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TBO Tek Ltd. : SUBSCRIBE

  • Date

    08th May 2024 - 10th May 2024

  • Price Range

    Rs. 875 to Rs. 920

  • Minimum Order Quantity

    16

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Price Lot Size Issue Date Issue Size
₹ 875 to ₹ 920 16 08th May, 2024 – 10th May, 2024 ₹1,550.81 Cr

Company Overview

TBO Tek Ltd. stands as a pivotal aggregator within the travel industry, bridging the gap between over 750 airlines and approximately 1 million hotels worldwide, and an extensive network of buyers comprising travel agencies and independent travel advisors. Its modular approach, offering tailored solutions to meet specific needs, coupled with an asset-light model, underscores its scalability and potential for launching innovative solutions, thereby fostering a network effect. This platform has witnessed robust growth, with a remarkable 24.7% revenue and 43.7% EBITDA CAGR over the period spanning FY2019-23. At its core, TBO Tek addresses the challenges of discovery, reliability, transactions, and service in the travel sector by consolidating global travel supply and demand onto a single platform. The company’s platform facilitates seamless transactions between buyers and suppliers, overcoming the inherent fragmentation prevalent in both segments of the travel market. This fragmentation extends beyond hotels and airlines to ancillary services such as car transfers and sightseeing, further accentuating the need for a unified platform. Similarly, on the buyer side, there are ~1.5-2 million estimated buyers (travel agencies, independent travel advisors, etc) to whom customers reach out depending upon their needs. TBO Tek operates as a synergistic enabler rather than a disruptor for travel suppliers and buyers. Airlines and hotels perceive the company as an extended distribution arm, aiding their expansion into smaller but fast-growing markets rather than posing as competition. Meanwhile, the platform empowers travel agents to digitize their operations, enhance inventory visibility and enable access to deals on par with larger entities. In a landscape characterized by persisting market fragmentation and increasing market friction, TBO Tek emerges as a vital solution provider, driving efficiency and connectivity within the global travel ecosystem.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Strengthening of the platform by adding new buyers and suppliers;
  • Leveraging data procured to offer bespoke travel solutions to our Buyers and Suppliers;
  • Unidentified inorganic acquisitions and general corporate purposes. 

Investment Rationale:

Synergistic growth enabled by scalable technology platform

TBO Tek’s platform operates as a dynamic ecosystem, fostering synergistic relationships between suppliers and buyers through interlinked flywheels. The first flywheel, powered by network effects, leverages the platform’s global partner network to attract both buyers and suppliers. As the buyer base expands, it catalyzes additional demand, leading to a surge in transactions and the attraction of more suppliers. This influx of suppliers enhances product offerings, improves pricing, and increases supply volume, thereby further enticing buyers to join the platform. This positive feedback loop accelerates transaction growth, outpacing the rate of buyer acquisition and continuously expanding the partner base across diverse markets and product categories. Simultaneously, the second flywheel, driven by data insights, fuels learning effects that optimize the platform and deepen relationships with partners. Through sophisticated data analytics, the platform refines search results, customizes offerings, and provides optimal pricing, thereby enhancing the platform experience for both buyers and suppliers. These improvements foster greater engagement and relevance for buyers, leading to increased transaction rates and the expansion of product offerings. As buyers transact across multiple products, the platform’s value proposition grows, attracting further interest and participation. Moreover, TBO Tek Ltd’s modular and scalable proprietary technology platform adds a layer of agility and adaptability, enabling the swift addition of new lines of business, markets, and travel products. This modular design facilitates the development and launch of tailored solutions, leveraging core capabilities to quickly penetrate new markets with minimal investment. The platform’s scalability is further exemplified by its global expansion playbook, which has successfully penetrated markets in the Middle East, Latin America, and APAC regions. The platform’s ability to rapidly scale and adapt to diverse market needs positions TBO Tek as a leader in the travel and tourism industry, with a competitive edge over new entrants who may face greater challenges in replicating its capabilities.   

Harnessing data for strategic growth and operational excellence

With a keen focus on harnessing the power of data, TBO Tek has developed a robust infrastructure, including an enterprise-wide data warehouse, to capture, curate, and analyze vast volumes of information. TBO Tek’s data flywheel generates invaluable insights that fuel operational enhancements and deepen relationships with partners. By analyzing user behaviour, search patterns, and transactional data, the company gains a profound understanding of user preferences and market trends. This helps in searches translating to bookings, which lead to high cross-selling and upselling opportunities (buyer booking of those using >1 product increasing from ~21% in FY21 to ~58.5% in FY23). This leads to buyer retention with increasing wallet-share (retention at ~37.2% in year 6 after on boarding and GTV increasing to 5.29x of year 1 GTV), transaction growth and reducing cost of serving new transactions on technology automation, thereby enabling to generate high operating leverage. The high operating leverage reflects in EBITDA, which registered a CAGR of ~43.7% over FY2019-23 period with margins reaching from ~9.7% to 17.1% over the same period and ~19.4% in Q1 FY24. This iterative learning and improvement process creates a more engaging platform experience, driving increased transactions and further reinforcing the network effect. Beyond operational enhancements, TBO Tek monetizes its data assets by refining the platform for partners and integrating additional insights. For instance, the platform’s search algorithms are tailored to display results based on traveller profiles and nationality, facilitating informed decision-making for buyers. Furthermore, data-driven decision-making permeates across all levels of the organization, empowering teams with actionable insights for sales forecasting, dynamic pricing, and marketing analytics. This democratization of data fosters agility, innovation, and a culture of continuous improvement within the company. Moreover, the company’s capital-efficient business model and sustainable growth underscore its financial resilience and operational effectiveness. TBO Tek’s impressive trajectory of adjusted EBITDA, growing from Rs. 22.7 crores in Fiscal 2021 to Rs. 199 crores in Fiscal 2023, reflects its ability to generate strong cash flows and deliver shareholder value. Additionally, TBO Tek exhibits strategic acumen in acquiring complementary travel assets, such as Island Hopper and BookaBed, to bolster its partner network and enhance capabilities in key markets like the Maldives, the UK, and Ireland. These targeted acquisitions strengthen TBO Tek’s market position and unlock synergies and growth opportunities across its ecosystem.

Valuation

TBO Tek presents a compelling investment opportunity, buoyed by a host of qualitative advantages and robust financial performance indicators. The company’s extensive data reservoir and adeptness in monetizing this invaluable asset position it strategically for future growth and innovation. Leveraging its capital-efficient business model, TBO Tek has consistently delivered strong returns on equity and assets, signaling operational excellence and financial prudence. Notably, its focus on the B2B scalable platform business provides the company an edge in catering to high-value clients, fostering deeper relationships, and driving sustained growth. Over the past three years, TBO Tek has witnessed remarkable revenue growth, with FY23 revenues soaring nearly 650% over FY21, complemented by a remarkable net margin of 13.95% in the latest year. The company’s turnaround from losses in FY21 to substantial net profit in FY23 underscores its resilience and adaptability in navigating market dynamics. Impressively, the return on equity (ROE) stands at an attractive 44.04%, while the return on assets (ROA) is a commendable 5.81%, reflecting efficient capital utilization and value creation for shareholders. Despite a relatively low asset turnover, TBO Tek’s focus on margin optimization has been instrumental in sustaining profitability and driving operational efficiency. From a valuation perspective, while the initial P/E ratio of 65x may appear elevated, it aligns with industry standards for digital e-commerce platform businesses. However, the extrapolated FY24E EPS indicates a more reasonable P/E ratio of 45x. The company’s ability to maintain high growth and profitability, coupled with its fine-tuned business model, instils confidence in its long-term prospects. As TBO Tek continues to monetize its digital platform and capitalize on emerging opportunities, the company is poised to emerge as a formidable player in the digital commerce landscape. We, therefore, recommend a SUBSCRIBE rating for the issue.

