IPPs), developers and equity funds. It adopts a consultative approach to its customers' solar energy needs and capabilities, which enables it to provide customized solutions to meet their requirements. It follows a 'hub-and-spoke' business model where it manage the complete supply chain from India, including the design and engineering functions, and engage a few suppliers and third-party subcontractors and procure part of the raw materials for its operations locally in each of its markets, where there is a cost advantage or to comply with local regulations. It seeks to leverage this business model to procure products and services solutions for its customers at competitive prices. The company's customers also benefit from its relationships with key stakeholders, such as, suppliers, project lenders and consultants, which help it execute projects for its customers efficiently and at competitive prices.<p align="justify"><strong>Proceed is being used for:</strong><ul><li><div align="justify">Achieving the benefits of listing the Equity Shares on the Stock Exchanges; and </div></li><li><div align="justify">Enhancing visibility and brand image. </div></li></ul><p align="justify"><strong>Industry Overview</strong><p align="justify">The solar power industry in India has been flourishing. Complementary central and state government policies, such as the Smart Cities Mission, National Tariff Policy in 2016 and the recently proposed Electricity Amendment Bill in 2018, and the commissioning of projects under large central and state capacity allocations coupled with the increasing price competitiveness of solar energy, has led to a surge in solar PV installations. Infrastructure support by the Government of India (GoI), such as the Solar Park Policy in 2014, and the improved financial condition of electricity distribution companies under the Ujwal DISCOM Assurance Yojana scheme (UDAY Scheme) have also been key drivers of growth. With the GoI targeting to commission 100 GW of solar PV installations by 2022, the solar industry in India has strong growth potential and the overall market for solar EPC solutions providers in India is expected to grow at a comparable pace.<p align="justify">The use of solar energy has become increasingly competitive over the years due to the declining costs associated with its use, making this a key factor driving the global growth of the solar industry. Solar energy has emerged as a low-cost source of energy and has become lower in cost than traditional energy sources, such as coal and gas, in some key markets. Awarded tender prices for large solar PV projects have fallen below the cost of conventional power generation in several markets with high solar resources. The solar EPC industry is highly fragmented, but has been tending towards increased consolidation in recent years. The combined global market share of the twenty largest solar EPC solutions providers increased from 15.0% in 2010 to 28.0% in 2015. In 2017, this declined to 20.0% as a result of significant solar PV construction activity in China, where EPC activity is highly fragmented. Excluding China, the combined global market share of the five largest solar EPC solutions providers in 2018, based on annual installations of utility-scale PV systems of more than five MWp, increased from 5.7% in 2015 to 19.3% in 2018.<p align="justify"><strong>Pros and strengths</strong><p align="justify"><strong>Largest global solar EPC solutions provider:</strong> The company was the world's largest solar EPC solutions provider, based on annual installations of utility-scale PV systems of more than five MWp, with a market share of 4.6% in 2018 which increased from 0.3% in 2014. It was also the largest solar EPC solutions providers in each of India, Africa and Middle East in 2018 with 16.6%, 36.6% and 40.4% market share, respectively. In 2017, it won the bid for the 1,177 MWp solar power project in Abu Dhabi, which is the world's largest single location solar PV plant. Currently, it has a presence across 26 countries with operations in India, South East Asia, Middle East and North Africa, rest of Africa, Europe, United States and Latin America and Australia, which has helped it diversify its business globally. These markets are expected to see a steep growth in solar power capacity additions over the next three years. For the period from 2018 to 2021, annual solar PV installations could grow at a compound annual growth rate (CAGR) of 11.7% in India, 70.6% CAGR in South East Asia, 22.2% CAGR in the Middle East and North Africa, 42.0% CAGR in the rest of Africa, 30.0% CAGR in Europe, 17.4% CAGR in the United States, 5.4% in CAGR Latin America and 8.1% CAGR in Australia.