Regency Fincorp Ltd you may buy at Rs. 10 Target 5 Years Rs. 50 +++++ based on the rational
History
Before 2017 regency fincorp used to be a dead company and used to be called as Regency investment ltd with NBFC license, with 3 Cr of share capital, No debt and some Rs 3 Cr of assets in total.
As we can see since 2010 at-least nothing much was happening from business prospective.
It used to be 100% publicly owned company (No promoters) then On FEB 15 2017 Gaurav Kumar (Promoter / MD now) & Rajiv Vashisth put out an attempt to acquire 26% of the company through open offer at face-value Rs 10 per share.
What was the objective of their Acquisition ?
Basically they just wanted to start Two Wheeler financing business and proposed of doing no changes in already dead business.
What really happened ?
On Dec 16 there were no single large investors in the company -
Then on Apr they announced open offer to acquire 26%. This happened š
and because of these opportunists + 2017 bull markets sentiments the stock price sky rocketed, very few tendered to the open offer and the company became even more expensive for Mr Gaurav Kumar (Promoter / MD now) & Rajiv Vashisth to acquireš
so by the time open offer tendering ended - these folks were able to acquire only 6.5% of the company (vs 26%)
but with this they were able to get the control of the management of the company and became promoters as confirmed in the next board meeting held on sep 2017 -
KYP “Know your promoters” -
On Feb 2018, Company finally started new life under new management and proposed to raise capital - via issuing new equity to non- promoters and via convertible warrants.
And they decided to raise share capital from Rs 3.2 Cr to Rs 4.2 Cr , by issuing additional 10 lac shares, increase from 32 lacs to 42 lacs.
Interestingly they decided to raise by issuing additional 10 lacs shares at price Rs 35 on preferential basis - (bull markets sabka nuksaan kartein hein)
whole list of investors participated
Because these many investors agreed to invest at Rs 35 / share , probably the reason why markets liked it beyond 40 during 2018. (today it trades at Rs 9.8 per share š )
and then by Mar Fy18 company finally had promoters Mr Gaurav Kumar (Promoter / MD now) & Rajiv Vashisth each owning 3.25% each in total 6.5% in the company.
later on the company decided to infuse Rs 35.5 * 10 lac = Rs 3.5 Cr into the company by issuing preferential shares to promoters and non- promoters.
Although the real equity dilution happened in Fy19 but by FY18 they have already raised ~ Rs 10 Cr of debt capital and built asset book of around Rs 12 Cr.
By Jun Mr Gaurav Kumar increased his holding to 6.6% by acquiring additional 3.98% via Inter-se transfer basically acquired from Mr Rajiv Vashisht
So this is significant now by Jun 2018 one of the co-promoter (Rajiv Vashisht) is out and Mr Gaurav Kumar is now running the show with 6.6% ownership and by Jun 18 end shareholding revealed his wife & may be brother ? (i don’t know) acquired additional 3.6% from open markets categorized as a public shareholder. (now together family owns ~10%)
Sep 2018 another guy named Sparsh Abrol acquired 1.25% in the company, so family shareholding has been going up.
Fast forward to Mar -2019 stock price hit +20% after huge correction in previous many months (bubble burst on sep 2018).
As usual exchange asked for clarification -
Company replied back saying stock may have went up on news -
but today i find one app with this name on Google play store with hardly 300 downloads and that too was released on 2020, Not sure which App they are talking about may be they de-listed or sold the app to somebody else.
On googling more i found the website to download their App via apk
https://apkcombo.com/credipay-loans-in-tricity/com.techindustan.credipay/
It does shows 10,000+ downloads & other app related details -
Looks like this doesn’t work out for them as they don’t talk about this app anymore.
On Apr 2019 - Mr Gaurav Kumar infused more capital (& increase his shareholding) in the company by issuing himself 7.5 lac zero coupon convertible warrants at Rs 27/- each. (today stock trades at Rs 9.8 per share)
On Jun 2019 , company opened the branch in Telangana
On Dec 2019 company opened a new branch in Surat, raise more fund by issuing Equity Shares & Warrants on preferential basis.
By Jan 2020 , Promoters although own still ~ 10% in the company but post dilution (conversion of warrants etc) their holding will go up to 24%. (that’s what happened later in 2021)
Entering the lockdown period post Mar 2020-
On Jun 2020 - Company Considered Issuance of Unsecured Non-Convertible Debentures on private placement basis in one or more tranches within overall borrowing limits of the Company.
