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.

Harsha Engineers International Ltd. - IPO Note


HEIL is a proxy play on (i) rising global outsourcing of bearing components from in-house facilities of clients in Europe & US to India (ii) relocation of global supply chains from China to India and (iii) strong upturn in domestic industrial and auto segments reflecting in strong growth outlook provided by bearing clients. With increasing utilization rates from the current ~62% in FY22 to 75% in current year, turnaround in solar EPC business and debt being repaid, we expect ROCE to improve to 20% levels in a couple of years. We believe investors have yet not fully appreciated the intrinsic quality of business, industry positioning (industry leadership in India) and cash flow generation of niche bearing component suppliers such as Rolex Rings and HEIL. We expect both the ancillaries to re-rate and close the valuation gap vis-à-vis their OEM clients. We recommend subscribing to the issue.

IPO Note - Tamilnad Mercantile Bank Ltd.


TMB has demonstrated strong track record of successfully growing and managing a granular portfolio with superior asset quality metrics. TMB stands out among the old generation private banking peers on most metrics. We believe TMB can sustain ROA at around 1.5% levels in coming years on the back of stable NIM at around ~4.0% levels and decline in credit cost to below 1%. TMB is being offered at 1.35x FY22 BV which is at a slight discount to peer banks having similar return ratio profile. Although pending legal issues regarding the bank’s share capital shall continue to be a hangover; considering the quality of business, top quartile earnings profile in the banking industry and reasonable valuations, we rate the issue as ‘Subscribe’.

Dreamfolks Services Ltd. - IPO Note


FY20 sales grew by 47.9% and came in Rs 367 cr majorly driven by higher volume . H1FY22 , being covid impacted, H2FY22 sales came at Rs 197cr , annualizing this , revenue for FY 22 stood at Rs 394 cr , higher than FY20 , indicating the company is showing growth over pre covid levels. Total Pax accessing Lounges in India has increased to 8.3% in 2022 vs. 5.4% in 2021 , and is expected to increase going ahead. With rising opportunity from the industry , we feel, the company being a dominant player will be able to capture this opportunity. Although , average revenue per passenger has been increased from Rs 752 in FY20 to Rs 800 in FY22 gross margins remained range bound, since higher pricing from the customer is passed on to the lounge operator. With this, Gross margin for FY20 stood at 18.4%, Ebitda margin at 12.3%. Since the company has a platform business , ability to scale up its business requires minimal incremental capital deployment. So ROE and ROCE for FY20 stands high at 48.4%, 47.2% respectively. FY20 , Debt for the company stood minimal at Rs 3.3 cr , CFO for the company stands at Rs 22.4 cr. Going ahead ,FY22 being covid impacted , we feel , FY23 is expected to be a pent up growth year. We expect, the company to post sales of Rs 529.1 cr and Rs 714 cr for FY23E, FY24E respectively. (I.e. growth of 87.3% for FY23E , 35% for FY24E). With higher sales , we expect margins to improve to 10% and 10.7% for FY23E & FY24E respectively from 8% in FY22 . We expect , Adj Pat of Rs 38 cr and Rs 55.7 cr for FY23E & FY24E respectively.With this, At the given upper price band of issue of Rs 326, Dreamfolk is offered at PE of 30.4x FY24E EPS which we feel is attractive. We recommend subscribing to the issue.

Aether Industries Ltd. IPO Note


Aether’s products are advanced intermediates and specialty chemicals that occupy a position in the chemical industry value chain between commodity chemicals and final actives and formulations with more closely aligned to the higher value range, further away from the commodities and closer towards the final active part of the value chain. Another positive working in the favor of the company is that each of its Promoters is a career-technocrat and is actively involved in the critical aspects of the business, including R&D, process and plant engineering, finance and marketing. We believe the company is in the race for long haul. Hence, we recommend “Subscribe for Long Term”.

Ethos Ltd. IPO Note


Valuation and Recommendation: Going forward, the company is expanding its stores (13 new stores over 50 existing in next three years) and with new categories we believe it can grow strongly. We understand that the company is very small as compared to other listed retail players and focused on one category (currently), we believe that there is scope for growth in future. On current valuations, it looks attractive on EV/EBITDA and EV/Sales basis and therefore, we recommend “Subscribe for Long Term”.

Paradeep Phosphates Ltd. IPO Note


Valuation and Recommendation: PPL is the second largest private sector manufacturer of non-urea fertilizers in India and the second largest private sector manufacturer in terms of Di-Ammonium Phosphate (“DAP”) volume sales. It has established a track record of delivering robust financial performance. PPL has over the years is able to manage to create a strong brand recognition and develop a vast distribution network. With addition of Goa plant, it would be able to strengthen its reach as well as would be able to have better backward integration, thereby making it a strong player in the industry. The additional capacity which is getting adding on would benefit the company on immediate basis hence we recommend “Subscribe for Long Term”.

