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Dharmaj Crop Guard Ltd : SUBSCRIBE FOR LISTING GAINS

Dharmaj-Crop-Guard-IPO
  • Date

    28 Nov 2022 - 30 Nov 2022

  • Price Range

    ₹216 - ₹237

  • Minimum Order Quantity

    60

  • (D) RHP

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Dharmaj Crop Guard Limited (DCGL), an agrochemical company, is engaged in manufacturing, distributing, and marketing a wide range of agrochemicals such as insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics to B2C and B2B customers. The company markets and distributes its own branded agrochemical products, the ones in-licensed by them and other generic brands to Indian farmers. For its domestic branded business, it has a well-established distribution network that comprises over 4,362 dealers having access to 16 stock depots and a presence in 17 states. On the global front, the company has extended its export reach to more than 25 countries in Latin America, East African countries, the Middle East, and Far East Asia. Presently, the company has one manufacturing facility in Gujarat, with an aggregate installed capacity of 25,500 MT for its agrochemical formulations. As a part of its expansion plan and to achieve backward integration of its operations, DCGL has acquired additional land in Gujarat where it plans to set up a manufacturing facility for agrochemical technicals and its intermediaries in the future.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • Funding capital expenditure towards setting up of a manufacturing facility at Saykha, Baruch, Guajrat.
  • Funding incremental working capital requirements of the company.
  • Repayment and/or pre-payment, in full and/or part, of certain borrowings of the company.
  • General corporate purposes.
 
Investment Rationale:

A well-diversified product portfolio mix

Since its incorporation, DCGL has focused on diversifying its product portfolio mix and is a manufacturer of agrochemical products in various categories such as insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics. Additionally, the company is involved in manufacturing and selling general insect and pest control chemicals for Public Health and Animal Health protection. Thus, the company’s move to develop a niche and diversified product portfolio of agrochemicals has enabled it to de-risk business operations.

Strong domestic and global pesticides demand

Indian pesticides and other agrochemicals market grew at a CAGR of 4.5% from ₹368 billion in 2013- 14 to ₹439 billion in 2017-18. Going forward, the overall Indian pesticides and other agrochemicals industry is estimated to increase at a CAGR of 7.5%-8.5% by 2026-27. The expected traction in international markets and an increase in domestic usage of pesticides in India will benefit the company’s revenues. Additionally, an opportunity amounting to around USD 5 billion going off-patent in pesticides in 2026-27 provides ample room for Indian manufacturers to increase their pesticide exports. The industry tailwinds coupled with a superior product mix and strong R&D capabilities are likely to aid Dharmaj Crop Guard’s business performance going forward.
Valuation and Outlook:
The company aims to further diversify its customer base and increase its market share in the agrochemical business. To achieve this goal, the company focuses on strengthening its business through effective branding of its own products and acquiring other brands to grow its product portfolio mix. Moreover, the set-up of the new factory will enhance the manufacturing capabilities of the business and lead to better profit margins due to backward integration. However, a low level of capacity utilization of around 35% in FY2022 remains a key concern for the business. On the upper end of the price band, the issue is valued at a P/E of 20.4x based on FY2022 earnings which we feel is fairly priced. Hence, we recommend a “SUBSCRIBE” rating for the benefit of listing gains.

Keystone Realtors Ltd : SUBSCRIBE

Keystone Realtors Ltd : SUBSCRIBE
  • Date

    14 Nov 2022 - 16 Nov 2022

  • Price Range

    ₹514 - ₹541

  • Minimum Order Quantity

    27

  • (D) RHP

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Keystone Realtors Ltd. was established in 1995 to develop itself as a trusted brand in delivering multiple high-end award-winning buildings, gated communities, and townships. The company has become one of the prominent real estate developers (in terms of absorption in the number of units) in the micro markets where they are present. It has a diversified suite of projects across a wide range of price points, and a presence in several micro markets. Keystone has its major focus on “Mumbai Metropolitan Region” (MMR) where it offers a comprehensive range of projects under the affordable, mid and mass, aspirational, premium, and super premium categories, all under the “Rustomjee” brand. The company command’s a market share of 28% in Khar, 23% market in Juhu, 11% in Bandra East, 14% in Virar, 3% in Thane, and 5% in Bhandup in terms of absorption (in units) from 2017 to 2021 (Source: Anarock Report). As of June 30, 2022, Keystone has developed 20.22 million square feet of high-value and affordable residential buildings, premium gated estates, townships, corporate parks, retail spaces, schools, iconic landmarks, and various other real estate projects. The company’s business model is entering into joint development agreements, redevelopment agreements with landowners or developers, or societies, and slum rehabilitation projects, which require lower upfront capital investment compared to the direct acquisition of land parcels. This approach allows the company to minimize the upfront capital expenditure compared to the direct acquisition of land parcels, which ensures that their capital allocation is balanced and calibrated, allowing them to generate revenue with lower initial investments
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • Repayment/ prepayment, in full or part, of certain borrowings availed by our Company and/or certain of our Subsidiaries
  • Funding acquisition of future real estate projects and general corporate purposes.
 
