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

The venture capital-backed microlender set the following price range: ₹122-129 per share for the initial public offering (IPO), valuing the company at approx. ₹3,200 crore at the high end. Management said pricing has reduced the firm’s valuation to slightly below its 2025 G-series lineup Mintwithout sharing details.

“When we started actively working on the IPO in July-August, the markets were volatile, especially for the financial segment. Our merchant bankers advised us to wait, which extended the timeline, but we are moving forward now as our IPO approval expires in April,” said Sanjay Sharma, managing director of Aye Finance.

Many non-banking financial companies (NBFCs) had been eyeing IPOs for months. These included Veritas Finance Ltd, Hero FinCorp, SK Finance, Belstar Microfinance, Avanse Financial and Credila Financial Services. However, most of these offers were postponed due to sectoral problems and the increase in bad loans.

“Asset quality pressures for India’s retail non-banking financial companies continued as the seasonal impact of earlier rapid growth continued,” Icra Ltd said in its January report. NBFCs are accelerating their technical losses by relying on adequate provisions and capital to cover higher credit costs on balance sheets, the report added.

Icra expects NBFCs’ net profitability to moderate in fiscal 2025-26, while credit costs will remain high. “A moderate recovery is expected in 2026-27 as asset quality concerns ease. Stable interest margins and operating costs will support sectoral profitability in the near term.”

In this context, Aye Finance is stepping into the public market.

“We are aware of the risks involved in testing the waters but have opted for a very reasonable valuation,” said Sharma. “Our pricing is lower than our last private round, which we believe is a fair starting point for the public investor’s journey. Therefore, 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 offer

Aye Finance cuts OFS ₹300 crore ₹565 crore was announced earlier. Investors LGT Capital and Alphabet’s CapitalG cut off share sales between draft documents and the filing of a red herring prospectus (RHP). LGT will now sell its share value ₹30 crore instead of earlier planned ₹150 crore, while CapitalG will transfer the equity value ₹82.5 crore instead of its original purpose ₹137 crore.

Meanwhile, venture capital firm A91 Partners has abandoned the sale of shares, having previously abandoned the sale of shares ₹100 crore. Alpha Wave also cut its OFS ₹30 crore ₹100 crore. However, Danish private equity firm MAJ Invest increased its share sales ₹140 crore ₹56 crore.

Elevation Capital, Aye Finance’s largest shareholder with a 16% pre-offer stake, is not selling its shares in the IPO.

The downsized IPO includes: ₹710 crore new share issuance ₹885 crore in the draft. According to RHP, the net proceeds will be used to increase the lender’s Tier 1 capital buffer.

The company’s IPO will open for subscription to retail investors on February 9 and close on February 11.

“Given the valuation we have achieved, we have decided not to dilute our equity capital further. Even though the new issue size has decreased, we believe this is sufficient senior equity capital to fund our growth over the next two to three years,” said Sharma. He said that as of September, Aye Finans had a loan book of approximately 200 million liras. ₹6,000 crore and capital will help the company reach: ₹15,000 crore including accruals in the coming years. ” ₹The primary fundraising target of ₹ 885 crore could have increased our growth buffer, which would subsequently lead us to ₹16,000 crore books.”

Stressful loans

An inherent challenge with microlending is the high volume of stressed loans. Current non-performing assets for Aye Finance stand at 4.85% for the quarter ending September 2025, and charge-offs are at a similar level. This brings the overall stress pool for gross advances to around 9%.

“Because our loans have maturities as short as 24 months, loan costs and charge-offs appear quickly on the ledger compared to longer products in the industry, such as five-year mortgages,” said Sovan Satyaprakash, the lender’s head of strategy and product. “Due to the recent period of ‘over-lending’ in the industry, our ultimate losses are approximately 2% above the historical average. However, we have seen a sequential improvement in credit costs over the last three quarters and the pain is now largely behind us.”

Sharma said the company operates a ‘phygital’ model: a digital company with a physical presence. “Our growth is absolutely non-linear with branch expansion. About 22% of our 30% AUM (assets under management) growth comes from mature branches.”

Although the company is called fintech, it does not deserve this label. “I once asked Elevation Capital why they didn’t classify us as ‘fintech’ in their portfolio, along with their other tech-heavy investments. Elevation responded: ‘You make profits, so you can’t be a fintech.'”