Aye Finance IPO: Betting on India’s MSME Boom – Should We Subscribe?
New Delhi: In a market buzzing with IPO fever, Aye Finance is stepping into the spotlight with its ₹1,010-crore public offering, aiming to fuel the underserved micro-enterprise segment that’s often called India’s economic backbone. But as the NBFC eyes a valuation north of ₹3,180 crore, whispers of volatile profits and creeping non-performing assets (NPAs) are raising eyebrows. Is this a scroll-stopping chance to ride the MSME wave, or a cautionary tale for investors chasing quick gains? Let’s dive deep into the numbers, the narrative, and the nuances.
The Aye Finance Story: Lending to the ‘Missing Middle’
Founded in 2014, Aye Finance isn’t your typical lender. It targets micro-small and medium enterprises (MSMEs) – think local kirana stores, small manufacturers, and service providers – that big banks often overlook due to lack of collateral or formal records. With a tech-driven underwriting model focused on cash flows, the company has built a portfolio across 18 states and three Union Territories, serving over 5.86 lakh active customers as of September 2025.
Backed by heavyweights like Google’s CapitalG, Elevation Capital, and Alpha Wave, Aye Finance boasts an assets under management (AUM) of ₹6,028 crore. Its average loan size? A modest ₹1.8 lakh, spread across manufacturing (35%), trading (45%), and services (20%). The pitch is simple: Empower the “missing middle” of India’s economy, where 63 million MSMEs contribute 30% to GDP but face a ₹25 lakh crore credit gap, per industry estimates.
But here’s the curiosity kicker – Aye is pivoting from unsecured loans to asset-backed mortgages to tame credit costs. Will this shift unlock explosive growth, or expose it to real estate volatility?
Aye Finance IPO Snapshot
Here’s a concise, at-a-glance table capturing the key IPO details for Aye Finance Limited, based on the latest available information as the issue opens today (February 9, 2026). This MSME-focused NBFC’s public offer is live for subscription.
| Parameter | Details |
|---|---|
| IPO Type | Book Built Issue (Mainboard) |
| Issue Size | ₹1,010 crore |
| Fresh Issue | ₹710 crore (to augment capital base for lending) |
| Offer for Sale (OFS) | ₹300 crore (by existing shareholders including Alpha Wave India, CapitalG, LGT Capital, etc.) |
| Price Band | ₹122 – ₹129 per equity share |
| Face Value | ₹2 per share |
| Lot Size | 116 shares (and in multiples of 116 thereafter) |
| Minimum Retail Investment | ₹14,964 (at upper band of ₹129) |
| Subscription Period | February 9, 2026 – February 11, 2026 |
| Anchor Investor Allocation | Closed on February 6, 2026; Raised ≈ ₹454–455 crore from 19 investors (including Goldman Sachs, Nippon Life India) |
| Basis of Allotment | Expected on February 12, 2026 |
| Initiation of Refunds | February 13, 2026 |
| Credit of Shares to Demat | February 13–14, 2026 |
| Tentative Listing Date | February 16, 2026 (BSE & NSE) |
| Grey Market Premium (GMP) | ₹0–1 (as of early February 9; muted sentiment, flat to marginal listing expected around ₹129–130) |
| Post-Issue Valuation (at upper band) | ≈ ₹3,183 crore market cap |
| Lead Managers | Axis Capital, IIFL Securities, JM Financial, Nuvama Wealth |
The purpose of the Aye Finance IPO is straightforward yet strategically vital for an NBFC operating in the high-growth, high-risk MSME lending space. The ₹1,010-crore issue splits into two clear parts:
- Fresh Issue → ₹710 crore (money that directly goes to the company)
- Offer for Sale (OFS) → ₹300 crore (money raised by selling existing shareholders, who partially exit; the company receives zero from this portion)
Where Will the Fresh Issue Funds (₹710 Crore) Be Used?
As clearly outlined in the company’s Red Herring Prospectus (RHP), 100% of the net proceeds from the fresh issue will be deployed for a single, focused objective:
Augmenting the company’s Tier-I capital base to meet future capital requirements arising from the growth of its business and asset base.
In plain terms, this means:
- The funds will strengthen the company’s equity capital (primarily Tier-I capital, which is the highest-quality form used by regulators like RBI to measure financial strength).
- A stronger capital base allows Aye Finance to borrow more cheaply and in larger amounts from banks, debt markets, or other lenders (since NBFCs rely heavily on leverage — debt-to-equity ratios typically range 3–5x in this sector).
- This increased borrowing capacity will then be used to expand the loan book — i.e., disburse more small-ticket loans to micro-enterprises, grow AUM faster, penetrate deeper into underserved clusters, and ultimately scale revenue and profitability.
- No specific allocation is earmarked for general corporate purposes, working capital, or repayment of debt — it’s almost entirely earmarked for capital augmentation to fuel organic business and asset growth.
This is a classic use-of-proceeds pattern seen in most growth-oriented NBFC IPOs (e.g., similar to SBFC Finance, Five-Star Business Finance, or Ugro Capital in recent years). It signals management’s confidence in continued strong demand for micro-MSME credit and their ability to deploy incremental capital profitably.