Investment Rationale:

Well-established customer-centric brand in the Mumbai Metropolitan Region

Keystone Realtors Ltd. is one of the prominent real estate developers (in terms of absorption in the number of units) in the micro markets that we are present in, namely Juhu, Bandra East, Khar, Bhandup, Virar, and Thane (Source: Anarock Report), and it has been able to garner premium pricing in the MMR micro-markets where most of their projects are located. As of June 30, 2022, they had 32 Completed Projects, 12 Ongoing Projects, and 21 Forthcoming Projects across the MMR, including a comprehensive range of projects under the affordable, mid and mass, aspirational, premium, and super premium categories, all under Rustomjee brand. The Company has undertaken several landmark projects in the MMR, which include Rustomjee Elements, a large gated community in Upper Juhu, Mumbai; Rustomjee Paramount, a signature complex in Khar, Mumbai; Rustomjee Seasons, 3.82 acres gated community in Bandra Annexe, Mumbai; Rustomjee Crown, a 5.75 acres land parcel for high-end development at Prabhadevi, South Mumbai, consisting of three high-rise towers.
Keystone has developed a strong brand that has encouraged stakeholders in the real estate development industry to prefer partnering with the company, in particular for re-development and stalled projects. The company’s customer-centric approach has led to them providing offerings posthandover and post-development services such as providing furnishing, interior designing and execution services, addressing miscellaneous customer needs such as leasing out apartments and managing lease renewals and maintenance, as well as facility management services.

Asset-light and scalable model resulting in profitability and stable financial performance

The hospitals that the company has built are on a large-scale basis. Its flagship hospital in Gurugram has a built-up structure of more than 2 million. The company’s hospitals are built to install additional beds without any significant investment. The hospital has an installed bed capacity of 473 beds as of June 30, 2022, with a further capacity to accommodate over 900 beds. The hospitals also have an international-grade infrastructure. Across all the hospitals 30% are dedicated to critical care and the chain has a total of 70 OPDs. The company is also focusing on diversification into new services like digital health. The company has scaled up its telemedicine and remote delivery of healthcare services.
Valuation and Outlook:

Keystone Realtors Limited (Keystone), the brand known as Rustomjee, is a significant player in the real estate industry. They have experience in developing lifestyle projects, high-value standalone buildings, gated communities, fully integrated townships, re-developments, and stalled projects. As of
June 30, 2022, they had 1,542 channel partners who present the Rustomjee portfolio to their customers and drive customer traffic to our projects. In addition to its in-house competencies, the company also leverages the expertise of external specialists to match its wide range of product offerings. The residential real estate sector in India has witnessed several changes in market conditions because of demonetization, the NBFC liquidity crisis of 2018, and the implementation of RERA and GST in this
period. The overall effect is that the sector has moved towards more transparency and being more organized than in years earlier when these reforms were taking place. The company has been aggressively reducing debt and has successfully brought down its net debt-to-equity ratio from 7.7x in FY20 to 1.1x as of June 30, 2022. The company is expected to partially utilize the IPO fund to reduce the debt on the books further while balancing its new projects in the pipeline. However, a rise in interest rates, an economic slowdown in India due to macro factors such as Inflation, and too much dependency of the company on a particular region remains the risk concern. On the upper end of the price band, the issue is valued at a P/E of 38.8x based on FY22 earnings which we feel is fairly priced as it has RONW of 15% as on FY22 which is the highest amongst peers as per RHP and we, therefore, recommend to “SUBSCRIBE” to the IPO.

