Archives: Ipos

India’s financial inclusion has improved significantly from 2014 to 2021 as the adult population with bank accounts increased from 53% to 78% (Source: Global Findex Database) due to the Indian government’s efforts to promote financial inclusion and the proliferation of supporting institutions. To promote financial inclusion, the Indian banking industry has seen several changes in recent years. NBFCs such as Bandhan and IDFC received permission to set up universal banks. Also, a few microfinance companies, a local area bank, an NBFC, and one urban co-operating bank have received permission to set up small finance banks. Despite its larger contribution to GDP of 47%, the rural segment’s share in credit remains relatively low at around 8-9% of the overall credit outstanding as of March 31, 2023. This provides a vast market opportunity for SFBs and other players present in the segment. With their microfinance experience, SFBs can manage local stakeholders and maintain operational efficiency. SFBs’ cost of funds is substantially low as they are allowed to raise CASA deposits. This will also help it to lend at more reasonable rates to its customers, enhancing its cross-sell opportunity in terms of asset products, insurance, etc. ESAF SFB was the fifth largest SFB in India in terms of AUM as of June 30, 2023. Amongst the SFBs, ESAF posted the fastest AUM CAGR of 39% over FY2021-23 period. The SFB’s capital adequacy ratio, which is the ratio of capital to risk-weighted assets and current liabilities, as at June 30, 2023, was 20.6%, which is the best asset quality amongst comparable peers as of June 30, 2023. As the lender will utilise the net proceeds of the fresh equity shares issue to augment its Tier-I capital base, its capital adequacy will enhance and lead to a stable leverage position. At the current P/BV multiple of 1.6x, we believe the company is attractively valued and advise investors to “Subscribe” from a medium to long-term perspective.

The BPC products market in India is undergoing a fundamental re-industrialization owing to the convergence of technology, demographic dividend, and growing consumer aspirations. Moreover, India’s per capita spend on BPC products is currently one of the lowest in comparison to some of the other developing countries and is at the cusp of growth as GDP per capita nears USD 2,000, which is a critical inflection point as observed in other developing economies. Honasa’s focus on building thoughtfully designed and purpose-driven brands has helped it cultivate trust, brand resonance, and affinity among its consumers and has enabled them to grow its business, as demonstrated by the growth of Mamaearth which has become the largest brand in the Direct-to-Consumer (DTC) BPC market in India within six years of its launch. Honasa, through its strategic focus on cultivating thoughtfully curated and purpose-centric brands, has effectively fostered consumer trust, brand resonance, and affinity, demonstrated in the rapid ascension of Mamaearth as the foremost player in India’s DTC BPC domain within a mere six-year span. Bolstered by a commendable gross margin of over 70% and an asset-light business model, the company has charted an impressive trajectory marked by exponential growth over the last half-decade, indicating promising future prospects. However, along with its recent attainment of profitability, the organization’s ongoing struggle to fortify its bottom line and ensure sustainable earnings growth demands cautious consideration. Honasa reported a revenue CAGR of 80% during FY21-23 period to reach Rs. 14,927 million vs. 28% CAGR for other BPC companies and it swung to a EBITDA of Rs. 228 million in FY23 from a loss of Rs. 13,340 million posted in FY21. Based on its annualized FY24 EPS, the IPO appears to be aggressively priced at 97x, discounting all immediate positive factors and seems like the company is leveraging its proven track record to justify a premium valuation. We, therefore, recommend an “AVOID” rating for the issue and would revisit the company following consistent and sustainable improvement in profitability. 