Financial Deep Dive: Growth Galore, But Profits on a Rollercoaster
Aye Finance has delivered stellar top-line expansion, riding the post-pandemic MSME recovery. Revenue has nearly tripled in three years, fueled by AUM growth at a 43% CAGR. Yet, net profits tell a patchier story – soaring in FY24 but flattening in FY25 amid rising expenses and asset quality pressures.
Here’s the breakdown in a snapshot table for that scroll-stopping specificity:
| Fiscal Year/Period | Revenue from Operations (₹ Cr) | EBITDA (₹ Cr) | Net Profit (₹ Cr) | EPS (₹) | ROE (%) | AUM (₹ Cr) | Gross NPA (%) | Credit Cost (%) |
|---|---|---|---|---|---|---|---|---|
| FY23 | 643 | 281 | 40 | 2.15 | 5.3 | 3,126 | 4.5 | 8.2 |
| FY24 | 1,072 | 569 | 172 | 9.34 | 13.9 | 4,870 | 5.1 | 7.5 |
| FY25 | 1,505 | 766 | 175 | 9.51 | 12.1 | 6,028 | 5.8 | 7.0 |
| H1FY26 | 863 | 383 | 65 | 3.50 | 7.6 | 6,028 | 6.2 | 7.0 (annualized) |
| Q1FY26 | 407 | 172 | 31 | 1.67 | N/A | N/A | N/A | N/A |
Key Insights:
- Revenue CAGR (FY23-25): 53% – Driven by 42% AUM growth and higher yields from small-ticket loans.
- PAT CAGR: 110% – But FY25 growth slowed to 2%, hit by 57% expense surge (employee costs up 40%, provisions up 15%).
- Q1FY26 Twist: Revenue up 21% YoY, but profits halved to ₹31 crore as credit costs bit harder amid economic slowdown signals.
- Debt/Equity: 3.02x – Manageable, but watch for interest rate hikes squeezing margins (net interest margin at 14% in FY25).
Asset quality is the elephant in the room: GNPA climbed from 4.5% in FY23 to 6.2% in H1FY26, with credit costs at 7% – higher than peers. Why? MSME stress from inflation and uneven recovery. Yet, Aye’s diversification (top 3 states: 42% of AUM) offers a buffer.
Valuation Check: Cheap Thrill or Fair Deal?
At ₹129, the IPO demands a P/E of 14x FY25 earnings – a discount to peers like SBFC Finance (P/E 26x) and Five-Star Business Finance (P/E 20x). Post-issue P/BV of 1.45x looks attractive against sector averages of 2.5x. But adjust for rising NPAs, and it might not scream “bargain.”
Peer Snapshot:
| Company | FY25 Revenue (₹ Cr) | FY25 PAT (₹ Cr) | P/E (x) | P/BV (x) | AUM Growth CAGR (%) |
|---|---|---|---|---|---|
| Aye Finance | 1,505 | 175 | 14 | 2.0 | 43 |
| SBFC Finance | 1,306 | 321 | 26 | 3.5 | 35 |
| Five-Star Business | 2,848 | 1,092 | 20 | 4.0 | 28 |
Aye shines on growth metrics but lags on profitability stability. Broker calls? SBI Securities says “avoid” citing high credit risks; others flag “reasonable” pricing for long-haul players.
Strengths That Could Spark Growth – And Risks That Might Derail It
Bull Case Curiosities:
- MSME Megatrend: India’s push for formalization (via Udyam portal) could double Aye’s addressable market to ₹50 lakh crore.
- Tech Edge: Proprietary algorithms assess 1,000+ data points, keeping approval times under 48 hours – a moat against fintech rivals.
- Backer Boost: Fresh funds to scale AUM to ₹10,000 crore by FY28, eyeing 25% revenue CAGR.
- Pivot Payoff: Mortgage loans (now 20% of portfolio) could slash credit costs to 5%, mirroring peers.
Bear Traps to Ponder:
- NPA Nightmare: Uptrend signals potential write-offs; Q1FY26 profit dip hints at more pain if economy stutters.
- Margin Squeeze: Rising funding costs (average 12%) amid RBI rate caution could erode NIMs.
- Competition Crunch: Fintechs like Lendingkart and big NBFCs are crowding the space, pressuring yields.
- Regulatory Roulette: Tighter NBFC norms on provisioning could hit profits short-term.
Investor chatter on Social Media platforms mirrors this split: Some hail the “undervalued growth story,” while others skip, citing “nothing left on the table” for listing gains.
Future Outlook: A 20% Upside Play or Steady Compounder?
From an investor’s lens, Aye Finance taps into India’s MSME revival, projected to grow 15% annually. With AUM diversification and a mortgage shift, it could hit ₹2,000 crore PAT by FY28 – implying 20-25% stock upside for patient holders. But volatility looms: If NPAs stabilize below 5%, it’s a winner; if they spike to 8%, expect valuation derating.
In a market where MSMEs could be the next big wealth creator, Aye Finance poses a tantalizing question: Will it bridge India’s credit gap, or get bogged down by bad debts? Investors, the bid is yours.
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