Should long term investors bet on Aye Finance IPO? – News Air Insight

ET Intelligence Group: Aye Finance, a micro and small enterprise (MSME)-focused lender, plans to raise ₹710 crore through fresh issue to augment the company’s capital base. It will also raise ₹300 crore through an offer for sale wherein five existing investors including Alpha Wave India, LGT Capital Invest Mauritius and Alphabet’s growth equity fund CapitalG will partially offload stakes. The company has no designated promoter group.

Top three institutional holders including Elevation Capital (formerly known as SAIF Partners), LGT Capital Invest Mauritius, and Alpha Wave India (formerly Falcon Edge India) hold a combined 41% stake in the company.

The company has a geographically spread loan book and has reported improvement in net interest margin. It has a strong capital adequacy ratio, which supports long-term business growth. However, the issue is priced at a discount to peers, reflecting relatively higher asset-quality stress and return ratios that trail those of peers. Given these factors, the issue is suitable for long-term retail investors with a higher risk tolerance.

Business
Founded in 1993 and later rebranded in 2014, Aye Finance provides small-ticket business loans to MSMEs. It had ₹6,027 crore worth of assets under management (AUM) spread across 568 branches in 18 states and three union territories as of September 2025. It focuses on micro-businesses with annual turnovers of ₹2-10 crore, primarily in semi-urban markets. Nearly 91% of customers own their residence or place of business, and 94% employ five or fewer workers, highlighting the grassroots nature of its borrower base. No single state accounts for more than 16% of AUM, while the top five states together contribute 57%. Loan disbursements expanded by 34.9% annually to ₹4,291.3 crore in FY25 from ₹2,357.1 crore in FY23.The business faces risks such as rising non-performing assets, vulnerability to interest rate fluctuations, and competition from other NBFCs.

Financials
Net interest income rose by 52.6% annually to ₹858 crore in FY25 from ₹368.5 crore in FY23. Net profit surged to ₹175.2 crore in FY25 from ₹39.9 crore in FY23. The capital adequacy ratio remained robust at 35% in FY25 rising from 31% in FY23. Net interest margin expanded to 15% in FY25 from 13.5% in FY23-within the 10-16% peer range. Gross NPA rose to 4.2% in FY25 from 2.5% in FY23, exceeding the 1.8-2.7% range of its peers. Return on equity rose to 12% in FY25 from 5.5% in FY23, placing it at the lower end of the 11.6-18.7% peer range.

Valuation
Aye Finance is valued at a price-to-book (P/B) multiple of 1.3, which is at a discount to listed peers such as MAS Financial Services at 2.05, SBFC Finance at 3, and Fedbank Financial Services at 1.9.