The Indian retail market has historically been characterized as largely fragmented and unorganized. By FY27, the total retail and organized retail are expected to reach USD 1,418 billion and USD 325 billion, respectively, exhibiting a CAGR of around 11% and 24% for total and organized retail, respectively, during the FY22-27 period. The emerging economies like India have a growing middle class willing to explore modern retail and seek organized retail formats as they offer both awareness and access to global brands. Cello has a diverse range of products across different product categories, types of material and price points, enabling it to serve as a “one-stop-shop”, with consumers across all income levels. Cello’s extensive product range spans Drinkware, Insulatedware, Dinnerware, Serveware, and Glassware, and across categories like Cleaning supplies, Stationery, Small kitchen appliances, Moulded furniture, and Air coolers. Cello’s utilization of various raw materials across its wide product range helps safeguard profit margins when facing fluctuations in raw material prices. By leveraging a mix of materials based on market dynamics, the company has adapted and prioritized those with more stable or favourable pricing, effectively managing costs and preserving margins. Moreover, Cello benefits from a distribution advantage due to its large off-take per retailer. Retailers, too, find it advantageous to stock Cello’s products due to the comprehensive range, enabling them to fulfil diverse customer demands through a single brand. This results in higher sales volume per retailer. The company’s revenue from operations grew at a CAGR of 30.8% during the FY21-23 period to reach Rs.17,966.95 million in FY23. Also, their profit grew at a CAGR of 31.2% during the FY21-23 period to reach Rs. 2,850.55 million in FY23. Cello World had the highest ROCE among its peers in FY23, at 44.5%. The issue is valued at a P/E of 44.4x on the upper price band based on FY23 earnings, which is fairly valued compared to the average industry P/E of 45.5x. We, therefore, recommend a “SUBSCRIBE” for the benefit of listing gains for the issue.

Blue Jet Healthcare has established a contract development and manufacturing organization (CDMO) business model with specialized chemistry capabilities in contrast to media intermediates and high-intensity sweeteners. The CDMO model allows the company to benefit from the accessibility to innovations of new molecules and helps lessen research costs and concentrate on efficient product development on a large scale. It also offers an advantageous position to continue to provide such products after they go off-patent in concurrence with customers. Further, Blue Jet plans to expand production capacities in Unit III from 213 KL as of June 30, 2023 to 499 KL by FY2025. The company also acquired a greenfield manufacturing site (Unit IV) on a leasehold basis in Ambernath in 2021 to build several multi-purpose blocks dedicated to pharma intermediate and API business which allowed it to increase the manufacturing capacity and scale its business. Once the capacity expansion at Unit III is completed and Unit IV is operational, the total annual production capacity is expected to reach 1,513.6 KL by the end of FY25. Further, the company has a track record of sustained revenue and PAT growth, growing at a CAGR of 20.2% and 8.6% during the FY21-23 period, with strong RoE and ROCE of 26.6% and 31.9%, respectively, in FY23. Further, the growth in the CDMO model, robust financial performance and expanding production capacity are expected to drive the company’s performance going ahead. On the upper price band, the issue is valued at a P/E of 37.5x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend an SUBSCRIBE rating for the issue.

It is expected that natural gas demand from the CGD sector in India is set to grow at a CAGR of around 19-20% between FY23 and FY30 to 117-120 MMSCMD, with healthy demand for both CNG and PNG. As discussed earlier, favourable government regulations have supported increased adoption of PNG wherein it is forecast that total household PNG connections are expected to grow from around 78.2 lakhs in FY21 to around 190-200 lakhs by FY26. Presently, the share of natural gas in India’s primary energy mix has increased from 6.3% in 2020 to 6.5% which is still significantly lower than the global average share of 24%. This provides the company with an ample amount of room to expand further in the coming years. IRM Energy Ltd. also benefits from its strong parentage of Cadila Pharmaceuticals Ltd. (49.5% stake) which has aided the business in overcoming certain entry barriers such as the requirement of large investments in this sector. Coming to the financial performance, the business has recorded a healthy volume CAGR growth of 76.58% to 196 MMSCM in FY23 compared to 63 MMSCM in FY21 while its ROE and ROCE ratios stood at 18.2% and 14.2% in FY23, respectively. On the upper price band, the issue is valued at a P/E of 24.1x based on FY2023 earnings, which is fairly valued compared to the average industry P/E of 43.9x. We, therefore, recommend a “SUBSCRIBE” rating for the issue.

The Indian wires and cables industry is poised to benefit from the strong growth trajectory in the residential projects post the central government’s aim of building 20 million affordable houses in urban areas across the country by 2022, under the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme of the Union Ministry of Housing and Urban Affairs. On the upper price band, the issue is valued at a P/E of 22x based on FY2023 earnings which prices in most of the positives of the company. Moreover, it is important to note that Plaza Wires Ltd. operates in an industry which has high raw material volatility (which is in an uptrend over the years). Additionally, the business operates in a highly competitive industry with multiple big players which can challenge the pricing power of the company. Thus, considering the above factors, we recommend an “Avoid” rating for the issue.

