Incorporated in 2003, Sula Vineyards Ltd. is currently India’s largest wine producer and seller. The company classifies its business under two major categories i.e. the wine business and the wine tourism business. In the domestic wine industry, Sula Vineyards has emerged as the market leader, with an overall market share of 52% in the grapes wine category in terms of both sales volume and value. Furthermore, Sula is recognized as a market leader in all four price segments of wine i.e. ‘Elite’ (Rs.950+), ‘Premium’ (Rs. 700-950), ‘Economy’ (Rs. 400- 700), and ‘Popular’’ (
Objects of the issue:
The IPO proceeds of the issue will be used towards the following purposes:
- To carry out the offer for sale.
- To achieve the benefits of listing the equity shares on the stock exchanges
Investment Rationale:
High barriers to entry provide cushion to the business both in terms of scale and profitability
Developing and setting up vineyards for wine-making requires high capital expenditure and a long lead time. To ensure value chain integration, wineries enter into long-term contracts with farmers, with a typical term of up to 12 years. As of June 30, 2022, Sula Vineyard had access to approximately 2,521 acres of vineyards, a significantly higher number compared to the second-largest wine company in the Indian market which has around 460 acres. Moreover, long-term supply arrangements
and technical support provided by the company coupled with their stellar reputation make them favourable for entering/renewing contracts. This makes it comparatively difficult for new entrants to venture into the Indian wine industry, as they lack that level of scale and backward integration.
and technical support provided by the company coupled with their stellar reputation make them favourable for entering/renewing contracts. This makes it comparatively difficult for new entrants to venture into the Indian wine industry, as they lack that level of scale and backward integration.
Strong growth expectations in the industry to provide further tailwinds to the company’s growth trajectory
The size of the Indian wine market is comparatively smaller compared to other developed and developing economies. In the overall Indian alcohol industry, wine contribution is merely 1% which creates immense opportunity for the growth of the business. In FY2022, the wine industry in India is estimated at 2.6 million cases which is further projected to grow to 3.9 million cases by FY2025, registering
a CAGR of around 14% in volume. Additionally, multiple demand factors like wider acceptance of wine as a social drink, the large share of young population, and increased perception of wine as a healthier alternative to spirits put Sula Vineyards in a favorable spotlight.
a CAGR of around 14% in volume. Additionally, multiple demand factors like wider acceptance of wine as a social drink, the large share of young population, and increased perception of wine as a healthier alternative to spirits put Sula Vineyards in a favorable spotlight.
Valuation and Outlook:
One of the fastest-growing alcoholic beverage companies in India, Sula Vineyards, grew at a CAGR of 13.3% in FY2011-22 period. The company has also been successful in consistently raising the prices of its wines by an annual average of 6% for the FY2019-22 period. Moreover, with Sula gaining a higher demand for its ‘Elite’ and ‘Premium’ categories, it puts the company in a sweet spot for margin expansion. Going forward, the company aims to focus on its brands more than the import and
distribution of third-party brands. To further increase its brand visibility, it continues to expand its wine tourism business. In FY2022 ,the company reported a healthy ROCE ratio of 20.86% and a low debt to equity ratio of 0.58. On the upper end of the price band, the issue is valued at a P/E of 52.6x based on FY2022 earnings which we feel is fairly priced . Hence, we recommend a “SUBSCRIBE” rating for the benefit of listing gains.
distribution of third-party brands. To further increase its brand visibility, it continues to expand its wine tourism business. In FY2022 ,the company reported a healthy ROCE ratio of 20.86% and a low debt to equity ratio of 0.58. On the upper end of the price band, the issue is valued at a P/E of 52.6x based on FY2022 earnings which we feel is fairly priced . Hence, we recommend a “SUBSCRIBE” rating for the benefit of listing gains.
Abans Holdings Ltd : AVOID
Abans Holding Ltd. was incorporated in September 2009 by first-generation entrepreneur Mr. Abhishek Bansal. Abans is a holding company that operates its businesses through 17 subsidiaries which consist of three direct subsidiaries and fourteen indirect/step-down subsidiaries. The company is a diversified global financial services provider, which has its base in India, providing various services such as NBFC, multi-asset global institutional trading in equities, commodities and foreign exchange, private client broking, asset management & investment advisory and wealth management to corporate, institutional and high net worth individual clients. It is worthwhile to note that the company has grown from being a commodity trading company in its inception into a diversified multi-asset and multi-national financial services company. The company’s financial services business caters to mainly three verticals – finance business, agency business, and capital business. The finance business represents the lending business of the company where the source of revenue is the interest income and the total lending assets as of 31st August 2022 stood at around Rs. 174 crores. Abans’ NBFC business is primarily focused on providing Indian Rupee-denominated secure and unsecured structured-term financing solutions to private traders and other small and medium businesses in the category of small and medium enterprises (SMEs). In its agency business, it acts as a financial intermediary wherein it earns stock broking income, consultancy and advisory income, wealth and asset management commissions, and commissions from transactional advisory services. The capital business vertical comprises mainly internal treasury operations including physical commodities trading along with exchange-based trading in foreign exchange, equities, and commodities, and also includes groups investments and dividend incomes. The company also operates in certain non-trading but related businesses that are starting points for a diversified financial business group. It involves the business of warehousing, agri-trading, and payment gateway services through its subsidiaries and contributes less than 2% of the company’s total gross operating income.
