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 - Home First Finance


Valuation and Recommendation With HFF’s focus on ‘core housing loans’ and low-risk ‘salaried segment’, the business appears less risky compared to other listed peers. HFF has grown its AUM at a CAGR of 63% over FY18-20, one of the fastest amongst listed financials. With an AUM of just Rs. 3730 Cr, the runway for accelerated growth has a long way to go. Further, HFF has had a strong control over asset quality with one of the highest collection efficiencies post covid at 97.6% as on December 2020. Upon comparing HFF with its closest listed peer, Aavas Financiers, we observe that HFF’s salaried customer mix stands at a healthy 73% (even ahead of Can Fin), far ahead of Aavas’s 35% mix. Also HFF’s exposure to LAP+Developer loans mix is much lower at 8% compared to 26% in case of Aavas. HFF is being offered at a 47% discount to Aavas’s valuations and thus we recommend to ‘Subscribe’ to the issue.

Indigo Paints Ltd. - IPO Note


Valuation and Recommendation: Between FY18-20, Indigo Paints Ltd’s revenues have grown at CAGR of 26% while EBITDA/PAT grew by 88%/93% respectively on the back of improving profitability. EBITDA margins have improved from 6.5% in FY18 to 14.6% in FY20 and further to 18.5% in 1HFY21. As the company is still in growth phase, we believe, it is likely to maintain the higher than the industry revenue growth. With reduction in A&P spend (as% to sales), EBITDA margins are expected to improve further and likely to be in vicinity of market leader. However, the Issue price of Rs 1490/share captures the near-term financial performance. We expect IPL to report Rev/EBITDA/PAT to grow at a CAGR of 18%/28%/31% respectively. The stock is trading at 65.5x FY23E on our estimates as compared to Asian Paints/Berger Paints’ 61.1/73x consensus earnings. Given the sound management and strong growth prospects, we recommend “Subscribe”.

IPO Note - IRFC (Indian Railway Finance Corporation)


IRFC is a proxy play on the strong capex growth in Railways which has witnessed a considerable pickup post FY15 as the NDA Government accelerated the overall infrastructure spending including Railways. Railway capex witnessed a growth of 20% CAGR post FY15 compared to 14% CAGR in the preceding ten years. Also, stable cost-plus business model makes IRFC a low risk (nil NPA), low return (11-12% ROE) company. Upon comparing IRFC with other PSU NBFCs having exposure to infrastructure sectors, we observe that IRFC has a marginally lower ROE which is compensated by higher growth; although valuations appear to be higher than peers. We believe IRFC is fairly priced at Rs. 26 and has limited scope for any meaningful upside. We rate the issue as ‘Neutral’.

Antony Waste Handling Cell Limited. - IPO Note


Valuation and Recommendation AWHC’s growth shall be lumpy and dependent on AWHC bagging new contracts; however over the long run, growth should atleast be in line with that of industry growth of 14% CAGR over FY20-25E. Return on capital employed is expected to remain stable around ~20% in line with the past trend on the back of moderate and region specific competition with entry barriers in place to restrict new competitors. AWHC enjoys a long and credible track record of proven execution capabilities (with large municipalities in Mumbai and NCR region). Expansion into newer geographical clusters and diversification into new growth areas of managing landfills and Waste To Energy should also aid future growth. AWHC is being offered at P/E of 21x its FY20 EPS (vs. international average of 27x). We believe AWHC’s pricing has left some scope for upside in the long term and recommend subscribing to the issue.

Mrs Bector Food Specialty Ltd. - IPO Note


Company Overview Mrs Bector Food Specialties Ltd (MBFSL) is one of the leading companies in the premium and mid-premium biscuits segment and the premium bakery segment in North India. It manufactures and market a range of biscuits such as cookies, creams, crackers, digestives and glucose under its flagship brand ‘Mrs. Bector’s Cremica’. It also manufactures and markets bakery products in savoury and sweet categories which include breads, buns, pizza bases and cakes under the brand ‘English Oven’. It is also one of the largest suppliers of biscuits to Canteen Stores Department supplying in 33 locations across India and an approved and listed supplier for Indian Railways. Details & Objects of the Issue: The issue of Rs 540.5 cr comprised of Rs 40.5 cr fresh issue and Rs 500 cr Offer for Sale. The company intends to incur capex from the fresh issue. Investment Rationale: a) Strong brand in biscuits as well as bakery segments b) Leading exporter of Biscuits c) Benefits started reflecting of the capex done in last three years d) Healthy Financials – (a) Improving Return Ratios (b) Strong profitability and healthy revenue growth (c) Robust Balance Sheet Valuation and Recommendation: Between FY18-20, Mrs Bector Food Specialty’s revenues have grown at CAGR of 5% while H1FY21’s revenue grew by 18%. FY20 revenues were affected due to covid related disruptions in supply chains and shut down of large QSR and institutional clients. The company is earning steady EBITDA margins of ~12-12.5% however it has improved to 16.7% in 1HFY21 on the back of pent-up demand and reduction in other expenses. Though we believe such high margins might not be sustainable, we expect margins to gradually improve from FY20 base on account of economies of scale on the recently expanded facilities and on the back of higher contribution from premium segment biscuits and bakery. We expect MBFSL to grow at CAGR of ~15% for medium term with gradual improvement in profitability. The issue price commands P/E of 55.6x FY20 however 21.7x on 1HFY21 annualized earnings at the upper price of band of Rs 286-288. Given the better prospects and improving financials going forward, we recommend “Subscribe” on the issue.

