Archives: Ipos

NBFCs have shown remarkable resilience and gained importance in the financial sector ecosystem, growing from less than Rs. 2 trillion assets under management (AUM) at the turn of the century to Rs. 34 trillion at the end of FY23. Their share in the overall credit pie has increased from 12% in FY08 to 18% in FY23 and is projected to remain stable in FY24. By catering to under-banked, lower-income and mass-market customers who are unserved or underserved by banks, NBFCs have enhanced financial inclusion and expanded the market for formal financial services. FFSL has an edge over its peers as it has access to capital from its Promoter, Federal Bank. Additionally, they have grown their liability relationships from 23 lending institutions as of March 31, 2021, to 27 institutions as of June 30, 2023. Additionally, as of June 30, 2023, they have borrowed from 12 private sector banks (including its Promoter, Federal Bank), nine public sector banks, one NBFC, one foreign bank and four other entities (such as the Small Industries Development Bank of India). It has logged the third-fastest AUM growth amongst NBFC peers set in India, with a three-year CAGR of 33% during FY20-23 period. FFSL has also marked steady growth in its top and bottom lines over the last three years. Moreover, the NBFC has an effective underwriting capability due to its experienced underwriting team and established processes, which is likely to keep asset quality issues at bay going forward. On the valuation front, the issue is valued at a P/BV of 3.3x on the upper price band based on the FY23 book value. With most of the positives seemingly priced in, we advise investors to “SUBSCRIBE” to the issue for the benefit of listing gains.

The Global ER&D Services market refers to the sum of ER&D expenditure by global capability centers (“GCCs”) and the ER&D expenditure outsourced to third-party engineering service providers (“ESPs”).  The ER&D spend outsourced to ESPs stood at USD 105-110 billion (Rs. 8,620-9,031 billion) in 2022 out of which Indian Service providers accounted for almost 24%. The Indian ESP market is expected to grow at a CAGR of 14-17%, and accounted for nearly 25% of the overall global outsourced ER&D spend of Rs. 9,031 billion in 2022. With the growth of the ESP market and rise in demand for autonomous and connected technologies driven by regulatory pressures for safety and cost considerations, OEMs are likely to maintain their commitment to providing improved and safer experiences to their clients through the integration of connected and autonomous technologies. Furthermore, in response to the escalating need to meet carbon emission targets, electrification is anticipated to take center stage in the automotive industry. Global automakers are planning substantial investments, estimated at USD 1.2 trillion (Rs. 99 trillion) through 2030, to develop and produce EVs, marking a significant shift away from traditional combustion engines. A similar shift is seen in India as the Government of India intends to have EV sales penetration of 30% for private cars, 70% for commercial vehicles, 40% for buses, and 80% for two and three-wheelers by 2030 due to the immediate focus on decarbonizing the transport sector. In order to bridge this gap and with the advent of industry 4.0, there is an increasing need to equip engineers and technical staff with emerging skill sets. According to Zinnov, the company is currently the only player uniquely positioned to address the needs of educational upgradation in India with its global partner ecosystem and system integration capabilities. The company has a track record of sustained Revenue/EBITDA/PAT growth which grew at a CAGR of 85.4%/112.8%/160.9% during the FY21-23 period, respectively. On the upper price band, the issue is valued at a P/E of 32.51x based on FY23 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

Flair Writing Industries Ltd. exhibits a commendable track record of robust and consistent financial performance, showcasing impressive growth across key financial metrics from FY21 to FY23. With a notable CAGR of 77.9%, 992.8% and 133.2% in their topline, PAT, and EBITDA, respectively, the company has positioned itself as a frontrunner in the market. The company’s rapid revenue growth, aligned with the geometric expansion in demand, is a testament to its successful market penetration and responsiveness to increased demand, particularly in the school sector. Flair leverages its deep insights into the writing products business, coupled with a diversified product range in a segment characterized by perennial demand. The scale advantage allows the company to maintain cost competitiveness, further solidifying its market position. Additionally, the strategic focus on the home needs sector is anticipated to further bolster sales, underlining Flair’s adaptability to diverse market segments. As an stationery entity, the net profit margin exceeding 10% underscores the company’s sound financial health. The RoE surpassing 31.2% in the latest year is indicative of efficient capital utilization and robust asset turnover ratio of 1.5 implies above-average asset efficiency. The IPO offers an attractive proposition, particularly considering the EPS of 12.66, resulting in a P/E ratio of 24.01x. The valuation becomes compelling under the assumption of sustained profit growth and when factoring in the intrinsic value of the brand and premium valuation of the FMCG space. In summation, Flair Writing Industries Ltd. emerges as a relatively secure investment opportunity with appealing valuations and we advise a “SUBSCRIBE” rating with a medium to long-term horizon.

