An Initial Public Offering (IPO) is the first sale of shares that are issued by a company to the public. IPOs give investors an opportunity to subscribe to the shares and make a profit in most cases. There is also an option to hold the shares for a long-term investor. An Initial Public Offering allows investors to explore the opportunities in various sectors. But narrowing down on which IPO to invest in can be tedious and confusing for an investor.
The Equity Research Desk at Nirmal Bang provides fundamental analysis of capital market-related entities to aid wise investment decisions. The analysis also includes IPO news and updates. Nirmal Bang’s IPO Watch helps market participants to stay abreast of all the latest developments in this segment and make the right investment or trading pick.

IPO Note - Anand Rathi Wealth


Company Overview ARW (Anand Rathi Wealth) is one of the leading non-bank wealth solutions firms in India and has been ranked amongst the top three non-bank mutual fund distributors in the country. ARW offers wealth solutions, financial product distribution and technology solutions to its clients. It provides services primarily through its flagship PW (Private Wealth) vertical where it manages Rs. 29,472 Cr in AUM as on Aug, 2021. The company's PW vertical caters to 6,564 active client families, through a team of 233 RMs. ARW generates higher revenue yields compared to competition as the company has consciously avoided stock broking and stock advisory businesses and restricted its focus to the high yielding segments of distribution of structured products and mutual funds. Details and Objects of the Issue The total issue size is Rs. 659 Cr constituting Offer For Sale of up to 1.2 Cr equity shares. Investment Rationale: • Focus on the underserved and less price sensitive HNI segment • Presence in the structured products or non-convertible market linked debentures • Uncomplicated, holistic and standardized solutions offered to clients based on an objective-driven approach • Focus on safety net and estate planning services provides value addition to clients Valuation and Recommendation The wealth management business has characteristics (annuity revenue, degree of cyclicality, ROE) which are skewed more towards AMCs than stock brokers. We observe that ARW’s ROE has consistently been higher than peers like IFL Wealth and Edelweiss Wealth. Although ARW’s FY19-21 growth in revenue & profits has lagged Edelweiss Wealth, its current year growth has been encouraging and above that of both the peers. At valuations of 18.7x Apr-Aug’21 annualized earnings, ARW does offer some scope for upside on listing, given ~20% earnings CAGR potential in the longer term combined with cross cycle ROE range of 20-30%. We recommend subscribing to the issue.

IPO Note - Tega Industries Ltd.


Company Overview Tega Industries Ltd. (Tega) is a leading manufacturer and distributor of specialized ‘critical to operate’ and recurring consumable products for the global mineral beneficiation, mining and bulk solids handling industry. Globally, they are the 2nd largest producers of polymer-based mill liners. Tega has 6 manufacturing sites, including 3 in India, at Dahej in Gujarat and at Samali and Kalyani in West Bengal, and 3 sites in major mining hubs of Chile, South Africa and Australia. Details and Objects of the Issue The issue of Rs 619 Cr comprises of Offer for sale of 13,669,478 Equity Shares and the proceeds will go to the Selling Shareholders, in proportion to the Equity Shares offered by them in the Offer for Sale. Investment Rationale • Oligopolistic Market Structure • Insulated from mining capex cycles, provides recurring revenues • Marquee global customer base with strong global manufacturing and sales capabilities. • Consistent growth, driven by operational efficiency and high repeat business. Valuation and Recommendation The global crushing, screening and mineral processing equipment faced some headwinds due to the pandemic. The overall industry witnessed a decline in demand. However, with the re-opening of the global economy the industry is likely to grow at a CAGR of 6.3% by 2030. We believe Tega is well placed across the value chain of a mineral processing as it provides wide range of products and solutions. The company uses strong technology that is backed by R&D and expertise, which provides a distinct and entry barrier for the company. Tega has marquee global customers and a robust order book position of Rs 316 Cr, which are key positives for the company. On financial front, company’s performance has been strong wherein Sales/EBITDA grew at a CAGR of 8%/25% between FY19-21. The company has an attractive ROE of 22% and is available at P/E of 22x FY21. We are positive on this company with the growth momentum likely to continue going forward and recommend “Subscribe to the issue”.