Aadhar Housing Finance Ltd. : SUBSCRIBE

Aadhar-Housing-logo
  • Date

    08th May, 2024 - 10th May, 2024

  • Price Range

    Rs. 300 to Rs. 315

  • Minimum Order Quantity

    47

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Price Lot Size Issue Date Issue Size
₹ 300 to ₹ 315 47 06th May, 2024 – 08th May, 2024 ₹3,000.00 Cr

Company Overview

Aadhar Housing Finance Ltd. (Aadhar) is one of India’s largest low-income housing finance companies. It serves the home financing needs of low-income sections of society and endeavours to empower underserved millions to own their first homes. The company has a well-established network of 487 branches, including 109 sales offices across 20 states and union territories. As of December 31, 2023, the company operated in 10,926 pin codes across India, which helped it to reach more than 90% of the country’s population and provide credit solutions that make homeownership accessible to everyone. The company secures financing from various sources, including term loans and cash credit/working capital facilities, proceeds from loans assigned, proceeds from the issuance of NCDs, refinancing from the NHB, and subordinated debt borrowings from banks, mutual funds, insurance companies, and other domestic development financial institutions, to meet capital requirements. The top five states and union territories in terms of contribution to AUM collectively accounted for 62.0% of AUM as of March 2023. According to CRISIL, the cumulative share of top five states in terms of AUM is much lower than other players in the peer set. The company has robust and comprehensive systems and processes for underwriting, collections, and asset quality monitoring. These systems and methods are technology-enabled across the front and back offices to digitize a loan’s entire life cycle from origination to closure. The loan applications from salaried customers go through regional processing units (“RPUs”) which increases efficiency, while those from self-employed customers, which require a close understanding of the customer and their cash flows, are managed regionally.

Objects of the issue:

The offer comprises fresh issue and offer for sale. The net proceeds from the fresh issue will be used towards the following purposes:

  • Meeting future capital requirements towards onward lending; and
  • General corporate purposes. 

Investment Rationale:

Focused on the low-income housing segment in India and has the highest AUM and net worth among peers

Aadhar Housing Finance Limited is a housing finance company primarily focused on providing financial assistance to the low-income housing segment in India. According to CRISIL, the company had the highest AUM and net worth among analyzed peers in the nine months ended December 31, 2023. The company’s gross AUM increased from Rs. 133,271.0 million in FY21 to Rs. 147,777.9 million in FY22 and Rs. 172,228.3 million in FY23. With a widely dispersed branch and sales office network, no state accounts for more than 14.0% of gross AUM, while the top two states account for 27.6% of gross AUM as of December 31, 2023. Aadhar Housing Finance believes that its scale and diversified reach makes it well-positioned to cater to the specific needs of target customers across geographies in urban and semi-urban areas. The company primarily serves the underserved category of low-income or mid-income customers who may be salaried, working in the informal sector, or self-employed and running a small business. This presents a unique opportunity for them to leverage their position as the leading HFC focused on the low-income housing segment in terms of AUM and net worth and be the lender of choice for customers from this segment. Further, the low-income housing segment also benefits from various government and regulator initiatives to promote the construction of affordable housing projects and enable financing for customers of such projects.

Strong systems and processes for underwriting, collections and monitoring asset quality to improve collection efficiency 

Aadhar Housing Finance has implemented a robust and comprehensive credit assessment, risk management, and collections framework to identify, monitor, and manage risks inherent in operations. They exclusively finance retail customers, mostly salaried individuals purchasing residential properties. Under this policy, the company routinely monitors performance against qualitative and quantitative metrics. These include capital, profitability, asset quality, credit, operational, liquidity, and compliance risk. They have split the underwriting process so that underwriting for salaried customers is undertaken at RPUs for quick turnaround and processing. All other customer segments at the branch level have specialized teams for credit underwriting, technical and legal due diligence, and fraud control. They have an experienced team of credit managers across branches to undertake credit assessments. The company’s well-defined systems and processes, along with proper checks and balances, enable credit approvals to be done by the appropriate underwriting authority. The company also streamlined sanction, pre-disbursement, and post-disbursement processes on the IT platform, which cover the entire customer lifecycle, from lead generation, credit underwriting, legal and technical processes to loan disbursement, monitoring, and collections. This continuous engagement led to gradual improvement in quarterly collection efficiencies. 

Valuation and Outlook:

Aadhar Housing Finance focuses on the low-income housing segment, serving economically weaker and low-to-middle-income customers requiring small-ticket mortgage loans. The company operates a financially inclusive and customer-centric lending business and believes that its business model contributes significantly to the economic uplift of target customers by improving their standard of living. Housing loans are considered a safer asset class than other asset classes, such as vehicle loans, construction equipment loans and personal loans, as borrowing is usually for a self-occupied residential property of the borrower where the propensity of default is relatively lower. The company’s financial performance has remained consistent and resilient through various cycles in the Indian economy. The overall growth, portfolio performance, asset quality, and continued profitability during these periods demonstrate the strengths of the business and management team. On the financial front, Aadhar Housing Finance reported the second-highest return on equity in FY23 at 15.9%, followed by Aavas Financiers (14.1%) and Home First Finance (13.5%). During the same period, it also reported the third lowest employee cost at 2.10% in FY23 among the peers compared. Among the peer sets analyzed, Aadhar Housing Finance reported annualized yield on advance and return on equity at 14.2% and 18.4%, respectively, in nine months ended December 31, 2023. As we advance, we expect operational performance to improve, led by the dominant low-income housing segment, low cost of borrowing, and higher return ratio among peers. At a higher price band of Rs. 315, the stock is valued at 3.1x P/BVPS on FY23 book value, which we feel is fair compared to its peers. We, therefore, recommend a SUBSCRIBE rating for the issue.

Key Risks

  • The company is vulnerable to interest rate volatility and may face interest rate and maturity mismatches between assets and liabilities in the future which may cause liquidity issues.
  • The company’s inability to comply with the financial and other covenants under its debt financing arrangements could adversely affect its business, results of operations, and financial condition.

Indegene Ltd. IPO Detail : SUBSCRIBE

Indegene
  • Date

    06th May, 2024 - 08th May, 2024

  • Price Range

    Rs. 430 to Rs. 452

  • Minimum Order Quantity

    33

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Price Lot Size Issue Date Issue Size
₹ 430 to ₹ 452 33 06th May, 2024 – 08th May, 2024 ₹1,841.76 Cr

Company Overview

Indegene is a provider of digital-led commercialization services for the life sciences industry, including biopharmaceutical, emerging biotech and medical devices companies and the sales and marketing of their products. Their solutions enable life sciences companies to develop products, launch them in the market, and drive sales through their life cycle in a more effective, efficient and modern manner. The company achieves this by combining over two decades of healthcare domain expertise and fit-for-purpose technology. Their portfolio of solutions covers all aspects of commercial, medical, regulatory, and R&D operations of life sciences companies. The company’s Enterprise Commercial Solutions and Omnichannel Activation Solutions cater to the commercial functions of life sciences companies, while their Enterprise Medical Solutions and Enterprise Clinical Solutions cater to their medical and R&D functions. Their Enterprise Clinical Solutions help drive efficiencies in the drug discovery and clinical trial operations of life sciences companies. They provide consultancy services through their subsidiary, DT Associates Ltd., under the DT Consulting brand. The company has established client relationships with each of the 20 largest biopharmaceutical companies in the world. Since its inception, Indegene has completed a total of 13 acquisitions and has enjoyed synergistic benefits from each of them. As of December 31, 2023, Indegene had 65 active clients whom they deliver solutions from their six operation hubs and 17 offices located across North America, Europe and Asia.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Repayment/prepayment of indebtedness of one of material subsidiaries, ILSL Holdings, Inc
  • Funding the capital expenditure requirements of company and one of material subsidiaries, Indegene, Inc
  • General corporate purposes.  