Prudent Corporate Advisory Services Limited


The wealth management business has characteristics (annuity revenue, cyclicality, high ROE) which are skewed more towards AMCs rather than stock brokers. There is no direct comparable listed peer for Prudent although IIFL Wealth and Anand Rathi Wealth come closest among listed peers. We observe that Prudent’s ROE, AUM and profit growth have been higher than peers which emanates from its higher equity mix of 92% in total AUM. Thus Prudent certainly deserves to trade at a premium to IIFL Wealth and Anand Rathi Wealth. At valuations of 34x 9MFY22 annualized earnings, Prudent would trade at a premium of 44% to the average valuation (24x) of both the peers, which we consider as fully priced. Thus we recommend ‘Neutral’ rating to the issue.

LIC - IPO Note


Company Overview LIC has been providing life insurance in India for more than 65 years and is the largest life insurer in India, with a 64.1% GWP market share as on FY21 on the back of LIC’s enormous agent network, strong track record, immense trust in the brand ‘LIC’ and its 65 years of lineage. LIC is ranked fifth globally by life insurance GWP. LIC is also the largest asset manager in India as on Dec 2021, with AUM of Rs. 40.1 trillion, 1.1x the entire Indian mutual fund industry’s AUM. Details & Objects of the Issue: • The public issue is of Rs. 20,557 Cr entirely consisting of offer for sale by the Govt. of India. • 10% of the issue is reserved for policyholders who will be given a discount of Rs. 60 per share. • Retail investors and employees of LIC are being given a discount of Rs. 45 per share. Investment Rationale: ? Largest player in the fast growing & underpenetrated life insurance sector. ? Trusted brand and a customer-centric business model. ? Focus on increasing share of high margin non-participating portfolio. ? Presence across India through an unparalleled agency force. ? Largest asset manager in India with an established track record of financial performance and profitable growth. Valuation and Recommendation: LIC is the leader in the fast growing Indian life insurance industry with a GWP market share of 64.1%. Although LIC is consistently losing market share to private players, it shall yet grow modestly due to strong industry tailwinds and a shift in focus towards the higher margin non-participating products. LIC should trade at a discount to listed private entities (which trade between 2.5-4x P/EV), owing to its traditionally savings-heavy business mix, heavier dependence on the agency channel and status as a PSU. Thus we view LIC’s valuations at 1.1x Sep 2021 EV as favorable for listing gains and we recommend subscribing to the issue.

Rainbow Children's Medicare Ltd.


Company Overview Rainbow Children’s Medicare Ltd (Rainbow) is a leading multi-specialty pediatric and obstetrics and gynecology hospital chain in India, operating 14 hospitals and three clinics in six cities, with a total bed capacity of 1,500 beds, as of December 31, 2021. Its core specialties are pediatrics, which includes newborn and pediatric intensive care, pediatric multispecialty services, pediatric quaternary care; and obstetrics and gynecology, which includes normal and complex obstetric care, multi-disciplinary fetal care, perinatal genetic and fertility care. Details & Objects of the Issue: The issue of Rs 1581 cr includes Rs 1301 cr offer for sale and balance Rs 280 cr fresh issue which would be used for (a) early redemption of NCD (b) capex towards setting up of new hospitals Investment Rationale: a) Specialized Children’s Hospitals b) Comprehensive Perinatal Care Provider, With Synergies Between Pediatric And Obstetrics And Gynecology Services c) Hub-and-Spoke Model d) Strong track record of growth, profitability Valuation and Recommendation: Rainbow is one of the largest private chains of hospitals in pediatric/maternity healthcare. Given the increased western trend following, couples in India are also looking for experiential value added services during the pregnancy and delivery of their child. Also, specialty hospitals provide specialized doctors and wide array of services over legacy nursing homes. Rainbow follows a doctor engagement model whereby most of the core specialists work exclusively at the hospitals on a full-time retainer basis. This model ensures that most of the core specialists are available 24/7 on a roster basis at the hospitals, which is particularly important for children’s emergency, neonatal and pediatric intensive care services. We believe, going forward specialty chains like Rainbows are likely to gain higher market share in the specialty field as people are more inclined towards overall service aspects especially for the birth of child which is a form of celebration. We recommend “Subscribe for Long Term”.

