KRN Heat Exchangers and Refrigeration Ltd.
25-Sep-24KRN Heat Exchangers demonstrates strong growth potential with revenue growth of 25% in FY24. The company has an impressive EBITDA margin of 19%. Despite high working capital days (88), KRN delivered healthy ROCE (31.2%) and ROE (29.7%), indicating strong profitability. Although there are no direct peers, upon comparing KRN with AC outsourcing and heat exchanger companies in the listed space, its lower valuations despite superior return ratios suggest the company is undervalued. Thus we recommend subscribing to the issue.
Manba Finance Ltd
20-Sep-24Being a NBFC focused on the 2W segment, Manba has managed to deliver strong performance despite a weak rural recovery post covid. Manba witnessed its GNPA peak out in FY22 at 4.9% which is much lower compared to other vehicle financiers. Further on the back of a low base and expansion in new geographies, Manba has been able to grow its AUM at 37% CAGR over FY22-24 and has generated ROA/ROE of 2.3%/10.1% which is in line with other listed vehicle financiers, while its valuation appears attractive at FY24 P/B of 1.7x (post issue). Thus we recommend subscribing to the issue.
NORTHERN ARC CAPITAL LIMITED
13-Sep-24Northern ARC is well-positioned for growth, leveraging sector expertise, digital platforms, and a strong partner ecosystem to access India’s underpenetrated credit markets. It’s diversified funding sources and improved credit rating support sustainable expansion, despite high operational costs. Northern Arc has respectable ROA (3.0%) and ROE (14.5%) along with loan growth of 28% CAGR over FY22-24. Its asset quality is impressive with low GNPA (0.5%) and NNPA (0.1%). The price-to-book value (1.8x) indicates the company is undervalued compared to peers (industry average of 3.0x), Thus we recommend subscribing to the issue.
P N Gadgil Jewellers Ltd
10-Sep-24P N Gadgil Jewellers Ltd has been a prominent player in organized jewellery market in Maharashtra, India. It has a second largest position in the state in terms of stores with efficient operations. It has delivered strong performance in FY24 at store level metrics such as Revenue per store, revenue per sq ft, EBITDA per store and PAT per store. On working capital front, the company has been able to manage its inventory days well historically, that has resulted in improved cash conversion cycle from 80 days in FY22 to 51 days in FY24 (well below average of industry peers: 134 days).
In FY24, P N Gadgil’s operating margin stood at 4.5% which are lowest in the industry. The company is strategically aiming to boost its profitability by focusing on leveraging economies of scale to reduce costs and enhancing its revenue share of studded jewellery sales. Overall marketing expenses are also to be maintained in the range of 0.6-0.7% of revenue. Despite lower margins, the company has been able to generate strong return ratios, such as ROE of 28.9% and ROCE of 25.7% in FY24 supported by efficient operations which are best in the industry. The issue is valued at P/E of 42.2x to FY24 EPS which is available at discount when compared with industry average of 70x. Thus, we recommend SUBSCRIBE to the issue.
Bajaj housing Finance
07-Sep-24BHFL is well-positioned as the second-largest HFC in India, with a 31% loan CAGR
(FY22-Q1FY25), outpacing its peers. BHFL has delivered stable ROE, in line with
peers despite operating in the prime segment which has the highest
competition. BHFL possesses the lowest GNPA (0.3%) and NNPA (0.1%) among
peers, ensuring excellent asset quality. BHFL is being valued at 3.2x postthe IPO
fund raise, in line with it peers. However we believe BHFL deserves premium
valuations on the back of its higher AUM growth and superior asset quality. Thus
we recommend subscribing to the issue.
Gala Precision Engineering Ltd.
02-Sep-24Over the last decade, Gala has strategically moved up the value chain and expanded into larger addressable markets which are growing at faster rates and strengthened its position in the Indian and global markets. This is also reflected in its robust revenue CAGR of 18 % over FY22-24. Further, with high entry barriers such as lengthy approval process and customer stickiness due to criticality of products, Gala commands superior EBITDA margins of ~19% compared to peer average of ~17%. Given the company’s positioning with respect to future growth opportunities (focus on renewable energy sector), superior financials and undemanding valuations, we recommend ‘Subscribe’ to the issue.
Baazar Style Retail Ltd - IPO Note
29-Aug-24BSRL enjoys good market share in the states of WB and Odisha backed by its focus to grow in Tier3 and Tier 4 cities. The company over the years have built strength in understanding and creating affordable products for its customers and have garnered customer stickiness. Going forward, BSRL plans to derive growth from existing core markets as well as target other focused markets. The company's revenues grew at a CAGR of 33% during FY22-24, while the overall lifestyle and home value retail market grew at CAGR of ~19.3% during the same period. While on a P/E basis of 135x FY24 earnings, the issue looks expensive, however; on EV/EBIDTA basis of 21.5x FY24 earnings, it looks reasonable vs industry average of 28x and thus we are recommending ‘Subscribe’ to the issue for long term gains.
Ecos india mobility and hospitality
28-Aug-24ECOS India Mobility & Hospitality Limited, the largest and most profitable chauffeur-driven mobility provider in India, has a strong market position with operations in 109 cities. Its asset-light business model and focus on technological advancements drive profitability and operational efficiency. The company’s superior financial metrics, including EBITDA margins of 16.3%, high ROCE and ROE of 41.2% and 35.7%, respectively. Its consistent performance and strategic expansion, we recommend to subscribe to the issue.