IPO Note - Star Health and Allied Insurance Co


Company Overview STAR (Star Health and Allied Insurance Co) is one of the largest private health insurers in India with overall market share of 15.8% and retail share of 31.3%. The company primarily focuses on retail health insurance segment (89% mix). Its network distribution includes 779 health insurance branches across 25 states and 5 union territories in India. STAR has also built one of the largest health insurance hospital networks in India with more than 11,778 hospitals. Details and Objects of the Issue The public issue is of Rs. 7239 Cr consisting of – (i) Offer for sale of Rs. 5,239 Cr by investors and (ii) Fresh issue of Rs. 2,000 Cr to augment its capital base and maintain the solvency levels. Investment Rationale: • Retail health insurance industry to grow at 23% CAGR till FY25 • Industry leading growth with focus on profitable retail segment • Largest private health insurance company in India • Largest and well spread distribution network • Focus on innovative and specialized products • Strong risk management focus with domain expertise Valuation and Recommendation STAR being the leader in fast growing retail health insurance segment with a market share of 31.3%, offers an attractive opportunity to participate in this granular (retail health mix at 89%), high growth business (FY18-21 GWP CAGR of 31%). In comparison, ICICI Lombard’s growth has lagged at just 4% CAGR owing to a downturn in the motor business (50% mix). STAR and ICICI Lombard both share equally impressive operating metrics, except for the years FY21/22 which are an aberration (due to covid) for STAR, being focused only on the health segment. We view STAR’s valuations at 8.2x Sep 2021 BV favorably in comparison to similar levels for ICICI Lombard, as we expect STAR to continue to grow at much higher growth rates while maintaining decent ROE in the post covid era. We recommend subscribing to the issue from a long term perspective.

Go Fashions (India) Ltd. - IPO Note


Company Overview Go Fashion (India) is a women’s bottom-wear brand in India, with a market share of approximately 8% in FY20. Under the brand name “Go Colors” the company is the first to launch a brand exclusively dedicated to women’s bottom-wear category (ethnic, western wear, fusion and denims) and have leveraged this advantage to create a direct-to-consumer brand with a diversified and differentiated product portfolio of premium quality products at competitive prices Details & Objects of the Issue: The public issue consists of fresh issue of Rs 125 cr for the following • Funding roll out of 120 new EBOs;(Rs 33.7 cr) • Funding working capital requirements (Rs 61.3 Cr ) Offer for sale of ~Rs 888 cr by Promoter and selling shareholder Investment Rationale: a) Growth in the industry will lead to growth for the company b) Expansion through EBO and Online Channel c) Strong financials Valuation and Recommendation: Over FY19-21, the company sales has de grown at a CAGR of 6.3% impacted due to Covid. FY20 the company sales has grown by 37.4%, although in FY21 revenue dipped due to Covid. Q1FY22, company recorded a growth of 200.8% YoY and revenue came at Rs 31 cr, indicating recovery. With covid situation normalizing, we expect revenue to bounce back. Going ahead, with Growth in the bottom wear industry and with shift from unorganized to organized market, with higher number of EBOs at right location will lead to higher revenue to the company. Q1FY22, although gross margins stood at 64.2% levels, however, company reported loss of Rs 5.9 cr which was majorly due to impacted sales. Taking, FY20 into consideration since it was less impacted year with Covid , EBitda margins for FY20 stood at 32.3%.With Improvement in sales and with change in mix to higher EBOs revenue with limited discount offers to selling price, will lead to higher profitability, going ahead.FY21, Being covid impacted year , Working capital for the company stands at 171 days vs 141 days in FY20. Going ahead management indicates of bringing down the working capital days to 120 , majorly with reduction in inventory days to 90 from 106 in FY20, receivable days to 30 from around 56 days in FY20. Cash flow from operations of the company stands at Rs 57 cr, FCFF at Rs 29 cr in FY20 . Total debt for FY20 stands minimal at Rs 2.8 cr, indicating company is debt free. Going ahead, higher growth accompanied with reduction in working capital cycle will lead to higher operating cash flows to company. This will lead to funding of opening of new stores through internal accrual. ROE stands at 18.4% for FY20. Looking at the good growth potential , At the given upper price band of issue of Rs 690, Go fashions is offered at PE of 70.8 x FY20 EPS which we feel is attractive. We recommend subscribing to the issue.

