IPO of Janasewi Laghubitta opens from tomorrow; Look at all the facts and make an informed decision

Company profile

Janasewi Laghubitta Bittiya Sanstha Limited (JLB) started its commercial operation from September 29, 2015, upon receiving the license to operate as 10 districts-level Class D MFI. Currently, it has 25 branches over 10 licensed districts. The microfinance is promoted by 120 individual promoters engaged in different professions. The promoter’s holding is expected to dilute to 67.90% after the proposed IPO, assuming full subscription. Mr. Kamal Bahadur Khatri is the Chief Executive Officer of the company.

The central office of the company is located in the western region of Nepal, Kusma, Parbat and the working area include 10 Districts, namely Parbat, Rukum, Kaski, Baglung, Rolpa, Gulmi, Tanahun, Gorkha, Lamjung, and Magdi.

Objective of the issue

About the issue

Janasewi Laghubitta Bittiya Sanstha Limited is issuing 4,63,300 units ordinary shares worth Rs 4.63 crore to the general public from Baisakh 27, 2076. The early closing date of this IPO issue is on Baisakh 31, 2076 and if the issue is not subscribed till Baisakh 31 then this issue can be extended upto Jestha 26, 2076.

Out of the offered 4,63,300 units; 7,145 units have been kept for the employees of the company and 23,165 units have been kept for the mutual funds. The remaining 4,32,990 units are for the general public. Applications can be place for minimum 10 units and maximum 1000 units. Application can be placed from the financial institutions providing C-ASBA facility or through Meroshare.

NMB Capital Capital Limited has been appointed as the issue manager for the IPO issuance.

The microfinance institution currently has issued capital of Rs 14.43 crore and paid up value of Rs 9.8 crore. After the issuance of the IPO shares, the paid up value  will scale up to Rs 14.43 crore.

ICRA Nepal Limited has assigned a [ICRANP] IPO Grade 4 (Pronounced as ICRA NP IPO Grade Four) to the Rs.4.63 crore worth of Initial Public Offer of Janasewi Laghubitta Bittiya Sanstha Limited. Instruments with this grading are considered to have below-average fundamentals.

Capital structure

Shareholding composition

Board of Directors

Management team

ICRA Rating

ICRA Nepal has assigned an “[ICRANP] IPO Grade 4”, indicating below-average fundamentals to the proposed Initial Public Offering (IPO) of Janasewi Laghubitta Bittiya Sanstha Limited (JLB).

Strengths and opportunities

• High credit growth so far, aided by rapid branch expansion and growth in client base, while maintaining moderate average ticket size (~NPR 66,000 as of mid-October 2018).
• Adequate growth opportunities given branch expansion plans encompassing new geographies and large below poverty line population in Nepal, the target group for microfinance institutions (MFIs).
• Current capitalization of JLB remains high against the regulatory minimum of 8%, which along with capital from proposed issue could support growth plans of the management.
• Recent regulatory change removing 18% lending rate cap for MFIs, provides them the flexibility to pass on the increased cost of funds to borrowers.
• JLB’s ability to increase its scale of operations while maintaining healthy asset quality indicators, by enhancing its credit appraisal capabilities and improving internal controls, would have a bearing on its overall financial profile.

Weaknesses and threats

• Recent deterioration in asset quality of JLB, despite low seasoning of portfolio; non-performing loans (NPLs) have increased to 1.23% as of mid-October 2018 from 0.29% as of mid-July 2017.
• Deterioration in return indicators of JLB so far despite the recent marginal improvement
• JLB’s profitability indicators would be further impacted by capitalization of proposed IPO and hence company’s ability to improve profitability over a longer time frame remains to be seen.
• Frequent changes in regulation, impacting the spreads and funding sources for the MFI sector.
• JLB’s limited track record (operating since September 2015), small scale of operations (assets base of NPR 569 million as of mid-October 2018) with relatively higher operating expenses (~8% of Average Total Assets or ATA) and competition from larger/established peers.

Increased ticket size by regulations, presence of a large number of players in the industry (including cooperatives), and absence of centralized credit information for MFIs raises concerns of overleveraging for the sector.

(source: ICRA rating)

Financial Performance

Source: Company prospectus and ICRA rating