<p align="justify"><strong>Comprehensive end-to-end EPC solutions provider with a global execution track record:</strong> The company is a global pure-play end-to-end solar EPC solutions provider. It provides EPC services primarily for utility-scale solar power projects with a focus on project design and engineering, and manage all aspects of project execution from conceptualizing to commissioning. It also provides EPC solutions for rooftop solar projects, O&amp;M services, including for projects constructed by third-parties. It follows a ‘hub-and-spoke' business model where it manages the complete supply chain from India, including the design and engineering functions and engage supplies and third-party subcontractors, and procure raw materials for its operations locally in each of its markets, where there is a cost advantage or to comply with local regulations. It seeks to leverage this business model to procure optimal product and service solutions for its customers at a cost advantage. Currently the company has a presence across 26 countries and use its Subsidiaries and branch offices (which include SWPL's branch offices) globally for its operations. It leverages these offices to strategically tap solar opportunities in markets in which it does not have a permanent presence as such opportunities arise. It strategically focus on markets that have conducive solar power policies and high solar resources, and invest in geographies with long-term solar opportunities. It adopt a disciplined expansion strategy that it customize for each market with a view to enhancing its bidding abilities in these geographies.<p align="justify"><strong>Strong relationships with customers, other key stakeholders:</strong> The company offer a complete range of customized solutions for solar power projects. Its customers include leading IPPs and developers such as Marubeni, EDF Renewables, Alten, Sunseap, Sao Mai, Enfinity, ACWA Power and BNRG Renewables, and equity funds. The company adopts a consultative approach to its customers' solar energy needs, which enables it to provide customized solutions to meet their requirements. Its global network connects its customers to key stakeholders and allows its customers to reduce the number of service providers they need to engage with, thus saving them time and cost, while also providing enhanced supply chain visibility. It often receive repeat orders from its customers and as of March 31, 2019 customers in India and outside India for whom it has executed more than one project constituted 83.26% and 64.35% of its total commissioned solar capacity, respectively. As part of its global network, it maintain relationships with other key stakeholders in the industry, such as, a diversified group of global and local suppliers of modules and other raw materials as they are critical to the success of its supply chain. It also maintain relationships with state-owned and private project lenders and private equity houses to assist its customers, thereby enhancing the bankability of the project.<p align="justify"><strong>Strong parentage and ability to leverage global ‘SP' brand:</strong> The company benefit from the brand reputation, industry relationships and project management expertise of the SP Group and S&amp;W. The SP Group is a global conglomerate and has over 150 years of experience as an EPC solutions provider in six major business areas and operations across 45 countries. Currently, S&amp;W has over 90 years of offering EPC solutions and has operations across various industries, including mechanical engineering and plumbing, co-gen solutions, transmission and distribution, turnkey data centers, diesel generators and renewables in 34 countries. The company benefit from global presence and stakeholder relationships of the SP Group and S&amp;W. In particular, before entering a new market, it typically leverage from the SP Group's and S&amp;W's presence in that market to get a head start in establishing its operations. In addition, SP Group's and S&amp;W's relationships with key stakeholders have helped company establish connections with major customers and market leading subcontractors, lenders, designers and consultants. It has benefited from their robust project management processes, including bidding discipline, market studies, operational expertise and track record, which help it bid for and execute large-scale projects in short timelines.<p align="justify"><strong>Risks and concerns</strong><p align="justify"><strong>Intense competition:</strong> The company's business depends on its ability to continually win bids for solar power projects and its current business strategy focuses on increasing the number of solar power projects to which it provides EPC services and expanding its operations into new geographies. It bid for solar power projects and compete with other EPC solutions providers based on, among other things, pricing, technical and design and engineering expertise, financing capabilities, past experience, amount and type of guarantees given and track-record. The bidding and selection process is also affected by a number of factors, including factors which may be beyond its control, such as market conditions or government incentive programs. The company's competitors may have greater financial resources, a more effective or established local business presence with specific regional advantages or a greater willingness or ability to operate with little or no operating margins for sustained periods of time. Some of its competitors may have advantages over it in terms of greater operational, technical, management or other resources in particular markets or in general, better track records, stronger lender relations, as well as know-how of regulatory and political challenges in the geographies in which it operate or into which it intends to expand its operations.