Tarsons Products Ltd. IPO Note


Company Overview Tarsons Products Ltd (TPL) is an Indian labware company engaged in the designing, development, manufacturing and marketing of ‘consumables’, ‘reusables’ and ‘others’ including benchtop equipment, used in various laboratories across research organizations, academia institutes, pharmaceutical companies, Contract Research Organizations (“CROs”), Diagnostic companies and hospitals. As of June 30, 2021 it had a diversified product portfolio with over 1,700 SKUs across 300 products. The product portfolio is classified into three key categories which include consumables, reusables, and others. TPL caters to a diverse range of end customers across various sectors which include research organizations, academic institutions, pharmaceutical companies, CROs, diagnostic companies, and hospitals and currently operates through five manufacturing facilities located in West Bengal. Details & Objects of the Issue: The issue of Rs 1024 cr includes offer for sale of Rs 874 cr and Rs 150 cr fresh issue which would be utilized for (a) repayment of debt (b) funding capex of new manufacturing facility Investment Rationale: a) Leading Indian Supplier b) Expanding Product Portfolio c) Increasing Global Footprint d) Strong Financials Valuation and Recommendation: The company is growing at CAGR of 13% with industry leading margins. EBITDA margins improved further to 53% in Q1FY22 from 45% in FY21. Though there is no one off in these number, we believe that company can maintain margins at around 50% given the leading position and economies of scale. Covid has turned out to be a boon for the companies in healthcare space as worldwide governments have started allocating more funds and people in general have become more conscious towards the healthcare benefits. Given TPL has created a niche for itself in the industry backed by its strong quality standards and a reliable supplier. At upper band of Rs 662, the P/E comes to 51.1x FY21 however we expect TPL to grow faster than current CAGR given the laboratory instrument industry is growing at 20%. We recommend “Subscribe”.

Latent View Analytics Ltd. - IPO Note


Incorporated in 2006, Latent View is the leading pure play analytics services company in india.The company provides services such as data and analytics consulting, business analytics & insights, advanced predictive analytics, data engineering, and digital solutions Details & Objects of the Issue: The public issue consists of fresh issue of Rs 474 cr for the following • Funding inorganic growth initiatives ( Rs 147.9 Cr ) • Funding working capital requirements (Rs 82.4 Cr ) • Investment in Subsidiaries to augment their capital base for future growth( Rs 130 cr ) Offer for sale of Rs ~126 cr by the Promoter and the selling shareholder Investment Rationale: a) Growth in the industry will lead to growth for the company b) Recognized leadership position in data and analytics with a wide range of capabilities c) Strong financials Valuation and Recommendation: Over FY19-21, the company sales have grown at a CAGR of 3.1%. In FY 19, management started a strategy to defocus on a book of work that was high volume but less margin accretive and less of value add for clients. These were essentially contracts where the company was providing point expertise to its clients in the form of people. The company wanted to consciously move to a higher portion of Managed Services where bulk of the work was delivered from Centers of Excellence in India. With this, the COE or Managed services component of the business during this period FY19-21 has gone up from 40% to 65% levels. While this meant lower revenue in absolute terms however, the quality of earnings went up which is reflected in the margin profile improvement. FY21, Q1 and Q2 were impacted by COVID as clients hit the pause button on new deals. But Q3 21 onwards the company have witnessed a very strong bounce back and the company could record revenue at par with FY20 for FY21. Q1FY22, the company has recorded a growth of 20.3% YoY, indicating recovery. Acquisition of new larger accounts and with cross sell and up sell opportunities available to its acquired clients, supported with inorganic growth, will help the company to grow ahead. In FY21 Ebitda margins stood at 35.2% higher than FY19 margins which stood at 25.2% , which indicates the company’s strategy of focusing on margin accretive clients is playing well. We feel with covid situation normalizing , some of the expenses like travel expense, other expense is likely to come back going ahead and is likely to impact the margins by 2%. FCFF for the company stands at Rs 88 cr. ROCE of the company stands at 20.4% in FY21 and ROE stands at 20.9% in FY21. At the given upper price band of issue of Rs 197, Latent Analytics is offered at PE of 43.7x annualized Q1FY22E earning which we feel is attractive. We recommend subscribing to the issue.

