Equitas Small Finance Bank - IPO Note20-Oct-20
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 Shipbuilders28-Sep-20
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 Note22-Sep-20
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 Note21-Sep-20
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 Note21-Sep-20
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 Note09-Sep-20
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 Note07-Sep-20
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 Note13-Jul-20
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.
SBI Cards & Payment Services Ltd. - IPO Note28-Feb-20
SBI Cards is the second-largest credit card issuer in India, with 17.9% market share of the Indian credit card market in terms of total credit card spends during 9MFY20.
Low penetration in SBI customer base plus strong distribution means SBI Cards’ card base can continue to grow at historical growth rates of 27% CAGR (over FY15-19). Increased focus on EMI products can lead to loan book growing at an even faster pace. However, growth in fee income could fall given stagnating per card spends and market-share loss to UPI. Whilst asset quality has held up till now, a slowing economy and job losses can lead to increase in NPAs. Valuations at 46x FY20E post issue P/E is at 222% premium to Global Card cos (having lower growth & ROE) and at a 10% discount to high growth, high RoE Indian lenders. We recommend applying for the issue and rate the IPO as ‘SUBSCRIBE’.
CSB Bank Ltd - IPO Note22-Nov-19
we recommend subscribing to the issue from a long term perspective.
IRCTC Ltd- IPO Note30-Sep-19
Indiamart Intermesh Ltd- IPO Note24-Jun-19
Polycab India Ltd. - IPO Note05-Apr-19
Metropolis Healthcare Ltd. - IPO Note03-Apr-19
Aavas Financiers Ltd. - IPO Note25-Sep-18