Archives: Ipos

DEE Development Engineering Ltd. has evolved as one of the key players in process piping solutions in India w.r.t. installed capacity, with a strong focus on automation and process excellence to drive operational efficiencies and offerings to its customers. The company is increasing its focus on high-margin products with additional contributions from modular skids and usage of high-grade materials, forging technology tie-ups with select global OEMs to derive consistent order flow to become a preferred partner for its clients for the next few years. On the industrial front, the Indian pipe process industry has a decent growth outlook and is expected to grow at a CAGR of 6.1% between FY23 and FY30, supported by oil and gas, chemicals/petrochemicals, ethanol, and biomass, and power sectors. The company’s revenue has grown at a CAGR of 10% between FY21-23. The company has initiated the capacity expansion plans mentioned above, which will help it to improve its financial performance in the future.  Further, the company is deleveraging its balance sheet by reducing debt. As we advance, the company’s financial performance is likely to be driven by its robust balance sheet, long-standing customer relationships, capacity expansion, higher entry barriers, and strong management team holding impressive backgrounds. The issue is valued at a P/E of 56.4x on the upper price band based on FY24 earnings, which we feel is fairly valued given the strong growth prospectus and stickiness of customer. We, therefore, recommend a SUBSCRIBE rating for the issue.

With India’s economy showing signs of resilience and GDP growing at an estimated 7.3% in FY24, the capacity utilization in the Indian manufacturing sector is recovering as industries have stepped up their production volumes. Following a 7.2% GDP growth in FY23, the industrial production index showed a growth of 5.2% in FY23. However, amidst a difficult and uncertain external environment, the government’s union budget appears to be balanced as it focuses on achieving inclusive and   sustainable growth. Also, a sustained momentum in economic activity supported by domestic drivers point towards the rising confidence of households. Such confidence is also witnessed by strong growth in NBFC credit due to a mix of favorable regulations, innovative product offerings, and high credit appetite by consumers. When analyzed, around 37% of NBFC credit is concentrated in the industrial sector, and among the sector 82% is concentrated in large industries, thereby the MSME sector remaining unpenetrated by institutions. However, with vehicle financing dominating the retail loan portfolio of the NBFC industry in FY23, the retail credit segment witnessed aggressive growth. Such dominance can be attributed to the NBFC industry’s leadership position in the two-wheeler loan segment where it has the majority market share. With the average debt situation in rural households ranging between Rs. 60,000-Rs. 88,000, the institutional credit mechanism to meet the                  non-agriculture credit demand in rural India is poorly developed. Also, the higher transaction cost, low ticket size, risk profile, and lack of collaterals have made this segment unattractive for formal credit agencies. However, the situation seems to have improved due to the introduction of microfinance services which has improved the credit flow to the rural markets. Although it has made lower progress compared to the banking and NBFC sectors in the urban market, there exists ample untapped opportunity in the rural market for a structured credit product that will directly benefit the company in the future period. On the financial performance front, the company’s Revenue/EBITDA/PAT degrew to Rs.695 million/Rs.482 million/Rs.158 million in FY 2023 from Rs.862 million/Rs.673 million/ Rs.163 million in FY 2021. On the upper price band, the issue is valued at a P/E of 20.5x based on FY2023 earnings. Though the prospect for the company’s business segments look promising, we would look for more clarity and confirmation on the financial performance trajectory. We, therefore, recommend high risk-appetite investors to “Subscribe” to the issue for listing gains.

With the GDP growth for India being quite strong post the COVID era and the forecast GDP figures being even stronger, the contribution of services sector among the core sectors is set to grow to 67% by FY30. Due to this, the contribution of hotels and transport sector to the real GDP is set to increase to 22% by FY30 mainly due to the growing population which is supported by increased income levels and discretionary spending. Such increasing consumption patterns have led to an increase in mobile and internet penetration, with the rural subscriber segment growth set to outpace urban growth. The overall rural subscribers are set to grow at a CAGR of 18% during FY2023-28 along with the mobile penetration percentage to increase from the current 89% to 95% by 2024. Due to such high rural penetration and growth prospects, the “Next Billion Internet Users” are a highly anticipated consumer class that will determine the consumption in many internet-based industries. One of the beneficiaries of such a trend is the travel and hotel industry. As of FY23, the online penetration for ticket booking stood highest for rail travel at 81% followed by air travel booking and hotel booking at 70% and 32%, respectively, thereby depicting a shift from offline booking to online booking systems. Also, the increasing air traffic among the Tier 2 and 3 cities, the introduction of new railway routes, better and upgraded experience of train travel, and the government’s increased focus on improving the road infrastructure across the country will be the major factors driving the travel industry as a whole. These macro factors coupled with an increasing spending power of the consumer are set to benefit the company’s overall growth in the near future. Considering the financial performance, the company’s Revenue/EBITDA/PAT grew at a CAGR of 92.3%/194.9%/76.2% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 163.2x based on FY2023 earnings. Though the valuations are rich, we believe that the nature of the platform business (high pass-through of revenues) and large industry opportunity size would be the key factors to drive sustained and high earnings growth in future. We, therefore, recommend a “Subscribe” rating for the issue.