 

Global Health Ltd : Subscribe for Listing Gains

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Global Health Ltd : Subscribe for Listing Gains
  • Date

    03 Nov 2022 - 07 Nov 2022

  • Price Range

    ₹319 - ₹336

  • Minimum Order Quantity

    44

  • (D) RHP

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Global Health Limited is one of the largest private multi-speciality tertiary care providers operating in the North and East regions of India. It has five hospitals currently in operation located in Gurugram, Lucknow, Indore, Ranchi and Patna and the sixth hospital is under construction in Noida. The hospitals operate under the “Medanta” brand. The company has key specialities in cardiology and cardiac sciences, neurosciences, oncology, digestive and hepatobiliary sciences, orthopaedics, liver transplant, and kidney and urology. The company provides healthcare services in over 30 specialities and engages over 1300 doctors and has 2467 beds across its operational hospitals. The company’s flagship hospital in Grurgram is approximately 2.7mn sq ft with 1391 installed beds as of 30th June 2022. It also operates six multi-speciality clinics in DLF Cybercity Gurugram, Delhi Airport, South Delhi, Darbhanga, Patna and Subhash Chowk Gurugram. Upon completion of the hospital in Noida, the company expects the number of beds to exceed 3500 at the end of Fiscal 2025. The company also provides home care service which provides sample collection, delivery of medicine, preventive health checks, paediatric vaccinations and nursing services.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • Repayment/prepayment of borrowings, in full or part, of the Subsidiaries, GHPPL and MHPL
  • General Corporate Purposes
Investment Rationale:

Clinical Expertise and Focus on Clinical Research

The company focuses on super specialization and clinical expertise by working on a high number of complex cases. The company has a doctor-led management model enabling sub-specialisation to provide the highest level of clinical expertise to the patients. It also has a research facility “The Medanta Institutional Tissue Repository” in 2017 to promote biomarker and other tissue-based research. The company is currently developing an algorithm to increase productivity and accuracy in medical diagnosis, particularly in radiology scans.

Large-scale hospitals with sophisticated infrastructure and steady growth strategies

The hospitals that the company has built are on a large-scale basis. Its flagship hospital in Gurugram has a built-up structure of more than 2 million. The company’s hospitals are built to install additional beds without any significant investment. The hospital has an installed bed capacity of 473 beds as of June 30, 2022, with a further capacity to accommodate over 900 beds. The hospitals also have an international-grade infrastructure. Across all the hospitals 30% are dedicated to critical care and the chain has a total of 70 OPDs. The company is also focusing on diversification into new services like digital health. The company has scaled up its telemedicine and remote delivery of healthcare services.
Valuation and Outlook:
There is huge growth in the healthcare sector and the super specialization market in India is highly under-penetrated. This puts Global Health (Medanta) in a strong position to further grow and expand into different geographies. The company also has steady ARPOB and EBITDA levels through the fiscal years 2020, 2021 and 2022. The company primarily focuses on under-penetrated and underserved geographies with dense populations and government schemes such as Ayushman Bharat Scheme present the company to expand in such under-served areas to reach the low-income population. However, the company’s subsidiaries GHPPL and MHPL have incurred losses and medical and legal risks remain the key risk facts. On the upper end of the price band, the issue is valued at a P/E of 43.2x based on FY22 earnings which we feel is fairly priced and we, therefore, recommend to “SUBSCRIBE” the IPO for the benefit of listing gains.

Inox Green Energy Services Ltd : Avoid

Inox Green Energy Services Ltd : Avoid
  • Date

    11 Nov 2022 - 15 Nov 2022

  • Price Range

    ₹61 - ₹65

  • Minimum Order Quantity

    230

  • (D) RHP

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Incorporated in 2012, Inox Green Energy Services Ltd. (IGESL) is one of the major wind power operation and maintenance (“O&M”) service providers within India. Inox Green enjoys synergistic benefits by being a subsidiary of Inox Wind Limited (IWL), which is primarily engaged in the business of manufacturing WTGs (Wind Turbine Generators) and providing turnkey solutions by supplying WTGs among other services. The company shares an exclusive agreement with IWL to provide O&M services for all WTGs sold by IWL through the entry of long-term O&M contracts between the WTG purchaser and IGESL for a period between five to twenty years. As of June 30, 2022, the company’s O&M services portfolio consisted of an aggregate 2,792 MW of wind farm capacity and 1,396 WTGs across eight wind-resource-rich states in India with an average remaining project life of more than 20 years.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • Repayment and/ or pre-payment, in full or part, of certain borrowings availed by the Company including redemption of Non- Convertible Debentures in full.
  • General Corporate purposes.
Investment Rationale:

Strong growth prospects of the wind energy sector

The government has set a target of generating 50% of its power through renewable energy by 2030. Thus, the growth of the wind energy sector is set to improve with capacity additions of 17-20 GW expected over the next five years. Also, with India being the third largest energy-consuming country in the world, the demand for O&M services is expected to be in the range of INR 170 to INR 210 billion by the fiscal year 2026 making Inox Green Energy Services Ltd a direct beneficiary of this move. Additionally, the company also plans to extend its portfolio by offering its services to WTGs that are not manufactured by IWL thus increasing their customer base.

