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TVS Supply Chain Solutions Ltd: Avoid

TVS Supply Chain Solutions Ltd: Avoid
  • Date

    10th August, 2023 - 14th August, 2023

  • Price Range

    Rs. 187 to Rs. 197

  • Minimum Order Quantity

    76

  • (D) RHP

    -

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TVS Group commenced its operations as ‘TVS Logistics’, a division of TVS & Sons in 1995 before being incorporated as a separate company in 2004. As per the Redseer Report, TVS Supply Chain Solutions Ltd. is India’s largest and fastest growing integrated supply chain solutions provider among Indian listed supply chain solutions companies in terms of revenues and revenue growth, respectively, in FY23. The company’s operating segments consist of Integrated Supply Chain Solutions (ISCS) and Network Solutions (NS). The integrated end-to-end supply chain solutions include sourcing and procurement, integrated transportation, logistics operation centres, in-plant logistics operations, finished goods and aftermarket fulfilment. In fiscal 2023, they provided services to 412 customers in the ISCS segment. In Network Solutions (NS), they offer customers Global Forwarding Solutions (“GFS”) and Time Critical Final Mile Solutions (“TCFMS”). In fiscal 2023, they provided services to 8,376 customers in the NS segment. Over a span of more than 16 years, the company has managed large and complex supply chains across multiple industries in India and select global markets through customized tech-enabled solutions. Globally, they have provided supply chain solutions to 11,546, 10,531 and 8,788 customers during FY21, FY22 and FY23, respectively. In India, they have provided their solutions to 1,120, 1,044 and 902 customers in the same years, respectively. The company added an aggregate of 1,179; 152 and 177 new customers (i.e. new customers whom the company did not provide any services in the immediately preceding year) in FY21, FY22 and FY23, respectively. TVS has developed long-term relationships with several clients, which has provided resilience to its revenue and profitability. Some of its customers with whom they have had long-term relationships as of March 31, 2023, include Sony India Private Limited (12 years), Hyundai Motor India Limited (13 years), Johnson Controls-Hitachi Air Conditioning India Limited (3 years), Ashok Leyland Limited (17 years), TVS Motor Company Limited (17 years), Diebold Nixdorf (8 years), TVS Srichakra Limited (10 years), to name a few.

Objects of the issue:

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

  • Payment to existing shareholders under the offer for sale;
  • Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company and its subsidiary, TVS LI UK; and
  • General corporate purposes.
Investment Rationale:

Market leader in end-to-end solutions enabled by domain expertise, global network and knowledge base

The demand for complex integrated solutions is driving enterprises to increasingly seek a single or smaller set of more strategic third-party logistics service providers. TVS acts as a complete ‘one-stop’ solution for customers from sourcing to distribution through its end-to-end capabilities, which include sourcing and procurement, integrated transportation, logistics operating centre, in-plant logistics operations, finished goods and aftermarket fulfilment, import and export freight, closed-loop logistics and support, and secondary transportation. TVS can significantly add value to its customers for their revenue and cost optimization by solving their complex problems and requirements with innovative and customized solutions and implementation at scale. They use intelligence, automation and dynamic optimization capabilities that enable customers to achieve their supply chain objectives, increase supply chain visibility and lower total cost of operations.

Robust in-house technology differentiation

With increasing technological advancements in the logistics and supply chain industry, TVS follows a ‘technology-first’ supply chain solutions approach and aims at delivering innovative and responsive technology solutions to optimize its customers’ supply chains. Their solution tools for transport, warehouse, order and labour management enable them to develop customized solutions. They also utilize their deep knowledge of technology, data and experience in catering to customers’ needs to construct robust and flexible technology services that cater to customers’ needs. Their ‘plug-and-play modules’ can be easily integrated with its customers’ internal systems, including their existing enterprise resource planning systems. These can be replicated across geographies and industries for customers, enabling them to scale their services faster. Their technology capabilities comprise (i) a software suite, which primarily includes in-house technology systems and software such as i-Loads, Visibility, Msys, TRACE, Courier Alliance, LCL Consolidated and e-Connect as well as third-party technologies such as CargoWise; and (ii) technology infrastructure which is supported by TVS’ smart centre control tower, development centres and ‘Centre of Excellences’.

Valuation and Outlook:

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.