Sapphire Foods Ltd. IPO Note


Sapphire Foods Ltd. (SFL) is one of YUM’s franchisee operators in the Indian subcontinent operating brands like KFC, Pizza Hut etc. It is also Sri Lanka’s largest international QSR chain, in terms of revenue for the FY21 and number of restaurants operated as of March 31, 2021 (with 68 restaurants representing 39% of the total number of outlets in the market). SFL also established a presence in the Maldives. As of June 30, 2021, it owned and operated 209 KFC restaurants in India and the Maldives, 239 Pizza Hut restaurants in India, Sri Lanka and the Maldives, and two Taco Bell restaurants in Sri Lanka. Details & Objects of the Issue: The whole issue of Rs 2073 cr is offer for sale Investment Rationale: a) Focus on Omnichannel Platform b) Leading QSR Brands with a Substantial Market Presence and Scale c) Business Transformation to Drive the Store Economics d) Disciplined Financial Approach Valuation and Recommendation: Due to Covid related disruptions, the company’s revenues declined by 24% in FY21 over FY20 after growing 12% in FY20. Nonetheless, the company continued to work on its business transformation while focusing on omni channel platform. The company reduced the average store size while maintaining almost same levels of store revenues. This has resulted in offsetting margin decline from 14.2% to 13.6% in FY21. We believe the full benefits of operational changes have not yet been accounted in current profitability and would continue to improve EBITDA in coming years as well. Considering the globally known brand portfolio, growing stores, improving profitability, we have a positive view on the company. At upper band of Rs 1180, the EV/Sales come to 7.4x FY21 Sales. We recommend “Subscribe”.

IPO - One 97 Communications Ltd.


Company Overview Paytm (One 97 Communications) was launched in 2009 as a “mobile-first” digital payments platform. Paytm offers products and services across “payment services”, “commerce and cloud services” and “financial services”. The two-sided (consumer and merchant) ecosystem enables commerce, and provides access to financial services through its financial institution partners, by leveraging technology to benefit consumers as well as merchants in growing their business. Details and Objects of the Issue • The total issue size is Rs. 18,300 Cr constituting (i) Offer For Sale of up to 4.65 Cr equity shares aggregating to Rs. 10,000 Cr by investors; and (ii) fresh issue of up to 3.86 Cr equity shares aggregating to Rs. 8,300 Cr. The offer shall constitute 13.1% of the post-offer paid-up equity capital of the company. • Paytm proposes to utilise the proceeds from the fresh issue towards (i) growing the ecosystem through acquisition of consumers & merchants and providing them with greater access to technology & financial services; and (ii) investing in new business initiatives, acquisitions and strategic partnerships. Investment Rationale • Multiple benefits for consumers and merchants. • Strong industry tailwinds ensure growth visibility. • Paytm’s network effect creates sustainable advantages. • Financial Services vertical to scale up rapidly; shall drive next leg of growth. Valuation and Recommendation With many large global investors and tech companies having taken stakes or bought out entire companies, we expect competition to heat up, especially in the merchant payment solutions. Although this would lead to faster penetration of the addressable merchant market of 80 mn accounts and grow industry revenues, it could well limit the addressable profit pool in the longer run. Also in case of Paytm, the consolidated revenue growth has lagged unlisted peers owing to de-focus on commerce and consumer payments verticals which would continue to be a drag in the near term until the verticals of merchant payments and financial services become sizable. At 49.7x FY21 revenue, we are not comfortable subscribing to the issue owing to heightened competition, sub-par revenue growth and uncertain profitability metrics. We rate the issue as “NEUTRAL”.