Campus Activewear Ltd. IPO Note


Company Overview Campus Activewear Ltd (CAL) is the largest sports and athleisure footwear brand in India in terms of value and volume in FY21. (Source: Technopak Report). The company introduced its brand ‘CAMPUS’ in 2005 and are a lifestyle-oriented sports and athleisure footwear company that offers a diverse product portfolio for the entire family. It offers multiple choices across styles, color palettes, price points and an attractive product value proposition. The company covers more than 85% of the total addressable market for sports and athleisure footwear in India as of FY21, which is the largest market coverage amongst key sports and athleisure footwear brands. It owns and operates five manufacturing facilities across India with an installed annual capacity for assembly of 28.80 million pairs as on December 31, 2021 and has the ability to increase production for assembly of up to 35.50 million pairs on an annual basis. Details & Objects of the Issue: The whole issue of Rs 1400 cr is offer for sale Investment Rationale: a) Diversified Product Portfolio b) Vertically Integrated Manufacturing Capabilities supported by Strong distribution network c) Strong Brand Recognition d) Strong track record of growth, profitability Valuation and Recommendation: Campus is the fastest growing scaled sports and athleisure footwear brand and holds approx. 15% market share in branded market. Though, the company is present across price points mainly focusing at entry levels. However, steadily the company is moving towards higher premiumisation which along with increased contribution from direct-to-consumer sales is helping the company in improving margins. The company has seen robust recovery in 9MFY22 and the company believes it is not just pent up demand and the higher growth is likely to sustain in future as well. Campus is one of the few established India brands in a segment which is primarily dominated by international brands. With increasing premiumsiation and higher contribution from direct-to-consumer sales, we believe it has more head-room to grow from here with improved profitability. We recommend “Subscribe for long term”.



Expected Results As On 16/02/22

Surpiya Lifescience Ltd. IPO Note


Company Overview Supriya Lifesciences Ltd (SLL) is one of the key Indian manufacturers and suppliers of active pharmaceuticals ingredients (“APIs”), with a focus on research and development. As of October 31, 2021, the company had niche product offerings of 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and anti-allergic. It is consistently been the largest exporter of Chlorpheniramine Maleate and Ketamine Hydrochloride from India, contributing to 45-50% and 60-65%, respectively, of the API exports from India, between FY17 and FY21. SLL is among the largest exporters of Salbutamol Sulphate in India contributing to 31% of the API exports from India in FY21 in volume terms. Company’s products were exported to 86 countries in FY21. The business operations are supported by a modern manufacturing facility located in Parshuram Lote, Maharashtra having reactor capacity of 547 KL/ day. In addition, the Company has acquired a plot of land, admeasuring 12,551, near the present manufacturing facility, wherein the Company intends to expand its manufacturing infrastructure. The manufacturing facility has received approvals from USFDA, EDQM TGA-Australia, KFDA-Korea, PMDA-Japan, NMPA (previously known as SFDA)- China, Health Canada. Details & Objects of the Issue: The issue of Rs 700 cr includes offer for sale of Rs 500 cr and Rs200 cr fresh issue which would be utilized to fund capex, repayment of borrowings Investment Rationale: a) Leadership Position Across Key and Niche Products b) Backward Integrated c) Geographically Diversified Revenues d) Quality Manufacturing Capabilities e) Consistent strong financial performance Valuation and Recommendation: The company has grown revenues at CAGR of 22% between FY18-21 in-line with industry average however EBITDA has grown at 97% during the same period, double the industry average. SLL has strong return ratios. We have compared Supriya with almost all the leading listed API players and found it quite attractive. Given the strong leadership in selected niche regions along with the healthy financials and attractive valuations we recommend “Subscribe”.

Data Patterns (India) Ltd. - IPO Note


Company Overview Data Patterns (DP) is one of the few integrated defence and aerospace electronics solutions provider catering to the indigenously developed defence products industry. DP has proven in-house design and development capabilities and experience of more than three decades in the defence and aerospace electronics space. Radars make up 62% of the order book with the rest comprising of electronic warfare suite, communications, avionics, BrahMos programme, service contracts and others. Details & Objects of the Issue: • The total issue size is Rs. 588 Cr constituting (i) Offer For Sale of up to 0.595 Cr equity shares aggregating to Rs. 348 Cr; and (ii) Fresh issue of up to 0.41 Cr equity shares aggregating to Rs. 240 Cr. The offer shall constitute 19.4% of the post-offer paid-up equity capital of the company. • DP shall utilise the proceeds from the fresh issue for repaying debt, funding working capital requirements and expanding its Chennai facility. Investment Rationale: • Integrated and strategic defence and aerospace electronics solutions provider which is well positioned to benefit from the ‘Make in India’ opportunity • Superior business positioning backed by in-house design, development and manufacturing capabilities across multiple segments • Indian military radar market to grow at ~11% CAGR till 2030 and reach USD 3.18 Bn • Strong order book of Rs. 581 Cr (2.6x FY21 revenue) and pipeline of Rs. 1500 Cr over next 3 years • Transition from development stage to production stage resulting in an increase in return ratios Valuation and Recommendation: DP is a proxy play on India’s indigenization of defence products. With strong capabilities across segments, robust order book of Rs. 581 Cr (2.6x FY21 revenue) and an order pipeline of Rs. 1500 Cr, DP is on track to deliver good growth in coming years. Even on historical basis, we note that it’s growth has outperformed listed peers. Higher margins more than compensates for the lengthy working capital cycle resulting in satisfactory cash flow based ROCE (pre-tax cash flow from operations / capital employed - at 36% over FY19-21). We recommend investors to subscribe to the issue for listing gains as well as from a long term perspective.