Gandhar Oil Refinery is a leading manufacturer of white oils by revenue, with a growing focus on the consumer and healthcare industries. The company was India’s largest manufacturer of white oils by revenue in FY23, including domestic and overseas sales, and is one of the top five players globally in terms of market share in CY22. The company operates three strategically located manufacturing facilities, with two plants in Western India and one in Sharjah, UAE which are easily connected to global oil supply routes and major markets. The company has a track record of sustained pro forma consolidated revenue from operations which grew at a CAGR of 49.7% during FY21-23. This was the highest CAGR among selected specialty oil peers and the second-highest CAGR growth among selected specialty chemical peers. The percentage of customers placing repeat orders in the FY23, FY22 and FY21 was 68.9%, 66.4% and 59.3%, respectively, demonstrating customer satisfaction and value of the company’s products. Overall, healthy financial performance, expansion of product portfolio, improvement of return ratios, and growing overseas business are key growth drivers for the company’s performance in the long term. The issue is valued at a P/E of 7.1x on the upper price band based on FY23 earnings, which is fairly valued. We, therefore, recommend an   “SUBSCRIBE” rating for the issue.

Power sector financing NBFCs primarily focus on financing power generation, transmission, distribution, and other activities. These NBFCs provide funds for various types of power projects, including thermal power plants, transmission lines and renewable energy projects such as solar power plants, wind farms, hydroelectric projects, bioenergy energy projects and clean energy generation. As of FY23, the outstanding credit of key power financing NBFCs reached around Rs. 9,399 billion, indicating a CAGR of nearly 10% over FY19. In FY24, power-financing NBFCs are expected to continue this growth momentum and is likely to be driven by an increase in power demand, rising population, renewable integration, and the country’s sustainability goals. IREDA plans to continue launching financing products to meet the evolving needs of RE developers. Its lower average cost of borrowing enables competitive pricing of the financial products, enabling it to grow business, attract quality borrowers and optimise profitability. The company is India’s largest pure-play green financing NBFC and intends to leverage this position to raise green or sustainable bonds in international and domestic markets. As a result of its concerted approach to recovery, they have closed or upgraded net 18 non-performing project loan accounts in FY23, with recovery of Rs. 2,024.3 million. The NBFC has the best asset quality amongst peers, with its GNPA ratio at 3.13% at the end of September 2023 as compared to 3.14% for REC and 3.67% for PFC. As the lender will utilise the net proceeds of the fresh equity shares issue to augment its Tier-I capital base, its capital adequacy will enhance and lead to a stable leverage position. At the current P/BV multiple of 1.2x, we believe the company is attractively valued and advise investors to “Subscribe” from a medium to long-term perspective.

The advanced braking systems market – including the sale to domestic OEMs, aftermarket, and export – is estimated at Rs. 54,299 million in FY23. Advanced braking systems are expected to grow at 8.9% CAGR over the next five years to reach Rs. 83,202 million. The market would be majorly driven by the fast-growing passenger vehicle segment, followed by 2W and CVs. The PLI scheme for the automobile industry will likely propel exports, thereby supporting demand for auto components in India. Almost all vehicle segments would log robust production growth between FY23 and FY28. The company’s experience in developing complex critical safety systems and solutions has led to established relationships with several customers. The component manufacturer has served the top six 2W OEMs (in terms of production volume and value for FY23) for more than 16 years as of June 30, 2023. ASK Automobile’s profit grew at a CAGR of 28.6% during the FY21-23 period to reach Rs. 6,037.4 million in FY23, demonstrating robust financial performance and positioning them for future growth. The company’s strategic focus to strengthen its position in the EV market and leverage its experience in developing AB systems and ALP solutions is helping them develop new products for OEMs. This has enabled the company to achieve further weight reduction, enhanced performance and improved vehicle acceleration via high-performance driveline products and improved efficiencies, positioning it firmly in the market. On the valuation front, the issue is valued at a P/E of 39.8x on the upper price band based on Q1FY24 annualised earnings. We recommend a “SUBSCRIBE” for the benefit of listing gains for the issue, as most of the positives seem priced in the offering.

PETL has successfully adapted to technology advancements through continuous investments in new technologies and capabilities and by developing sophisticated technology architecture. Their domain knowledge for various industries has allowed them to create functionalities that address the requirements of end-users, businesses and public entities. PETL clients benefit from its delivery model, significant experience across various technologies, industry knowledge, project management expertise and proprietary software engineering tools. The company was a pioneer in the e-governance sector in terms of profitability, operating income, and operating profit in FY23. It is a professionally managed company led by an experienced senior management team whose expertise and industry experience have helped it grow operations and innovate services. The company has a track record of sustained revenue and PAT growth, growing at a CAGR of 10.9% and 7.8% during the FY21-23 period. Further, building capability around data analytics, healthy financial performance, diversifying offerings with a focus on new sectors and expanding into more contemporary geographies are key growth drivers for the IT company’s performance in the long term. The issue is valued at a P/E of 29.9x on the upper price band based on FY23 earnings, which we feel is fairly valued. We, therefore, recommend an SUBSCRIBE rating for the issue.