SBFC Finance Ltd: Subscribe

SBFC Finance Ltd: Subscribe
  • Date

    03rd Aug, 2023 - 07th Aug, 2023

  • Price Range

    Rs. 54 to Rs. 57

  • Minimum Order Quantity

    260

  • (D) RHP

    -

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SBFC Finance Ltd. (SBFC) is a systemically important, non-deposit taking non-banking financial company offering loans including secured Micro, Small and Medium Enterprises loans and loans against gold, with a focus on ticket size in the range of Rs. 5 lakhs to Rs. 30 lakhs. As of March 31, 2023, it had a footprint in 120 cities, spanning 16 Indian states and two Union Territories, with 152 branches. Among MSME-focused NBFCs in India, SBFC has one of the highest assets under management growth, at a CAGR of 44% in the period from FY19 to FY23 (Source: CRISIL Report). It has also witnessed healthy disbursement growth, at a CAGR of 40% between FY21 and FY23. SBFC primarily focuses on small enterprise borrowers, whose monthly income is up to Rs. 1.5 lakhs, with a demonstrable track record of servicing loans such as gold loans, and loans for two wheeler vehicles and have a CIBIL score above 700 at the time of origination. SBFC has a diversified pan-India presence, with an extensive network in its target customer segment. Their  geographically diverse distribution network spread across the North, South, East and West zones, allows it to penetrate underbanked populations in tier II and tier III cities in India. As of March 31, 2023, their AUM is diversified across India, with 30.84% (Rs. 1,524.2 crores) in the North (in the states of Chandigarh, Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand), 38.53% (Rs. 19,04.8 crores) in the South (in the states of Karnataka, Andhra Pradesh, Telangana, Tamil Nadu and Puducherry), and 30.63% (Rs. 1,513.8 crores) in the West and East collectively (in the states of Gujarat, Madhya Pradesh, Maharashtra, West Bengal, Assam and Bihar). They source customers directly through their sales team of 1,911 employees as of March 31, 2023, and have adopted a direct sourcing model through branch-led local marketing efforts, repeat customers or walk-ins.

Objects of the issue:

The IPO proceeds will be used towards the following purposes:

  • To utilize the Net Proceeds towards augmenting the Company’s capital base to meet its future capital requirements arising out of the growth of the business and assets.
Investment Rationale:

Diversified pan-India presence with an extensive network to cater to its target customer segment

SBFC is a lender that provides loans to entrepreneurs, small business owners, self-employed individuals, and salaried and working-class individuals. As of March 31, 2023, they had an expansive footprint in 120 cities, spanning 16 Indian states and two union territories, with 152 branches. The extent of SBFC’s network allows them to service its existing customers and attract new customers as a result of personal relationships cultivated through proximity and frequent interaction by its employees. Their extensive and geographically diverse distribution network allows them to penetrate the underbanked population in tier II and tier III cities in India. The branches are also spread across India to reduce concentration risk, with 28.95% in the North, 31.58% in the South, and 39.47% in the West and East collectively, as of March 31, 2023. Through its 152 branches, the company strategically focuses on untapped customers with the potential for beneficial yield.

Healthy liability franchise with low cost of funds

SBFC has the ability to access borrowings at a competitive cost due to its stable credit history, credit ratings, conservative risk management policies and brand equity. Their average cost of borrowing was 8.11%, 7.65% and 8.22% for FY21, FY22 and FY23, respectively, and their incremental cost of borrowings (which represents the weighted average rate of interest on fresh borrowings in the relevant period) was 8.76% for FY23. As of March 31, 2023, their outstanding borrowings included Rs. 2,912.2 crores from public and private sector banks and Rs. 3,67.3 crores from NBFCs and other financial institutions. As of March 31, 2023, their total borrowings aggregated to Rs. 3,745.83 crores, comprising primarily of term loans of Rs. 3,279.4 crores, working capital demand loans from banks of Rs. 60.0 crores, non-convertible debentures of Rs. 43.0 crores and other collateralized borrowings of Rs. 3,63.4 crores.

Valuation and Outlook:

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 Biotech Ltd:IPO

Concord Biotech Ltd:IPO
  • Date

    04h August, 2023 - 08th August, 2023

  • Price Range

    Rs. 705 to Rs. 741

  • Minimum Order Quantity

    20

  • (D) RHP

    -

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Concord Biotech is an India-based biopharma company that is into the development and manufacturing of select fermentation-based APIs. The company manufactures biopharmaceutical APIs through fermentation and semi-synthetic process across the therapeutic areas of immunosuppressants, oncology, and anti-infectives; and formulations that are used in therapeutic areas of immunosuppressants, nephrology drugs, and anti-infective drugs for critical care. The company is among a few companies globally that have successfully and sustainably established and scaled up fermentation-based API manufacturing capabilities. The company is 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, Japan, and India.

Objects of the issue:

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

  • To carry out the offer for sale
Investment Rationale:

Well-established presence across the fermentation value chain to cater to future  demand

Concord has established capabilities across the fermentation value chain. The fermentation value chain includes aspects such as R&D, patents, key starting materials, API and formulation manufacturing as well as marketing and distribution of fermentation-based products. In addition, they have improved their capabilities across the fermentation value chain which they leveraged to build a track record across multiple products in various therapeutic areas. Over the years, Concord has built difficult-to-replicate technical expertise in the fermentation process which has enabled them to develop and commercialize a wide spectrum of fermentation-based APIs. Further, the company’s business model aims to capture opportunities within the fermentation segment across APIs, formulations, and other adjacencies by combining their R&D and production capabilities. Their integration of R&D, patents, key starting materials, API and formulations manufacturing, and marketing and distribution allows them to cater to their customer’s specific requirements and provide them with customized solutions. Their ability to do so further enhances their business profile and strengthens their customer relationships.

Well-diversified market reach and long-standing relationships with key customers to sustain growth

Concord has established long-standing relationships with key customers including leading global generic pharmaceutical companies. Over the years, Concord has built strong relationships with Intas Pharmaceuticals and Glenmark Pharmaceuticals, two of their top-10 customers. A majority of their customers are from regulated markets. In addition, they have developed relationships with 60 new customers during FY23. Further, Concord APIs are provided under a B2B model to pharmaceutical companies globally. For the formulation business as well, the company operates through a B2B model across the United States and emerging markets under arrangements with distributors. In India, the company markets immunosuppressant, nephrology, and anti-infective drugs for critical care, which they supply under their brands and through their sales force model. We, thus, expect Concord to focus on growing its presence through its own sales force as well as through its distribution network with its own brands.

