Aye Finance, one of the leading microlending platforms that is backed by Capital G, has filed its Draft Red Herring Prospectus with the Securities and Exchange Board of India for raising ₹1,450 crore through an initial public offering. The move is significant for the company as it will increase its capital base and help the company enhance its market presence.
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IPO Structure and Offer Details
The IPO would be a new issue of equity shares amounting to ₹885 crore (around $105 million) and an offer for sale, amounting to ₹565 crore (around $67 million). Notably, in the OFS, major shareholders like LGT Capital and Capital G would sell shares worth ₹150 crore and ₹136.8 crore, respectively. In addition, A91 Fund and Alpha Wave will both sell ₹100 crore in shares. MAJ Invest, along with Harleen Kaur Jetley and Vikram Jetley, will sell shares worth ₹78 crore.
However, Elevation Capital, the biggest shareholder of Aye Finance holding 16.19% equity, has chosen not to participate in the OFS. This raises a pertinent question about the potential effects on investor sentiment and market dynamics as Elevation occupies a significant position in the company.
Business Overview
Specializes in microloans with its reach across India to all the small and micro-enterprise businesses. The loans from Aye Finance primarily focus on quasi-mortgage, hypothetical, and add-on loans, with limits set between ₹50,000 to ₹1,000,000. It has its branches located in 398 centers distributed across 22 states that operate mainly in the fields of manufacturing, trading, and service sectors.
Revenue stands at ₹1,040 crore as of the end of FY24, and profits stand at ₹172 crore. The first half of the ongoing fiscal year is promising with a revenue of ₹692 crore and profits of ₹144 crore. Growth in AUMs have been huge, with the number at the end of FY24 being ₹4,463 crores and at the end of H1FY25 is ₹4,980 crores.
Investor Landscape
Aye Finance has managed to attract a variety of investors, with LGT Capital and Alpha Wave holding 14.13% and 11.21%, respectively. Other notable investors include CapitalG at 10.26%, British International Investment (BII) at 9.51%, and A91, which holds 9.23% of the company. The total funding raised by Aye Finance stands at ₹2,610 crore (over $300 million), with ₹1,250 crore ($150 million) attributed to equity investments.
The microlending sector in India is very competitive, and Aye Finance faces stiff competition from the likes of Indifi, Axio (formerly Capital Float), Lendingkart, and Flexiloans NBFCs. In particular, Aye Finance will have to differentiate itself with tailored loan products and reach underserved markets to sustain its growth.
Future Prospects
The DRHP filing process is a turning point for Aye Finance in its mission to capitalize on the growing need for microlending services in India. With strong financials and a commitment to serving small enterprises, the company should attract investors in the course of its IPO process.
The outcome of this IPO will be closely monitored by market participants, particularly in light of Elevation Capital’s decision to abstain from the OFS and its implications for Aye Finance’s future valuation and investor confidence. In a nutshell, the Aye Finance IPO presents the opportunity for the company to achieve expansion capital while negotiating an adverse competitive landscape. This upcoming period will be the turning point for it, with preparation for public offerings as well as trying to make its foothold in the microlending market.