Investment Rationale:

Strong digital capabilities and in-house developed technology portfolio to propel growth

The company claims strong digital capabilities and an in-house developed technology portfolio that is set to drive its growth. At the core of their solutions are proprietary tools and platforms that have been developed in-house. These applications automate and create AI-based efficiencies using AI, ML, NLP, and advanced analytics capabilities, which are core components of their solutions. These proprietary “NEXT”-branded tools and platforms drive transformation across the commercialization lifecycle of biopharmaceutical products and medical devices. They aim to drive efficiency, effectiveness, and quality in various life sciences companies’ R&D and commercialization processes. The company has a dedicated team of 650 individuals supporting technology innovation. They have also built a Gen AI workbench that interfaces their technology team and life sciences subject matter experts (“SMEs”). Their technology team evaluates different Gen AI models and develops the technology infrastructure. Their SMEs can interact with this workbench using natural language and contextualize Gen AI for various business use cases.  Their NEXT suite of tools and platforms helps them drive enterprise outcomes at scale in content management, safety and pharmacovigilance, regulatory intelligence and planning, customer data management and advanced analytics, clinical trials and workflow management. Thus, we believe that the company is poised to transform the life sciences industry and drive its growth.  

Established long-standing client relationships to drive business performance 

Indegene has built long-standing relationships with marquee biopharmaceutical companies, including each of the 20 largest biopharmaceutical companies globally by revenue for FY23. They typically enter into Master Service Agreements (MSAs) with clients ranging from 1 to 3 years, which broadly set out terms of their engagements, and they execute separate work orders for individual engagements setting out commercial terms. Due to the sticky nature of their solutions, recurring revenues account for a high proportion of their total revenues. Their retention rates were 122.83%, 159.89% and 129.90% for the financial years 2023, 2022 and 2021, respectively. The company’s operations are centred around their clients’ revenue-generating activities rather than managing cost centres, in contrast to several broad-based service providers. This allows them to develop strong and lasting relationships, ensuring revenue visibility for the company.

Valuation and Outlook:

Indegene has developed various tools and platforms, including applications that automate and create AI-based efficiencies in developing commercial assets, regulatory documents, and medical content. In addition, they have applications that assist in managing various processes of their clients’ workflow. The company provide domain expertise that helps them contextualize the use of technology to, among other things, optimize sales and marketing costs, drive omnichannel activation at scale, enable faster recruitment of patients for clinical trials and accelerate the time taken to make regulatory submissions. The company also continuously pursues acquisition opportunities that fall in capability buys, technology play, and efficiency play. Since its inception, Indegene has completed 13 acquisitions. The acquisitions have helped it access new technologies, markets and clients and have helped expand the range of solutions it offers to its clients. The company also has a record of sustained consolidated revenue from operation, growing at a CAGR of 54.5% during FY21-23. Going ahead, the improvement in operational performance is anticipated to be driven by strengthening their go-to-market approach through deepening relationships with existing clients, establishing new client relationships, strengthening new market segments, focusing on high-value opportunities, and scaling promising business verticals. The issue is valued at a P/E of 31.3x on the upper price band based on FY24E earnings, which we feel is fairly valued. We, therefore, recommend a SUBSCRIBE rating for the issue. 

JNK India Limited IPO (JNK India IPO) Detail : SUBSCRIBE

JNK India Limited IPO (JNK India IPO) Detail
  • Date

    23rd Apr, 2024 - 25th Apr, 2024

  • Price Range

    Rs. 395 to Rs. 415

  • Minimum Order Quantity

    36

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Price Lot Size Issue Date Issue Size
₹ 395 to ₹ 415 36 23rd April, 2024 - 25 Apr, 2024 ₹649.47 Cr

Company Overview

Incorporated in June 2010, JNK India Ltd. is in the business of manufacturing the process fired heaters, reformers, and cracking furnaces (together, the “Heating Equipment”) that are required in process industries such as for oil and gas refineries, petrochemical and fertilizer industries. They have capabilities in thermal designing, engineering, manufacturing, supplying, installing, and commissioning heating equipment and cater to both domestic and overseas markets. The company has diversified into flares and incinerator systems and has been developing capabilities in the renewable sector with green hydrogen. Heating equipment is required in process industries such as oil and gas refineries, petrochemicals, fertilizers, hydrogen and methanol plants, etc. Domestically, the company has completed projects in Andhra Pradesh, Assam, Bihar, Karnataka, Kerala, Maharashtra, Tamil Nadu, and West Bengal. Globally, the company has completed projects in Nigeria and Mexico. The company has successfully completed projects in far-reaching locations like Numaligarh, Assam; Kochi, Kerala; Barauni, Bihar in India and an overseas location at Lagos,
Nigeria. Further, the company has ongoing projects in Gujarat, Odisha, Haryana, Rajasthan in India and globally in Oman, Algeria, and Lithuania. As of December 31, 2023, JNK India has served 21 customers in India and 8 customers overseas. Further, 7 out of the 12 oil refining companies in India are its customers and the company has supplied or is in the process of supplying heating equipment to 11 of the 24 operating oil refineries across India.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Offer for sale – Rs. 300 crores;
  • Funding working capital requirement of the company – Rs. 262.7 crores;
  • General corporate purposes – Rs. 87.3 crores.

Investment Rationale:

Established track record and customer confidence position JNK to seize industry growth opportunities

JNK India Ltd. has built a robust reputation over the past decade, showcasing a successful track record in completing heating equipment projects for a diverse clientele spanning industries such as oil and gas refineries, petrochemical, and fertilizer sectors. The company’s commendable performance has been acknowledged both domestically and internationally, with recognition for timely project completion and adherence to safety standards. By serving a broad spectrum of clients including major players like Indian Oil Corporation Limited, Tata Projects Limited and overseas entities, JNK has established a solid foundation of trust and reliability within the industry. This extensive experience, coupled with a commitment to customized solutions and on-time execution, positions the company as a preferred partner for heating equipment needs, offering a competitive edge in a market with limited players. JNK India Ltd. is strategically positioned to capitalize on the burgeoning demand within the Indian refinery, petrochemical, and fertilizer segments, driven by factors such as increased domestic consumption and global market opportunities. With numerous projects expected to be commissioned in the coming years, the company stands to benefit from the estimated demand of approximately Rs. 45,000 million annually between Fiscal 2024 and Fiscal 2029. Additionally, the global expansion of oil and gas refinery capacities present further growth prospects, with JNK India Ltd. leveraging its partnership with JNK Global to access larger project opportunities. As a key player in the process-fired heaters market, characterized by high entry barriers and stringent industry standards, JNK India’s expertise in thermal designing, engineering, and manufacturing positions it as a trusted supplier of critical heating equipment. With a dedicated
team of experienced professionals and stringent quality assurance measures in place, the company is well-equipped to meet the evolving needs of its clientele and capitalize on the industry’s growth trajectory.