Valuation and Outlook:

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

Yatharth Hospital and Trauma Care Services Ltd: Subscribe

Yatharth Hospital and Trauma Care Services Ltd: Subscribe
  • Date

    26th July,2023 - 28th July,2023

  • Price Range

    Rs. 285 to Rs. 300

  • Minimum Order Quantity

    50

  • (D) RHP

    -

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Headquartered in Noida, Uttar Pradesh, Yatharth Hospital and Trauma Care Services Ltd. commenced operations in 2008 with a clinic and thereafter established its first hospital in Greater Noida, Uttar Pradesh in November 2010. The hospital has since then seen a transformational journey to become a super-speciality tertiary care hospital. The company then expanded via the inorganic route through the acquisition of a multi-speciality hospital in Orchha, Madhya Pradesh which commenced commercial operations on April 10, 2022, and is one of the largest hospitals in that region in terms of the number of beds. The company’s hospitals are amongst the largest private hospitals in the Delhi NCR region in terms of the number of beds in FY23. Currently, they operate three super specialty hospitals with a total bed capacity of 1,405 beds. In addition, their critical care program comprises 394 critical care beds, as of March 31, 2023. The company’s USP is its super specialty hospitals that involve equipping these specialties with (i) advanced medical infrastructure; (ii) trained and experienced doctors, nursing, paramedical and other staff; and (iii) resources to provide a better healthcare experience to the patient and attendants. The company’s hospitals are accredited by the NABH, with hospitals at Greater Noida and Noida Extension accredited by NABL as well. The company has taken a leap of faith and started bone marrow and kidney transplant operations and also intends to introduce new specialties such as radiation therapy in its oncology department. The company has deployed advanced medical equipment such as Azurion catheterization laboratory, 1.5 Tesla whole-body MRI with optical digital broadband and embedded express coil technology for minimal patient repositioning and advanced non-contrast MR Angiography, 128 slice CT scan, endo bronchial ultrasound, nerve conduction velocity (“NCV”), advanced surgical equipment including Thulium Uro laser, flexible scope, advance laparoscope, advance microscopes, and Cusa set. The advanced equipment provides for better and more accurate diagnosis, as well as further insight into the surgical procedure, which increases the surgical success rate.

Objects of the issue:
  • Repayment/ prepayment, in full or part, of certain borrowings availed by the Company
  • Repayment/ prepayment, in full or part, of certain borrowings availed by its subsidiaries, namely, AKS Medical & Research Centre Private Limited (“AKS”) and Ramraja Multispeciality Hospital & Trauma Centre Private Limited (“Ramraja”)
  • Funding capital expenditure expenses of the Company for two hospitals, namely, Noida Hospital and Greater Noida Hospital.
  • Funding capital expenditure expenses of the subsidiaries, AKS and Ramraja, for respective hospitals operated by them.
  • Funding inorganic growth initiatives through acquisitions and other strategic initiatives.
  • General corporate purposes.
Investment Rationale:

Advanced and high-end medical equipment and technology

Yatharth’s hospital chains are well-equipped with machines and devices with sophisticated technology. The hospitals have well-equipped modular and other operation theatres with three-stage air filtration and laminar flow to ensure patient safety, as well as operating microscopes, image intensifiers, and laparoscopic equipment. The hospital’s blood bank meets several standards and has been set up with facilities such as aphaeresis and blood component separation. The critical care units are equipped with high-end patient monitoring devices, ventilators and dedicated isolation rooms. Facilities for haemodialysis, sustained low-efficiency dialysis, endoscopy and bronchoscopy are available 24×7 by the bedside. They have a well-equipped laboratory in all their operating hospitals for diagnostic services in haematology, biochemistry, microbiology, molecular biology and histopathology.

Leading super-speciality hospital in Delhi NCR with diverse speciality & payer mix 

The hospitals (i.e., Noida Extension and Greater Noida) are the eighth and tenth largest private hospitals in the Delhi NCR region in terms of the number of beds in FY23. The company’s advanced facilities coupled with its diverse specialisations and tailored best practices differentiate it from the regional competitors. The company generates revenue from different customers, which include government bodies established by the GoI under prevailing statutes such as ESIC, EGHS, ECHS, public and private insurance companies working directly or through registered third-party administrators (“TPAs”), various institutions, public and private corporates and walk-in customers. The company offers a range of healthcare services across specialities and super specialities, which include its Centres of Excellence such as the Centre of Medicine, Centre of Cardiology, Centre of Neurosciences, Centre of General Surgery, Centre of Nephrology & Urology, Centre of Paediatrics, Centre of Gastroenterology, Centre of Pulmonology, Centre of Gynaecology and Centre of Orthopaedics & Spine & Rheumatology and other specialities. The company also plans to introduce new specialities, namely radiation therapy to its oncology department at their Noida Extension and Jhasi Orccha hospitals. Further, the company has started bone marrow and kidney transplant operations at its hospitals located at Noida Extension and Greater Noida.