Burger King India Ltd. - IPO Note


Valuation and Recommendation: Although late entrant in the industry, Burger King store growth has been 44% over FY17-20 and has reached 261 as on Sep 20. With this, sales for the company have grown at a CAGR of 55% over FY17-20 and has reached revenue of Rs 841 cr .Going ahead, the Company is targeting to open at least 700 restaurants by 2026. We feel higher store expansion will help the company to grab the rising opportunity arising from the industry. FY20, EBITDA margins stood at 12.3% very much near to Westlife EBITDA margin of 13.8%. Cash flow from operations stood at Rs112.7cr at 108% of EBITDA in FY20 indicating negative working capital requirement for the company. However higher addition of stores is leading to higher capex, with this company reported negative FCFF in FY20.At the given upper price band of issue of Rs 60, Burger King is offered at EV/ sales of 2.9x FY20 which is much attractive as compared to peer. We recommend subscribing to the issue.

Gland Pharma Ltd. - IPO Note


Valuation and Recommendation: Between FY18-20, Gland Pharma’s revenues have grown at CAGR of 28% while Q1FY21’s revenue grew by 31%. The company is engaged in complex products hence it has healthy profitability. Due to no debt and high cash, the company has strong PAT margins at 29.4% in FY20 which has improved from 19.8% in FY18. We believe the company is able to maintain CAGR of 25% for medium term with strong profitability. Though, Q1FY21 margins looks on the higher side, we believe EBITDA margins in the range of 35-38% are sustainable. The company intends to do capex with the IPO and cash on books, which can temporarily affect the return rations in near term however the long-term trajectory remains positive The issue price commands P/E of 31.7x FY20 and 19.5x Q1FY21 annualized earnings at the upper price of band of Rs 1490-1500, which is at upper end of Industry. However, going forward the higher revenue growth, improving profitability would make it a better choice among peers. We recommend “Subscribe” on the issue for long term gains.

Equitas Small Finance Bank - IPO Note


Equitas has successfully reduced the microfinance mix in its loan book from 54% in FY16 to 23% today. Its diversified loan book, adequate capital, experienced management and conservative approach to minimize risk, provides Equitas a long runway for profitable growth. Equitas’ transition to a SFB during FY16-18 resulted in lower AUM growth (16% CAGR) and higher opex growth (57% CAGR), translating to lower return ratios. However, post the conversion, Equitas stepped up its loan growth to 37% CAGR over FY18-20, while opex growth remained subdued at 16% CAGR. This resulted in cost/income declining from 80%in FY18 to 66% in FY20 and a simultaneous increase in ROE from ~2% in FY18 to ~9% in FY20. We believe Equitas SFB can deliver top quartile ROE of 15%+ in the long term (by FY23E) driven by a decline in cost/Income to below 60% from 66% in FY20 and normalization of credit costs to ~1.5% from 1.9% in FY20. Equitas SFB is available at a 30% discount compared to listed peers. We recommend to ‘Subscribe for long term’.

IPO Note - Mazagon Dock Shipbuilders


MDS commands a monopoly status in high value segments like submarines and destroyers (just one competitor in destroyers). Also, until now MDS has been the only player capable of manufacturing large ships with Garden Reach Shipbuilders having recently emerged in this segment. The positive factors aiding healthy prospects for MDS include – indigenization push by GoI, a wide product portfolio, robust order book to sales of 10.9x, rising share of the fast growing shipbuilding business (70% vs. 33% in FY17), long credible history of proven development capabilities, strong balance sheet and healthy return ratios. MDS is being offered at an attractive valuation of 4.5x FY20 EPS vs. 9-10x commanded by other listed defense PSUs having similar financial metrics. Thus we recommend ‘subscribe’ to the issue.