<p align="justify"><strong>Operations rely on consistent solar weather conditions:</strong> Solar power is highly dependent on weather conditions and the profitability of company's operations depends not only on observed solar conditions at the project site but also on the consistency of those solar conditions. Unfavourable weather conditions could impair the effectiveness of solar power projects; reduce their output beneath their rated capacity; require the shutdown of key equipment; impede the operation of solar power projects; and could materially and adversely affect its forecasted revenues and cash flows. Sustained unfavourable weather could also unexpectedly delay the installation of solar power projects, which could result in a delay in project completion and could have a material adverse effect on its business, financial condition and results of operations.<p align="justify"><strong>Depends on various subcontractors, suppliers:</strong> The company enters into contracts with subcontractors and suppliers to supply equipment, materials and other goods and services for its EPC and O&amp;M businesses and for providing certain services related to its operations. It is subject to the risk that suppliers or subcontractors may not perform their obligations under their respective contracts with it. If suppliers or subcontractors fail to deliver components on time or deliver components with manufacturing defects; do not comply with the specified quality standards and technical specifications; do not comply with local regulations; cause or are subject to accidents on the solar power project site; otherwise fail to perform their obligations; terminate their contracts with it; or are subject to insolvency proceedings, it may be unable to fulfill its warranty obligations under its EPC contracts with customers. It may also suffer disruptions in its operations and may need to enter into new contracts with other suppliers or subcontractors at a higher cost which it may not be able to recover from its customers under its EPC contracts. Such events could have a material and adverse effect on its ability to fulfill obligations to customers and meet agreed timelines and may cause an increase in its construction costs and working capital requirements. <p align="justify"><strong>Dependent on key managerial personnel:</strong> The company is dependent on the services of its executive officers and other members of its senior management team. The loss of one or more of these key employees or any other member of its senior management team could have a material adverse effect on business. It may not be able to retain or replace these key employees and may not have adequate succession plans in place. Several of its current key employees, including executive officers are subject to employment laws of the jurisdictions in which they operate and to arrangements that contain post-employment non-competition provisions. However, these arrangements permit its employees to terminate their employment with it upon little or no notice and the enforceability of the non-competition provisions in certain jurisdictions including India, is uncertain. In addition, the company is dependent on the services of its design and engineering team globally. It benefit from the cost advantages of having the entirety of its design and engineering team in India. However, the demand for specialist design engineers has increased in India, resulting in a shortage of, and increasing costs to hire, such specialists. It face a continuous challenge to recruit and retain a sufficient number of suitably skilled personnel, particularly as it implement its growth and expansion strategy.<br><p align="justify"><p align="justify"><strong>Outlook</strong><p align="justify">Incorporated on 2017, Sterling &amp; Wilson Solar (SWSL) is engaged in providing solar engineering, procurement and construction (EPC) solutions to the end-users. The company is focused on utility-scale solar power projects and manages the solar projects from conceptualizing to commissioning. It provides operations and maintenance (O&amp;M) services for the 3rd party projects as well. The company's operations are supported by a competent and sizable design and engineering team that are responsible for designing innovative and cost-effective solutions with an aim to increase the performance ratio of solar power projects. It is led by a management team with extensive experience in the solar EPC industry and the solar power sector, deep understanding of managing projects and a proven track record of performance. On the flip side, technological changes, evolving customer requirements and emerging industry trends may affect its business, may render its current technologies obsolete and may require it to make substantial capital investments. It may not have sufficient insurance coverage to cover all possible economic losses. If it incur an uninsured loss or a loss that significantly exceeds the limits of its insurance policies, the resulting costs may have a material adverse effect on business, financial condition and results of operations.