Objects of the issue:
The IPO proceeds of the issue will be used towards the following purposes:
- Further Investment in NBFC Subsidiary (Abans Finance Pvt. Ltd.) for financing the augmentation of its capital base to meet future capital requirements.
- General corporate purpose.
Investment Rationale:
An integrated financial services platform allows a large product bandwidth to customers
Abans offers an integrated financial services platform, offering various financial services and products, including financing, institutional trading, private client brokerage, asset management, and investment advisory services. The company has a competitive edge as these services are provided not only in the Indian markets but across various markets and exchanges globally. The company has membership across major exchanges in India such as BSE, NSE, MSEI, NCDEX, ICEX, MCX, and IIEL. Apart from this, it also has membership across the globe for global commodity and forex exchanges which includes London Metal Exchange (LME), Dubai Gold & Commodities Exchange (DGCX), Dalian Commodity Exchange (DCE), and Shanghai International Energy Exchange (INE). The company’s integrated service platform allows it to leverage relationships across lines of businesses and their industry/product knowledge by providing multi-channel delivery systems to its client base, thereby increasing its ability to cross-sell its services.
Global exposure in providing innovative financial products gives an edge to the company
The company is a global financial services provider offering opportunities in multi-asset global institutional trading in equities, commodities, and foreign exchange, private client broking, asset management, investment advisory services, and wealth management services to corporate, institutional, and high-net-worth individual clients. The company’s international exposure helps its customers to diversify their portfolio, which in turn provides a balance between geographies. The company has adopted innovative technology due to which it offers its clients an advanced trading platform and FIX API connectivity that provides ultra-low latency. The unique selling point of the company is that it offers a Contract for Difference (CFD) product to its institutional and HNI clients with a risk appetite. CFDs are a leveraged derivate product wherein the difference in the value of an asset from the time of opening of such a contract to its closure is exchanged under a specific contract/agreement. In such transactions, though, the client is not the owner of the financial instrument traded, they stand to benefit from any market movements, which are in their favor, thus providing them with large risk-based investment leverage. Global access allows the company to deploy its treasury funds in the most viable transactions and thus providing them with leveraging opportunities across different locations.
Valuation and Outlook:
India’s diversified financial sector is undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The Government of India has introduced several reforms to liberalize, regulate and enhance this industry. Thus, we find Abans being one of the beneficiaries due to such reforms. Moreover, despite the shocks in past such as the pandemic and current geopolitical situation, Abans Holding was able to grow at PAT levels in the last two years . The company’s decadal experience in dealing with global equity, commodities, and forex markets has given it confidence in expanding into complementary businesses. However, any economic slowdown or recession that is highly unpredictable, may adversely affect business operations, and future financial performance. Moreover, the company operates in a highly competitive environment and a crowded space where there is little differentiation in terms of product offerings. On the upper end of the price band, the issue is valued at a P/E of around 20.1x on FY2022 earnings. We, therefore, have a cautious view and recommend an “AVOID” to the IPO.
Uniparts India Ltd : SUBSCRIBE
Uniparts India Ltd., established in 1994, is a global manufacturer of engineered systems and solutions. The Company offers systems and components for the off-highway market in the agriculture and construction, forestry and mining (“CFM”) segment, and aftermarket sectors to over 25 countries across the globe. It is a concept-to-supply player for precision products for off-highway vehicles (“OHVs”) with a significant presence across the value chain. The Company’s product portfolio includes core product verticals of 3-point linkage systems (“3PL”) and precision machined parts (“PMP”), as well as adjacent product verticals of power take-off (“PTO”), fabrications and hydraulic cylinders or components thereof. Uniparts offer fully integrated engineering solutions from conceptualization, development, and validation to implementation and manufacturing of the products. The Company is a leading manufacturer of 3PL and PMP products and supplies to many reputed global companies. In FY2022, it is estimated that Uniparts commanded a 16.68% market share of the global 3PL market and an estimated 5.92% market share in the global PMP market in the CFM sector, both in terms of value. The Company also caters to the aftermarket segment, especially for the 3PL product range. Uniparts also provide replacements of 3PL parts to organized aftermarket retailers and distributors in North America, Europe, South Africa, and Australia.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- To carry out the offer for sale
- To achieve the benefits of listing the equity shares on the stock exchanges.