Angel Broking Ltd. - IPO Note


Increase in market share by 2x in last five years, strong track record of introducing new technological products, proactive management and brand equity developed over last 2 decades; positions Angel well for transitioning into one of the top discount brokers in India with decent profitability in the longer term. Upon combining the financials of IIFL Securities and 5 Paisa, we observe that this entity shares identical characteristics to Angel with respect to number/market share of active clients, revenue and return on equity. However Angel’s valuations compared to the hypothetical entity of IIFL + 5 Paisa is higher based on FY20 earnings. Also we believe Q1FY21 has benefits of bunching up of (i) work from home due to COVID situation & (ii) broad based buoyancy in markets. The sustenance of these dual benefits into the future is uncertain and hence we believe it would be premature to annualize Q1FY21 earnings. We thus rate the issue as “NEUTRAL”.

Chemcon Specialty Chemicals Ltd. - IPO Note


Between FY18-20 Chemcon’s revenues have grown at CAGR of 29% while PAT grew at higher rate of 36% CAGR. The management believes the company can grow at 15-18% CAGR for next 2-3 years. EBITDA/ton is expected to remain steady although volumes are likely to improve on the back of (a) strong demand outlook (b) expanded capacity. The issue price commands P/E of 25.5x (FY20) at the upper price of band of Rs 338-340, which is well within the industry range. We recommend “Subscribe” on the issue for listing gains.

Computer Age Management Services - IPO Note


Over the past 5 years, CAMS has strengthened its market share from 61% in March 2015 to 70% in July 2020, based on AAUM serviced. With the MF RTA industry estimated grow at a CAGR of 15% over FY20-25E, we believe CAMS can also deliver similar growth going forward. CAMS provides investors a better investment option over AMCs as (i) CAMS operates in a two player duopoly market where despite being the larger player(70% market share), it is further gaining market share consistently and (ii) being exposed to 9 of the top 15 MFs and 4 of the top 5 MFs substantially reduces the risk of market share loss by any single MF which will always be the threat in case of a standalone MF company. We recommend “SUBSCRIBE” to the issue from a long term perspective.

Route Mobile Ltd - IPO Note


Over FY18 -20, the company has grown at a CAGR of 37.6% with organic and inorganic way and EBITDA has grown at a CAGR of 15%. Acquisition of new services and entering new geographies helps the company to be upgraded with the current requirement in the market which in turn helps the company to acquire new larger accounts. With cross sell and up sell opportunities available to its acquired clients, will help the company to grow ahead. ROCE of the company have improved to 23.6% in FY20 and ROE stands at 25.3% in FY20.PAT for FY20 stands at Rs 68.3cr. At the given upper price band of issue of Rs 350, Route Mobile is offered at PE of 19x Q1FY21 annualised EPS which is attractive. We recommend subscribing to the issue.

Happiest Mind Technologies Ltd. - IPO Note


Over FY18-20, the company sales has grown at a CAGR of 22.8% . Going ahead, being into the digital space which is expected to grow at a CAGR of 20% over FY18-FY25, we feel Happiest Mind can sustain higher growth. Other than this, company peers revenue are growing at a Higher CAGR of 26% to 36%. With this, we feel, Happiest Minds has tremendous scope for improvement .Acquisition of new larger accounts and with cross sell and up sell opportunities available to its acquired clients , will help the company to grow ahead. Ebitda margin for FY20 was at 13.9% (expansion of 461bps over FY19) whereas Q4FY20 margin was much ahead of average margin in FY20. In Q1FY20 Ebitda margins further improved to 21.4% which is partly due to rupee appreciation, lower lease rentals etc partly also because of leveraging of SGA cost. Management indicated that core higher EBITDA margin is sustainable. ROCE of the company have improved to 23.7% in FY20 and ROE stands at 31.2% in FY20As per our rough estimates, at the given upper price band of issue of Rs 166, Happiest Mind is offered at PE of 17x FY22E which is attractive. We recommend subscribing to the issue.

Rossari Biotech Ltd. - IPO Note


Between FY17-20 Rossari Biotech’s revenues have grown at CAGR of 37% while EBIDTA grew at higher pace of 63% CAGR. We expect Rossari to grow at 15-18% CAGR for next 2-3 years which is ahead of industry growth. We expect EBITDA margins to improve from hereon, on the back of (a) improved margins in HPPC segment (b) benefits coming from recently commenced Dahej facility (c) increased economies of scale. We have compared Rossari Biotech with all the leading specialty chemicals companies and found it to be better in almost all financial parameters. The issue price commands P/E of 33.7x (FY20) at the upper price of band of Rs 423-425, which is at upper end of the industry. However, going forward the higher revenue growth, improving profitability would make it a better choice among peers. We recommend “Subscribe” on the issue for listing as well as long term gains.

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