<p align="justify">The issue has been offered in a price band of Rs 775-780 per equity share. The aggregate size of the offer is around Rs 3124.99 crore to Rs 3145.16 crore based on lower and upper price band respectively. On the performance front, the company's total income increased by 22.74% to Rs 84,499.33 million in Fiscal 2019 from Rs 68,844.20 million in Fiscal 2018, primarily due to a significant increase in its EPC revenue from South East Asia, rest of Africa and United States of America and Latin America. Besides, the company's consolidated profit after tax was Rs 6,382.33 million in Fiscal 2019 which increased by 41.66% from Rs 4,505.35 million in Fiscal 2018. <p align="justify">The company aim to maintain its market leadership position through strategic expansion, including through roll up acquisitions in the markets in which it currently operate and into new geographies that present attractive opportunities. It also intends on leveraging from its ‘hub-and-spoke' business model by managing its operations from India, which will provides it a cost advantage over its competitors. It is planning to continue expanding its O&amp;M operations to solar power projects that were not constructed by it.</p>
03-Aug-2019   12:00 Hrs IST Spandana Sphoorty Financial coming with an IPO to raise upto Rs 840.79 crore <p align="justify">&nbsp;<strong>Spandana Sphoorty Financial</strong><ul><li><div align="justify">Spandana Sphoorty Financial is coming out with a 100% book building; initial public offering (IPO) of 98,22,367 shares of Rs 10 each in a price band Rs 853-856 per equity share.&nbsp; </div></li><li><div align="justify">Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.</div></li><li><div align="justify">The issue will open for subscription on August 5, 2019 and will close on August 7, 2019.</div></li><li><div align="justify">The shares will be listed on BSE as well as NSE.</div></li><li><div align="justify">The face value of the share is Rs 10 and is priced 85.30 times of its face value on the lower side and 85.60 times on the higher side.</div></li><li><div align="justify">Book running lead manager to the issue are Axis Capital, ICICI Securities, IIFL Holdings and JM Financial.</div></li><li><div align="justify">Compliance Officer for the issue is Rakesh Jhinjharia. </div></li></ul><p align="justify"><strong>Profile of the company</strong><p align="justify">The Company was incorporated as Spandana Sphoorty Innovative Financial Services (SSIFSL) on March 10, 2003 at Hyderabad, Andhra Pradesh, India as a public limited company under the Companies Act, 1956. A certificate of commencement of business was issued to SSIFSL on November 11, 2003 by the Registrar of Companies, Andhra Pradesh and Telangana at Hyderabad (RoC). On October 16, 2004, the Reserve Bank of India (RBI) granted a certificate of registration bearing registration no. N-09.00414 to company, for the registration of company as a non-deposit accepting non-banking financial company (NBFC) under Section 45IA of the Reserve Bank of India Act, 1934. Subsequently, pursuant to a special resolution dated November 26, 2007 passed by shareholders, the name of company was changed to Spandana Sphoorty Financial. Pursuant to a letter dated December 26, 2007, the RBI granted its no objection to the change of name of company to Spandana Sphoorty Financial and a fresh certificate of incorporation consequent to change of name was issued by the RoC to Company on January 3, 2008. Further, a fresh certificate of registration bearing registration no. N-09.00414 pursuant to the change of name was issued by the RBI on January 11, 2008. The Company was granted NBFC - Microfinance Institution (NBFC-MFI) status by the RBI with effect from April 13, 2015 and a modified certificate of registration bearing registration no. N-09.00414 was issued by the RBI to this effect.<p align="justify">The company is a leading, rural focused NBFC-MFI with a geographically diversified presence in India. It offers income generation loans under the joint liability group model, predominantly to women from low-income households in Rural Areas. As of March 31, 2019, it was the fourth largest NBFC-MFI and the sixth largest amongst NBFC-MFIs and SFBs in India, in terms of AUM. Through the company's extensive corporate history, it has developed an in-depth understanding of the borrowing requirements of the low-income client segment. Its business model involves regular client meeting processes through its employees, who maintain contact with clients across the districts that it cover. As of June 30, 2019, it had 7,062 employees (including 5,051 credit assistants) operating out of 929 branches in 269 districts across 16 states and 1 union territory in India. Through its loan products and client-centric approach, the company endeavours to strengthen the socio-economic well-being of low-income households by providing financing on a sustainable basis in order to improve livelihoods, establish identity and enhance self-esteem.<p align="justify"><strong>Proceed is being used for:</strong><ul><li><div align="justify">Augmenting the capital base; and</div></li><li><div align="justify">Meeting general corporate purposes.