Archives: Ipos

Although India’s household credit penetration on MFI loans has increased, it is still on the lower side. As of FY23, the microfinance industry had clocked a CAGR of 21% between FY2018-23. With economic revival and unmet demand in rural regions, it is expected that the overall portfolio size will reach Rs. 4.9 trillion by the end of the FY25. During FY2023-25 period, NBFC-MFIs are expected to grow at a much faster rate of 25-30% compared with the MFI industry. Key drivers behind the superior growth outlook include increasing penetration into the hinterland and expansion into newer states, faster growth in the rural segment, expansion in average ticket size, and support systems like credit bureaus. Muthoot Microfin has a long-standing track record of high customer retention in loan cycles 2 and 3. Its well-balanced customer distribution across loan cycles indicates a focus on acquiring new customers, as well as retaining existing ones. Muthoot’s group loans (including income-generating loans and Pragathi loans) are based on a group lending model, catering exclusively to women. An informal JLG (typically comprising between eight to 45 members) provides joint and several guarantees for loans obtained by each member of the JLG. While the lender’s operations have historically been concentrated in South India, they have in recent years expanded into North, East, and West India and have a total of 707 branches across North, West, and East India as of September 30, 2023, representing 52.8% of its total branches as of September 30, 2023. Moving forward, the NBFC expects a significant portion of its future geographic expansion to include rural areas in these regions of India and intends to grow the branches in four key states: Uttar Pradesh, Bihar, Rajasthan, and Punjab, which are underpenetrated. As the lender will utilize 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 2.3x, we believe the company is fairly valued and advise investors to “Subscribe” from a medium to long-term perspective.

The company has a diversified portfolio of residential developments spread across price points, unit sizes and micro-markets in South-Central Mumbai, catering to various economic and demographic segments, from value luxury to luxury residences. Their ability to cater to customers’ needs across income brackets through a range of differentiated product offerings, supported by their technical and execution capabilities, has enabled them to grow their business successfully. They have developed a diversified portfolio of projects, including redevelopment and open plot projects, in the value luxury segment and luxury segment from 1 BHK flats to 4 BHK flats. The diversity in their portfolio of      projects, created by their range of offerings and prices, helps them cater to different market          segments and diversify their risk of dependence on a particular segment.

According to CRISIL, India’s GDP is expected to grow at a CAGR of 5.5-6% between FY2023 and 2028, owing to strong demand from the domestic market coupled with government’s capex push, production-linked incentive schemes, and healthier corporate balance sheets. The rising investments in the infrastructure domain, the focus of central and state governments on national infrastructure along with various infrastructure-related government schemes have helped in the continuation of the growth momentum of India’s capex. As there is a global push to reduce carbon footprint and promote the use of clean source of energy such as LNG and hydrogen, Inox India Ltd. is expected to benefit from the long-term demand for cryogenic equipment. The company’s leadership position in cryogenic equipment in India, robust order book, strong product portfolio, marquee clients diversified across sectors and focus on exports should help the company to grow its scale of operations in future. Additionally, the company has delivered healthy financial performance in the past, focused on reduced borrowings and posted strong RoE and RoCE in excess of 25%, thereby providing confidence about its sustained business performance. The company has a track record of sustained Revenue/EBITDA/PAT performance which grew at a CAGR of 27.5%/21.9%/26.0% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 39.2x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

India has a thriving stationery and art materials industry, and there are several opportunities for the country to become an export hub for stationery products. The demand for stationery products is growing rapidly worldwide, driven by increased literacy rates and education levels. India can capitalize on this demand by producing a diverse range of stationery products at competitive prices. DOMS Industries has demonstrated commendable performance over the past three years, marked by significant growth in revenue and profitability. The company’s remarkable turnaround from losses in FY21 to substantial profits in FY22 has further propelled its financial standing. The company’s asset utilization, as indicated by return on assets (ROA) of 16.1% and an above-average asset turnover of 2.1x for the latest year, is commendable. On the valuation front, the IPO is priced at 30.15x FY24 annualised earnings which we believe is richly valued and sustaining the recent performance on profitability front would be critical in justifying the current valuations. Despite the fully priced P/E, there are notable advantages that DOMS Industries Ltd brings to the market, including market leadership, a strong brand presence, established international partnerships, and a foothold in the export market. We, therefore, recommend a “SUBSCRIBE” for listing gains rating to the issue.

The housing finance sector of India comprises Public Sector Banks, Private Sector Banks, Housing Finance Companies, NBFCs, and other players (including foreign banks, Small Finance Banks, etc.), Of the total Rs. 31 trillion credit outstanding of the housing loans market, HFCs had the second highest market share of 34% in FY23. Within the player groups, HFCs are expected to register strong growth due to their higher market share, deeper penetration in tier-II and tier–III cities, and adequate liquidity support. ISFC’s profitability increased in FY23 owing to improved credit costs and an increase in interest yields. Going forward, borrowing costs are expected to stabilize in FY24 and the overall profitability of housing loans is still expected to be sustained, on account of higher interest income. The company plans to expand its branch staff, extend the branch network within existing geographical areas, and explore opportunities in adjacent markets for diversification. Their credit and risk management policies which is backed by technology and data analytics have helped them to maintain asset quality, leading to a fall in its GNPA to 1.0% as of September 30, 2023, compared to 2.8% as of September 30, 2022. Amongst its peer set, ISFC had the second-highest annualized RoA of 4.7% for the six months ended September 30, 2023. Furthermore, the company has posted steady growth in its top and bottom lines. As the lender will utilize the net proceeds of the fresh equity shares issue to meet future capital requirements towards lending, we are positive about the IPO. At the current adjusted P/BV multiple of 2.5x, we believe the company is attractively valued and advise investors to “Subscribe” to the issue from a long-term perspective.

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.