Transforming to an asset-light model with minimum capital expenditure

The company aims to shift from its current business model in which it developed common infrastructure facilities such as pooling substations and transmission lines as that has led to significant capital expenditures. While this expenditure is expected to continue in the short term due to their ongoing prior commitments, in the future IGESL would reduce project bids and investments into the wind power assets that require such heavy capital expenditure. Moreover, there has been a gradual increase in large wind players such as IPPs bidding for wind projects and taking on the responsibility of developing the common infrastructure facilities thereby reducing the need for the company to compete in a similar space and incurring such costs. Thus, this reduction in expenses would lead to higher EBITDA and profit margins which they can utilize to fund future expansion plans and dividend payments.
Valuation and Outlook:
The wind energy market picked up at a healthy pace with increasing capacity additions in fiscal 2020 after a low in 2019. This has also positively impacted the demand for O&M services which grew from INR 84 billion in 2016 to more than INR 130 billion in 2022. Moreover, with several government reforms in place for promoting renewable energy as a power source, this puts the company in a favorable position. The company enjoys financial backing from the Inox GFL group and for the future, it
plans to strategically acquire O&M portfolios of other small-scale or third-party wind OEMs to further grow its capital base. However, the company’s debt to equity ratio remains high which is a key concern for the business. On the upper end of the price band, the issue is valued at a EV/EBITDA of 28.6x based on the annualized FY22 earnings. As the company has been making losses in the past fiscals we are not comfortable with the current valuation which is being offered, thus we suggest investors to “AVOID” this issue.

Kaynes Technology India Ltd : Avoid

Kaynes Technology India Ltd : Avoid
  • Date

    10 Nov 2022 - 14 Nov 2022

  • Price Range

    ₹559 - ₹587

  • Minimum Order Quantity

    25

  • (D) RHP

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Kaynes Technologies is a leading end-to-end and IoT solutions-enabled integrated electronic manufacturing company operating in the spectrum of electronics system design and manufacturing (ESDM). The provides conceptual design, process engineering, integrated manufacturing and lifecycle support for major players in the automotive, industrial , railways, aerospace and defence, outerspace, nuclear, medical and other segments. The company’s operations are classified under the four business verticals namely “OEM-Box Build”, “OEM-PCBAs”, ODM services in smart metering technology, smart street lighting, and BLDC technology among others. It also offers conceptual design and product engineering services in industrial and consumer segments. The company currently has eight located manufacturing facilities in the states of Karnataka, Haryana, Himachal Pradesh, Tamil Nadu, and Uttarakhand. As of June 2022, the company has the company has served 229 customers in 21 countries. The company sources its materials from 871 vendors across various regions including North America, Europe, and Singapore as well locally within the country. The company is one of the first companies in India to offer design-led electronics manufacturing to original equipment manufacturers. The company’s current order book value stands at INR 2200cr with an average customer relationship duration of 5-8 years..
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • Repayment/ prepayment, in full or part, of certain borrowings availed by the Company.
  • Funding capital expenditure towards expansion of the existing manufacturing facility at Mysore, Karnataka, and near the existing manufacturing facility at Manesar, Haryana.
  • Investment in the wholly owned Subsidiary, Kaynes Electronics Manufacturing Private Limited, for setting up a new facility at Chamarajanagar, Karnataka.
  • Funding working capital requirements of the Company.
  • General Corporate purposes.
 
Investment Rationale:

Significant Emphasis on Research and Development

The company invests significantly in its research and development to be able to address its customer’s diverse needs and enhance the existing products. The company targets to introduce new and innovative products in the market with new technologies and cost optimization through value analysis and value engineering. It has established a dedicated research and development facility located within its facility at Mysuru, Karnataka. The research and development team also closes works with the customers to develop products according to their specific needs. As of 30th June 2022 the R&D team is comprised of 19 employees.

Advanced Infrastructure Systems and Processes

The company is focused on creating robust infrastructure to adhere to global standards. The company has obtained certifications for all the business verticals it operates in which helps it to service its customers with stringent quality specifications and also assists in new customer acquisitions. It also undertakes repairs and provides rehabilitation of electronic cards in railways, aerospace, defence and industrial vehicles at its servicing and maintenance unit in Navi Mumbai.
Valuation and Outlook:
The global ESDM market scenario is changing rapidly with more and more OEMs are realising the capabilities of ESDM companies with the global ESDM market estimated to reach $1000 billion by FY25 giving Kaynes Technologies to significantly expand further. The company is the largest manufacturer of LED lamp electronics and produce approx 6000 different products every month. The company witnessed 3.7 times rise in its order book value in the past 2 years with PAT margins also growing from 2.3% in FY21 to 5.9% in FY22. It has also received PLI approvals in the A/C and Telecom vertical. However the loss of any top 5 customers of the company and increasing competition in the electronics market along with consistent negative cash flows continue to be key risks. On the upper end of the price band, the issued is valued at a P/E of 65.2x based on FY22 earnings which is on the steeper side and we initiate “AVOID” recommendation to the IPO.