Diversification driving market expansion; Financial performance reflecting stability and growth

JNK India’s strategic move to diversify its product portfolio beyond traditional heating equipment into waste gas handling systems and renewable energy systems marks a pivotal step towards expanding its market presence and enhancing profitability. By catering to a wider array of industries such as oil and gas refineries, petrochemicals, fertilizers, and renewable energy, the company has unlocked new avenues for growth and revenue generation. The expansion into waste gas handling systems,
including flares and incinerators, taps into the growing demand for efficient waste management solutions across refinery, petrochemical, and fertilizer plants.

With an estimated demand of approximately Rs. 10,750 million annually from refineries alone between CY23 and CY28, JNK India Ltd. stands poised to capitalize on this lucrative segment. Furthermore, the foray into renewable energy systems aligns with India’s ambitious renewable energy targets, presenting substantial growth opportunities in the evolving energy landscape. Leveraging its engineering capabilities and the technical expertise of JNK Global, the company is strategically positioned to capitalize on the burgeoning renewable energy sector in India, characterized by significant investments and favorable government policies. This diversification strategy not only expands JNK India’s market reach but also reinforces its competitive position in the industry, positioning it for sustained growth in the years to come.

Additionally, JNK India’s demonstrated financial performance underscores its resilience and growth trajectory, with impressive revenue, EBITDA, and profit after-tax growth over the last three fiscal years. Achieving a commendable CAGR of 72.0%, 68.1%, and 67.8% for revenue from operations, EBITDA, and profit after tax, respectively, for FY2021-23 period, the company has showcased robust financial performance driven by its strategic initiatives and operational efficiency. Furthermore, the substantial order book value of Rs. 8,450.3 million as of December 31, 2023, representing 2.50 times the revenue from operations for the same period on an annualized basis, reflects strong revenue visibility and underscores the company’s ability to secure and execute projects successfully. With the majority of the order book attributed to the Indian market and supplemented by overseas contracts, JNK is well-positioned to capitalize on its established track record and competitive edge to sustain momentum in its business operations.

Valuation and Outlook:

JNK India stands at the forefront of the heating equipment sector, poised to leverage the growing demand within the oil and gas industry. While the rise of renewable energy presents a potential challenge, the company’s strengths and strategic partnerships position it well to navigate these dynamics. Operationally, JNK India benefits from its strategic collaboration with JNK Global, a major player in the processfired heater production industry with a 16% global market share. This collaboration provides JNK India with access to overseas markets and strengthens its position in the domestic heating equipment market. Moreover, the industry’s high entry barriers, characterized by stringent quality norms and high switching costs, fortify the company’s market position and limit competition. Over the three years from FY21 to FY23,
the company achieved an average return on equity (ROE) of 53% and a return on capital employed (ROCE) of 58%. Although there was a slight dip in the nine months ending December 2023, with ROE and ROCE at 28% and 27%, respectively, these figures underscore the company’s robust financial performance. Furthermore, JNK India’s working capital-intensive nature is mitigated by the IPO proceeds, ensuring that the company does not rely on external funding for the next three years. Regarding market dynamics, the expansion of refinery and petrochemical capacities globally bodes well for JNK India’s future growth prospects. The company is well-equipped to meet domestic heating equipment demand independently, while its partnership with JNK Global ensures its competitiveness in overseas markets. Moreover, JNK India’s asset-light operations and dominant share in the domestic market position it favorably to capitalize on the medium-term demand growth. In terms of valuation, despite demanding a P/E multiple of 49.8x at the higher price band, JNK India presents an attractive proposition, given the company’s unique product profile and promising growth prospects. Considering the financial metrics, market dynamics, and valuation multiples, we maintain a positive outlook on JNK India Ltd. Therefore, we recommend a “SUBSCRIBE” rating for the issue from a medium to long-term perspective.

Bharti Hexacom Ltd IPO : SUBSCRIBE

BHARTI HEXACOM LIMITED
  • Date

    03rd Apr, 2024 - 05th Apr, 2024

  • Price Range

    Rs. 542 to Rs. 570

  • Minimum Order Quantity

    26

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Price Lot Size Issue Date Issue Size
₹ 542 to ₹ 570 26 03rd April, 2024 - 05 Apr, 2024 ₹4275 cr

Company Overview

Bharti Hexacom is a communications solutions provider offering consumer mobile services, fixed-line telephone and broadband services to customers in the Rajasthan and North-East telecommunication circles in India, which comprises the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura. The company offers services under the brand ‘Airtel’. The company is      continuously investing in network expansion, technology advancement and judicious spectrum     investments. As of December 31, 2023, the company had invested Rs. 20,600 crores in capital    expenditure in its future-ready digital infrastructure. The company also derives significant synergies from its relationship with its promoter, Airtel, through its expansive digital infrastructure, digital      experience, and services it provides to its customers. As of December 31, 2023, Bharti Hexacom was present at 486 census towns and had an aggregate of 27.1 million customers across both     circles. The company’s customer market share has grown consistently in Rajasthan from 33.1% as of FY21 to 35.0% on 9MFY24 and in the Northeast from 43.6% to 49.8% during the same period.    Further, the company’s customer base included 19,144k data customers, of which 18,839k were 4G and 5G customers, and data consumption per customer per month stood at ~23.1 GB during 9MFY24. Bharti Hexacom’s robust network infrastructure consists of 24,874 network towers, of which it owns 5,092 towers. Further, the company has a spectrum portfolio with a varied pool of mid-band spectrum (1800/2100/2300 MHz bands), enabling it to offer 5G Plus services on the widely chosen non-standalone network architecture and at a low cost of ownership. This has enabled the company to save significant capital towards the sub-GHz spectrum for the 5G rollout and additional capex spent on network infrastructure to deploy the same. As of December 31, 2023, the company’s      extensive distribution network comprised 616 distributors and 89,454 retail touchpoints along with 51 retail outlets and 24 small format stores across 90 cities.\

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

ÞThe company will not receive any proceeds from the offer and all the offer proceeds will be   received by the selling shareholder post deduction of offer-related expenses;

ÞGeneral corporate purposes. 

Investment Rationale:

Established leadership position and large subscriber base to drive business

Bharti Hexacom provides mobile and fixed-line telephone and broadband services to customers in Rajasthan and the North-East telecommunication circles of India. As of December 31, 2023, the company was present in 486 census towns and had 27.1 million customers. The company enjoys extensive market coverage and penetration, evidenced from its number one position in the highly competitive North-East circle alongside a formidable second position in the Rajasthan circle. The digital services that the company provides, along with Airtel and its affiliates, have facilitated its market share growth. Higher Average Revenue Per User (ARPU) compared to competitors in North-East and Rajasthan circles indicate Bharti Hexacom’s ability to efficiently monetize its  subscriber base. The company has invested Rs. 7,100 crores in capital expenditure and deployed 9,805 network sites, as the company plans to focus on key revenue-generating cities and high-value catchment areas and expand the coverage in rural areas. The company’s strategy for fast-paced network coverage expansion, network deployment, and asset-light business model has been backed by partnerships with local cable operators in most of the regions in which it operates. Such arrangements led to the faster rollout of fibre home passes, shortened the time for go-to-market beyond  larger towns and accelerated revenue growth. This has enabled Bharti Hexacom to provide customers with high-speed and reliable broadband connectivity .