This was the first time they decided to raise Debt capital via NCDs, which is impressive as its not easy for everyone to raise debt vis NCDs.
Even during Covid time company kept on expanding the business -
AR Fy20
On Nov 2020, Board finally approved to raise their first NCD of Rs 60 lac on private placement basis.
During this time company tried to issue 1:1 bonus shares but the shareholders rejected the proposal - “ Further the company has not received the in principle approval for the bonus issue, thus the company changed its record date and the same shall be informed as and then the company receive the in principle from the exchange for the bonus issue. Hence the bonus issue of equity shares is deferred”
On May 2021 company got the approval to issue more equity at Rs 19 / share to non- promoters at preferential basis.
You might be wondering by now why company is raising so much of equity and debt capital ? As i have not shown the P&L yet but assume basically to fund growth, company has been able to grow its AUM from Rs 3 Cr in fy 17 (pre takeover) to Rs 40 Cr today. A lot of capital promoters infused in the business, a lot of money shareholders infused in the business as a result share capital increased from Rs 3 cr to Rs 5.34 Cr and company has to keep raising equity to maintain its Debt/ Equity ratio give the rate at which they are growing ( 3 years sales at 100% Cagr).
They raised another Rs 25 lac worth of NCD on Jun 2021 -
On Aug 2021 another board meeting - To consider allotment of 2600 (Twenty Six Hundred) Non-Convertible Debentures of Rs 1000/- on private placement basis.
On Aug 2021 promoters converted the warrants into equity shares, Some non- promoters didn’t.
Why warrants are dual edged sword-
As you can see above due to price difference promoters had to pay balance that is Rs 21.75 per share to acquire the rest as since Jan 2019 stock has been trading in range Rs 8 to Rs 16. So, issuing warrant at Rs 29/- didn’t work out for the promoters but it help them acquire substantial stake in the company. Now they own 24% in then company a jump from 10%.
On Nov -2021 company ventured into EV financing
Credit Rating -
This is from the Credit Rating report ( company only once rated by Crisil)
Rated - BB / Stable.
https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/RegencyFincorpLimited_December%2008,%202021_RR_281768.html
About their business operations -
Lately company has been increasing its micro finance book (group loans) & that’s their focus area -
Valuation -
This doesn’t makes sense and rarely i come across company where valuation are this low despite fairly good earnings growth, okay business quality and promoters increasing their skin in the game.
Today company trades at Rs 5 Cr mcap (Rs 9.8 per share) which is 0.45x BV whereas in total promoters + external shareholders have infused more than Rs 3 Cr (at much higher valuation).
Company is doing sales of around Rs 6 Cr (TTM) and Does about Rs 50 lacs of net profit, moreover about Rs 40 Cr of AUM with Rs 29 Cr of debt.
As discussed company has been diversifying away from SME business & personal loans to micro finance group loans (which is much safer Vs SME) and has offices is 3-4 major cities India.
On asset side company has shown limited impact of Covid that speaks about their underwriting skills and on liability side they have been able to raise money from Banks, NCDs & ICDs at 10.5% which looks significantly cheap given their size & scale & good liability mix.
That why the obvious question arises why markets aren’t valuing this on par with other NBFCs ? I don’t know may be the markets know something we don’t know (If you have been selling the shares please let us know why in the comments) but given how promoters have been net buyers of shares & have been actually delivering results i doubt something shady happening with the company.
Given they got themselves rated with CRISIL (which many shady companies don’t do and CRISIL don’t rate them as well) shows they might not be cooking books way beyond accepted limits (bcoz every financial company cooks book but within reasonable limits).
From the governance side although all the disclosures were good enough for shareholders to know things are happening transparently but i do think company lags from the angle of communicating more about operations with the shareholders like they don’t talk about NPAs (its only mentioned in the Credit Rating report), the communication in Annual report is pretty much Copy + Paste out sourced stuff and they don’t put out presentation etc.
And may be because their stock trades in the periodic call auction in BSE exchange i guess that plays its role too in value discovery.
Overall among the listed micro-caps this one should catch your eyes, there are things happening with respect to the business and may be this guy might be able to scale up the business AUM from Rs 40 Cr to Rs 400 Cr ? that time will tell but the NPA cycle is behind us and its less risky to own small NBFCs today Vs 2017 when everybody wanted to own them.
Please feel free to let me know your views on comments below…
Thanks,
Thakorbhai Mistry and Dhruva Pandey