SJS Enterprises IPO


Company Overview SJS (SJS Enterprise Ltd.) is one of the leading players in the Indian decorative aesthetics industry, designing, manufacturing and supplying decals and body graphics, 2D appliques and dials, 3D appliques and dials, 3D lux badges, domes, overlays, aluminum badges, in-mold labels, or decoration parts, lens mask assembly, and chrome-plated printed, painted injection moulded plastic parts to auto, consumer durables/appliances, farm equipment, and sanitary ware industries. The company has a global presence and supplied over 115 million parts to around 170 customers across 20 countries in FY21. Details and Objects of the Issue • The total issue size is Rs. 800 Cr constituting (i) Offer for Sale of up to 1.48 Cr equity shares aggregating to Rs. 800 Cr by Evergraph and K.A. Joseph; The Offer shall constitute 49.63% of the post-offer paid-up equity capital of the company. Investment Rationale • Leading decorative aesthetics supplier with a wide portfolio of premium products. • Strong manufacturing capabilities and established supply chain network • Comprehensive product portfolio makes the company a preferred supplier • Long standing customer relationships; geographically diversified revenue base • Innovative product designing capabilities • Strong position in the balance sheet Valuation and Recommendation SJS enterprises is a leading player in the Indian decorative aesthetics industry. On the back of growing aesthetic decorative industry (20% CGAR in FY2021-2026E, as per CRISIL) and being key industry supplier, the company has potential to grow business going forward. Although there is no listed comparable peer to SJS, we compare it with prominent auto component players. We observe that SJS’s financial metrics as well as valuations are better than other players. The historical growth is lagging others which is compensated by the company’s higher return ratios. Considering these metrics, we recommend subscribing to the issue from a long term perspective.

PB Fintech IPO


Company Overview PB (PB Fintech) launched Policybazaar, its flagship platform, in 2008 and Paisabazaar in 2014, with the goal to transform how Indians access insurance and personal credit by emphasizing on awareness, ease, convenience, choice and transparency; and create a consumer-pull based, provider-neutral distribution model. Policybazaar enjoys monopoly status in India’s digital insurance marketplace with a 93.4% market share, while Paisabazaar is India’s largest digital consumer credit marketplace with a 51.4% market share. Details and Objects of the Issue • The total issue size is Rs. 5710 Cr constituting (i) Offer For Sale of up to 2.0 Cr equity shares aggregating to Rs. 1960 Cr by investors; and (ii) fresh issue of up to 3.83 Cr equity shares aggregating to Rs. 3750 Cr. The offer shall constitute 13.0% of the post-offer paid-up equity capital of the company. • PB proposes to utilise the proceeds from the fresh issue towards enhancing brand visibility, acquisitions and expanding offline presence as well as presence outside India. Investment Rationale • Numerous benefits to consumers, insurer partners and lending partners • Industry tailwinds cum monopolistic positioning ensures growth visibility • PB’s scale gives it self-reinforcing flywheels and strong network effects • High renewal rates providing clear visibility into future business and delivering superior economics • Expand playbook to replicate its platform for SME and corporate clients Valuation and Recommendation Policybazaar does not have any direct listed competitor in India and very few globally as most global insurance markets have distribution controlled directly by the insurers either in traditional formats or via digital-first plays. We believe that Policybazaar should be benchmarked against international fast growing online brokers such as Hippo, Goosehead and SoFi. Being the only listed insurance and credit marketplace, we believe PB will command some scarcity premium. Although, at valuations of 49.7x FY21 revenue, we feel PB is fully valued even upon assuming strong profitability going forward. We rate the issue as “NEUTRAL”.

