Indian non-bank finance company Arohan Financial Services has filed draft papers for a ₹1,400 crore IPO, comprising ₹600 crore from fresh issue and ₹800 crore offer for sale. This filing comes as the company aims to raise capital and expand its loan portfolio, with management planning to file the full Draft Red Herring Prospectus (DRHP) soon, aiming to launch the IPO when market conditions are favorable, possibly next fiscal year. The IPO structure aims to fund growth while providing liquidity for long-term shareholders in a busy Indian market that is scrutinizing valuations and business fundamentals closely.
Among the selling shareholders, Teachers Insurance and Annuity Association, which owns a 12.06% stake in the company, plans to offload around 9.7 million shares. The Michael & Susan Dell Foundation, holding a 2.05% stake, will sell 874,614 shares. The company said proceeds from the fresh issue would be used to strengthen its capital base and operations, with the large offer for sale component suggesting investor liquidity is a key goal.
For the financial year ended March 31, 2025, Arohan Financial reported a 65% decline in profit due to rising operational costs, despite a nearly 13% increase in net interest income. Profit margins narrowed significantly to 6.5% in FY25 from 19.2% in FY24, and the company's return on assets (RoTA) also fell. These results follow the Reserve Bank of India's decision to lift restrictions previously imposed due to concerns over the company's high lending rates. The microfinance sector faces inherent volatility, reflected in Arohan's rising gross non-performing assets (GNPA) ratio to 2.86% in the first nine months of FY25, up from 1.67% a year earlier.
Arohan has set ambitious goals, targeting ₹20,000 crore in assets under management (AUM) by 2030 through network optimization and expanding into secured lending. The company plans to expand its AUM to ₹9,000 crore by FY27 by diversifying into secured loans like gold and vehicle financing, using its branch network across 17 states. It competes with players like Ujjivan, BFIL, and Bandhan Financial Services in the microfinance sector. Investors will closely examine Arohan's valuation, its plan to improve asset quality, and its ability to handle regulatory and competitive challenges, with the IPO's success depending on the company's ability to show responsible growth in a selective market.