Five Star Business Finance Ltd : Subscribe for Listing Gains

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Five Star Business Finance Ltd : Subscribe for Listing Gains
  • Date

    09 Nov 2022 - 11 Nov 2022

  • Price Range

    ₹450 - ₹474

  • Minimum Order Quantity

    31

  • (D) RHP

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Five Star Business Finance is an NBFC-ND-SI providing secured business loans to micro-entrepreneurs and self-employed individuals. The company is headquartered in Chennai and has a strong presence in south India comprising of an extensive network of 311 branches, as of June 30, 2022, spread across eight states and one union territory. The ticket size of the loans offered ranges between INR 0.1mn to 1mn with an average ticket size of 0.29mn for June 2022. The company’s gross term loans are currently at 52,965mn as of June 2022 which is split into loans for business purposes (62.12% of gross term loans) and loans for asset creation and significant economic events (37.88% of gross term loans). Its targets customers in tier-2 to tier-6 cities who typically derive income from “everyday” cash and carry business with a typical focus on services. The company only provides secured loans where more than 95% of the collateral is a self-occupied residential property. The currently has a loan base of 230,175 customers and continues to increase this number while keeping the average ticket size stable. The company secures financing from various sources including term loans, proceeds from loans securitized, and loans from banks and financial institutions among others. The interest rate ranges from 24% to 26% and between tenure of five to seven years.

 
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • To carry out Offer for Sale.
  • Achieve the benefits of listing equity shares in the stock exchanges.
Investment Rationale:

Robust Customer Evaluation Process

The company has developed a robust customer credit evaluation method which is a four-layered process; two within the business and collections team and two layers within the credit team. It conducts an in-depth analysis of its potential customer by considering the ‘three C’s’ viz Character, Cash-Flow, and Collateral to ensure that the customer has adequate ability to repay the loan amount. Also, sourcing of potential customers is 100% done in-house by the company, not depending on any intermediaries allowing better control over the files. Approximately 80% of the files logged in are sanctioned due to strict pre-login practices followed by the company.
Under-penetrated market with large opportunities
The credit market for MSMEs and self-employed individuals is largely in the unorganised sector. According to industry reports, less than 15% of approx 70 million MSMEs in India have access to formal credit in any form. The company has calibrated a strategy for contiguous expansion to penetrate the market by enabling its customers to move into the organised credit market while maintaining strong asset quality. The GNPA of the company is approx 1.12% of the gross term loans as of June 2022.
Valuation and Outlook:
The general growth in the organised credit market for MSMEs and robust risk management and collections framework provide Five Star with a huge opportunity to expand further. The company’s approach to sanction only fully secured loans with SORP as collateral coupled with a focus on strong pre-login assessment minimizes the risk of frequent defaults. Also low cost of borrowings and significant plans to invest in technology and data analytics to improve operational efficiency help the company in the long run. However, disruptions in the sources of capital and default by borrowers remain key risks. On the upper end of the price band, the issue is valued at a P/E of 29.6x and a P/B of 1.2x based on FY22 earnings which we feel is fairly priced and recommend investors to “SUBSCRIBE” to the IPO for the benefit of listing gains.

Archean Chemical Industries Ltd : Subscribe for Listing Gains

Archean Chemical Industries Ltd : Subscribe for Listing Gains
  • Date

    09 Nov 2022 - 11 Nov 2022

  • Price Range

    ₹386 - ₹407

  • Minimum Order Quantity

    36

  • (D) RHP

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Archean Chemical Industries is a speciality marine chemical manufacturer focusing on three products namely bromine, industrial salt, and sulphate of potash. The company was the largest exporter of bromine and industrial salt by volume in Fiscal 2021. The company produces its products from its brine reserves in Rann of Kutch, in Gujarat and has a manufacturing facility in Hajipur in Gujarat. The company has 18 global customers in 13 countries with key geographies being China, Japan, South Korea, Qatar, Belgium and Netherlands and 24 domestic customers. It has a business-to-business basis both in India and internationally. The company’s product bromine has applications in pharmaceuticals, agrochemicals, water treatment, oil and gas and in many more industries. Also, the company is the only manufacturer of Sulphate of Potash in the country. Archean Chemicals was also the largest exporter of industrial salt from India exporting 2.7 million MT in Fiscal 2021. For the quarter ended June 2022, the company exported 100% of its industrial salt production. The sales of bromine contributed 50.94%, sales of industrial salt constituted 48.98% and sulphate of potash constituted 0.06% of the total revenue from operations of the company for the quarter ended 30th June 2022. The company has an export-oriented business with almost 67% of its revenue-generating from exports.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • To carry out Offer for Sale.
  • Repayment Redemption or earlier redemption, in part or full, of NCDs issued by the Company.
  • General Corporate purposes.
 
