What Makes SBFC Finance Attractive for Long-Term Investors?

Why is Avendus Bullish on SBFC Finance’s Growth Prospects?

Avendus has upgraded SBFC Finance to a BUY rating with a revised target price of ₹125. The brokerage expects the non-banking finance company (NBFC) to deliver an impressive loan book and earnings CAGR of about 25% over FY25–29, supported by its selective branch expansion, rising average loan ticket sizes, and robust risk management practices. With declining operating costs and strong spreads, SBFC Finance is positioning itself as a formidable player in the MSME and gold loan segments.

About the Company: SBFC Finance is a fast-growing NBFC in India, primarily focused on lending to micro, small, and medium enterprises (MSMEs) and providing secured gold loans. With a vision to bridge the credit gap for small businesses and individuals, SBFC has built a strong distribution network and adopted a tech-enabled model that enhances underwriting capabilities. Its emphasis on underserved markets positions it well in India’s expanding financial inclusion landscape.

Avendus’ Key Observations

Avendus believes that SBFC Finance’s business model, which combines prudent lending with scale-driven efficiency, will deliver sustained profitability. The report highlights SBFC’s ability to expand cautiously while keeping asset quality intact. Moreover, its customer-first approach and focus on small-ticket secured loans provide both resilience and growth opportunities in a competitive market.

Growth Drivers:

• Loan and earnings CAGR expected at 25% over FY25–29.
• Selective expansion of branch network in high-potential markets.
• Gradual increase in ticket sizes to support higher yields.

Operational Efficiency and Cost Management

One of the standout factors in Avendus’ note is the expectation that SBFC’s operating expenses-to-assets ratio will decline to 3.1% by FY29. This improvement will be led by productivity gains, digital adoption, and front-loaded investments in franchise building. Essentially, while costs may appear high in the near term due to network and technology expansion, they are likely to normalize as scale benefits kick in.

Efficiency Outlook: SBFC’s upfront investments in expanding its reach are expected to pay off with better productivity ratios, enhancing long-term shareholder value.

Pricing Power and Spread Expansion

Avendus highlights that SBFC Finance has strong pricing power in the MSME segment, where competition is less intense compared to traditional retail lending. Coupled with rising gold loan yields and access to lower-cost funds, the company’s spreads are projected to rise to 8.8% in the near term. This ability to maintain attractive lending rates while reducing funding costs strengthens its profitability outlook.

Spread Advantage: The combination of strong MSME lending margins, increasing gold loan returns, and lower borrowing costs provides SBFC with an enviable edge in maintaining robust spreads.

Market Positioning and Competitive Edge

SBFC Finance’s strength lies in addressing the underserved credit market. While large NBFCs and banks focus heavily on salaried segments and big-ticket loans, SBFC’s specialization in small business and secured gold-backed lending differentiates it. This niche focus not only ensures customer loyalty but also reduces risk exposure due to collateral-backed structures.

Sector Impact: By capturing the MSME credit opportunity, SBFC is supporting entrepreneurship and financial inclusion, thereby aligning with India’s economic growth priorities.

Investor Takeaway

The Avendus upgrade to BUY with a target price of ₹125 underscores SBFC Finance’s strong growth visibility. With a projected 25% CAGR in loans and earnings, declining opex ratios, and rising spreads, the company appears poised for sustained value creation. Investors, however, should track execution risks, regulatory shifts, and competitive intensity in the NBFC sector.

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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.

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