The company manufactures high-purity speciality fine chemicals of various grades in particle sizes ranging from 10 mesh to 100 mesh. The company’s manufacturing infrastructure is a key growth driver for their business. Currently, they have three strategically located manufacturing facilities near several ports, which ensures they have ready access to port facilities and can conveniently import raw materials and export their products, providing them with a cost and logistical advantage. Over the years, the company has expanded its product portfolio to more than 185 products spread across diverse applications. They have consistently endeavoured to diversify their portfolio of products to cater to changing customer requirements across various segments and geographies. The company has over a decade’s track record of operations and has a robust balance sheet and cash flow position. They have experienced sustained growth in various financial indicators, including revenue and PAT, and a consistent improvement in their balance sheet position in the last three Financial Years, wherein they have seen an increase in their net worth. As we advance, the company’s financial performance, driven by its robust balance sheet, positive operating cash flows coupled with zero debt position, enables it to fund its strategic initiatives, pursue growth opportunities, create higher entry barriers and diversify into new products by setting up a new manufacturing facility. The issue is valued at a P/E of 25.5x on the upper price band based on FY24E earnings, which is fairly valued. We, therefore, recommend an SUBSCRIBE rating for the issue. 

India is a leading office market globally, driven by a strong, skilled workforce, well-established and evolving infrastructure, robust real estate sector, ample support infrastructure, and a strong economy backed by political stability. As of December 31, 2023, India’s commercial office stock stands at 832 million sq. ft., concentrated in the top nine cities: Bengaluru, Mumbai Metropolitan Region (MMR), Hyderabad, Gurgaon, Chennai, Pune, Noida, Kolkata, and Delhi, listed in order of market size. This stock is organized and purely utilized as office space. The growth in flexible workspace is influenced by enterprises focusing on flexibility, cost optimization, workforce fluidity, reverse migration, workplace evolution, and a focus on wellness, facilities, and amenities, alongside the rise of start-ups in Tier 1 and Tier 2 cities. The demand for flexible workspaces across different seat cohorts (1-50 seats, 51-100 seats, 101-500 seats, and over 500 seats) increased at a CAGR of approximately 29%, 41%, 54%, and 57%, respectively, between 2020 and 2022, based on the total number of customer contracts signed. This trend is expected to continue, with the number of customer contracts signed across cohort sizes increasing proportionately with the overall seat demand in future. Awfis, an emerging leader in India’s flexible workspace solutions, presents an attractive proposition given its unique product profile and promising growth prospects. The company’s capital expenditure per seat was around Rs. 50,000 in FY22 and FY23, and the first nine months ended December 31, 2023. In comparison, the average capital expenditure per seat in 2023 by top operators in India typically ranged between Rs. 80,000 and Rs. 200,000. Awfis’ revenue from customer contracts has grown at a CAGR of 74.9%, from Rs. 178 crores to Rs. 545 crores from FY21 to the nine months ending December 31, 2023. Additionally, the company’s ROCE was 25.3% in FY23Despite steady growth in its top line, Awfis has seen declining losses. Considering the favourable market dynamics and Awfis’ performance, we maintain a positive outlook on the company. Therefore, we recommend a “SUBSCRIBE” rating for the issue from a long-term perspective. 

Go Digit General Insurance is one of the leading digital full-stack insurance companies, leveraging technology to provide an innovative approach to product design, distribution, and customer experience for non-life insurance products. The company’s business model focuses on making it simpler for customers to understand and customize the products using technology on the front end and in-house developed software at the back end to speed up underwriting and claims processing times. The company’s primary addressable market is the non-life insurance market in India, which is among the top five in the Asia-Pacific region measured by GWP. Traditionally, public general insurers have dominated the Indian insurance market. However, private non-life insurers have captured significant market share, increasing from 40.3% in FY13 to 60.5% in FY23. The market remains fragmented, with no private player holding over 10.0% market share as of 9MFY24.  However, digital full-stack insurance companies have gained market share from incumbents. Go Digit GWP grew by 37.5%, while the private non-life insurers (excluding standalone health insurers) grew by 20.1% YoY in FY23. Further, Go Digit caters for 82.1% of the GWP of the digital full-stack insurance players in FY23. Digital full-stack insurers accounted for 3.3% of the non-life insurance market in FY23 which increased to 4.3% in 9MFY24. In the future, the company intends to maintain a healthy product pipeline focused on continuing innovation, improve its ability to segment risk by increasing the influence of behavioural factors in its underwriting and pricing models and expand its distribution network to increase customer reach and generate new business. Based on qualitative factors, we recommend a SUBSCRIBE rating for the issue. 

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 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.

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 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.