Investment Rationale:

Market leadership and opportunities to further expand

The company has been a market leader in speciality marine chemicals since 2013 and is also the largest exporter of bromine and industrial salt by volume. Also, it has one of the lowest costs of production globally for both of these products. The company has long-standing relationships with its international as well as domestic clientele and huge room to expand due to its robust infrastructure capacity and demand for the products. It has also expanded its bromine capacity with an addition of a feed enrichment section. The company also is the only manufacturer of sulphate of potash that has a great demand due to its use in fertilizers and certain medical uses.

High Barriers to entry into the industry

The speciality chemical industry has high entry barriers viz. High cost of production and manufacturing, scarcity of raw materials, a significant investment for salt beds etc. The company is already well-established in the industry and has numerous customers globally. Also, other barriers such as stringent regulatory and quality standard requirements from the end user increase the competition for customer acquisitions. The company has developed a strong relationship with its clients which makes it difficult for other players to enter the industry.

 
Valuation and Outlook:
The global chemical market is expected to grow to a size of approx $6143 billion by 2025 and coupled with the rapid growth across sectors the company carters provides the company with a strong momentum to grow further. Being an export-oriented business with a strong client portfolio gives the company a competitive advantage over its peers. It also has an established infrastructure and integrated production has one of the largest salt works at a single location according to industry reports. The manufacturing facility of the company is also located nearby ports through which it caters to international clients helping the company reduce its logistics and storage costs. The company has also displayed a strong and consistent financial performance with revenue from operations increasing at a CAGR of 36.34% from Fiscal 2020 to 2022 and a robust EBITDA margin of 42% for FY22. However, exchange rate fluctuations and other geographic, economic and regulatory changes are key risk factors for the company. On the upper end of the price band, the issue is valued at a P/E of 22.3x based on FY22 consolidated earnings which we feel is fairly priced and hence initiate a “SUBSCRIBE” rating to the IPO for the benefit of listing gains.

Bikaji Foods International Ltd : Subscribe for Listing Gains

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Bikaji Foods International
  • Date

    03 Nov 2022 - 07 Nov 2022

  • Price Range

    ₹285 - ₹300

  • Minimum Order Quantity

    50

  • (D) RHP

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Bikaji is one of the largest FMCG brands and the third-largest ethnic snacks company in India. The company’s product range includes six major categories viz. Bhujia, Namkeen, Packaged sweets, Papad, Western Snacks and others which include gift packs, frozen food, mathri range, and cookies. The company was the largest manufacturer of bhujia in the country with an annual production of 29,830 tonnes and also the second largest manufacturer of handmade papad in Fiscal 2022. The company has market leadership in the states of Rajasthan, Assam and Bihar with 45%, 58% and 29% market shares respectively. The company has gradually expanded in 23 other states and 3 union territories. The company also has established an international footprint in 21 countries in North America, Europe, the Middle East, Africa, and Asia-Pacific, representing 3.20% of its sales for the period ending 30th June 2022. It has a pan-India distribution network with 6 depots, 38 super stockists, and 416 direct and 1,956 indirect distributors. The company currently operates 7 manufacturing facilities with four located in Rajasthan, one in Assam, one in Karnataka under its subsidiary Petunt Food Processors Private Ltd and one facility in Bihar held through its other subsidiary Vindhyawasini Sales Private Ltd. It has also recently launched “Bikaji Cafe” and “Bikaji Funkeen” to promote the western segment of the brand.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
  • To achieve the benefits of listing the equity shares on the Stock Exchanges.
  • Carry out the Offer for Sale of up to 2,93,73,984 equity shares by the selling shareholders
Investment Rationale:

