Archives: Ipos

As of 2022, the Indian stainless-steel sector is the second largest producer and consumer in the world, with a total manufacturing installed capacity of more than 6.5 mn tons of stainless steel annually. Despite this, the domestic per capita stainless-steel consumption remained low at 2.5kg in 2019 compared to the global average of 6 kg, thus creating attractive opportunities in the existing sector for companies like RPEL. Over the fiscals, the business has displayed a consistent improvement in its revenue performance along with expansion in its GP margins and EBITDA margins to 11.8% and 9.8% in FY23 compared to 8.8% and 6.8% in FY21, respectively. On the financial front, the ROE and ROCE increased to 29.1% and 12.6% in FY23 in comparison with 10.2% and 10.3% in FY21, respectively, while the debt/equity lowered to 2.2 in FY23 as against 2.7 in FY21. Considering the above factors and based on the upper end of the price band, the issue is valued at a P/E of 13x based on FY2023 earnings which we feel is fairly valued compared to its listed peers. However, it is to be noted that the business operates in a highly fragmented and competitive industry with low barriers to entry which makes its ability to sustain this consistent growth momentum a key monitorable. We, therefore, recommend a “SUBSCRIBE” for the benefit of listing gains for the issue.

Following a contraction in 2020 due to the COVID-19 pandemic, the Indian economy has rebounded sharply by 9.1% in 2021, followed by a 6.8% growth in 2022 and a growth expectation of 5.9% in 2023. India is largely considered as a bright spot in the current global economic scenario. One of the contributors to the economic strength is the country’s manufacturing sector which is aided by resilient domestic demand, government incentives, a progressive tax structure, and the availability of skilled labour. Based on the current market scenario, the market for electrical automation components, metering, control and protection devices and solar inverters is looking quite mature globally. The Indian Electrical Automation market was valued at USD 6,367.8 million in 2022 and is forecast to grow at a CAGR of 9% to reach USD 9,802.6 million by 2027. Among its end users, automotive and transportation, food and beverage, FMCG, chemicals, and textiles are major end users of electrical automation. The Metering, Control and Protection Devices market is well established globally where its products are used in applications such as electrical distribution, industrial panels, and process control, and their end users include residential buildings, commercial buildings, industrial buildings, and other industries such as Railways, Defense, Steel & Cement, Oil & Gas, and Utilities. The Indian Metering, Control and Protection Devices market was valued at USD 660.8 million in 2022 and is forecast to grow at a CAGR of 5.5% to reach USD 864.5 million by 2027. Out of the business segments, electrical automation and Metering, Control, and Protection Devices segments form a major portion of revenue and operations. The company has a track record of sustained Revenue/EBITDA/PAT growth which grew at a CAGR of 20.85%/11.02%/17.58% during the FY21-23 period, respectively. On the upper price band, the issue is valued at a P/E of 34.6x based on FY2023 earnings which we feel is richly valued. Moreover, with exports forming a major part of revenues, we would prefer to be on the sidelines against the backdrop of a weakening global macroeconomic scenario. We, therefore, recommend a “Avoid” rating for the issue. However, we would reassess the company on improvement in financial metrics over a sustained period.

In recent times, India has been focusing on improving its infrastructure sector as it is a key driver for the Indian economy. There was a steep increase in the government capital outlay to Rs 10 lakh crore, (which forms 22.2% of total expenditure) for FY24 compared to the capital outlay of Rs 7.5 lakh crore (which formed 19% of total expenditure) in FY23, driven by roads, railways, and highway infrastructure. Such expansion is unsustainable without efficient planning and provision of utility services, especially clean and affordable water. Also, India being one of the most populous country in the world faces the challenge of serving its population with adequate water supply. Accordingly, water management emerges as a crucial area to be looked into and appropriately managed in upcoming years. Considering all the above factors, the company emerges as a formidable solution provider covering all the above areas of growth. The company is an EPC company that has its core focus on the WSP segment which forms a significant portion of its revenue. The company has WSP projects spanning multiple states in India with a concentrated focus on the state of Rajasthan. The company also undertakes railway projects, road projects, and irrigation network projects. The company procures the majority of its projects from the central and state governments and local bodies through the process of bidding. The company has so far undertaken projects on an independent basis, barring a few which were undertaken on a joint venture basis. The company has shown consistent growth by leveraging its experience, management team, and technical and financial capabilities. The company has a track record of sustained Revenue/EBITDA/PAT growth which grew at a CAGR of 55.1%/85.72%/118.23% during the FY21-23 period, respectively. On the upper price band, the issue is valued at a P/E of 9.5x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