Valuation and Outlook:

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

Utkarsh Small Finance Bank Ltd:Subscribe

Utkarsh Small Finance Bank Ltd:Subscribe
  • Date

    12 Jul 2023 - 14 Jul 2023

  • Price Range

    ₹23 - ₹25

  • Minimum Order Quantity

    600

  • (D) RHP

    -

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On October 7, 2015, Utkarsh Core Invest Limited received the RBI in-principle approval to establish a Small Finance Bank (SFB), following which it incorporated Utkarsh Small Finance Bank Limited as a wholly-owned subsidiary on April 30, 2016. Subsequent to obtaining the RBI license on November 25, 2016, to establish and carry on business as an SFB, Utkarsh CoreInvest Limited transferred its business of providing microfinance, as a going concern into the bank, which commenced operations from January 23, 2017, and expanded its SFB operations strategically in states where they have been able to leverage the prior microfinance experience of Utkarsh Core Invest Limited. Utkarsh SFB, headquartered in Varanasi, Uttar Pradesh, is the third fastest growing SFB with a gross loan portfolio of more than Rs. 60 billion. The bank’s operations are spread across India and are present in 26 States and Union Territories with 830 banking outlets and 15,424 employees. As of March 31, 2023, it has 3.59 million customers (both deposit and credit), majorly located in rural and semi-urban areas in the states of Bihar and Uttar Pradesh.
Objects of the issue:
The IPO proceeds will be used towards the following purposes:
  • 1.)To utilize the Net Proceeds from the Fresh Issue towards fully augmenting its Tier – 1 capital base to meet its future capital requirements
Investment Rationale:

Sound understanding of the microfinance segment and presence in rural and semi-urban areas

Utkarsh CoreInvest Limited commenced operations as a NBFC in FY10 and later converted to an NBFC – MFI. Utkarsh CoreInvest Limited has a history of serving customers in the microfinance segment with a particular focus on financial inclusion for unserved and underserved customer segments in rural and semi-urban areas of Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh and Uttarakhand. The erstwhile business of Utkarsh CoreInvest Limited was primarily based on the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active poor women for income generation purposes. Utkarsh Core Invest Limited also offered micro-enterprise loans to the economically poor segments. Following its SFB operations, the bank has further strengthened its engagement with borrowers by continuing to focus on microfinance and diversifying the product offerings to include savings accounts, deposit products and other loan products. The bank’s focus on rural areas of Uttar Pradesh and Bihar, the most populous states in India, offer them the potential for growth on account of being under penetrated and their understanding of the customer segments in rural and semi-urban areas in these geographies.

Diversified distribution network with significant cross-selling opportunities

Utkarsh SFB has an extensive physical network of banking outlets and as of March 31, 2023, they have 830 banking outlets across 26 states and Union Territories covering 253 districts in India. The company has 522 banking outlets located in rural and semi-urban areas (combined). The network of banking outlets allows them to service their existing customers and attract new customers as a result of relationships cultivated through proximity and frequent interaction by their employees. As of March 31, 2023, 62.89% of its total banking outlets are located in rural and semi urban areas. In order to further increase financial inclusion and provide comprehensive financial services to the underserved and unserved customer segments, they have also opened banking outlets that have been classified by the RBI as Unbanked Rural Centres (“URCs) in 69 districts. As of March 31, 2023, 27.35% of their banking outlets are located in URCs against the minimum requirement of 25% as stipulated by the RBI. Besides their banking outlets, their multi-channel delivery includes ATMs, micro-ATMs, mobile and internet banking, and corporate internet banking services. As of March 31, 2023, they have a network of 280 on-site and seven off-site ATMs. As of March 31, 2023, the bank has also set up 546 micro-ATMs. To facilitate ease of transaction for account holders, they offer a range of transaction and payment channels that include domestic and international ATM cum debit cards (RuPay and Mastercard), payment gateways, integrated bill payment system facility, money transfer service scheme and door-step banking services.
Valuation and Outlook:
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.