</div></li></ul><p align="justify"><strong>Industry Overview</strong><p align="justify">The microfinance sector in India has grown at a CAGR of 23.1% over the past ten years to reach Rs 2,633 billion as of March 2019, despite some setbacks that have impacted the industry's growth. The industry has evolved over time, starting with the Self-Help Group (SHG) Bank Linkage programme and not-for-profit organisations (NGOs) being the key participants in the sector, to the scaling of NBFCs, the conversion of Bandhan Financial Services into a universal commercial bank and the launch of the SFBs. Presently, the demand for micro credit is primarily being serviced by industry participants such as MFIs, NBFC-MFIs, SHG, banks, SFBs, NGOs and other informal lenders. Over the years, the size of the overall microfinance sector has witnessed steady growth, mainly attributed to improved awareness and deeper penetration into rural India that led to increased volumes. Further, increasing inflation a higher number of borrowers with higher loan cycles has been driving higher average ticket sizes.<p align="justify">The microfinance sector, in its various forms, has been in existence in India for several decades. During this period, the industry has grown manifold, driven by the most important driver - an inherent demand for credit at the bottom of the pyramid which remains largely underserved and thus in need for financial services. The growth pattern and asset quality of the microfinance sector in India has been influenced by a number of negative events in the past - the Andhra Pradesh crisis of October 2010, farm loan waivers by several states, as well as demonetization in November 2016. The industry has evolved over the cycles and demonstrated resilience by adapting to changing dynamics. While these negative events have had an adverse impact on the microfinance sector, the industry has developed solutions to address the issues posed by these situations, thereby coming out of the crises stronger. For example, despite the recent demonetization in November 2016, the industry remained resilient and continued on its growth trajectory during the year ended 2017, although significant growth for the year was front-loaded. Subsequently, during the year ended 2018, the industry reported an annualized growth of approximately 20%, which put demonetization-related woes to rest.<p align="justify"><strong>Pros and strengths</strong><p align="justify"><strong>Seasoned business model with resilient performance through business cycles: </strong>Through various business cycles, the company has been able to leverage the inherent strength of its client centric business model, focus on internal controls, the expertise of its Individual Promoter and core management team to maintain its status as a leading NBFC-MFI. Its response to the 2010 AP crisis demonstrated the strength of its decision making, planning and execution. In the aftermath of the 2010 AP crisis, even while the company was under CDR, it continued operations outside Andhra Pradesh in various states. In this period, it focused on rebuilding profitable operations through portfolio diversification, cost rationalization, customer retention, and recovery from its Andhra Pradesh portfolio. These measures helped it to raise new debt from existing lenders and gain capital infusion from Kangchenjunga, its Corporate Promoter and Kedaara AIF 1, which allowed it to exit from CDR in March 2017. <p align="justify"><strong>High degree of client engagement and robust risk management, leading to superior asset quality and collections: </strong>The company focus on a high degree of client engagement through its large employee base and operating procedures. Its client engagement practices include village/block level centre meetings and client training. Prior to lending to a client, it impart training over three days on loan terms, utilization and repayment, insurance and client support services. It also conduct center meetings where clients interact with its staff at regular intervals (typically based on their installment payments frequency). Further, the company's risk management norms are designed keeping in mind the various kinds of risks to its business. It make changes to these norms from time to time in response to business environment to ensure a responsive risk management strategy. Many risk control measures are embedded in the business process. Further, in order to prevent frauds by its employees, it follow a standard transfer policy, whereby all its field employees are transferred after spending a fixed period (not exceeding 18 months) at one location. It follows certain criteria while transferring employees to prevent the possibility of collusion with each other.