The global Facility Management (FM) market is witnessing a significant transformation driven by technology innovation, new business models, emerging value propositions, competitive disruption, and new service offerings as value propositions shift to service outcomes, user experience, and business productivity. Outsourcing is evolving rapidly worldwide; in the past decade, the main objective of outsourcing was cost optimisation, but today, organisations want to outsource FM services to free up internal resources to deliver strategic value. The IFM market in India has been growing steadily over the last decade and is set to witness significant growth momentum over the next five years. The total IFM market in India in the Financial Year ended March 31, 2023, is valued at Rs. 100,386.7 crores and around 39.3% of this is outsourced to third-party companies. Between FY18 and FY23, the outsourced Indian IFM market grew at a CAGR of 9.5%. The demand for IFM services has increased as people’s preferences for a safe, clean, and secure environment have grown. Over the years, Updater has become a pan-India player, with a widespread network consisting of 4,331 locations (excluding staffing locations) managed from 129 points of presence with 116 offices in India and 13 overseas offices as of June 30, 2023. The company’s widespread network enables it to service many customers and render customised services across India, where they are required to provide services per the customer’s specific needs through a combination of workforce, materials, supervision, technology and economic models. Their contracts with most of its customers are for at least one year, which subsequently gets renewed on an ongoing basis. As a result, their business is on an annuity-based model where a customer, once secured, generates revenue over a long period. If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, the asking price is at a P/E of 44.8x, and we believe it to be priced aggressively. We, therefore, recommend an “Avoid” rating for the issue. However, we would reassess the company on improvement in financial metrics over a sustained period.

India is positioned to be one of the fastest growing major economies and is expected to log an annual average economic growth of 6.6% between Fiscal 2024 and Fiscal 2026. A stronger domestic demand is expected to drive India’s growth premium over peers in the medium term. The investment prospects in India are bright, given the government’s capital expenditure push, the rapid progress of the Production linked Incentive (“PLI”) scheme, healthier corporate balance sheets, and a well-capitalized banking sector with low non-performing assets. India is poised to become a USD 5 trillion economy and ports would play a significant role in the growth story. Straddling the Bay of Bengal, the Indian Ocean, and the Arabian Sea with a coastline of approximately 7,517 km, the Indian economy occupies a commercially enviable location on the global map. Ports in India handle 90% by volume and 70% by value of India’s external trade. The maritime route is used to import crude petroleum, iron ore, coal, and other critical goods. The company is involved in the business of developing and managing ports, and provides maritime-related services including cargo handling storage solutions, logistics services, and other value-added services to its customers. Being in a capital-intensive business requiring huge capital as well as years of experience, JSW Infrastructure Ltd. looks well-positioned to maintain its dominant position in the ports industry in India in terms of cargo handling capacity and cargo volumes handled. The company also enjoys a strong parentage of JSW Group which has presence in various sectors in India and offers customer stickiness in the long term. The company also has plans to undertake various greenfield and brownfield expansions in the coming years which would prove beneficial for the business performance going forward. The company has a track record of sustained Revenue/EBITDA/PAT performance which grew at a CAGR of 41.2%/42.1%/62.3% during FY2021-23 period. On the upper price band, the issue is valued at a P/E of 29.7x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

The total jewellery market in Andhra Pradesh and Telangana is expected to grow at a CAGR of ~18% during FY2023-27 period to reach Rs. 96,500 crores by FY27. MVGJL has positioned itself well to capture a good chunk of this growth by catering to all economic segments and micro markets in Andhra Pradesh and Telangana through branded showrooms with a strong focus on the rural market and a dedicated urban focus. The company has displayed steady growth in revenue and even more robust profit growth which is up more than three-fold in two years. MVGJL boasts of a 23% return on its equity in FY23 which is attractive compared to its peers. They plan to open eight new stores to target more Tier 2 and Tier 3 markets which augurs well as rural markets contributed 50-52% of the total jewellery market in FY23. The nature of the business is such that a lot of costs are front-ended but once they are mitigated, profits can grow rapidly in coming years. The company has also maintained an asset turnover ratio of 1.8x and above which is a good sign for a constantly expanding business. We believe that the company looks poised to capture a further share of the unorganized jewellery market, especially in the rural areas. Based on the prospects of the sector, the company’s product catalogue, its stronghold in the southern markets and a good track record, the pricing looks attractive vis-à-vis its peers as it values MVGJL at 11.7x of its FY23 earnings. We, therefore, recommend a SUBSCRIBE rating to the issue.