Premier Energies
27-Aug-24Premier Energies is the second-largest solar producer in the country. The company focuses on advanced technologies like TOPCon solar cells, enhancing its efficiency and innovation.With a strong order book and favorable government policies, it holds a competitive edge. Compared to its peers, company shows exceptional revenue growth, a robust CAGR of 65% over FY21-24, EBITDA margin of 15.2%. As its capacity is underutilized currently as a large portion of it came on-stream in FY24 and Q1FY25, its asset turns are lower than peers and thus it’s ROCE is at 20% vs 25% for peers. We believe Premier is available at a substantial discount to its peers at FY24 EV/EBITDA of 44.5x compared to 81.4x for peers. Even on the EV/GW (installed capacity) metric, Premier appears attractive vis-a-vis peers. Thus we recommend to Subscribe to the issue.
Brainbees Solutions Ltd.
06-Aug-24Firstcry has created a niche space in the mothers and early kids age category and has strong brand reminiscence as well. Revenues have grown at CAGR of 34% during FY22-24 on performa adjusted revenue growth. While India business has been making margins of ~ 9%, its International business continues to bleed at operating level. However, Management is confident of replicating India success story there as well. On the backdrop of changing retail and ecommerce dynamics, mother and childcare product market is expected to grow at a CAGR of 13-15% during FY24-29. Firstcry’s shares are available at EV/sales of 3.8x FY24 which is lower as against NYKA which is trading at 8.4x. Given Firstcry’s leadership position in the niche segment of baby products, we recommend Subscribe to the issue for long term gains.
Ola Electric Mobility Ltd.
02-Aug-24Ola electric is the leader of rapidly growing (E2W) market with a 35% share, but intense competition may limit profitability in the near term, potentially keeping the company loss-making. Meanwhile, Hero's recent investment in Ather Energy values the company at 3.2x FY24 sales, significantly lower than Ola's valuation of 6.9x. While Ola's market leadership, faster growth and investment in cell development productions we do believe Ola deserves premium valuations over Ather, Its current valuation appears high, so we recommend subscribing to the issue for long-term.
Ceigall India Ltd.
01-Aug-24The company has shown strong track record of revenue, EBITDA and PAT growth in the past. Because of the company’s asset light model the company has been able to generate high ROCE and ROE as compared to industry average. The company’s debt-equity is reasonable at 0.7x and is expected to further reduce because of the repayment of certain borrowings from the IPO proceeds. The infrastructure industry in India is expected to grow for the foreseeable future given the central government’s continuous and consistent focus on capital expenditure and infrastructure.
The P/E multiple for Ceigall at 22x is at a premium to industry average of 18x. The company deserves to trade at a premium to peers on the back of strong growth track record and higher ROCE. We believe Ceigall will sustain its premium valuations and thus recommend a ‘SUBSCRIBE’ to the issue.
Sanstar Limited - IPO Note
19-Jul-24Sanstar Ltd., a leading player in the maize based specialty products and ingredient solutions in India. The company has a wide spectrum of potential opportunities to grow its business on account of rapid growth in demand for maize in the world. The company has planned a capacity expansion to meet the growing market demand for maize-based products. Also, it expects gradual improvement in the margins in the future by introducing derivatives. Historically, Sanstar’s revenue has grown at 42% CAGR between FY20-24. In terms profitability, operating margins have improved from 7.1% in FY20 to 9.2% in FY24. When compared with peers, the company has outperformed both in terms of revenue growth and profitability. Thus, company’s FY24 return ratios are better than average peer performance; i.e. ROE and ROCE stood at 30.2% / 29.5% (Peer average: 8.9% / 11.1%), respectively.
The issue is valued at 26x to FY24 EPS, which is lower than the peer average of 34.7x. However, if we exclude the Gulshan polyols, the peer average PE valuation comes down to 16.9x, substantially below Sanstar’s valuation. Given the stock’s high growth and profitability metrics, we recommend SUBSCRIBE to the issue for long term investment.
Emcure Pharmaceuticals Ltd.
03-Jul-24Emcure Pharmaceutical has delivered steady performance over the last few years with topline growth of 6-7% CAGR whereas bottomline has seen de-growth on account of increase in both employee cost as well as other operating expenses. Repayment of borrowings worth ~Rs. 600 cr from current outstanding debt of Rs. 2,087 cr to reduce company’s borrowing costs to an extent which is expected to improve company’s profitability in the years ahead. Further, investment in human capital as well as operational capabilities is expected to drive growth for future.
The issue is valued at EV/EBITDA of 16.7x based on FY24 financials, which we believe at discount when compared with average peer valuation of 27.4x. Along with debt reduction, we expect the company to deliver growth on account of its focus on chronic segment which is expected to be a high growth category in the future. As a result, Emcure is expected to deliver decent earnings growth and provides a better opportunity for investment at this valuation. Thus, we recommend SUBSCRIBE to the issue.
Bansal Wire Industries Ltd.
02-Jul-24Company’s revenue has increased at a CAGR of 5.9% from FY22-24. But it’s EBITDA and PAT has increased at much higher rates of 16.6% and 16.2% respectively. Also, its EBITDA and PAT margins are increasing over the years with decent ROCE’s and ROE’s with respect to industry. Company is more than doubling its capacity in the next 1 year and also focusing on higher value added products and exports.
The company is currently trading at EV/EBITDA of 29.8x based on FY24 EBITDA. The industry average is 25.4x. It may look expensive on historical earnings but looking at the capacity expansion in near term with focus on high margin product and debt reduction we expect earnings to grow much faster in near term and thus recommend ‘SUBSCRIBE’ to the issue.