Prudent spectrum management and focus on building a future ready network to aid growth

The company has a spectrum portfolio with a varied pool of mid-band spectrum (1800/2100/2300 MHz bands) and spectrum holding in 900 MHz, 3500 MHz, and 26 GHz bands. Following prudent capital allocation and spectrum acquisition, the company is yet to acquire the expensive 700 MHz band for its 5G network.  None of the company’s existing spectrum expires before 2030, and the  validity of the company’s spectrum pool ranges between 2030 and 2042. Further, the company does not expect to incur any significant capex towards spectrum acquisition until the specific spectrum band expires not expect to incur any significant capex towards spectrum acquisition until the specific spectrum band expires. The company’s 5G Plus services are deployed on the recently acquired 3500 MHz band in non-standalone mode with dual connectivity. The non-standalone network deployment has lower capex requirements, low cost of ownership, and reduced environmental impact and has been the widely chosen network architecture, with ~85% of telecom operators worldwide initiating 5G deployment based on such architecture. The company is continuously focusing on its network infrastructure to ensure a superior customer experience.

Valuation and Outlook:

Bharti Hexacom offers services under Airtel, which is widely recognized in India and several overseas jurisdictions. The company believes that the strength of the Airtel brand and advertising campaigns have contributed significantly to its market share growth and helped it to fortify its market position. The company also continues to expand its network coverage across the regions in which it operates, focusing on key revenue-generating cities and high-value catchment areas to increase its customer base and enhance customer experience. For the FY2019-23 period, the industry ARPU for wireless services in Rajasthan grew from Rs. 68 to Rs. 145 at a CAGR of 20.8%, while in the North East circle, it grew from Rs. 74 to Rs. 170 at a CAGR of 23.1%, outperforming the national ARPU growth from Rs.71 to Rs. 142.3 at a CAGR of 19.0% during the same period. These two regions are expected to see improvement in tele density and adoption of smartphones in rural areas through investments in network infrastructure, growth in digital payments, rise in data consumption and    increase in demand for e-education. The company also has a record of sustained consolidated    revenue from operations, growing at a CAGR of 19.6% during FY2021-23. The company is focused on delivering a brilliant customer experience by transforming its services through innovative technology and digital tools, creating a seamless and delightful user experience. The company has adopted an omnichannel strategy which has enabled it to engage with customers anytime, anywhere, thereby seamlessly transitioning between channels. Bharti Hexacom is also undertaking prudent cost optimization measures to improve profitability. One of the key focus areas is prudent capital allocation and improving return on capital employed, which is reflected in the capital expenditure on both spectrum and non-spectrum spending. The issue is valued at a P/E of 75.8x on the upper price band based on FY24 earnings, which is fairly valued. We, therefore, recommend an SUBSCRIBE rating for the issue.

Key Risks

  • The company derives 100% of its revenues from providing consumer mobile, fixed-line telephone, and broadband services to customers in Rajasthan and the Northeast circle only. Any unfavourable developments in such regions could adversely affect its business and financial condition.
  • If company ARPU decreases due to internal factors or industry trends, the company’s profitability may be impacted. Any sustained decrease in ARPU without tariff hikes or failure to retain/add premium customers at existing tariff rates could adversely affect the company’s business, financial condition, and results of operations.
  • The company requires significant capital to fund capital expenditures, and if it cannot raise additional capital, its business, financial condition, and results of operations could be adversely affected

Popular Vehicles and Services Ltd IPO : SUBSCRIBE

Popular Vehicles and Services Ltd IPO
  • Date

    12th March 2024 - 14th March 2024

  • Price Range

    Rs. 280 to Rs. 295

  • Minimum Order Quantity

    50

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Company Overview

Popular Vehicles and Services Ltd. is a diversified automobile dealership company in India that has a fully integrated business model that caters to the complete life cycle of vehicle ownership, right from the sale of new vehicles, servicing and repairing vehicles, distributing spare parts and accessories, to facilitating sale and exchange of pre-owned vehicles, operating driving schools and facilitating the sale of third-party financial and insurance products. The company categorizes its automobile dealership business into three key segments, namely, (a) passenger vehicles including luxury vehicles, (b) commercial vehicles, and (c) electric two-wheeler and three-wheeler vehicles. Th company has over 70 years of experience in the automobile industry with diversified automobile dealerships and a fully integrated business model. The experience and diversity of the management team along with the long-standing presence of the promoter group has enabled the company to become valued partners of each of their OEMs, thereby giving them a distinct competitive advantage in the industry. Considering the segment revenue in the industry, vehicle sales remain the primary source of income for automotive dealers in India, accounting for 60-70% of their revenue. It is followed by service (regular maintenance and repair), which accounts for 20-25% of their revenue. The sale of accessories and insurance/ finance commission account for the remaining 2-7% (for PVs). As a plan to penetrate deeper into existing markets and expand into new markets through both organic growth and acquisitions, the company has acquired various operations of sizeable spare parts and dealer showrooms over the years.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

1). Repayment and/or pre-payment, in full or part, of certain borrowings, availed by the company and certain of its subsidiaries, namely, PAWL, PMMIL, KGPL, KCPL and PMPL; and

2). General corporate purposes.

Investment Rationale:

A fully integrated business model which leads to business stability & higher margin

The company’s diversified automobile dealerships and a fully integrated business model contribute to its position as a leading automobile dealership player in the industry. Apart from benefiting from the inherent synergies arising out of its business verticals, the company’s diversified income streams also contribute to higher profitability margins. The company offers fully integrated services through its authorized service centers that contribute to higher-margin business at each of the dealerships and help mitigate the cyclicality that has historically impacted some elements of the automobile sector. Further, its service centers act as points of renewal for vehicle insurance policies from the second year onwards. The sale of such extended finance and insurance products also helps the company increase its service and spare parts business by building a customer base for future repair work at its locations. The company’s emphasis on selling extended service contracts has bolstered its service and repairs vertical in each of the dealerships by ensuring customer stickiness beyond the term of the standard manufacturer warranty period. The company’s brand mix, distribution reach, and the complexity of modern vehicles, combined with its investment in trained technicians and advanced facilities and its emphasis on selling extended service contracts and synergies across the business segments and verticals has bolstered its business growth.

Consistent track record of profitable financial performance and higher growth

While the growth of the company is driven by the growth of the OEMs, the addition of new OEMs like Bharat Benz, Piaggio, and Ather to the portfolio has benefited the company in recent years. Further expansion of business through an increase in touchpoints across all the states in which the company has an existing presence as well as creating a presence in new states like Maharashtra has contributed to an increase in sales in new geographies. These factors together have led the company to a compounded revenue growth of 65% over FY2021-23 period and an EBITDA growth of 34% over the same period. The company’s ability to consistently demonstrate growth in its business has led to a consistent track record of profitable financial performance. . The growth in the premium category of passenger vehicles from the existing OEMs has helped the company to expand its business and strengthen growth. Also, the growth in demand for electric vehicles in the Indian market and the increase in production of electric vehicles by the company’s OEMs, coupled with the growth in the electric two-wheeler and three-wheeler vehicle sales and services segment has further attributed to the growth of the business.