PKH Ventures Ltd: Avoid

PKH Ventures Ltd: Avoid
  • Date

    30 Jun 2023 - 04 Jul 2023

  • Price Range

    ₹140 - ₹148

  • Minimum Order Quantity

    100

  • (D) RHP

    View

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Incorporated in 2000, PKH Ventures Ltd. is in the business of construction & development, hospitality and management services. They are into the execution of civil construction works for third-party developers on a project basis and have been awarded two government projects viz., Hydro Power Pro- ject and Nagpur Project, and three Government Hotel Development Projects viz., Rajnagar Garhi Project, Pahadikhurd Project and Tara Resort Project. The civil construction business is executed by their subsidiary and construction arm, Garuda Construction. The company’s hospitality vertical is in the business of owning, managing and operating hotels, restaurants, QSRs, spas and the sale of food products. PKH Ventures have been responsible for the development of the Delhi Police Head- quarters in April 2021, which involved the construction of twin towers of seventeen storeys each, with a complete glass façade and steel bridge connecting the two towers. The company is looking forward to developing forthcoming development projects which include real estate development at Amritsar, Punjab; real estate redevelopment project at Dadar-Matunga, Mumbai; agro-processing cluster at Jalore, Rajasthan; cold storage park/facilities at Indore, Madhya Pradesh; and a wellness centre & resort at Chiplun, Maharashtra. The knowledge and experience gained while developing their Mum- bai hotels led the promoter to venture into the business of civil construction through, Garuda Con- struction, which is now their subsidiary since 2 April 2020. Garuda Construction provides end-to-end construction services for residential and commercial buildings. Under the Management Services ver- tical, the company in the past managed airport entry ticket counters, retail outlets at airports and toll management services. Presently, there are no such active contracts for these Management Services. At present under Management Services vertical, they provide services for the annual maintenance of the DelhiPolice headquarters as per the agreement entered into with the concessionaire.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes: Investment by way of equity in its subsidiary, Halaipani Hydro Project Private Limited, for the development of Hydro Power Project (Civil Construction and Electromechanical Works);
  • Investment by way of equity in its subsidiary, Garuda Construction, for funding long-term working capital requirements;
  • Pursuing inorganic growth through acquisitions and other strategic initiatives; and To fund expenditures towards general corporate purposes.
Investment Rationale:
Diversified business model helps in cushioning business performance during downtimes PKH Ventures are in the business of Construction & Development, Hospitality and Management Services. The company’s businesses generate income from diverse activities completely independent of each other. Eternal Building Assets has already received an annuity for a period of three years on part COD and will receive an annuity of Rs. 780 million per year till FY33. Considering a 40% equity stake in Eternal Infra, the company will be entitled to a pre-tax amount of Rs. 278.6 million per an- num. Its civil construction works for third-party developers generate revenue from works contract charges and its hospitality vertical generates income from hotels, restaurants, and the sale of food. Further, under the Hydro Power Project awarded by the State of Arunachal Pradesh, the company will receive income from the sale of power once the Hydro Power Project is commissioned by June 2024. Asset light model in civil construction business aids financial performance The company has adopted an asset-light model approach for its civil construction business and for that, it relies on third-party suppliers for equipment and labour. Since the location of the Government Projects, Government Hotel Development Projects and forthcoming Development Projects are in different geographies like Punjab, Arunachal Pradesh, Maharashtra, Madhya Pradesh and Rajasthan, it is difficult and unviable to mobilize heavy equipment and machinery from one place to anoth- er for the execution of projects at such diverse locations. Also, a large amount of capital is required to acquire construction equipment and machinery, which can otherwise be effectively and more profitably deployed in other areas of the company’s business. The deployment of equipment and labour through third-party contractors at these locations helps to reduce fixed costs, make the execution of construction projects cost efficient and increase margins
Valuation and Outlook:
The construction and development sector will be a major driver for growth in India. The construction sector is the country’s second-largest economic segment after agriculture. The sector contributed 8% to the national GVA (at constant price) in FY22. PKH Venture’s diversification into new areas for the Construction & Development vertical will increase their financial and technical ability, making the eligible to bid for larger future projects and to effectively leverage their experience in the execution of such projects. Further, its subsidiary, GarudaUr-ban Remedies Limited, is proposing to set up an agro-processing cluster in the Jalore district of Rajasthan. The agro-processing cluster will provide basic enabling infrastructure like roads, water supply, power supply, drainage etc. and core infrastructure like warehouses, cold storage, sorting, grading etc. However, we are of the opinion that the company’s focus across different segments may be a concern in their effective implementation. On the financial front, the debt has increased significantly to Rs. 748 million for the nine months ended31De-cember 2022 compared Rs. 486 million posted in the year ended 31 March 2022 , whereas the revenue has shown a degrowth in the last three years. On the upper end of the price band, the issue will be valued at 24.8x of annualized FY23 earnings which we believe is richly valued. We, thus, recommend an “Avoid” rating for the issue

ideaForge Technology Ltd: Subscribe

ideaForge Technology Ltd: Subscribe
  • Date

    26 Jun 2023 - 29 Jun 2023

  • Price Range

    ₹638 - ₹672

  • Minimum Order Quantity

    22

  • (D) RHP

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ideaForge Technology Ltd, a manufacturing company offering Unmanned Aircraft Systems (UAS), is engaged in drone manufacturing and deployment with applications across mapping, security and surveillance. The company has categorized its product portfolio into hardware, software and embedded sub-systems. The company offers a broad range of products with feature-based differentiation targeted to serve civil services and defense (dual use). The company’s growth in revenue and profitability can be accredited to the robust product portfolio and technology differentiation with a market share of 50% in FY22. Along with this, their drones assist defense forces in conducting intelligence, surveillance and reconnaissance (ISR) operations along borders, help navigate a wide range of mining area planning and help boost construction and real estate. The reach and acceptance of the company’s products can be gauged from the fact that an ideaForge- manufactured drone takes off every five minutes for surveillance and mapping on average. Presently, the company has its manufacturing facility in Navi Mumbai, Maharashtra, with in house automation systems, modern technology and advance equipment catering to 100 channel partners and three national distributors as of 31 May 2023.
Objects of the issue:

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

  • Repayment/ prepayment, of certain indebtedness availed by the company.
  • Funding working capital requirements.
  • Investment in product development.
  • General corporate purposes
Investment Rationale:

Market leading position in the Indian UAS market provides headroom for growth

ideaForge is the pioneer and market leader in the Indian ‘UAS’ market, with a market share of approximately 50% in FY22. Incorporated in 2007, the firm enjoys the first-mover advantage in the market, as it is among the first few Indian firms to enter the UAV industry as well as the first company to design and produce VTOL UAVs domestically in India in 2009. Additionally, they were the first business to take part in the 2018 Indian Mobile Congress demonstration of 5G-enabled UAVs. Their internal design, development, engineering, and manufacturing skills have allowed them to create better products based on changing client expectations, ultimately improving the customer experience. Their capacity to create fully integrated systems and command over the entire stack set them apart from other market participants. Due to their leadership and first mover advantage, they have been able to improve users’ experiences by incorporating consumer data and ongoing technological advancements.

