Arohan Financial Services Limited, one of the leading microfinance institutions (MFIs) in India, is preparing to launch its much-awaited Initial Public Offering (IPO). Founded in 1991 and commencing its microfinance operations in 2006, Arohan Financial has emerged as a prominent player in the Indian financial inclusion space, particularly targeting underserved, low-income regions across the country. With an impressive growth trajectory and a diverse financial product portfolio, the Arohan Financial Services IPO is expected to attract significant attention from investors.
In this blog, we will explore the company’s background, IPO objectives, key financials, strengths, risks, and why you should consider investing in Arohan Financial’s upcoming IPO.
About Arohan Financial Services
Arohan Financial is one of India’s largest NBFC-MFIs (Non-Banking Financial Company – Microfinance Institution), specializing in providing financial services to customers in low-income, financially underserved states of India. The company offers a wide range of income-generating loans and insurance products to individuals who have limited or no access to traditional financial services. With an increasing focus on financial inclusion, Arohan has made a significant impact in improving the livelihoods of its clients, especially women.
Key Facts:
- Founded: 1991
- Microfinance Operations Started: 2006
- Gross Loan Portfolio (GLP): ₹5357 Crore as of March 2023
- Customers: 97% of the company’s customers are women.
- Branch Network: 829 branches in 11 states with a focus on low-income and underserved areas.
Arohan Financial IPO Details
Arohan Financial Services is planning to raise between ₹1,750 crore and ₹1,800 crore through its IPO. The IPO will consist of:
- Fresh Issue: ₹850 Crore
- Offer for Sale (OFS): 27,055,893 shares by existing shareholders.
The IPO will be offered in a book-building format, with a price band expected between ₹275 to ₹300 per share. The offering will be allocated as follows:
- 50% for Qualified Institutional Buyers (QIBs)
- 35% for Retail Investors
- 15% for Non-Institutional Investors
Investors should carefully monitor the RHP (Red Herring Prospectus) for detailed instructions on how to participate in the offering.
Key Financials
Arohan Financial has demonstrated consistent growth in both its Gross Loan Portfolio (GLP) and Revenue over the past few years. The company’s ability to expand its operations across low-income states and maintain strong asset quality has made it a leader in its sector. Here’s a summary of the key financial metrics:
P&L Statement (₹ in Crores)
| P&L Statement | 2021 | 2022 | 2023 | 2024 |
| Interest Earned | ₹945 | ₹858 | ₹930.96 | ₹1,380 |
| Other Income | ₹68 | ₹62 | ₹160.02 | ₹254 |
| Interest Expended | ₹467 | ₹402 | ₹468.64 | ₹592 |
| Operating Expenses | ₹251 | ₹294 | ₹334.98 | ₹451 |
| Provisions and Contingencies | ₹503 | ₹136 | ₹192.64 | ₹179 |
| PAT (Profit After Tax) | ₹-160 | ₹61 | ₹70.71 | ₹314 |
| EPS (Earnings Per Share) | ₹-13.33 | ₹5.08 | ₹4.7 | ₹19.95 |
| Gross NPA | 11.23% | 4.5% | 2.8% | 1.64% |
| Net NPA | 3.96% | 1.32% | 0.21% | 0% |
Financial Ratios
| Financial Ratios | 2021 | 2022 | 2023 | 2024 |
| Advances | ₹3,925 | ₹3,710 | ₹4,782.21 | ₹6,616 |
| Book Value | ₹89.83 | ₹85.25 | ₹88.98 | ₹121.62 |
| P/B (Price to Book) | 1.84 | 2.17 | 2.08 | 1.52 |
| ROE (Return on Equity) | -14.84% | 5.96% | 5.28% | 16.4% |
Strengths of Arohan Financial Services
- Strong Leadership Position: Arohan is the largest NBFC-MFI in Eastern India and the fifth-largest NBFC-MFI in India. The company has witnessed robust growth, maintaining a significant presence in low-income, underserved areas.
- Proven Business Model: Arohan’s well-established risk management framework, loan approval processes, and asset recovery systems have enabled the company to maintain strong operational efficiency and a solid loan portfolio.
- Customer-Centric Approach: The company has a 97% women customer base, highlighting its role in promoting women’s financial inclusion and empowering them economically.
- Diverse Product Offerings: In addition to income-generating loans, Arohan also provides life and health insurance products, contributing to the diversification of its revenue streams.
- Experienced Management: Led by Manoj Kumar Nambiar (MD with 32 years of experience) and Vineet Chandra Rai (Founder of Aavishkaar Group with 27 years of experience), Arohan has a strong management team with deep industry knowledge.
Risks to Consider
- Unsecured Loans: Arohan’s microfinance portfolio largely consists of unsecured loans with group-based social security. While this model has worked so far, it remains vulnerable to higher defaults in the event of economic downturns or natural calamities.
- Dependence on Microfinance Business: A significant portion of Arohan’s revenue comes from its microfinance business. This lack of diversification could limit its growth potential in the event of regulatory changes or challenges in the microfinance sector.
- Operational Risks: As Arohan continues to expand its operations, there is an inherent risk of deterioration in asset quality or inefficiency in operations, which could impact profitability.
Conclusion
The Arohan Financial IPO offers a promising investment opportunity, with the company’s strong market leadership, consistent growth in financials, and focus on financial inclusion. While the risks associated with unsecured loans and limited diversification remain, the company’s robust business model, experienced management, and expanding market presence make it an attractive option for long-term investors.
Investors should evaluate the company’s growth potential, financials, and risks carefully before subscribing to the IPO.