<p align="justify"><strong>Streamlined systems and processes and high employee productivity leading to low operating expense ratio:</strong> The company's business processes are designed for scale and efficiency and it constantly review and endeavor to strengthen them as the scale of its operations increase. Its operational efficiency is also driven by streamlined systems and procedures and scalable workforce deployment. At the branch level, it has implemented standardized systems and a front-end interface that gives it real time information on demand and collections. The systems follow an accounting module with budget controls built and approval authorities clearly earmarked. These practices and systems help in reducing the time and cost of its operations. In addition, with a view to offering timely service to its clients and thereby increase client retention and increasing its loan portfolio, it provides repeat loans on a timely basis to its existing clients. Faster processing of loans improves client experience and also helps save time, thereby improving cost utilization at branch level. <p align="justify"><strong>Geographically diversified operations leading to risk containment and business resilience:</strong> As of June 30, 2019, the company cover 74,749 villages in 269 districts in 16 states and 1 union territory across India through 929 branches. Its operations are well-diversified at the branch, district and state levels. Presence in widespread geographies in India offers the company a potential growth opportunity to further grow the business penetration in same areas and also reach out to more congruent geographies. To address geographic concentration risk, the company has specified exposure caps at the state, district and branch levels. For instance, the gross loan portfolio of each state must not exceed 22.5% of its total portfolio (except for AP and Telangana, to which, the combined cap of its portfolio is 6% of the gross loan portfolio) or 100% of its net worth. The gross loan portfolio for each district must not exceed 2.5% of its total portfolio and 7.5% of net worth. With this adopted norm, the company's operations are geographically well-diversified with no single state contributing more than 20.01% to its AUM, no district contributing more than 1.82% to AUM and no branch more than 0.3% to AUM as of March 31, 2019. Further, as per company's risk containment norms, disbursements for any single state must be less than 22.5% of its total disbursements. In addition, total disbursement at each branch is capped at 600 loans per month, to ensure that sufficient supervisory checks can be done to maintain quality of appraisals.<p align="justify"><strong>Risks and concerns</strong><p align="justify"><strong>Significant portion of operations concentrated in Karnataka, Madhya Pradesh, Orissa, Maharashtra:</strong>&nbsp; As of June 30, 2019, the company conducted its operations through 929 branches in India, of which 149, 149, 136, 111 and 83 branches, were located in Orissa, Madhya Pradesh, Karnataka, Maharashtra and Chhattisgarh, respectively. As of March 31, 2019, 20.01%, 19.98%, 13.48%, 10.77% and 8.70%, respectively, of its Gross AUM originated in Madhya Pradesh, Orissa, Karnataka, Maharashtra and Chhattisgarh. While it endeavor to manage and monitor its concentration risk at the district level, it is susceptible to risks relating to concentration in these states and in the event of a regional slowdown in the economic activity in one or more of these states, or any other developments including political unrest, disruption or sustained economic downturn that make its products in any of these states less beneficial, it may experience an adverse impact on its business, financial condition, results of operations and cash flows. Further, the market for company's products in these states may fluctuate and be subject to, market and regulatory developments that are different for various states of India. There can be no assurance that the demand for its products will grow and will not decrease in the future in these states. <p align="justify"><strong>Depend on brand recognition:</strong> The company owns trademark registration of brand names, ‘Spandana Sphoorty', SSFL, as well as an image consisting of coined word ‘Spandana' with emblem. Any damage to its reputation could substantially impair its reputation and ability to maintain or grow its business, or have a material adverse effect on its overall business, financial condition and results of operations. If it fail to maintain brand recognition with its target clients due to any issues with its product offerings, a deterioration in service quality, or otherwise, or if any premium in value attributed to its business or to the brands under which its services are provided declines, market perception and client acceptance of its brands may also decline. Any negative news affecting it might also affect its reputation and brand value. In such an event, it may not be able to compete for clients effectively, and its business, financial condition and results of operations may be adversely affected. In addition, it also face the risk of its brand name being misused for fraudulent purposes, which may adversely affect its reputation.