The global SS flexible hose industry is estimated to be worth USD 25 billion in 2020 with the size of SS corrugated hose estimated at USD 12.5 billion. This is expected to expand to USD 38 billion and USD 18 billion, respectively by 2027. The short-term growth is expected to be driven by the traditional industry segments like manufacturing, automotive, oil & gas (Exploring & Refineries), and HVAC system. Meanwhile, the increasing focus on industries with government support like electric vehicles and renewables (increase in solar power generation capacity) and high precision products like semiconductor and robotic applications are poised to drive the long-term growth of the business. A key monitorable for the business remains the low cost of rubber/ polymer hose which is expected to narrow with increasing awareness of stainless steel corrugation. On the financial front, the business has effectively scaled its operational margins to 20.05% in FY23 compared to 15.43% in FY21 and its debt/equity ratio has declined to 0.39x in FY23 as against 0.9x in FY22. On the upper end of the price band, the issue is valued at a P/E of 41x based on FY23 earnings which we feel is fairly valued given the large headroom for growth. We, therefore, recommend a “Subscribe” rating for the issue.

Pyramid Technoplast is an industrial packaging company involved in the business of manufacturing polymer-based molded products mainly used by chemical and pharma companies for their packaging requirements. The company uses blow molding technology to manufacture Polymer Drums and IBCs. Their products are marketed and sold under the brand name Pyramid. The company also has long-term relationships with distributors both domestic and international, and has multiple vendors for particular components rather than relying on single sources to de-risk themselves from supply chain problems. This allows them to ensure the continued availability of raw materials as well as enables them to secure the best possible prices for their products. The company has a track record of sustained Rev/EBITDA/PAT growth which rose at a CAGR of 23.7%/29.3%/36.9% during the FY21-23 period. On the upper price band, the issue is valued at a P/E of 16.2x based on FY2023 earnings. The high competitive intensity, thin margins and volatility due to commoditized nature of the business (dependent on crude and steel prices) and consistent levels of debt makes us     cautious on the issue. We, therefore, recommend a “Avoid” rating for the issue.

The Indian logistics sector is one of the largest in the world and is critical for the country’s economic growth. After contracting by 2% in FY21, the market witnessed a strong post-COVID recovery in FY22. The market grew by 14% and was valued at US$435 billion in FY22 and is projected to grow to US$591 billion by FY27, driven by factors such as strong demand from manufacturing (led by the “Make in India” campaign), retail, automotive and pharmaceutical sectors. Other drivers for industry growth include the need for efficiency improvement in the newly created demand, increasing shift of industry preferences towards integrated supply-chain services and other sophisticated solutions like inventory optimization and data analytics from isolated offerings like transportation or warehousing, and growth of e-commerce in India that demands specialized needs of online delivery (amongst others, faster delivery, return management and cash on delivery). Over the years, the company’s operations, backed by the strong parentage of TVS Group, have significantly grown, with a presence in 26 countries including India, the United Kingdom, Spain, Germany, Australia and Singapore. As of March 31, 2023, the company managed 4,686,032 square feet of logistics warehouse space in North America, Asia, Australia, the United Kingdom and Europe. In fiscal 2023, the company carried 28,524 tons of air freight and 74,558 TEU of sea freight in the rest of the world (i.e. geographies other than India). In FY23, they provided ISCS services to 104 customers and NS services to 7,782 customers in the rest of the world (i.e. geographies other than India). On the financial performance front, TVS has posted growth in its top line and has turned the corner for FY23 after marking reduced losses for the reported periods. On the upper price band, the issue is valued at a P/E of 193.3x based on FY23 earnings which we feel is richly valued, as it is higher than other industry players such as TCI Express, Delhivery, and Mahindra Logistics. Hence, we recommend an “Avoid” rating on the issue and would reconsider the company following sustained improvement in financial metrics (especially margin expansion) and reasonable valuation.