Investment Rationale:
Strategically located manufacturing and warehousing facilities offer scale and flexibility
Uniparts India has 6 manufacturing plants which are strategically located across India and the United States of America. The Company’s aggregate installed capacity across these manufacturing facilities is 67,320 metric tonnes per annum as of 30th June 2022. Due to the company’s dual-shore capabilities, the company can undertake manufacturing of products at different locations and service customer requirements from alternate locations, providing customers the benefit of regular supply and cost competitive manufacturing operations. The Company has three international warehousing facilities in Germany and the United States that allows it to service and grow in these markets efficiently by becoming a local supplier to global original equipment manufacturers (OEMs). Uniparts’ proximity to its
key customer groups provides it with a strategic advantage in ensuring cost-effectiveness, quicker delivery, and faster turnaround times. With the Company’s continuous investments in facilities and capabilities, they have been able to develop an efficient, technology-driven manufacturing process that has led them to manufacture products as per the requirements and specifications of the customers in a cost-effective manner.
key customer groups provides it with a strategic advantage in ensuring cost-effectiveness, quicker delivery, and faster turnaround times. With the Company’s continuous investments in facilities and capabilities, they have been able to develop an efficient, technology-driven manufacturing process that has led them to manufacture products as per the requirements and specifications of the customers in a cost-effective manner.
Enhanced engineering, innovation, and design competence strengthens product portfolio
The Company focuses on process and product innovation and value engineering solutions to meet the requirements of a wider range of vehicles, geographies, applications, and other customer specifications. This has helped the Company to strengthen and diversify its customer and product portfolio. Uniparts’ has continuously improved its in-house value engineering, testing, design, and process innovation capabilities through human resource and technical development, as well as exploring opportunities for collaboration and inorganic growth. The Company has continuously worked with its key customers to upgrade and customize the products, in particular, to increase sales of 3PL products in the higher horsepower (more than 60HP) tractor segment and of PMP, hydraulic cylinders and PTO applications.
Valuation and Outlook:
The global market for 3PL systems (~56% of FY2022 revenues) is expected to grow at a CAGR of 6% – 8% through CY2026, aided by strong global tractor production volumes. With India accounting for about 50% of the global tractor production, we believe that Uniparts India is in a sweet spot to leverage this opportunity going forward. Additionally, multiple business drivers such as fully integrated engineering solutions, long-term relationships with OEMs, the strategic location of manufacturing
and warehousing facilities, global footprint, and geographically diversified revenues should provide further tailwinds to the business. However, an unexpected slowdown in tractor production due to economic headwinds and the company’s high dependency on its top customers for revenues continue to remain key risks. On the upper end of the price band, the issue is valued at a P/E of around 15.1x which we feel is fairly valued, given the fact that the company has healthy RoCE and RoAE ratios
(31% and 26.8%, respectively for FY2022) along with low debt. We, therefore, recommend “SUBSCRIBE” to the IPO.
Dharmaj Crop Guard Ltd : SUBSCRIBE FOR LISTING GAINS
Dharmaj Crop Guard Limited (DCGL), an agrochemical company, is engaged in manufacturing, distributing, and marketing a wide range of agrochemicals such as insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics to B2C and B2B customers. The company markets and distributes its own branded agrochemical products, the ones in-licensed by them and other generic brands to Indian farmers. For its domestic branded business, it has a well-established distribution network that comprises over 4,362 dealers having access to 16 stock depots and a presence in 17 states. On the global front, the company has extended its export reach to more than 25 countries in Latin America, East African countries, the Middle East, and Far East Asia. Presently, the company has one manufacturing facility in Gujarat, with an aggregate installed capacity of 25,500 MT for its agrochemical formulations. As a part of its expansion plan and to achieve backward integration of its operations, DCGL has acquired additional land in Gujarat where it plans to set up a manufacturing facility for agrochemical technicals and its intermediaries in the future.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- Funding capital expenditure towards setting up of a manufacturing facility at Saykha, Baruch, Guajrat.
- Funding incremental working capital requirements of the company.
- Repayment and/or pre-payment, in full and/or part, of certain borrowings of the company.
- General corporate purposes.