Valuation and Outlook:

With expectations of outperforming over the medium term, India’s GDP is expected to grow at a CAGR of 6-8% over FY2023-28. Contributing about 7.1% to the country’s GDP, the automobile industry is one of the primary contributors to the Indian economy and is one of the largest automobile markets in the world, with annual domestic sales of over 20 million vehicles in FY2023. To support such growth of the industry, dealerships form an intrinsic part of the automobile sector, playing the role of an intermediary between customers and manufacturers. The dealership plays an indispensable role in the overall vehicle supply chain by providing a local vehicle distribution channel based on a contract with an automaker and providing aftermarket space by providing maintenance services and supplying spares/automotive parts and accessories. From the manufacturers’ perspective, dealers play the crucial role of retail distribution at regional, city, and local levels, and provide manufacturers with customer insights that are useful in the production planning of manufacturers. As of the latest fiscal, there were around 20,000 dealerships with nearly 70,000 touchpoints (including sub-dealerships, customer outreach centers, and authorized representatives of the dealer) across India catering to customers of two-wheelers, PVs, CVs, three-wheelers, and tractors. Typically, two-wheelers dominate the number of dealerships (with 55-60% share), followed by PVs (~15%) and CVs (8-10%) – three-wheelers and tractors account for the rest. Considering various demand drivers such as growth in new PV sales, rise in average vehicle prices, rising financial penetration and digital technology, we remain positive on the automotive dealership business in India. On the financial performance front, the company’s Revenue/EBITDA/PAT grew at a CAGR of 29.8%/20.7%/40.6% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 28.9x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

Gopal Snacks Ltd IPO : SUBSCRIBE

Gopal Snacks Ltd IPO
  • Date

    06th March 2024 - 11th March 2024

  • Price Range

    Rs. 381 to Rs. 401

  • Minimum Order Quantity

    37

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Company Overview

Established in 1999 and having an experience of over two decades in the Indian snack industry, Gopal Snacks Ltd. is an FMCG company in India offering ethnic snacks, western snacks, and other products. The company offers a variety of savoury products such as namkeen and gathiya, western snacks such as wafers along with fast-moving consumer goods that include papad, spices, gram flour or besan, noodles, rusk, and soan papdi under the brand name ‘Gopal’. Leveraging its experience and by understanding the preferences of its customers and target markets, the company has developed a variety of products over the years which has enabled the company to strengthen its foothold in the Indian snacks industry. Having a product portfolio of over 84 products and 276 SKUs under various product categories, the company addresses a wide variety of tastes and preferences. To increase its foothold and expand footprint across India, the company has implemented a distribution management system that helps it to coordinate with its distributors and provides visibility on the inventory levels and distributor sales, enabling the company to optimize its distribution network. The company’s products are being sold in over 523 locations in 10 States and two Union Territories and its distribution network comprises of three depots and 617 distributors. The company has three primary manufacturing facilities and three ancillary manufacturing facilities in India. The primary facility focuses on manufacturing finished products and the ancillary facility focuses on producing besan or gram flour, raw snack pellets, seasoning, and spices which are primarily used for captive consumption in the manufacturing of finished products. The aggregate annual installed capacity of the primary facilities stands at 303,668 MT and 101,060 MT in the case of ancillary facilities. In addition to this, the company engages third-party manufacturers on a need basis to produce its products such as chikki, nachos, noodles, rusk, soan papdi, and washing bars. Over the years, the company has put efforts towards building its brand through marketing and brand-building initiatives, resulting in a positive brand recall among its target audience which has helped the company establish a loyal customer base.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Carry out the Offer for Sale of up to 16,209,476 Equity Shares aggregating up to Rs. 6,500 million by the Selling Shareholders; and
  • Achieve the benefits of listing the equity shares on the stock exchanges.

Investment Rationale:

Strong distribution network a key enabler for market share gains in future

The company has three depots and 617 distributors, which help the company reach retailers located across 10 States and two Union Territories in India, including Gujarat, Maharashtra, and Uttar Pradesh. The company has developed longstanding relationship with a number of its distributors. The company’s distributors have established sales channels with conventional grocery retailers, supermarkets and hypermarkets which helps the company’s products reach the end consumers located in urban, semi-urban and rural regions efficiently. A majority of products are sold through the general trade channel which includes conventional grocery retailers, supermarkets, and hypermarkets. In addition to this, the company’s products are sold through a retail store chain in Gujarat and e-commerce platforms. The company’s products have also started to gain recognition in international markets. In the last three Fiscals and in the six months ended September 30, 2023, the company sold its products to 37 countries including Australia, Kuwait, Saudi Arabia, UAE, and the USA through direct exports

Diversified product portfolio encompasses taste of a wide range of consumers

The company offers a diversified portfolio of savory snacks, including ethnic savories such as namkeen and gathiya and western snacks such as wafers, extruded snacks and snack pellets, that cater to varied consumer tastes and preferences. The company also offers fast-moving consumer products that include papad, spices, besan or gram flour, chikki, nachos, noodles, rusk, soan papdi, and washing bar. During the past few years, , the organized segment has been consolidating its  position in the market for savory snacks through the introduction of new products and product innovations that primarily target urban as well as rural consumers. The company is committed to providing consumers with value products that meet their expectations through quality ingredients and advanced manufacturing techniques. As the company forayed into manufacturing spices and besan or gram flour, which are key ingredients for namkeen and gathiya products, this allowed the company to not only control the quality and consistency of its ingredients but also helped expand its product portfolio by introducing spices and besan or gram flour as standalone products. The expansion into these product categories demonstrates the company’s commitment to advancing its offerings and the dedication to keeping up with industry trends to meet the evolving needs of consumers.

Valuation and Outlook:

Currently, the retail market in India contributes around 10% to the GDP in India which is estimated at Rs. 67.9 trillion in 2023 and is expected to grow at a CAGR of 8.7% to touch approximately Rs. 94.9 trillion by 2027. Among the various retail segments, food and grocery accounts for the maximum share in the retail industry with 63% share and is expected to maintain such dominance.  Various factors such as an increase in disposable income, rising middle-class population, growing preference for packaged foods, emergence of consumerism, and rising sales via e-commerce platforms have led to a rise in retail consumption. Increasing disposable income, the rising population of urban middle-class consumers, and the rising population of working women across the country have led to the surging demand for high-value, pre-packed ‘on-the-go’ and ‘ready-to-eat’ products in India. The per capita spending on packaged food stood at Rs. 3,657 in 2023 and is expected to witness an 11% CAGR growth over the FY2023-27 period. Effectively benefiting from such macro and industry factors, Gopal Snacks Ltd. offers a large variety of savory snacks according to the preferences and tastes of its target customer market. Recording a revenue of Rs 13,946 million in FY23, the company has grown its revenue by 11.5% over the FY2021-23 period. Also the constant reduction of debt over the years have led to better PAT margins and improved return on capital employed during FY2021-23. Having committed to providing consumers with value products that meet their expectations through quality ingredients and advanced manufacturing techniques, Gopal Snacks possesses the perfect mix of macroeconomic opportunities and a well-established brand image that will cater to a robust growth story for the company. On the financial performance front, the company’s Revenue/EBITDA/PAT grew at a CAGR of 11.2%/80.3%/130.6% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 44.5x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

Krystal Integrated Services Ltd IPO : SUBSCRIBE

Krystal Integrated Services Ltd IPO
  • Date

    14th March 2024 - 18th March 2024

  • Price Range

    Rs. 680 to Rs. 715

  • Minimum Order Quantity

    20

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Company Overview

Providing a comprehensive range of service offerings across multiple sectors, Krystal Integrated Services Ltd. is India’s leading integrated facilities management services company, with a focus on healthcare, education, public administration airports, railways and metro infrastructure, and retail sectors. The company is one of the select companies in India that has a wide geographic presence and customer base, catering to almost all end-user segments. The company offers soft services such as housekeeping, sanitation, landscaping, and gardening; hard services such as mechanical, electrical, and plumbing services, solid, liquid, and biomedical waste management, pest control and façade cleaning; and other services such as production support, warehouse management and airport management services. The company also provides staffing solutions and payroll management to its customers, as well as private security and manned guarding services and catering services. The company is also a key solutions provider to the government sector and has a track record of executing large contracts. It is among select companies in India to qualify for and service large, multi-location government projects in sectors such as healthcare, education, airport, railways, and metro infrastructure. Operating on a B2B model and having a wide portfolio of services enable the company to design and deliver a range of customized solutions suited to the specific needs of its customers, which bolsters customer acquisition and retention capabilities. Through such a business model and by understanding the unique requirements and challenges across sectors, the company has built expertise in catering to the healthcare, education, airport, railways, and metro infrastructure sectors. Steering the company over the years, the company has a well-qualified management team that possesses robust experience in various sectors.  