IPO Note - Fino Payments Bank


Fino Payments Bank Ltd. - IPO Note Price Band: Rs. 560-577 Issue Date: 29 Oct – 2 Nov Recommendation: SUBSCRIBE Company Overview Fino Payments Bank is a fintech company offering diverse range of financial products and services that are primarily digital and have a payments focus, generating fee and commission based income for the bank. Details and Objects of the Issue • The total issue size is Rs. 1200 Cr constituting (i) Offer For Sale of up to 1.56 Cr equity shares aggregating to Rs. 900 Cr by the promoter; and (ii) fresh issue of up to 0.52 Cr equity shares aggregating to Rs. 300 Cr. The Offer shall constitute 25.0% of the post-offer paid-up equity capital of the company. • Bank proposes to utilise the proceeds from the fresh Issue towards augmenting its Tier – 1 capital base to meet its future capital requirements. Investment Rationale • Strong Industry Tailwind - Retail digital payments industry to grow at 40% CAGR till FY25E. • An asset light and scalable business model. • Continued focus on use of technology to improve operating leverage. • Continued innovation leading to high growth products and diversified revenue streams. • Highly experienced and committed leadership team, Marquee investor base in as promoters cum shareholders. Valuation and Recommendation Fino will be the only listed Payment Bank and one of the most prominent listed fintech company. As there are no listed payment banks, we take cues from M&A transactions in the unlisted space. We observe that during Sep 2021, Kotak Bank sold its 8.6% stake in Airtel Payments Bank to Bharti Enterprises for Rs. 300 Cr. This transaction values the payment bank at Rs. 3501 Cr or FY21 P/S of 5.6x. Fino is being valued at a 10% premium to this deal at FY21 P/S of 6.1x. Having demonstrated profitability during FY21 and scope for further improvement in ROE via operating leverage, we believe Fino is reasonably valued and offers good prospects for appreciation in future. We recommend “SUBSCRIBE” to the issue.

FSN E-Commerce Ventures Ltd. (Nykaa) IPO Note


Company Overview FSN E-Commerce Ventures (Nykaa) is a digitally native consumer technology platform, delivering a content-led, lifestyle retail experience to consumers. It has a diverse portfolio of beauty, personal care and fashion products, including its owned brand products manufactured by it on contracts. Nykaa has established itself not only as a lifestyle retail platform, but also as a consumer brand. It offers consumers an Omnichannel experience with an endeavor to cater to the consumers’ preferences and convenience. The brand affinity that it has built with the consumers, attracts them to engage on the platform, and increase in consumer traffic, increases the number of transactions on the platform.. Details & Objects of the Issue: The issue of Rs 5342 cr consists of Rs 4722 cr offer for sale and Rs 630 cr fresh issue to (a) invest in subsidiaries (b) capex (c) repayment of debt Investment Rationale: a) Leading Lifestyle Focused Consumer Technology Platform b) Deep Relationships with Brands along with basket of own brands c) Commitment to Authenticity d) Omni Channel Approach e) Strong scalable profitable model Valuation and Recommendation: Nykaa has emerged as a one of the few e-commerce companies which has become profitable in such short time. As the company is getting more recognized and gained higher market share with sticky customer base (70% of GMV came from existing customers in FY21), the marketing costs and fulfillment cost as % to sales are declining which would drive the margins going forward. GMV’s/Revenues have grown at a CAGR of 56.6%/48.2% over FY19-21. We believe Nykaa is created a niche for itself in the underpenetrated segment. With the basic platform for BPC in place, we believe the company can leverage it well to expand in other verticals like Fashions, recently started Nykaa Men among others. Considering the recession proof (seen during pandemic times) industry, increasing purchasing power of working women especially and higher acceptance of online commerce, we believe Nykaa has multi-year growth opportunity. At upper band of Rs 1125, shares are offered at EV/Sales of 21.8x FY21 earnings. We recommend “Subscribe”.

IPO Note - Aditya Birla Sun Life AMC


Company Overview ABSL (Aditya Birla Sun Life) is the largest non-bank affiliated AMC in India since FY18, and among the four largest AMCs in India since FY12. ABSL managed a total AUM of Rs. 2,936.42 billion as on 30 June 2021. ABSL has demonstrated its abilities by successfully tilting its revenue mix towards higher margin segments like equities, individuals and B-30 cities which has helped the company achieve a robust PAT CAGR of 21% over the last 5 years. Details and Objects of the Issue The public issue consists of an OFS (offer for sale) of Rs. 2,768 Cr by both the promoters viz. – Aditya Birla Capital selling 1% stake and Sun Life selling 12.5% stake. There is no fresh issue of shares. Thus the issue size forms 13.5% of the market cap of ABSL. Investment Rationale: • Largest non-bank affiliated AMC in India. • Well recognized brand with experienced promoters having presence in multiple countries. • Growing individual investor customer base driven by strong systematic flows and B-30 (beyond top 30 cities) penetration. • Robust fund performance supported by research driven investment philosophy. • Pan-India, diversified distribution network. Valuation and Recommendation Over FY16-21, ABSL has witnessed strong AUM CAGR of ~15% rising from Rs. 1365 Bn to Rs. 2693 Bn. Revenues and profits have grown at a CAGR of 7% and 21% respectively over the same period. Positive macro-economic factors and a robust industry growth prediction of ~12% CAGR over FY21-FY26E, provide the company with a good opportunity to further grow. ABSL enjoys a strong parentage, solid brand image, a decent distribution network and consistently high ROE of over 30%. We thus recommend to “subscribe for the long term”.