Diversified product portfolio catering to a wider customer base provides cushion to  business 

With a wide variety of products, ideaForge differentiates them based on features like weight class (about 2-7 kg), endurance class (25-120 minutes of flight time), take-off altitude range (up to 6,000 metres), communication range (around 2-15 km), payload kinds, etc. Their UAVs are used in a variety of civil and military applications. Additionally, their UAVs may be altered to handle applications in infrastructure, retail, agricultural, and delivery. As of 31 May 2023, the company catered to 265 clients spanning across Indian defence customers and civil customers comprising certain of the central armed police forces, state police departments, disaster management forces, forest departments and private contractors. Over the years, their consistent emphasis on product quality and dependability has resulted in client loyalty.
Valuation and Outlook:
The business model aids companies like ideaForge to maintain long-term business relations with customers along with attaining healthy margins due to inherently high customer retention (approximately 90% of its revenue attained from repeat customers). The company has all the right ingredients such as the first mover advantage in the drone industry, diversified product portfolio, wide range of customers to sustain business performance in the long run. Moreover, sector tailwinds such as a ban of imports from drone manufacturers opens up a large opportunity for the company going forward. Additionally, as of 2022, the potential market size for the Indian drone industry was approximately USD 2.7 billion, with the Indian drone industry estimated to grow at an 80% CAGR in the FY22-27 period to USD 812 million. On the upper end of the price band, the issue is valued at 82.8x of the floor price. Also, the company’s order book value contracted to Rs 192.3 crores inFY23 From R.s 310.9 crores a year earlier, with about 70% of revenues coming from Indian defence forces in FY23. Therefore, we recommend a ‘’SUBSCRIBE’’ rating for the benefit of listing gains.

HMA Agro Industries Ltd: AVOID

HMA Agro Industries Ltd: AVOID
  • Date

    20 June 2023 - 23 June 2023

  • Price Range

    ₹555 - ₹585

  • Minimum Order Quantity

    25

  • (D) RHP

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HMA Agro Industries Ltd. (HAIL) is a three-star export house recognized by the Government of India. It’s a flagship company of the HMA Group which has been in the meat industry for over four decades. HAIL is currently among the largest exporters of frozen buffalo meat products from India and it accounts for more than 10% of India’s total export of frozen buffalo meat. The company products are mainly packaged under the brand name Black Gold, Kamil & HMA and exported to over 40 countries across the globe. The company deals in buffalo meat and allied products. Unlike beef or pork, buffalo meat is free from religious constraints and has the added advantage of low fat and cholesterol. The company has four fully integrated packaged meat processing plants which are located at Aligarh, Mohali, Agra, and Parbhani, and is in the process of setting up a fifth fully integrated-owned meat product processing unit in Haryana. HAIL is also in advanced stages to acquire an additional plant at Unnao and expects to complete this acquisition by Q2FY24. These plants together would take total in-house meat product processing capacities to more than 4,00,000 mtpa spread over six different owned plants by FY24. Further, the procurement of raw material is done by the company and then this raw material is sent to various processing units to process the raw material into final products. It exports these branded finished products through its distribution channels and most of these processing units are owned by its subsidiaries and third parties own some.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
  • Funding working capital requirements of the company.
  • General Corporate Purpose.
Investment Rationale:
Maintain long-standing customer base with well-established brands
HAIL’s business model is more customer-centric and requires optimum utilization of existing facilities, assuring a quality supply of raw materials, and achieving consequent economies of scale. The company has long-standing relations with customers which are spread in various geographies across the globe. The company has over the last few years executed such relationships and hence developed new markets by exploring higher margin areas by maintaining consistent quality output and delivery timelines. Further, the company is in the top three meat exporters in India exporting to more than 40 countries under the brands Black Gold, Kamil & HMA. These products have been sold under these brand names for many years and due to continuity, they carry brand recall values at the end customer level. Ever since its inception, HAIL has been laying utmost importance on building a brand by focusing on the quality of products which has helped to get repetitive orders from customers and helps the company’s business model to prove successful and scalable.
Well diversified market reach with focus on new geographies to accelerate growth going ahead
HAIL caters to both, the domestic as well as international markets. The products are exported to more than 40 countries. To take advantage of its robust export business and well-established distribution channels, the company has recently diversified its product portfolio by adding frozen fish products & basmati rice and plans to start poultry and other agri products as business verticals. In the last few years, the company has been strategically reducing focus on low-margin markets such as Vietnam, Myanmar, and Philippines, and gradually shifting towards higher-margin markets such as Egypt, Hong Kong, and Malaysia which will improve margins and provide growth visibility going ahead
Valuation and Outlook:
HAIL is a three-star export house processing and exporting processed food products. Currently, the company is one of the top three market leaders in the export of packaged frozen buffalo meat products from India and recently begun a product diversification process into other food processing and exports of products such as frozen fish and basmati rice. Further, the company intends to keep adding new products and become one of the trusted and well-recognized names in the food export business from India. In the last few years, the company has been strategically reducing its focus on low-margin markets and gradually shifting towards higher-margin markets to improve margins and accelerate growth going ahead. The company has long-standing relations with customers which are spread in various geographies across the globe. However, it is to be noted that the company is heavily dependent on the export business for its business operations which contributed to around 90.2% of its revenue in FY22. The company grew its Rev/EBITDA/PAT at a CAGR of 14.0%/85.7%/60.1% during the FY20-22 period. On the upper end of the price band, the issue is valued at a P/E of 24.0x based on FY2022 earnings which we feel is richly valued. It is also interesting to note that Rs. 330 crores of the issue size is an OFS. In terms of listing gains, we recommend an “Avoid” rating for the issue . Following a moderation in valuation going forward, we will revisit the company to take a long term perspective on the business