<p align="justify"><strong>Rely on third-party service providers:</strong> The company enters into arrangements with third-party vendors, separate employees and independent contractors to provide services that include, among others, telecommunications infrastructure services and software services. It also enter into agreements with credit bureaus for availing credit assessment and other services. It cannot guarantee that there will be no disruptions in the provision of such services or that these third-parties will adhere to their contractual obligations. If there is a disruption in the third-party services, or if the third-party service providers discontinue their service agreements with it, its business, financial condition and results of operations will be adversely affected. In case of any dispute, it cannot assure you that the terms of such agreements will not be breached, and this may result in litigation or other costs. Further, certain of its agreements, including an agreement with a credit bureau, require it to indemnify its counterparties for certain losses, and limit contractual or other liabilities of its counterparties to fees or other amounts received by them from it for a certain period of time. If such indemnities are invoked, or if its counterparties limit their liabilities to an extent that its losses are not fully recovered, the company may incur additional costs. Such additional costs, in addition to the cost of entering into agreements with third-parties in the same industry, may materially and adversely affect its business, financial condition and results of operations.<p align="justify"><strong>Dependent on number of key personnel:</strong> The company is highly dependent on the continued services of its management team, including Individual Promoter. It is also dependent on experienced members of its Board of Directors. Its future performance is dependent on the continued service of these persons. The RBI also mandates NBFCs to have in place supervisory standards to ensure that their directors have appropriate qualifications, technical expertise and a sound track record, and such requirements will make it more difficult for it to replace its directors if and when it has to. It may not be able to replace its Board of Directors with similarly experienced professionals, which could materially and adversely impact the quality of its management and leadership team. The rate of attrition of its management team starting from branch manager and above, who are critical for its business, was 25.04% for Fiscal 2019. If one or more of these key personnel are unwilling or unable to continue in their present positions, it may not be able to replace them with persons of comparable skills and expertise. The loss of key personnel or inability to replace key personnel may restrict its ability to grow, to execute strategy, to raise the profile of brand, to raise funding, to make strategic decisions and to manage the overall running of operations, which would have a material adverse impact on results of operations and financial position.<p align="justify"><strong>Outlook</strong><p align="justify">Incorporated in 2003, Spandana Sphoorty Financial is a rural area focused NBFC-Microfinance Institution. Mrs Reddy is a founder, MD and promoter of the company. It is engaged in offering small-ticket unsecured loans to help the women in the low-income bracket in rural and urban areas. The company provides income generation loans, business loans and loans against gold jewellery. The long-standing industry experience of company's Individual Promoter and management team provides it with an understanding of the needs and behaviour of the clients particularly in Rural Areas, the nuances of lending to these clients and issues specific to the microfinance industry in India. On the flip side, Microfinance loans are unsecured and are susceptible to various operational, credit and political risks which may result in increased levels of non-performing assets (NPAs), thereby adversely affecting company's business, results of operation and financial condition. It has had negative cash flows in the past and may continue to have negative cash flows in the future. <p align="justify">The issue has been offered in a price band of Rs 853-856 per equity share. The aggregate size of the offer is around Rs 837.84 crore to Rs 840.79 crore based on lower and upper price band respectively. On the performance front, the company's total consolidated income increased by 78.46% to Rs 10,485.29 million for the year ended March 31, 2019 from Rs 5,875.31 million for the year ended March 31, 2018. Besides, its profit for the period increased by 65.95% to Rs 3,119.00 million for the year ended March 31, 2019 from Rs 1,879.46 million for the year ended March 31, 2018.<p align="justify">The company intends to utilize its existing branch infrastructure and employee base to increase its volume of income generation loans. It also intends to offer income generation loans both to its existing clients (as they complete their existing loan cycles) and to new clients through existing branches. Further, with the objective of expanding loan portfolio, the company intends to incentivize its employee base to further service more client demand while adhering to its risk containment norms - both to existing and new clients. This will help it improve its Gross AUM per employee (excluding trainee CAs) from current level (Rs 12.58 million as of March 31, 2019) leading to increased employee productivity with expansion in client base.</p>
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