Robust CAPEX with Significant Brand-Building and Advertising Spend

The company has recently incurred heavy capital expenditure with two of the seven manufacturing facilities in Assam and Bihar commissioned in January 2022 and March 2022 respectively. This will help the company to efficiently promote its products in its core markets of Assam and Bihar and will reduce logistics and sales costs. The company has consistently allocated significant resources to Brand-building and advertising. It has roped in a well-known celebrity as its brand ambassador allowing customers to associate with the brand. The company is also intending to roll out special programmes and outdoor promotional campaigns with its “category top-end stores” to increase brand visibility and premiumization.
Improved Growth in Focus Markets The company is determined to expand its reach in the focus markets viz. Uttar Pradesh, Punjab, Haryana and Delhi in North India and Karnataka and Telangana in South India. It has committed investments to establish a strong distribution base in these markets by adding more super stockists and distributors. The company is also leveraging technology to improve its production and distribution process. The company is in the process of digitalizing its super stockists and distributor network with the use of comprehensive distribution management systems and sales force automation.
Valuation and Outlook:
The traditional snacks market in India is valued at INR 366 billion which is 46% of the total savoury snacks market and has grown significantly in recent years providing Bikaji with an excellent opportunity to grow. The company’s market leadership in core states and growing presence in other demographies combined with heavy CAPEX and brand-building spending help the company to further expand its domestic as well as international footprint. The company is developing a strategy to target states by modifying tastes to the specific needs of the focus state. Also, it has been sanctioned a PLI from the government of approx INR 216 crores which it will receive over the next six years starting FY23. However, an inability to maintain customer loyalty and change in taste preference remains a key risk. On the upper end of the price band, the issue is valued at a P/E of 95.2x based on FY22 earnings which is on the steeper side. However, looking at the brand recognition of the company in the organised snack segment and its long-term prospects we recommend a SUBSCRIBE rating for the benefit of listing gains.

Fusion Micro Finance Ltd : Avoid

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Fusion Micro Finance Ltd : Avoid
  • Date

    02 Nov 2022 - 04 Nov 2022

  • Price Range

    ₹350 - ₹368

  • Minimum Order Quantity

    40

  • (D) RHP

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Incepted in 2010, Fusion Micro Finance Ltd. (FMFL) is one of the youngest companies (for getting an NBFC-MFI license) to reach amongst the top NBFC-MFIs in India in terms of AUM as of June 30, 2022. The company’s key product offerings include income-generating loans that provide capital for women entrepreneurs in rural areas to fund businesses operating in the agriculture-allied and agriculture, manufacturing and production, trade and retail, and services sectors. The business runs on a joint liability group-lending model, wherein a small number of women form a group (typically comprising five to seven members) and guarantee one another’s loans. Apart from this, FMFL also offers its existing customers top-up loans to manage interim working capital requirements for existing businesses and emergency loans to fund urgent financial needs. In addition, they provide the existing customers cross-sell loans that are utilized for livelihood and productivity-enhancing purposes as well as MSME loans to eligible enterprises. The company prioritizes organic diversification with a focus on strategic management of state concentration risk leading to no single state contribution of more than 20.00% of the total AUM. As of June 30, 2022, the company extended its reach to 2.90 million active borrowers through its network of 966 branches spread across 377 districts in 19 states and union territories in India.
Objects of the issue:
The following uses will be made of the IPO proceeds:
  • To augment the capital base of the company
Investment Rationale:

Strong execution capabilities in rural areas.

The company credits its success in the growth strategy to serving underpenetrated rural areas with high growth opportunities. Fusion Micro Finance benefits from less competition, lower credit penetration, less migration, and better credit behavior in such regions which in turn leads to lower delinquency rates. Among the top ten NBFC-MFIs in India, the company witnessed the highest decline of almost 19% in its cost-to-income ratio between the period FY2019 to FY2022. Additionally, the company had the fourth-lowest gross loan portfolio per district and second-lowest gross loan portfolio per customer in FY2022. The company focuses on a customer-centric model which led them to achieve improving customer retention rates of 71.75%, 70.00%, 68.99%, and 47.43% for the three months ended June 30, 2022, and the financial years 2022, 2021, and 2020, respectively.

Prudent Asset Liability Management (ALM) practices and access to diversified sources of capital