Vijaya Diagnostics Ltd. IPO Note


Company Overview Vijaya Diagnostics Ltd (VDL) is the largest integrated diagnostic chain in southern India, by operating revenue. It offers a one-stop solution for pathology and radiology testing services to its customers through its extensive operational network, which consists of 81 diagnostic centres and 11 reference laboratories across 13 cities and towns in the states of Telangana and Andhra Pradesh and in the National Capital Region and Kolkata as on June 30, 2021. Details & Objects of the Issue: The whole issue of Rs 1895 cr is offer for sale Investment Rationale: a) Largest Diagnostic Chain with Dominant Position in South India – mainly in Telangana and AP b) Integrated Diagnostics Provider that Offers One-Stop Solution at Affordable Price c) Supplement Organic Growth with Selective Acquisitions d) Expand in Adjacent Geographies and East India e) Strong Financials Valuation and Recommendation: The company’s revenues grew by 13% over FY19-21 while EBITDA grew by 24% during same period. Due to high capital intensity required at initial phase of the business, the opex are quite low which derives the economies of scale. Therefore, the company is able to improve its margins steady over the years. EBITDA margins improved to 44% in FY21 from 37% in FY19 due to operational efficiencies. Margins have further improved to 46.3% in Q1FY22. VDL is a debt free company and has negative working capital cycle which resulted in higher PAT growth at 35% during FY19-21. VDL has a long history in the lucrative diagnostic market however till now the company has been restricted to its core markets and have not explored outside. However, given sound financial base and strong brand recall, we believe it is well positioned to grow in adjacent regions. Considering the growing diagnostics industry and company’s well integrated model, we have a positive view on the company. At upper band of Rs 531, the EV/EBITDA comes to 32.1x FY21 EBITDA which is lower its listed peers despite having highest margins. We recommend “Subscribe for long term”.

Ami Organics Ltd. IPO Note


Company Overview Ami Organics Ltd (AOL) is a research and development driven manufacturer of specialty chemicals with varied end usage, focused towards the development and manufacturing of advanced pharmaceutical intermediates (“Pharma Intermediates”) and generic active pharmaceutical ingredients (“APIs”) and New Chemical Entities (“NCE”) and key starting material for agrochemical and fine chemicals, especially from its recent acquisition of the business of Gujarat Organics Limited (“GOL”). Details & Objects of the Issue: The issue is of Rs 570 cr including Rs 200 cr fresh issue and Rs 370 cr offer for sale. The company would use the funds to repay its debt and fund its working capital requirements Investment Rationale: a) Strong and diversified product portfolio ably supported by strong R&D and process chemistry skills b) Extensive geographical presence and diversified customer base c) High entry barriers d) Augmenting scale through organic and inorganic routes e) Consistent Financial Performance Valuation and Recommendation: The company’s revenues grew by 20% over FY19-21 while EBITDA grew by 38% during same period. Due to economies of scale the company is able to improve its margins steady over the years. EBITDA margins improved to 23.5% in FY21 from 17.6% in FY19 due to operational efficiencies. AOL would be a net debt free company post the IPO which would give room for leverage for future growth. Specialty Chemicals industry has been booming in the past 4-5 years and Indian players have been gaining market share from their global peers. Considering the lucrative specialty chemicals industry and AOL’s position in it as a specialized player, we are positive on the growth prospects of the company. At upper band of Rs 610, the PE is 41.2x on FY21 earnings which looks attractive. We recommend “Subscribe”.

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