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Repayment/prepayment, in full or part, of certain borrowings availed of by the company;
  • Funding working capital requirements of the company;
  • Funding capital expenditure for purchase of new machinery; and
  • General corporate purposes

Investment Rationale:

Focused business model is well-positioned to capture favorable industry dynamics

Comprising about 73% of the company’s revenue, government projects form a major chunk of the company’s revenue. Having a track record of executing large contracts, the company is among the select companies in India to qualify for and service large, multi-location government projects. With the government prioritizing quality and service delivery for their clients to achieve higher customer satisfaction and an increase in outsourcing of facility management from the government segment, the integrated facility management services market in India is set to benefit from such an industry change. Over the years, the company has built expertise in catering to the healthcare, education, airport, railways, and metro infrastructure sectors, with healthcare and education forming about 57% of the company’s revenue. As a result, the company is set to benefit in the long term with its focused business model and increased government project execution.

One-stop solution provider with a comprehensive range of service offerings

The company under its integrated facilities management offerings provides soft services such as housekeeping, sanitation, landscaping, and gardening; hard services such as mechanical, electrical, and plumbing services, solid, liquid, and biomedical waste management, pest control, façade cleaning; and other services such as production support, warehouse management and airport management services. Having a comprehensive range of integrated facility management service offerings across multiple sectors, the company has a wide geographic presence and customer base, catering to almost all end-user segments. The company has been integrating its service offerings spanning across various sectors which requires shared expertise and investment in terms of technology, equipment, and special manpower training. This has enabled the company to provide a bundled solution of services to each customer that is tailored to their specific needs. The company caters to their requirements with relevant industry expertise and acts as a one-stop integrated solution for customers who consequently do not need to engage with multiple vendors or service providers.

Valuation and Outlook:

Having built expertise in catering to the healthcare, education, airport, railways, and metro infrastructure sectors, the company provides bespoke solutions for integrated facility management requirements. Being a key solutions provider to the government sector, the company is among the select companies in India to qualify for and service large, multi-location government projects. The company is one of India’s leading integrated facilities management services companies, catering to various sectors. With the outsourced integrated facility management market in India expected to grow at a CAGR of 14.6% during FY2023-28 period, the potential market size is estimated to be Rs. 1,935.9 billion. Accounting for almost 88% of the total market size, the public administration, industrial, commercial offices, healthcare, educational institutions, railways, and metro, and airport sectors are expected to drive demand for the market over the longer period. Also, with the growth opportunities arising from the government sector and the staffing and payroll management market, the company is set to derive benefits from the same. By maintaining quality standards for its services and expanding its service offerings to meet evolving industry requirements, the company has built long-term relationships with its customers across sectors. The company also has a competitive advantage as management services require an immense level of expertise, trust, and quality in the provision of service. Filling the gap of such a growing demand, the company emerges as a one-stop solution to cater to the market in the coming years. Considering the financial performance, the company’s Revenue/EBITDA/PAT grew at a CAGR of 22.5%/57.3%/86.7% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 21.5x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

R K Swamy Ltd IPO : SUBSCRIBE

R K Swamy Ltd IPO : SUBSCRIBE
  • Date

    04th Mar 2024 - 06th Mar 2024

  • Price Range

    Rs. 270 to Rs. 288

  • Minimum Order Quantity

    50

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Company Overview

Founded in 1973, R K Swamy Ltd. (RKSL) is engaged in the business of integrated marketing communications, customer data analysis, customer data mining, customer insights mapping, full-service market research and syndicated studies. RKSL is essentially a data-driven, integrated marketing services provider. It successfully leverages the digital and the physical interfaces to offer a full service and 360-degree solution to the clients. It has a very extensive repertoire to its credit of works done. In FY23 alone, RKSL published more than 818 creative campaigns on behalf of its clients across various media platforms. In addition, RKSL also processed over 97.69 terabytes of data and conducted over 2.37 million consumer interviews via quantitative, qualitative, and telephone surveys. The company started as a publicity and advertising agency but has gradually embarked on the full gamut of digital marketing services that are in sync with the needs of modern growth stories. It has an impressive client roster, with some of its premium clients including Dr. Reddy’s Labs, EID Parry, Fujitsu, Gemini Edibles, Havells, IFB Industries, Mahindra & Mahindra, ONGC, Eicher Motors, Hawkins, HPCL, Himalaya Wellness, and Ultratech Cements. Among service industry players, its key clients include Birla Sun Life AMC, Cera, ICICI Prudential Life Insurance, Shriram Finance, and Union Bank of India. Many of its publicity and marketing campaigns have been quite iconic in terms of its impact on customers and the market, apart from the customer mindshare. RKSL currently employs over 2,391 personnel across its 12 offices and 12 field offices.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Funding working capital requirement of the company – Rs. 87 crores;
  • Funding capital expenditure to be incurred by the company for setting up a digital video content production studio (“DVCP Studio”) – Rs. 10.9 crores;
  • Funding investment in IT infrastructure development of the company, and the Material Subsidiaries, Hansa Research and Hansa Customer Equity – Rs. 33 crores;
  • Funding setting up of new customer experience centres (“CEC”) and computer aided telephonic interview centres (“CATI”) of the company – Rs. 21.7 crores; and
  • General corporate purposes.

Investment Rationale:

Strategic integration and diversification propel the company into marketing services landscape

RKSL boasts a rich heritage of over 50 years as a pioneer in integrated marketing services within India. Over the decades, the company has evolved into one of the nation’s leading integrated marketing service groups, offering a comprehensive suite of solutions spanning creative, media, data analytics, and market research services. Grounded in responsiveness to market trends and client needs, RKSL has cultivated enduring relationships with a diverse clientele comprising large corporates, state-owned enterprises, emerging entrepreneurs, and businesses across various sectors. As the marketing landscape continues to evolve, clients increasingly seek streamlined and efficient solutions to address their diverse marketing needs. In response, RKSL’s integrated service model emerges as a compelling value proposition, offering clients a single window for their marketing requirements. By leveraging its interrelated and complementary business segments, the company stands poised to provide comprehensive support across the entire media and marketing value chain. As clients navigate the complexities of modern marketing, the appeal of

Robust track record and client-centric approach bolster the company’s market dominance

RKSL’s exceptional 15-year track record in the Data Analytics and Marketing Technology (MarTech) segment underscores its position as a leader in market research and customer data analytics. Since its inception, the company’s subsidiary, Hansa Customer Equity, has been at the forefront of standalone customer data analytics, servicing over 200 clients across various sectors. Recognized as one of India’s top 50 companies for data scientists to work for by Analytics India Magazine, Hansa Customer Equity exemplifies excellence in the field of data science. With a comprehensive suite of services encompassing Marketing Automation Platforms, Media Planning Tools, and AI-driven insights, RKSL remains at the forefront of innovation in the industry. The company’s ability to deploy various technologies, including machine learning and in-house algorithms, positions it to address clients’ evolving business needs effectively. As the market for customer data analytics and MarTech solutions continues to expand, RKSL anticipates robust growth, with projections indicating significant market expansion by FY28. Furthermore, RKSL’s well-diversified client base and long-standing relationships underscore its market dominance and resilience. With over 4,000 client organizations served and a focus on key sectors such as BFSI, automotive, and FMCG, the company possesses deep domain expertise and a proven track record of delivering value-added solutions. By leveraging the reach and relevance of digital content, RKSL supports clients’ marketing initiatives across online and offline channels, further solidifying its position as a trusted partner in the marketing services landscape.