With prudent asset liability management and effective liquidity management, Fusion Micro Finance Ltd. aims to diversify its fundraising sources and minimize its costs of borrowing. The company’s average effective cost of borrowings has declined at a steady rate and was 10.10%, 10.43%, 11.23%, and 12.33% for the three months ended June 30, 2022, and the financial years 2022, 2021, and 2020, respectively. Also, to meet its capital requirements the company has 56 lenders in total which include a range of public banks, private banks, foreign banks, and financial institutions. As of FY2022, this is the second-highest number of lender relationships among the top 10 NBFC-MFIs in India. This is attributable to improving rating upgrades and the company having a stable credit history.
Valuation and Outlook:
The microfinance industry has seen rapid growth over the past few years owing to the small ticket size and doorstep disbursement. Despite this, a large portion of the market remains underpenetrated, thus creating significant growth opportunities for MFIs like Fusion Micro Finance Ltd. The company’s average asset quality of 2.4% is ranked lowest among all player groups in the northern region between the financial years 2015 and 2022. However, a large portion of the company’s collections and disbursements from customers are in cash, exposing them to certain operational risks. On the upper end of the price band, the issue is valued at a P/B of 1.1x based on FY22 annualized earnings. However, P/E of 139.4x based on the FY22 annualized earnings is aggressively priced and despite of growth in revenue, the company recorded declining profits. Hence, we are not comfortable with the current valuation and suggest investors to “AVOID” this issue .

DCX Systems Ltd: Subscribe for Listing Gains

DCX Systems Ltd: Subscribe for Listing Gains
  • Date

    31 Oct 2022 - 02 Nov 2022

  • Price Range

    ₹197 - ₹207

  • Minimum Order Quantity

    72

  • (D) RHP

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DCX Systems Ltd commenced operations in 2011 and is engaged in the business of system integration in areas of radar systems, sensors, electronic warfare, missiles, and communication systems; manufacturing a comprehensive array of cables and wire harness assemblies and supplying assembly-ready kits of electronic and electro-mechanical parts. The company is rapidly growing in the Indian defence space and has been a preferred Indian Offset Partner (“IOP”) for foreign original equipment manufacturers (“OEMs”) for executing aerospace and defence manufacturing projects. DCX operates through its manufacturing facility located at the Hi-Tech Defence and Aerospace Park SEZ in Bengaluru, Karnataka. As of June 30, 2022, DCX had 26 customers in Israel, the United States, Korea and India, including certain Fortune 500 companies, multinational corporations and start-ups. The company caters to domestic and international OEMs, private companies and public sector undertakings in India across different sectors, ranging from defence and aerospace to space ventures and railways.DCX System’s key customers include Elta Systems Limited, Israel Aerospace Industries Limited – System Missiles and Space Division, Bharat Electronics Limited, and Astra Rafael Comsys Private Limited, among others.
Objects of the issue:
  • The following uses will be made of the IPO proceeds:
  • Repayment/prepayment, in full or part, of certain borrowings availed of by the Company.
  • Funding working capital requirements of the Company.
  • Investment in their wholly-owned Subsidiary, Raneal Advanced Systems Private Limited, to fund its capital expenditure expenses.
  • General Corporate Purposes.
Investment Rationale:

Strategically located facility with advanced technological capabilities.

Being located in SEZ offers the company duty-free imports, exemption from GST, and supplies that are zero-rated under extant regulations. They are also not subject to levies imposed by the state government and the operations are eligible for single-window clearance by the relevant authority. Further, DCX’s strategy of having its manufacturing facility within the reach of its key domestic customers results in a shorter delivery time. The facility is equipped with the latest inspection and testing equipment and is set for complete in-house environmental and electrical testing as well. The company supplied over 10,000 units in the last three Fiscals and in the three months that ended June 30, 2022, DCX has not incurred any warranty claims to date.

Higher opportunities with growth in the industry

DCX System is well positioned to capitalize on the growing Indian landscape for the defence and aerospace industry. Initiatives like an increase in foreign direct investment (“FDI”) in the Indian defence sector from the current 49% to 74% under the automatic route are anticipated to be key drivers and growth opportunities for the market. Additionally, India’s defence budget outlay for Fiscal 2023 stands at INR 5,250 billion 10% increase over the budget of INR 4,780 billion in Fiscal 2022. With new government reforms and The Defence Acquisition Policy 2020 (“DAP 2020”) in place, many innovations in defence equipment are now available to private entities thus making DCX the beneficiary of this move.
Valuation and Outlook:
The Government of India aims to become a US$ 5 billion export country by 2025 in the aerospace and defence goods sector thus providing private players like DCX Systems to play an important role in achieving this target. To enhance its global presence, the company continues to strengthen its international operations in Israel, the United States and Korea and also aims to expand its global footprint to Europe.The shift from passive to active radar solutions will also provide numerous opportunities for the company. DCX maintains a healthy order book which has increased from INR 19,413.11 million, as of FY2020 to INR23,690.04 million, as of FY2022. As of June 30, 2022, the order book stands at INR25,636.34 million to be executed in Fiscal 2023 to 2025. However any changes in the offset defence policies remains a key risk. On the valuation front, we value the company at a P/E of 22.5x based on FY22 earnings and recommend a “SUBSCRIBE” for the benefit of listing gains.