Investment Rationale:
A well-diversified product portfolio mix
Since its incorporation, DCGL has focused on diversifying its product portfolio mix and is a manufacturer of agrochemical products in various categories such as insecticides, fungicides, herbicides, plant growth regulators, micro fertilizers, and antibiotics. Additionally, the company is involved in manufacturing and selling general insect and pest control chemicals for Public Health and Animal Health protection. Thus, the company’s move to develop a niche and diversified product portfolio of agrochemicals has enabled it to de-risk business operations.
Strong domestic and global pesticides demand
Indian pesticides and other agrochemicals market grew at a CAGR of 4.5% from ₹368 billion in 2013- 14 to ₹439 billion in 2017-18. Going forward, the overall Indian pesticides and other agrochemicals industry is estimated to increase at a CAGR of 7.5%-8.5% by 2026-27. The expected traction in international markets and an increase in domestic usage of pesticides in India will benefit the company’s revenues. Additionally, an opportunity amounting to around USD 5 billion going off-patent in pesticides in 2026-27 provides ample room for Indian manufacturers to increase their pesticide exports. The industry tailwinds coupled with a superior product mix and strong R&D capabilities are likely to aid Dharmaj Crop Guard’s business performance going forward.
Valuation and Outlook:
The company aims to further diversify its customer base and increase its market share in the agrochemical business. To achieve this goal, the company focuses on strengthening its business through effective branding of its own products and acquiring other brands to grow its product portfolio mix. Moreover, the set-up of the new factory will enhance the manufacturing capabilities of the business and lead to better profit margins due to backward integration. However, a low level of capacity utilization of around 35% in FY2022 remains a key concern for the business. On the upper end of the price band, the issue is valued at a P/E of 20.4x based on FY2022 earnings which we feel is fairly priced. Hence, we recommend a “SUBSCRIBE” rating for the benefit of listing gains.
Keystone Realtors Ltd : SUBSCRIBE
Keystone Realtors Ltd. was established in 1995 to develop itself as a trusted brand in delivering multiple high-end award-winning buildings, gated communities, and townships. The company has become one of the prominent real estate developers (in terms of absorption in the number of units) in the micro markets where they are present. It has a diversified suite of projects across a wide range of price points, and a presence in several micro markets. Keystone has its major focus on “Mumbai Metropolitan Region” (MMR) where it offers a comprehensive range of projects under the affordable, mid and mass, aspirational, premium, and super premium categories, all under the “Rustomjee” brand. The company command’s a market share of 28% in Khar, 23% market in Juhu, 11% in Bandra East, 14% in Virar, 3% in Thane, and 5% in Bhandup in terms of absorption (in units) from 2017 to 2021 (Source: Anarock Report). As of June 30, 2022, Keystone has developed 20.22 million square feet of high-value and affordable residential buildings, premium gated estates, townships, corporate parks, retail spaces, schools, iconic landmarks, and various other real estate projects. The company’s business model is entering into joint development agreements, redevelopment agreements with landowners or developers, or societies, and slum rehabilitation projects, which require lower upfront capital investment compared to the direct acquisition of land parcels. This approach allows the company to minimize the upfront capital expenditure compared to the direct acquisition of land parcels, which ensures that their capital allocation is balanced and calibrated, allowing them to generate revenue with lower initial investments
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- Repayment/ prepayment, in full or part, of certain borrowings availed by our Company and/or certain of our Subsidiaries
- Funding acquisition of future real estate projects and general corporate purposes.
Investment Rationale:
Well-established customer-centric brand in the Mumbai Metropolitan Region
Keystone Realtors Ltd. is one of the prominent real estate developers (in terms of absorption in the number of units) in the micro markets that we are present in, namely Juhu, Bandra East, Khar, Bhandup, Virar, and Thane (Source: Anarock Report), and it has been able to garner premium pricing in the MMR micro-markets where most of their projects are located. As of June 30, 2022, they had 32 Completed Projects, 12 Ongoing Projects, and 21 Forthcoming Projects across the MMR, including a comprehensive range of projects under the affordable, mid and mass, aspirational, premium, and super premium categories, all under Rustomjee brand. The Company has undertaken several landmark projects in the MMR, which include Rustomjee Elements, a large gated community in Upper Juhu, Mumbai; Rustomjee Paramount, a signature complex in Khar, Mumbai; Rustomjee Seasons, 3.82 acres gated community in Bandra Annexe, Mumbai; Rustomjee Crown, a 5.75 acres land parcel for high-end development at Prabhadevi, South Mumbai, consisting of three high-rise towers.
Keystone has developed a strong brand that has encouraged stakeholders in the real estate development industry to prefer partnering with the company, in particular for re-development and stalled projects. The company’s customer-centric approach has led to them providing offerings posthandover and post-development services such as providing furnishing, interior designing and execution services, addressing miscellaneous customer needs such as leasing out apartments and managing lease renewals and maintenance, as well as facility management services.
