Why IPO of Nepal Agro Laghubitta could make it a steal at par value? What do the actual and estimated financials indicate?

Introduction

Nepal Agro Laghubitta Bittiya Sanstha Limited (Nepal Agro Microfinance Bittiya Sanstha Limited) was established on 19th April 2016 (2073/01/07). It is registered as a public limited company under Company Act of Nepal 2006. Nepal Agro Laghubitta Bittiya Sanstha Ltd. received operating license from Nepal Rastra Bank as ‘D’ class financial institution on 8th September, 2016 (2073/05/23) to operate under Bank and Financial Institution Act, 2006. Its operation started from 20th September 2016 (2073/06/04).

Central Office of Nepal Agro Laghubitta is located in western part of Nepal, Pokhara, Kaski and it's working districts as of now are Kaski, Parbat, Baglung, Gulmi, Palpa, Salyan, Pyuthan, Rolpa, Tanahu and Lamjung.

Nepal Agro Laghubitta has initiated micro-financial services and community development activities to female group members by replicating the basic approach of Grameen Bank Financial System of Bangladesh (GBFS), and focusing on agriculture sector as named. Nepal Agro Laghubitta aims to work as a self-sustained financial institution and serve a maximum number of the rural poor and deprived Clients through delivery of microfinance services at the grassroots level.

About the Issue

Nepal Agro Laghubitta Bittiya Sanstha Limited is issuing 161,778 units ordinary shares worth Rs.1.61 Crore to the general public from Baisakh 8, 2076. The early closing date of this IPO issue is on Baisakh 11, 2076 and if the issue is not subscribed till Baisakh 11 then this issue can be extended up to Jestha 6, 2076.

Out of the offered 161,778 units; 2,489 units have been allotted for the employees of the company and 8,089 units have been allotted for the mutual funds. The remaining 151,200 units are for the general public.

Applications can be place for minimum 10 units and maximum 800 units. Nepal SBI Merchant Banking Limited has been appointed as the issue manager for the IPO issuance. The company has been exempted from getting the issue rated.

After the completion of the issue, the promoter/public shareholding will be in the ratio of 67.5:32.5 with 336,000 units of promoter shares and 161,778 units of ordinary shares.

Composition of Board of Directors

Nepal Agro Laghubitta will have a total of seven members in its board of directors after the issue.

The current Board of Directors has the following members:

• Ramesh Kumar Karmacharya (Chairman)
• Nilakantha Sharma Lamsal (Director)
• Bivek Shrestha (Director)
• Sarita Adhikari (Director)
• Binita Koirala (Director)

Mr. Tejendra Sharma Lamsal is the CEO of the microfinance company.

Financial Indicators

As we can see, the estimated figures show constant and gradual growth in all the major indicators. Growth in the paid up capital suggests that the company will be distributing bonus shares and rights out of profits in the coming years. Increasing reserves of the microfinance company will increase the risk absorbing capacity, reducing the sensitivity towards external and unexpected threats. The growth rate of the profits of the company makes the company more attractive for investment.

The deposits as well as the loans of the company are expected to grow with the increase in market share and popularity of the microfinance company. This results in growth of the net interest income which is the primary source of revenue for the company. This factor is highly dependent on the market performance of the microfinance company and its popularity among the people.

Conclusion

In the Nepalese Stock Market, the value of microfinance companies is greatly influenced by the forces of demand and supply with the demand for the stocks being high and supply being limited. Same is the case with the microfinance company under review. In its short period of operation, the company was able to post satisfactory results each passing year and expects strong growth in the coming years as well. This makes the company more attractive in terms of investment. The expectation of high dividends and quick value appreciation, the issue will surely attract a huge number of investors.

Similar to microfinance companies that previously went public, the issue will receive huge number of applicants who will oversubscribe the issue indefinitely. This will result in allotment of minimum number of units to very few applicants through lottery system. None the less, it is highly recommended to apply for the IPO as stocks of the company at par value could make it a steal. Looking at the prospects of the company and the trend of microfinance industry in the stock market, investors can expect assured returns in terms of dividends and value appreciation in the coming years.