Cyient DLM Ltd: Subscribe

Cyient DLM Ltd: Subscribe
  • Date

    27 Apr 2023 - 30 Apr 2023

  • Price Range

    ₹250 - ₹265

  • Minimum Order Quantity

    56

  • (D) RHP

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Cyient DLM Limited (“Cyient DLM”) was incorporated on 30 June, 1993. Promoted by Cyient Limited, Cyient DLM is one of the leading integrated Electronic Manufacturing Services (“EMS”) and solutions provider with strong capabilities across the value chain and the entire life cycle of a product. Cyient DLM is a qualified supplier to global OEMs in the Aerospace and Defence, Medical Technology, and Industrial sectors. ‘Low volume, high mix’ (LVHM) is a type of contract manufacturing setup that typically has a very high emphasis on quality and customization which changes according to the requirements of the customer. They have over 22 years of experience in developing high-mix, low-to medium volume highly complex systems. Their EMS is provided as Build to Print (“B2P”) and Build to Specification (“B2S”) services to their clients. The company’s B2P solutions involve their client providing the design for the product for which they provide agile and flexible manufacturing services. Their B2S services involve utilizing their promoter’s design capabilities to design the relevant product based on the specifications provided by the client and manufacturing the product. Their solutions primarily comprise: (i) printed circuit board (“PCB”) assembly (“PCBA”), (ii) cable harnesses, and (iii) box builds which are used in safety-critical systems such as cockpits, inflight systems, landing systems, and medical diagnostic equipments. The company has three facilities spread across Mysuru, Hyderabad and Bengaluru, with a total manufacturing area of 229,061 sq. ft.
Objects of the issue:

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

  • Repayment/ prepayment, of certain of the borrowings
  • Funding incremental working capital requirements
  • Funding capital expenditure of the company
  • Achieving inorganic growth through acquisitions
  • General corporate purposes
Investment Rationale:
High entry barriers for competitors due to technical expertise and long-standing relationship with customers
The company’s clients are primarily engaged in industries such as aerospace and defense, medical technology, and industrials which are typically highly regulated industries. Their engagement with the client commences at the early stages of the product life cycle right from the design stage, which also leads to higher customer stickiness. The company’s key capabilities are in the domain of highly complex, safety-critical electronic systems with a high criticality of failure, such as cockpit systems and flight control systems which differentiates them from other EMS companies. Since specialized sectors such as aerospace and defense, and medical are highly complex and expensive, there are obvious challenges and barriers that make it almost impossible for new players to enter this market. High capital requirements and strict regulations are the key barriers preventing companies from entering these sectors. Cyient DLM has an industry-leading order book amounting to Rs. 2,432.6 crores as of 31 March, 2023, and a pipeline of prospective projects. They have consciously focused on reducing the long tail of customers by focusing on growing their business and relationships with strategic and marquee customers. Their long-term contracts with clients have a term ranging between 3 years and more than 15 years. One such contract is their contract with Honeywell International Inc for avionics LRUs.

Diverse in-house manufacturing infrastructure, robust supply chain, and strong capabilities across the product value chain

Cyient DLM is a complete, end-to-end integrated EMS and solutions provider with robust capabilities providing both B2P and B2S services. As an integrated manufacturing partner providing ‘design-led manufacturing’ solutions to their customers, they provide design through the design team of their promoter and, manufacturing, testing, and certification support. The company’s Mysuru and Hyderabad facilities are focused on electronics manufacturing processes including PCBA, cable harnesses, and box builds, which closely align with their core competence in electronics systems, integration, and manufacturing services, and are equipped with advanced equipment. Their Bengaluru facility is focused on producing high-precision, low-volume mechanical manufacturing products and is equipped with milling, drilling, turning, and grinding machines. Their supply chain process is electronically managed, monitored, and interconnected by way of a supply chain control tower and visualization tool. Currently, their dedicated supply chain and materials team consists of 73 members. As of 31 March, 2023, they have over 776 active vendors of raw materials, with over 63.3% of them from outside India.
Valuation and Outlook:
The company enjoys several competitive advantages and capabilities, giving them a strong edge and also providing them with certain key factors which are difficult to replicate. Some of these factors include their sectoral expertise, the high complexity of products they manufacture and the solutions they provide, their ability to provide end-to-end solutions, and the trust of their customers they enjoy. Cyient DLM has carved itself a niche in the EMS and solution-providing sectors. With its strategies in motion, it is prepared to capitalize on the promising opportunities lined up due to sectoral tailwinds. Post-IPO, the reduction in debt will save financial cost and increase the company’s earnings. We advise cash surplus investors to park funds for long-term rewards.