Keystone has developed a strong brand that has encouraged stakeholders in the real estate development industry to prefer partnering with the company, in particular for re-development and stalled projects. The company’s customer-centric approach has led to them providing offerings posthandover and post-development services such as providing furnishing, interior designing and execution services, addressing miscellaneous customer needs such as leasing out apartments and managing lease renewals and maintenance, as well as facility management services.
Asset-light and scalable model resulting in profitability and stable financial performance
The hospitals that the company has built are on a large-scale basis. Its flagship hospital in Gurugram has a built-up structure of more than 2 million. The company’s hospitals are built to install additional beds without any significant investment. The hospital has an installed bed capacity of 473 beds as of June 30, 2022, with a further capacity to accommodate over 900 beds. The hospitals also have an international-grade infrastructure. Across all the hospitals 30% are dedicated to critical care and the
chain has a total of 70 OPDs. The company is also focusing on diversification into new services like digital health. The company has scaled up its telemedicine and remote delivery of healthcare services.
Valuation and Outlook:
Keystone Realtors Limited (Keystone), the brand known as Rustomjee, is a significant player in the real estate industry. They have experience in developing lifestyle projects, high-value standalone buildings, gated communities, fully integrated townships, re-developments, and stalled projects. As of
June 30, 2022, they had 1,542 channel partners who present the Rustomjee portfolio to their customers and drive customer traffic to our projects. In addition to its in-house competencies, the company also leverages the expertise of external specialists to match its wide range of product offerings. The residential real estate sector in India has witnessed several changes in market conditions because of demonetization, the NBFC liquidity crisis of 2018, and the implementation of RERA and GST in this
period. The overall effect is that the sector has moved towards more transparency and being more organized than in years earlier when these reforms were taking place. The company has been aggressively reducing debt and has successfully brought down its net debt-to-equity ratio from 7.7x in FY20 to 1.1x as of June 30, 2022. The company is expected to partially utilize the IPO fund to reduce the debt on the books further while balancing its new projects in the pipeline. However, a rise in interest rates, an economic slowdown in India due to macro factors such as Inflation, and too much dependency of the company on a particular region remains the risk concern. On the upper end of the price band, the issue is valued at a P/E of 38.8x based on FY22 earnings which we feel is fairly priced as it has RONW of 15% as on FY22 which is the highest amongst peers as per RHP and we, therefore, recommend to “SUBSCRIBE” to the IPO.
Global Health Ltd : Subscribe for Listing Gains
Global Health Limited is one of the largest private multi-speciality tertiary care providers operating in the North and East regions of India. It has five hospitals currently in operation located in Gurugram, Lucknow, Indore, Ranchi and Patna and the sixth hospital is under construction in Noida. The hospitals operate under the “Medanta” brand. The company has key specialities in cardiology and cardiac sciences, neurosciences, oncology, digestive and hepatobiliary sciences, orthopaedics, liver transplant, and kidney and urology. The company provides healthcare services in over 30 specialities and engages over 1300 doctors and has 2467 beds across its operational hospitals. The company’s flagship hospital in Grurgram is approximately 2.7mn sq ft with 1391 installed beds as of 30th June 2022. It also operates six multi-speciality clinics in DLF Cybercity Gurugram, Delhi Airport, South Delhi, Darbhanga, Patna and Subhash Chowk Gurugram. Upon completion of the hospital in Noida, the company expects the number of beds to exceed 3500 at the end of Fiscal 2025. The company also provides home care service which provides sample collection, delivery of medicine, preventive health checks, paediatric vaccinations and nursing services.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- Repayment/prepayment of borrowings, in full or part, of the Subsidiaries, GHPPL and MHPL
- General Corporate Purposes
Investment Rationale:
Clinical Expertise and Focus on Clinical Research
The company focuses on super specialization and clinical expertise by working on a high number of complex cases. The company has a doctor-led management model enabling sub-specialisation to provide the highest level of clinical expertise to the patients. It also has a research facility “The Medanta Institutional Tissue Repository” in 2017 to promote biomarker and other tissue-based research. The company is currently developing an algorithm to increase productivity and accuracy in medical diagnosis, particularly in radiology scans.
Large-scale hospitals with sophisticated infrastructure and steady growth strategies
The hospitals that the company has built are on a large-scale basis. Its flagship hospital in Gurugram has a built-up structure of more than 2 million. The company’s hospitals are built to install additional beds without any significant investment. The hospital has an installed bed capacity of 473 beds as of June 30, 2022, with a further capacity to accommodate over 900 beds. The hospitals also have an international-grade infrastructure. Across all the hospitals 30% are dedicated to critical care and the
chain has a total of 70 OPDs. The company is also focusing on diversification into new services like digital health. The company has scaled up its telemedicine and remote delivery of healthcare services.