Medplus Health Services Ltd. IPO Note


Company Overview Medplus Health Service Ltd. (Medplus) is the second largest pharmacy retailer in India, in terms of (i) revenue from operations for the FY21, and (ii) number of stores as of March 31, 2021. The company offers a wide range of products, including (i) pharmaceutical and wellness products, medicines, vitamins, medical devices and test kits, and (ii) fast-moving consumer goods, such as home and personal care products, including toiletries, baby care products, soaps and detergents, and sanitizers. The company was founded in 2006 by Gangadi Madhukar Reddy to reduce the problem of fake medicines in the system. Medplus has maintained a strong focus on scaling up its store network, having grown from operating the initial 48 stores in Hyderabad at the conception of the business to operating India’s second largest pharmacy retail network of over 2,000 stores distributed across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal and Maharashtra. Details & Objects of the Issue: The issue of Rs 1398 cr includes offer for sale of Rs 793 cr and Rs 600 cr fresh issue which would be utilized for investment into its material subsidiary, Optival for funding working capital requirements Investment Rationale: a) Established Brand and Value Proposition to Customers b) Omni-Channel Model c) Cluster Based Expansion d) Increased share of Private Labels e) Continued Improvement in Operational Efficiency Valuation and Recommendation: The company has been opening stores at CAGR of 12% since FY10 which has skewed towards the end of the decade at 17.2% between FY20-1HFY22. However, due to increased leverage on account of omni-channel and higher share of private label sales, profitability has grown at much higher rate. Gross margins have grown at a CAGR of 22.7% between FY19 to FY21 and EBITDA at 63.2% during the same period. The cluster-based strategy gives higher penetration in the selected regions. We believe that Medplus is a well-established brand among its clusters and has positioned itself as a genuine and good quality pharmaceutical products supplier through its omni-channels, which will continue to drive its gains in market share. We recommend “Subscribe for Long Term”.

Metro Brands Ltd. IPO Note


Company Overview Metro Brands Ltd (MBL) is one of the largest Indian footwear specialty retailers, having brands that are among the aspirational Indian brands in the footwear category. As of September 30, 2021, the Company operated 598 Stores across 136 cities spread across 30 states and union territories in India. MBL retail footwear under its own brands of Metro, Mochi, Walkway, Da Vinchi and J. Fontini, as well as certain third-party brands such as Crocs, Skechers, Clarks, Florsheim, and Fitflop, which complement its in-house brands. MBL also offer accessories such as belts, bags, socks, masks and wallets, at its stores. Details & Objects of the Issue: The issue of Rs 1368 cr includes offer for sale of Rs 1073 cr and Rs 295 cr fresh issue which would be utilized for (a) Expansion of 260 stores over 3 years (b) general corporate purposes Investment Rationale: a) One of India's largest pan India footwear retailers with a brand appeal among aspirational consumer segments b) Wide range of brands and products catering to all occasions across age groups and market segments c) Presence across multiple formats and channels d) Asset light business with an efficient operating model leading to sustained profitable growth e) Strong track record of growth, profitability and financial discipline Valuation and Recommendation: Metro Brand has a legacy of 65+ years behind it and has created a brand for itself. The management has built a winning formula across different formats. The management is looking to open 260 stores in next 3 yrs. MBL has grown at CAGR of 16-17% in last 10 years. MBL has one of the best and consistent EBITDA margins among the listed peers and highest realization per unit. We believe this is owing to its asset light model and focus on the customer nerve by keeping close track of consumer preferences. Due to pandemic, the industry has opened up much more growth opportunities like transition from large unorganized segment to organized players, many acquisition prospects, e-commerce expansion etc. We expect MBL to continue the growth momentum, given above set-up in addition to tying up with third party brands like FitFlops. We recommend “Subscribe for Long Term”.

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