Navigating the MSME Lending Wave: An Analysis of the Aye Finance IPO

As we move into the second week of February 2026, the mainboard spotlight shifts to Aye Finance Limited. Backed by heavyweight investors like Alphabet (CapitalG) and Elevation Capital, this Gurugram-headquartered NBFC is looking to raise ₹1,010 Crore to further its mission of lending to India's "missing middle"—the micro-enterprises that banks often overlook.

The IPO is currently open for subscription and is scheduled to close tomorrow, February 11, 2026.

The Business: "Phygital" Lending for Micro-Enterprises

Aye Finance has built a specialized "cluster-based" underwriting model. Instead of relying solely on traditional collateral or credit scores, they analyze the cash flows of specific business clusters (like hosiery in Ludhiana or brass-work in Moradabad).

• Scale: As of September 2025, they manage assets (AUM) worth ₹6,027.6 Crore across 18 states.

• Product Mix: A mix of secured and unsecured loans, with a recent strategic shift toward mortgage-backed loans to improve asset security.

• Customer Base: Over 5.9 lakh active unique customers, primarily in the trading and manufacturing sectors.

IPO Details: Last Chance to Bid

This issue is a combination of a fresh issue (to grow the loan book) and an offer for sale (OFS) by early investors.

Detail	Information
IPO Dates	February 9, 2026 – February 11, 2026
Price Band	₹122 – ₹129 per share
Lot Size	116 Equity Shares
Min. Retail Investment	₹14,964 (at upper band)
Issue Size	₹1,010 Crore (Fresh: ₹710 Cr
Listing Exchange	NSE & BSE (Mainboard)
Listing Date (Expected)	February 16, 2026

Financial Health: Growth vs. Asset Quality

Aye Finance presents a classic "high-risk, high-reward" financial profile typical of the micro-SME lending space.

• Revenue Growth: Total income jumped 40% to ₹1,505 Cr in FY25.

• Profitability Pressure: While FY25 PAT was stable at ₹175 Cr, 1HFY26 profits saw a sharp 40% decline. This was primarily due to rising impairment costs and a squeeze on Net Interest Margins (NIMs).

• Asset Quality Concerns: The Gross NPA (Non-Performing Assets) has been on an upward trend, rising from 2.5% (FY23) to 4.85% (Sept 2025). This indicates that a growing portion of their loan book is facing repayment delays.

• Yields: They command very high yields on advances (27–28%), which helps offset the high credit costs.

Subscription & Grey Market Sentiment

Despite the strong institutional pedigree (Alphabet-backed), the retail and HNI response has been quite muted so far.

• Current GMP: ₹0 (Flat). There is currently no premium in the grey market, suggesting a "par" listing (at the issue price) or a very minor gain/loss.

• Subscription Status (Day 2): The issue has been subscribed only about 14% overall as of midday today. Retail demand stands at roughly 36%, while institutional (QIB) and NII categories are seeing very slow traction.

Investment Recommendation: The Verdict

The Bull Case: Aye Finance is a market leader in a niche that is essential for India's economic formalization. Its P/E ratio of ~14x is reasonable compared to peers like Five-Star Business Finance. For a long-term investor (3+ years), the entry of Alphabet and other marquee names provides a sense of governance comfort.

The Bear Case: The deteriorating asset quality (rising NPAs) and the recent dip in 1HFY26 profits are major red flags. In a high-interest-rate environment, the cost of funds for NBFCs remains high, and their borrower base (micro-MSMEs) is the most vulnerable to economic shocks.

Recommendation: Avoid for Listing Gains; Cautiously "Watch" for Long-Term. Given the ₹0 GMP and slow subscription, there is a high probability of a flat or discounted listing. Aggressive investors who believe in the MSME credit story can consider applying for the long term, but conservative investors should wait for the company to stabilize its NPAs post-listing before entering.

(NOTE: This Post is only for informational purposes and not to be considered as any advice for investment in any stock or other entity. AI has been used in drafting this post. Financial and investment advice should be tailored to your situation — consider consulting a licensed financial advisor before investing.)