Valuation and Outlook:
There is huge growth in the healthcare sector and the super specialization market in India is highly under-penetrated. This puts Global Health (Medanta) in a strong position to further grow and expand into different geographies. The company also has steady ARPOB and EBITDA levels through the fiscal years 2020, 2021 and 2022. The company primarily focuses on under-penetrated and underserved geographies with dense populations and government schemes such as Ayushman Bharat Scheme present the company to expand in such under-served areas to reach the low-income population. However, the company’s subsidiaries GHPPL and MHPL have incurred losses and medical and legal risks remain the key risk facts. On the upper end of the price band, the issue is valued at a P/E of 43.2x based on FY22 earnings which we feel is fairly priced and we, therefore, recommend to “SUBSCRIBE” the IPO for the benefit of listing gains.
Inox Green Energy Services Ltd : Avoid
Incorporated in 2012, Inox Green Energy Services Ltd. (IGESL) is one of the major wind power operation and maintenance (“O&M”) service providers within India. Inox Green enjoys synergistic benefits by being a subsidiary of Inox Wind Limited (IWL), which is primarily engaged in the business of manufacturing WTGs (Wind Turbine Generators) and providing turnkey solutions by supplying WTGs among other services. The company shares an exclusive agreement with IWL to provide O&M services for all WTGs sold by IWL through the entry of long-term O&M contracts between the WTG purchaser and IGESL for a period between five to twenty years. As of June 30, 2022, the company’s O&M services portfolio consisted of an aggregate 2,792 MW of wind farm capacity and 1,396 WTGs across eight wind-resource-rich states in India with an average remaining project life of more than 20 years.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- Repayment and/ or pre-payment, in full or part, of certain borrowings availed by the Company including redemption of Non- Convertible Debentures in full.
- General Corporate purposes.
Investment Rationale:
Strong growth prospects of the wind energy sector
The government has set a target of generating 50% of its power through renewable energy by 2030. Thus, the growth of the wind energy sector is set to improve with capacity additions of 17-20 GW expected over the next five years. Also, with India being the third largest energy-consuming country in the world, the demand for O&M services is expected to be in the range of INR 170 to INR 210 billion by the fiscal year 2026 making Inox Green Energy Services Ltd a direct beneficiary of this move.
Additionally, the company also plans to extend its portfolio by offering its services to WTGs that are not manufactured by IWL thus increasing their customer base.
Transforming to an asset-light model with minimum capital expenditure
The company aims to shift from its current business model in which it developed common infrastructure facilities such as pooling substations and transmission lines as that has led to significant capital expenditures. While this expenditure is expected to continue in the short term due to their ongoing prior commitments, in the future IGESL would reduce project bids and investments into the wind power assets that require such heavy capital expenditure. Moreover, there has been a gradual increase in large wind players such as IPPs bidding for wind projects and taking on the responsibility of
developing the common infrastructure facilities thereby reducing the need for the company to compete in a similar space and incurring such costs. Thus, this reduction in expenses would lead to higher EBITDA and profit margins which they can utilize to fund future expansion plans and dividend payments.
Valuation and Outlook:
The wind energy market picked up at a healthy pace with increasing capacity additions in fiscal 2020 after a low in 2019. This has also positively impacted the demand for O&M services which grew from INR 84 billion in 2016 to more than INR 130 billion in 2022. Moreover, with several government reforms in place for promoting renewable energy as a power source, this puts the company in a favorable position. The company enjoys financial backing from the Inox GFL group and for the future, it
plans to strategically acquire O&M portfolios of other small-scale or third-party wind OEMs to further grow its capital base. However, the company’s debt to equity ratio remains high which is a key concern for the business. On the upper end of the price band, the issue is valued at a EV/EBITDA of 28.6x based on the annualized FY22 earnings. As the company has been making losses in the past fiscals we are not comfortable with the current valuation which is being offered, thus we suggest investors to “AVOID” this issue.
Kaynes Technology India Ltd : Avoid
Kaynes Technologies is a leading end-to-end and IoT solutions-enabled integrated electronic manufacturing company operating in the spectrum of electronics system design and manufacturing (ESDM). The provides conceptual design, process engineering, integrated manufacturing and lifecycle support for major players in the automotive, industrial , railways, aerospace and defence, outerspace, nuclear, medical and other segments. The company’s operations are classified under the four business verticals namely “OEM-Box Build”, “OEM-PCBAs”, ODM services in smart metering technology, smart street lighting, and BLDC technology among others. It also offers conceptual design and product engineering services in industrial and consumer segments. The company currently has eight located manufacturing facilities in the states of Karnataka, Haryana, Himachal Pradesh, Tamil Nadu, and Uttarakhand. As of June 2022, the company has the company has served 229 customers in 21 countries. The company sources its materials from 871 vendors across various regions including North America, Europe, and Singapore as well locally within the country. The company is one of the first companies in India to offer design-led electronics manufacturing to original equipment manufacturers. The company’s current order book value stands at INR 2200cr with an average customer relationship duration of 5-8 years..