On the upper end of the price band, the issue will be valued at 34.2x FY23 EPS which we believe is fairly priced. We, thus, recommend a “SUBSCRIBE” rating for the issue.

Mankind Pharma Ltd : AVOID

Mankind Pharma Ltd : AVOID
  • Date

    25 Apr 2023 - 27 Apr 2023

  • Price Range

    ₹1026 - ₹1080

  • Minimum Order Quantity

    13

  • (D) RHP

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Mankind Pharma Ltd. is India’s fourth largest pharmaceutical company in terms of domestic sales and third largest in terms of sales volume for Moving Annual Total (MAT) as of December 2022. The company is engaged in developing, manufacturing, and marketing a diverse range of pharmaceutical formulations across various acute and chronic therapeutic areas in India, including anti-infective, gastro, cardiovascular, anti- diabetic, CNS, VMN, and respiratory. Mankind also entered the consumer healthcare industry in 2007 and has since established several differentiated brands in the condoms, pregnancy detection, emergency contraceptives, antacid powders, vitamin and mineral supplements, and anti-acne preparations categories. Further, the company operates 25 manufacturing facilities across India in the states of Himachal Pradesh, Sikkim, Rajasthan, Andhra Pradesh, Maharashtra, and Uttarakhand, and had 4,121 manufacturing personnel as of December 31, 2022. The company also has a pan-India marketing presence, with a field force of 11,691 medical representatives and 3,561 field managers, as of December 31, 2022. The company is purely a domestic focus play, with revenue from domestic busi- ness contributing 97.6% of total sales for FY22. The company’s products are sold in 21 countries, including regulated and semi-regulated emerging markets such as the United States, Latin America, Southeast Asia, Africa, the Middle East, and the Commonwealth of Independent States.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
  • To carry out the offer for sale.
Investment Rationale:
Focus on domestic business for long-term growth visibility.
Mankind Pharma Ltd. is India’s fourth largest pharmaceutical company in terms of domestic sales and third largest in terms of sales volume for Moving Annual Total (MAT) as of December 2022. The market share of the company in terms of Domestic Sales in the IPM increased from 4.1% to 4.3% between FY20 and MAT December 2022, which represents the fastest growth among the 10 largest corporates in the IPM. The revenue from operations in India contributed to 97.6% of the total sales for FY22, which was one of the highest among peers. In India, Mankind has historically been present through its product portfolio in acute therapeutic areas and has slowly shifted focus to chronic thera- peutic areas. Their Domestic Sales in acute therapeutic areas grew at a CAGR of 11% from FY20 to MAT December 2022, which has outpaced IPM’s growth rate for acute therapeutic areas by 1.2 times. Further, with the increased focus on chronic therapeutic areas, the Domestic Sales in chronic therapeutic areas grew at a CAGR of 14% from FY20 to MAT December 2022, which has outpaced the IPM’s growth rate for chronic therapeutic areas by 1.4 times. The growth has been driven by vol- umes and had the third largest volume share among the Top-10 largest corporates in the IPM for MAT December 2022. Further, the company strategically acquires brands and companies across key markets as well as explores in-licensing and co-development opportunities with other companies to diversify its therapeutic portfolio.
Pan-India presence with a strong distribution network to cater future demand.
Mankind has a pan-India marketing and distribution presence, and had one of the largest distribution networks in the IPM with 11,691 medical representatives and 3,561 field managers, as of December 31, 2022, and over 80% of doctors in India prescribed their formulations during MAT December 2022. They have also established a significant distribution network and sold their products to over 12,000 stockists and engaged with 75 C&F agents. They have an established presence and a large share of Domestic Sales in Class II-IV cities and rural markets. The Domestic Sales from Class II-IV cities and rural markets contributed 47% of their total Domestic Sales for MAT December 2022, higher than 37% recorded for the IPM, indicating their established presence across high-growth markets in India.
Valuation and Outlook:
Mankind Pharma is engaged in developing, manufacturing, and marketing a diverse range of phar- maceutical formulations across various acute and chronic therapeutic areas, as well as several con- sumer healthcare products. The company has operated with a combination of the Indian pharmaceu- tical formulations and consumer healthcare sectors to provide quality products at affordable prices and has an established track record of building and scaling brands in-house. They are present in several acute and chronic therapeutic areas in India, including anti-infective, cardiovascular, gastrointestinal, anti-diabetic, CNS, VMN, and respiratory. Further, the company entered the consumer healthcare industry in 2007 and established several differentiated brands in the condoms, pregnancy detection, emergency contraceptives, antacid powders, vitamin, and mineral supplements, and anti- acne preparations categories. They are the category leaders in (I) the male condom category, (ii) the pregnancy detection kit category, and (iii) the emergency contraceptives category. Further, the com- pany has a track record of sustained growth in revenues and profitability. The company grew its revenue at a CAGR of 14.2% during the FY20-22 period. On the upper price band, the issue is valued at a P/E of 30.2x based on FY2022 earnings which we feel is richly valued, as it is higher than the industry’s major players such as Sun Pharma, Cipla and Dr. Reddy’s. We, therefore, recommend an “Avoid” rating for the issue.