Veritas Finance Delays Rs 2,800-Crore IPO Amid US Tariff Concerns

Veritas Finance Ltd, a non-banking financial company backed by Multiples PE and Kedaara Capital, has postponed its initial public offering (IPO) valued at Rs 2,800 crore. The decision comes in response to heightened concerns regarding the impact of increased U.S. tariffs on India’s export-driven micro, small, and medium enterprises (MSMEs).

The U.S. implemented a new tariff structure on August 27, 2024, which includes a 50 percent tariff on Indian exports. This policy also features a 25 percent penalty for purchasing Russian oil, adding to an already challenging economic landscape for MSMEs involved in export activities.

The company had submitted an updated draft red herring prospectus (UDRHP) at the end of July and was initially set to launch its share sale in August. An UDRHP is a crucial step in the IPO process, as it incorporates necessary revisions requested by the Securities and Exchange Board of India (SEBI).

Sources indicate that the additional U.S. tariff measures, particularly the penalty linked to Russian oil, forced Veritas Finance to reassess its IPO plans. One source noted, “The 50 percent tariff on Indian exports has soured sentiment for MSMEs, particularly those in sectors heavily impacted by U.S. tariffs, such as textiles, gems and jewellery, auto components, chemicals, and seafood.”

According to a report by the rating agency CRISIL released on August 20, the textiles and seafood industries, which together account for approximately 25 percent of India’s exports to the U.S., are likely to experience significant adverse effects. MSMEs dominate these sectors, holding over 70 percent of the market share. The chemicals sector is also expected to face challenges, with MSMEs comprising about 40 percent of that market.

Veritas Finance focuses on providing working capital loans to MSMEs in urban and semi-urban regions, alongside offering products such as affordable housing loans and small business loans in rural areas. As of September 30, 2024, the company reported a loan book of Rs 6,517 crore, marking a substantial growth of 62 percent from Rs 3,533 crore in the previous fiscal year.

The company’s strategy involved raising around Rs 600 crore in primary capital through the IPO, with the remainder set to be an offer for sale by existing investors. Despite the current market conditions, sources suggest that Veritas remains optimistic about the potential for a more favourable environment in the second half of the fiscal year, which could allow for a reconsideration of its IPO launch.

Veritas Finance received approval from SEBI for its IPO in April 2024, a validation that is valid for a period of 12 months. While initial roadshows attracted significant interest and institutional demand, the company is now waiting for market conditions to stabilize before proceeding.

“The company is monitoring the situation closely and will consult with directors and investors to determine the best timing for the IPO launch,” a source remarked.

Currently, Veritas Finance operates 424 branches across 10 states and one union territory in India, with a significant portion of its loan book sourced from states such as Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, and West Bengal. As the economic landscape evolves, the company’s ability to navigate these challenges will be vital to its future growth and public offering aspirations.