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- Repayment/ prepayment, in full or part, of certain borrowings availed by the Company.
- Funding capital expenditure towards expansion of the existing manufacturing facility at Mysore, Karnataka, and near the existing manufacturing facility at Manesar, Haryana.
- Investment in the wholly owned Subsidiary, Kaynes Electronics Manufacturing Private Limited, for setting up a new facility at Chamarajanagar, Karnataka.
- Funding working capital requirements of the Company.
- General Corporate purposes.
Investment Rationale:
Significant Emphasis on Research and Development
The company invests significantly in its research and development to be able to address its customer’s diverse needs and enhance the existing products. The company targets to introduce new and innovative products in the market with new technologies and cost optimization through value analysis and value engineering. It has established a dedicated research and development facility located within its facility at Mysuru, Karnataka. The research and development team also closes works with the customers to develop products according to their specific needs. As of 30th June 2022 the R&D team is comprised of 19 employees.
Advanced Infrastructure Systems and Processes
The company is focused on creating robust infrastructure to adhere to global standards. The company has obtained certifications for all the business verticals it operates in which helps it to service its customers with stringent quality specifications and also assists in new customer acquisitions. It also undertakes repairs and provides rehabilitation of electronic cards in railways, aerospace, defence and industrial vehicles at its servicing and maintenance unit in Navi Mumbai.
Valuation and Outlook:
The global ESDM market scenario is changing rapidly with more and more OEMs are realising the capabilities of ESDM companies with the global ESDM market estimated to reach $1000 billion by FY25 giving Kaynes Technologies to significantly expand further. The company is the largest manufacturer of LED lamp electronics and produce approx 6000 different products every month. The company witnessed 3.7 times rise in its order book value in the past 2 years with PAT margins also growing from 2.3% in FY21 to 5.9% in FY22. It has also received PLI approvals in the A/C and Telecom
vertical. However the loss of any top 5 customers of the company and increasing competition in the electronics market along with consistent negative cash flows continue to be key risks. On the upper end of the price band, the issued is valued at a P/E of 65.2x based on FY22 earnings which is on the steeper side and we initiate “AVOID” recommendation to the IPO.
Five Star Business Finance Ltd : Subscribe for Listing Gains
Five Star Business Finance is an NBFC-ND-SI providing secured business loans to micro-entrepreneurs and self-employed individuals. The company is headquartered in Chennai and has a strong presence in south India comprising of an extensive network of 311 branches, as of June 30, 2022, spread across eight states and one union territory. The ticket size of the loans offered ranges between INR 0.1mn to 1mn with an average ticket size of 0.29mn for June 2022. The company’s gross term loans are currently at 52,965mn as of June 2022 which is split into loans for business purposes (62.12% of gross term loans) and loans for asset creation and significant economic events (37.88% of gross term loans). Its targets customers in tier-2 to tier-6 cities who typically derive income from “everyday” cash and carry business with a typical focus on services. The company only provides secured loans where more than 95% of the collateral is a self-occupied residential property. The currently has a loan base of 230,175 customers and continues to increase this number while keeping the average ticket size stable. The company secures financing from various sources including term loans, proceeds from loans securitized, and loans from banks and financial institutions among others. The interest rate ranges from 24% to 26% and between tenure of five to seven years.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the
following purposes:
- To carry out Offer for Sale.
- Achieve the benefits of listing equity shares in the stock exchanges.
Investment Rationale:
Robust Customer Evaluation Process
The company has developed a robust customer credit evaluation method which is a four-layered process; two within the business and collections team and two layers within the credit team. It conducts an in-depth analysis of its potential customer by considering the ‘three C’s’ viz Character, Cash-Flow, and Collateral to ensure that the customer has adequate ability to repay the loan amount. Also, sourcing of potential customers is 100% done in-house by the company, not depending on any intermediaries allowing better control over the files. Approximately 80% of the files logged in are sanctioned due to strict pre-login practices followed by the company.
Under-penetrated market with large opportunities
The credit market for MSMEs and self-employed individuals is largely in the unorganised sector. According to industry reports, less than 15% of approx 70 million MSMEs in India have access to formal credit in any form. The company has calibrated a strategy for contiguous expansion to penetrate the market by enabling its customers to move into the organised credit market while maintaining strong asset quality. The GNPA of the company is approx 1.12% of the gross term loans as of June 2022.