NBFCs have shown remarkable resilience and gained importance in the financial sector ecosystem, growing from less than Rs. 2 trillion AUM at the turn of the century to Rs. 34 trillion at the end of FY23. CRISIL MI&A expects NBFC credit to grow at 12-14% CAGR between FY23 and FY25. 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. NBFCs will remain a force to reckon with within the Indian credit landscape, given their inherent strength of providing last-mile funding and catering to customer segments that are not catered by banks. We believe that SBFC is one of the decent NBFCs in the space growing at a healthy pace. With the management having vast experience, an HDFC background and an in-house sales team, we remain comfortable on the credit profiling and corporate governance front. Moreover, the lender has a strategic focus on diversifying its loan portfolio across the states, thereby avoiding concentration risk and helping it to grow at a faster pace. With the company’s limited leverage position and the current P/BV multiple of 2.9x, we believe that the company is fairly valued and advise investors to “Subscribe” from a medium to long-term perspective

Concord is an Indian biopharma company and one of the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressants and oncology in terms of market share, based on volume in 2022, supplying to over 70 countries including regulated markets such as the United States, Europe and Japan, and India. The company has an established presence in these therapeutic areas and is well-poised to benefit from the industry growth tailwinds. In the domestic market, they had a portfolio of 27 brands across immunosuppressants, nephrology drugs, and anti-infective drugs for critical care, with presence across 20 states and 5 union territories in India through their sales team. They also have a B2B CDMO business where they supply immunosuppressants to the Indian market. Further, as of FY23, Concord had over 200 customers in over 70 countries for both their APIs and formulations and. have entered into long-term supply agreements with some of their customers. The company has a track record of sustained revenue growth which rose at a CAGR of 17.6% during the FY21-23 period. On the upper price band, the issue is valued at a P/E of 32.2x based on FY2023 earnings which we feel is richly valued, as it is higher than other industry API players such as Suven Pharma, Laurus Labs, and Glenmark Lifesciences. It is interesting to note that the entire IPO issue is by way of an OFS and no fund is being received by the company. We, therefore, recommend an “Avoid” rating for the issue

India accounts for nearly a fifth of the world’s population, but has an overall bed density of merely 15, with the situation being far worse in rural than urban areas. India’s bed density not only falls far behind the global median of 29 beds, but it also lags that of other developing countries such as Brazil (21 beds), Malaysia (19 beds), and Vietnam (26 beds). CRISIL estimates the Indian healthcare delivery industry to post a healthy 11.3% CAGR between FY23-27, driven by long-term structural factors, increasing affordability and the potential of the Ayushman Bharat scheme. We believe that growing healthcare infrastructure and increasing penetration of medical insurance will benefit Yatharth Healthcare and Trauma Care Services in the long run. On the financial front, the company has witnessed steady growth in its top and bottom lines, with the PAT margin growing from 8.57% to 12.64% and its ROE improving from 25.06% to 35.95% during the FY21-23 period. Moreover, the company is likely to retire debt from the IPO proceeds which is expected to improve its profitability going ahead. On the upper end of the price band, the issue is valued at a P/E of 29.7x based on FY23 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue

About 47% of India’s GDP comes from rural areas, however, their share in banking credit and deposits is abysmally low with just 8% of total credit and 11% of total deposits coming from rural areas. The massive divergence between rural and urban areas’ share in the banking credit and deposit services is an indicator of the extremely low penetration of the banking sector in rural areas. It is important to note that there is less competition for banking services in rural areas compared to urban areas which presents significant growth opportunities. According to CRISIL MI&A, SFBs’ deposits are expected to grow at 40-45% CAGR over the FY23-25 period as players focus on popularising convenient banking habits to cover the last mile and widen financial inclusion by deepening their penetration in untapped geographies. Utkarsh SFB recorded the third fastest growth in gross loan portfolio among its peers, which grew at a 31.0% CAGR between the FY19-23 period to reach Rs. 139.6 billion. Moreover, the bank reported the third-highest growth in total deposits among its peers, registering a 37.9% CAGR between FY19 and FY23 to reach Rs. 137.1 billion. It has the best cost-to-income ratio of 54.15% in FY23 which is the highest amongst other SFBs. Utkarsh SFB’s average management experience is also at par with the industry average. In FY23, Utkarsh SFB posted the second-highest RoE of 22.64% and RoA of 2.37%. On the basis of strong asset quality, consistent financial performance and the future growth story of the Indian economy, we recommend a “SUBSCRIBE” rating for the long term. On the upper end of the price band, the issue is valued at a Price to Book Value of 1.1x (as of FY23), which we believe is to be fairly priced.