Valuation and Outlook:

RKSL, with its integrated marketing services approach, is strategically positioned to capitalize on India’s burgeoning digital infrastructure growth spurred by initiatives like the ‘Digital India’ campaign and the expansion of 4G/5G networks. This rapid digital transformation has facilitated increased connectivity, internet penetration, smartphone usage, and digital payments, thereby creating significant marketing opportunities, particularly in rural areas, and fostering industry expansion. Over the past three years, R K Swamy Ltd. has demonstrated robust revenue growth, with sales increasing by nearly 70% in the last two years alone. The company’s profitability metrics reflect this growth trajectory, with net profit margins reaching 10.7% in FY23 and marked a ten-fold increase in net profit over the past two years. Moreover, the impressive ROE of 69.1% and ROA of 10.0% underscore the company’s efficient utilization of resources and strong profitability. From a valuation perspective, R K Swamy Ltd.’s P/E ratio of 41x, based on FY23 earnings, is reasonable considering the industry average P/E of 69x. The inherent nature of the digital marketing analytics business is such that it entails higher initial risk followed by a phased replication model upon successful roll-out. While the IPO presents an opportunity for substantial returns, investors must be prepared for potential cyclical returns and a longer investment horizon. Based on the above positives, we give the issue a “SUBSCRIBE” rating.

Mukka Proteins Ltd IPO : SUBSCRIBE

Mukka Proteins Ltd IPO : SUBSCRIBE
  • Date

    29th Feb, 2024 - 04th Mar, 2024

  • Price Range

    Rs. 26 to Rs. 28

  • Minimum Order Quantity

    535

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Company Overview

Incorporated in 2003, Mukka Proteins Ltd. is engaged in the manufacturing of fish protein products. The principal vertical of the company is the production and supply of fish meal, fish oil and fish-soluble paste. These are essential ingredients for the production of aqua feed (fish and shrimp). In addition, they also go into poultry feed (broilers and layers) and pet food (dog and cat food). Mukka Proteins Ltd. operates six production facilities, with four production facilities located in India (Gujarat and Karnataka) and the remaining two are in Oman in the Middle East. These Oman facilities are owned through the global subsidiary Ocean Aquatic Proteins LLC. Apart from these production    facilities, Mukka Proteins also operates three blending plants and five storage facilities, so the      production process is fully forward and backward-integrated. All these blending and storage facilities are located in India. The company, Mukka Proteins Ltd, also has a very strong export franchise, with most of its blending storage facilities in India located near the coast. The company exports its     products to more than ten countries, including Bahrain, Bangladesh, Chile, Indonesia, Malaysia,  Myanmar, Philippines, China, Saudi Arabia, South Korea, Oman, Taiwan, and Vietnam. As of FY23, the company employed 385 people across its technical, production, marketing, sales, and operations divisions. The company also outsources some of its production on a contract basis.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Investment in Associate, viz. Ento Proteins Private Ltd, for funding its working capital requirements;
  • General corporate purposes. 

Investment Rationale:

Positioned as a leading manufacturer and exporter of fish protein products

Mukka Proteins is dominant in India’s fish protein industry, consistently receiving awards from MPEDA for export performance over the past seven years. The company offer a range of fish protein products, including fish meal, fish oil, and fish soluble paste, catering to various sectors such as aqua feed, poultry feed, pet food, pharmaceuticals, soap manufacturing, leather tanneries, and paint    industries. The company is among the first in India to commercialize insect meal and insect oil,       expanding offerings to include insect protein products. This shows the company’s commitment to innovation and adaptation to changing market demands. With exports to over ten countries, including Bahrain, Bangladesh, Chile, Indonesia, Malaysia, Myanmar, Philippines, China, Saudi Arabia, South Korea, Oman, Taiwan, and Vietnam, Mukka Proteins has been a key player in the global animal  protein market. In FY23, the company contributed 25-30% to the estimated revenue of the Indian fish meal and fish oil industry, indicating a significant market share. The industry’s estimated revenue growth from Rs. 32,000 mn to Rs. 41,000 mn suggests ample opportunities for further expansion and revenue generation. The growing recognition of the nutritional benefits of fish oil, especially Omega-3 supplements, further strengthens the demand  for product & ensures stable revenue in the long term

Established customer base and strong relationships to aid financial performance

Mukka Proteins has established enduring relationships with key customers who are significant aqua feed, poultry feed, and pet food producers. These long-standing partnerships serve as a key differentiator, emphasizing commitment to quality and customer satisfaction. The company’s focus on delivering high-quality products tailored to customer specifications has driven business growth and expanded market presence. This customer-centric attitude has developed existing relationships and enabled acquiring new clients. Over the recent years, Mukka Proteins has consistently expanded its customer base, serving many clients across domestic and international markets. As of September 30, 2023, a substantial portion of customers has been associated with the company for extended periods, contributing significantly to revenue. The export network extends to over ten countries, including Bahrain, Bangladesh, Chile, and China. This diverse international presence underscores the company’s ability to penetrate and thrive in global markets, strengthening the company’s revenue performance. The company’s established customer base, through long-standing relationships and a commitment to quality, global market reach, and consistent revenue contribution from exports, enables the company to take advantage of a robust & attractive investment opportunity in the fish protein industry.

Valuation and Outlook:

Mukka Proteins holds a dominant position in the fish protein industry in India. It offers a wide range of fish protein products, including fish meal, fish oil, and fish soluble paste, catering to various sectors such as aqua feed, poultry feed, pet food, pharmaceuticals, soap manufacturing, leather tanneries, and paint industries. The company also established a strong customer base and enduring relationships with major aqua feed, poultry feed, and pet food producers. The company facilities, being   strategically located, provide access to key raw materials, pelagic fishes such as sardine, mackerel, anchovy, etc., thus minimizing dependency on one particular coastal landing site and fish          catchments. As a manufacturer of fish protein products, these must be pre-approved by customers, as customers’ end products contribute indirectly to human consumption and are typically subject to stringent regulatory and industry standards. The company also has a record of sustained consolidated revenue from operations, growing at a CAGR of 39.3% during FY21-23. We believe that high  entry barriers, consistent financial performance, and innovative products have helped the company to grow its business successfully. As we advance, Mukka Proteins Ltd. presents a persuasive investment opportunity in the fish protein industry, given its strong market position, diversified product   portfolio, and global presence. The issue is valued at a P/E of 9.3x on the upper price band based on FY24 earnings, which is fairly valued. We, therefore, recommend an SUBSCRIBE rating for the issue.