The credit market for MSMEs and self-employed individuals is largely in the unorganised sector. According to industry reports, less than 15% of approx 70 million MSMEs in India have access to formal credit in any form. The company has calibrated a strategy for contiguous expansion to penetrate the market by enabling its customers to move into the organised credit market while maintaining strong asset quality. The GNPA of the company is approx 1.12% of the gross term loans as of June 2022.
Valuation and Outlook:
The general growth in the organised credit market for MSMEs and robust risk management and collections framework provide Five Star with a huge opportunity to expand further. The company’s approach to sanction only fully secured loans with SORP as collateral coupled with a focus on strong pre-login assessment minimizes the risk of frequent defaults. Also low cost of borrowings and significant plans to invest in technology and data analytics to improve operational efficiency help the company in the long run. However, disruptions in the sources of capital and default by borrowers remain key risks. On the upper end of the price band, the issue is valued at a P/E of 29.6x and a P/B of 1.2x based on FY22 earnings which we feel is fairly priced and recommend investors to “SUBSCRIBE” to the IPO for the benefit of listing gains.
Archean Chemical Industries Ltd : Subscribe for Listing Gains
Archean Chemical Industries is a speciality marine chemical manufacturer focusing on three products namely bromine, industrial salt, and sulphate of potash. The company was the largest exporter of bromine and industrial salt by volume in Fiscal 2021. The company produces its products from its brine reserves in Rann of Kutch, in Gujarat and has a manufacturing facility in Hajipur in Gujarat. The company has 18 global customers in 13 countries with key geographies being China, Japan, South Korea, Qatar, Belgium and Netherlands and 24 domestic customers. It has a business-to-business basis both in India and internationally. The company’s product bromine has applications in pharmaceuticals, agrochemicals, water treatment, oil and gas and in many more industries. Also, the company is the only manufacturer of Sulphate of Potash in the country. Archean Chemicals was also the largest exporter of industrial salt from India exporting 2.7 million MT in Fiscal 2021. For the quarter ended June 2022, the company exported 100% of its industrial salt production. The sales of bromine contributed 50.94%, sales of industrial salt constituted 48.98% and sulphate of potash constituted 0.06% of the total revenue from operations of the company for the quarter ended 30th June 2022. The company has an export-oriented business with almost 67% of its revenue-generating from exports.
Objects of the issue:
The IPO proceeds of the fresh issue will be used towards the following purposes:
- To carry out Offer for Sale.
- Repayment Redemption or earlier redemption, in part or full, of NCDs issued by the Company.
- General Corporate purposes.
Investment Rationale:
Market leadership and opportunities to further expand
The company has been a market leader in speciality marine chemicals since 2013 and is also the largest exporter of bromine and industrial salt by volume. Also, it has one of the lowest costs of production globally for both of these products. The company has long-standing relationships with its international as well as domestic clientele and huge room to expand due to its robust infrastructure capacity and demand for the products. It has also expanded its bromine capacity with an addition of a feed enrichment section. The company also is the only manufacturer of sulphate of potash that has a great demand due to its use in fertilizers and certain medical uses.
High Barriers to entry into the industry
The speciality chemical industry has high entry barriers viz. High cost of production and manufacturing, scarcity of raw materials, a significant investment for salt beds etc. The company is already well-established in the industry and has numerous customers globally. Also, other barriers such as stringent regulatory and quality standard requirements from the end user increase the competition for customer acquisitions. The company has developed a strong relationship with its clients which makes it difficult for other players to enter the industry.
Valuation and Outlook:
The global chemical market is expected to grow to a size of approx $6143 billion by 2025 and coupled with the rapid growth across sectors the company carters provides the company with a strong momentum to grow further. Being an export-oriented business with a strong client portfolio gives the company a competitive advantage over its peers. It also has an established infrastructure and integrated production has one of the largest salt works at a single location according to industry reports. The manufacturing facility of the company is also located nearby ports through which it caters to international clients helping the company reduce its logistics and storage costs. The company has also displayed a strong and consistent financial performance with revenue from operations increasing at a CAGR of 36.34% from Fiscal 2020 to 2022 and a robust EBITDA margin of 42% for FY22. However, exchange rate fluctuations and other geographic, economic and regulatory changes are key risk factors for the company. On the upper end of the price band, the issue is valued at a P/E of 22.3x based on FY22 consolidated earnings which we feel is fairly priced and hence initiate a “SUBSCRIBE” rating to the IPO for the benefit of listing gains.