Aye Finance to test IPO market even as non-bank peers prefer to wait

The venture capital-backed microlender has set a price band of ₹122-129 per share for its initial public offering (IPO), valuing the company at approximately ₹3,200 crore at the upper end. The pricing places the firm's valuation slightly below that of its 2025 series G round, its management told Mint, without sharing details. "While we started actively working on the IPO around July-August, the markets have been choppy, particularly for the financial segment. Our merchant bankers advised us to wait, which stretched the timeline, but we are now moving ahead as our IPO approval expires in April," Aye Finance's managing director Sanjay Sharma said. Several non-banking financial companies (NBFCs) were eyeing IPOs for months. These included Veritas Finance Ltd, Hero FinCorp, SK Finance, Belstar Microfinance, Avanse Financial and Credila Financial Services. But most of these offers were delayed amid sectoral pain and rising bad loans. "Asset quality pressures have continued for India's retail non-bank financial companies as the seasoning impact of the earlier fast-paced growth plays out," said a January report by Icra Ltd. It added that NBFCs have accelerated technical write-offs, banking on their adequate provisions and capital to absorb higher credit costs on balance sheets. Icra expects net profitability of NBFCs to moderate in fiscal 2025-26, with credit costs likely to remain elevated. "A modest improvement is anticipated in 2026-27, as the asset quality concerns get assuaged. Stable interest margins and operating costs would provide support to the sectoral profitability in the near term." Aye Finance is stepping into the public market against this backdrop. "We are aware of the risks involved in testing the waters, but we have opted for a very reasonable valuation," Sharma said. "Our pricing is lower than our last private round, which we believe is a fair starting point for the public investor's journey. Because of this, the selling shareholders have reduced their participation in the OFS (offer for sale). They are looking for better value and are willing to wait for the business to scale further." Scaled-down offer Aye Finance has trimmed the OFS ₹300 crore from ₹565 crore announced earlier. Investors LGT Capital and Alphabet's CapitalG have cut their share sales between the draft papers and the filing of the red herring prospectus (RHP). LGT will now be selling stake worth ₹30 crore instead of its earlier planned ₹150 crore, whereas CapitalG will be offloading equity worth ₹82.5 crore instead of its original intent of ₹137 crore. Meanwhile, venture capital firm A91 Partners has opted out of the share sale, after previously agreeing to offload shares worth ₹100 crore. Alpha Wave, too, has cut its OFS to ₹30 crore from ₹100 crore. Danish private equity firm MAJ Invest, however, has upsized its stake sale to ₹140 crore from ₹56 crore. Elevation Capital, Aye Finance's largest shareholder with a 16% pre-offer stake, is not selling shares in the IPO. The scaled-down IPO comprises a ₹710 crore fresh issue of shares, down from ₹885 crore in the draft. Net proceeds will be utilised to increase the lender's Tier-1 capital buffer, according to the RHP. The company's IPO will open for subscription on 9 February and close on 11 February for retail investors. "Given the valuation we fetched, we decided not to dilute our equity more. Even though the fresh issue size is lowered, we believe it is enough primary equity to fund our growth for the next two to three years," Sharma said. As of September, he said, Aye Finance was sitting on a loan book of approximately ₹6,000 crore, and the primary capital would help the company reach up to ₹15,000 crore in the coming years, including accruals. "The ₹885 crore primary fundraise target would have increased our growth buffer, which could have then taken us to a ₹16,000 crore book." Stressed loans One inherent challenge of microlending is the high volume of stressed loans. For Aye Finance, current non-performing assets stand at 4.85% for the quarter ended September 2025, with write-offs at a similar level. This brings the overall stress pool up to around 9% for the gross advances. "Because our loans have a short typical tenor of 24 months, credit costs and write-offs show up quickly on the book compared to longer products in the industry such as five-year mortgages," Sovan Satyaprakash, the lender's head of strategy and product, said. "Our terminal losses are about 2% higher than the historical average due to the recent "over-lending" period in the industry. But we have seen sequential improvement in credit costs over the last three quarters and the pain is now largely behind us." Sharma said that the company operates a 'phygital' model: a digital company with a physical presence. "Our growth is not strictly linear to branch expansion. About 22% of our 30% AUM (assets under management) growth is generated by mature branches." Despite being called a fintech, the company does not claim the label. "I once asked Elevation Capital why they don't classify us as a 'fintech' in their portfolio, alongside their other tech-heavy investments. Elevation replied: 'You make profit, so you can't be a fintech.'"