India’s financial inclusion has improved significantly from 2014 to 2021 as the adult population with bank accounts increased from 53% to 78% (Source: Global Findex Database) due to the Indian government’s efforts to promote financial inclusion and the proliferation of supporting institutions. To promote financial inclusion, the Indian banking industry has seen several changes in recent years. NBFCs such as Bandhan and IDFC received permission to set up universal banks. Also, a few microfinance companies, a local area bank, an NBFC, and one urban co-operating bank have received permission to set up small finance banks. Despite its larger contribution to GDP of 47%, the rural segment’s share in credit remains relatively low at around 8-9% of the overall credit outstanding as of March 31, 2023. This provides a vast market opportunity for SFBs and other players present in the segment. With their microfinance experience, SFBs can manage local stakeholders and maintain operational efficiency. SFBs’ cost of funds is substantially low as they are allowed to raise CASA deposits. This will also help it to lend at more reasonable rates to its customers, enhancing its cross-sell opportunity in terms of asset products, insurance, etc. ESAF SFB was the fifth largest SFB in India in terms of AUM as of June 30, 2023. Amongst the SFBs, ESAF posted the fastest AUM CAGR of 39% over FY2021-23 period. The SFB’s capital adequacy ratio, which is the ratio of capital to risk-weighted assets and current liabilities, as at June 30, 2023, was 20.6%, which is the best asset quality amongst comparable peers as of June 30, 2023. As the lender will utilise the net proceeds of the fresh equity shares issue to augment its Tier-I capital base, its capital adequacy will enhance and lead to a stable leverage position. At the current P/BV multiple of 1.6x, we believe the company is attractively valued and advise investors to “Subscribe” from a medium to long-term perspective.

The BPC products market in India is undergoing a fundamental re-industrialization owing to the convergence of technology, demographic dividend, and growing consumer aspirations. Moreover, India’s per capita spend on BPC products is currently one of the lowest in comparison to some of the other developing countries and is at the cusp of growth as GDP per capita nears USD 2,000, which is a critical inflection point as observed in other developing economies. Honasa’s focus on building thoughtfully designed and purpose-driven brands has helped it cultivate trust, brand resonance, and affinity among its consumers and has enabled them to grow its business, as demonstrated by the growth of Mamaearth which has become the largest brand in the Direct-to-Consumer (DTC) BPC market in India within six years of its launch. Honasa, through its strategic focus on cultivating thoughtfully curated and purpose-centric brands, has effectively fostered consumer trust, brand resonance, and affinity, demonstrated in the rapid ascension of Mamaearth as the foremost player in India’s DTC BPC domain within a mere six-year span. Bolstered by a commendable gross margin of over 70% and an asset-light business model, the company has charted an impressive trajectory marked by exponential growth over the last half-decade, indicating promising future prospects. However, along with its recent attainment of profitability, the organization’s ongoing struggle to fortify its bottom line and ensure sustainable earnings growth demands cautious consideration. Honasa reported a revenue CAGR of 80% during FY21-23 period to reach Rs. 14,927 million vs. 28% CAGR for other BPC companies and it swung to a EBITDA of Rs. 228 million in FY23 from a loss of Rs. 13,340 million posted in FY21. Based on its annualized FY24 EPS, the IPO appears to be aggressively priced at 97x, discounting all immediate positive factors and seems like the company is leveraging its proven track record to justify a premium valuation. We, therefore, recommend an “AVOID” rating for the issue and would revisit the company following consistent and sustainable improvement in profitability. 

The Indian retail market has historically been characterized as largely fragmented and unorganized. By FY27, the total retail and organized retail are expected to reach USD 1,418 billion and USD 325 billion, respectively, exhibiting a CAGR of around 11% and 24% for total and organized retail, respectively, during the FY22-27 period. The emerging economies like India have a growing middle class willing to explore modern retail and seek organized retail formats as they offer both awareness and access to global brands. Cello has a diverse range of products across different product categories, types of material and price points, enabling it to serve as a “one-stop-shop”, with consumers across all income levels. Cello’s extensive product range spans Drinkware, Insulatedware, Dinnerware, Serveware, and Glassware, and across categories like Cleaning supplies, Stationery, Small kitchen appliances, Moulded furniture, and Air coolers. Cello’s utilization of various raw materials across its wide product range helps safeguard profit margins when facing fluctuations in raw material prices. By leveraging a mix of materials based on market dynamics, the company has adapted and prioritized those with more stable or favourable pricing, effectively managing costs and preserving margins. Moreover, Cello benefits from a distribution advantage due to its large off-take per retailer. Retailers, too, find it advantageous to stock Cello’s products due to the comprehensive range, enabling them to fulfil diverse customer demands through a single brand. This results in higher sales volume per retailer. The company’s revenue from operations grew at a CAGR of 30.8% during the FY21-23 period to reach Rs.17,966.95 million in FY23. Also, their profit grew at a CAGR of 31.2% during the FY21-23 period to reach Rs. 2,850.55 million in FY23. Cello World had the highest ROCE among its peers in FY23, at 44.5%. The issue is valued at a P/E of 44.4x on the upper price band based on FY23 earnings, which is fairly valued compared to the average industry P/E of 45.5x. We, therefore, recommend a “SUBSCRIBE” for the benefit of listing gains for the issue.