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Happy Forgings Ltd. IPO : SUBSCRIBE

Happy Forgings Ltd.
  • Date

    19th Dec 2023 - 21st Dec 2023

  • Price Range

    Rs. 808 to Rs. 850

  • Minimum Order Quantity

    17

  • (D) RHP

    -

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Company Overview

With over 40 years of experience in manufacturing and supplying quality and complex components, Happy Forgings Ltd. is an engineering-led manufacturer of complex and safety-critical, heavy forged, and high-precision machined components in India. It is engaged in engineering, process design, testing, manufacturing, and supply of a variety of components that are both margin-accretive and value-additive and also manufactures a wide range of heavy forged and machined products which include crankshafts, front axle beams, steering knuckles, differential cases, transmission parts, pinion shafts, suspension products, and valve bodies across industries for a diversified base of customers. The company primarily caters to domestic and global original equipment manufacturers (“OEMs”) manufacturing commercial vehicles in the automotive sector, while in the non-automotive sector, the company caters to manufacturers of farm equipment, off-highway vehicles and manufacturers of industrial equipment and machinery for oil and gas, power generation, railways, and wind turbine industries. The company is a leading player in the domestic crankshaft manufacturing industry and has the second-largest production capacity for commercial vehicles and high-horsepower industrial crankshafts in India. The company’s extended focus on machining business and improvement in exports along with incremental business occurring every year has led to a steady growth in revenue and profitability of the company over the years. Also, the critical application of the company’s products along with close tolerance and stringent quality requirements of OEMs serve as entry barriers for new players to qualify as suppliers. As EV trends and hydrogen, CNG, and LNG combustion engine technologies become alternate prominent powertrain technologies in the automotive segment, the company’s focus on the high horsepower engine segment insulates the company from any such major changes.

Objects of the issue:

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

  • Purchase of equipment, plant and machinery;
  • Prepayment of all or a portion of certain outstanding borrowings availed by our company; and
  • General corporate purposes
Investment Rationale:

Fourth largest engineering-led manufacturer of complex and safety-critical, heavy forged, and high precision machined components in India

Established in 1979 as a forging company specializing in the manufacture of value-added machining products and supplying quality and complex components, the company is well-established within the industries and its customers. Having emerged as the leading player in the domestic crankshaft manufacturing industry and having the second largest production capacity for commercial vehicle and high horsepower industrial crankshafts, the company is the fourth largest engineering-led manufacturer of complex and safety-critical, heavy forged, and high precision machined components in India. The company is focused on developing heavier high-precision critical and value-added products for multiple end-user industries, which typically have extremely closed tolerances. 

Diversified business model which is well placed to take advantage of potential alternative engine technologies

The company’s business model is well diversified by end-user industries and customer base. Concerning the automotive sector, the company derives revenues from OEMs of commercial vehicles. Within the non-automotive sector, the company manufactures and supplies a wide range of precision components to OEMs of farm equipment, off-highway vehicles, and industrial machinery and equipment for oil and gas, power generation, railways, and wind turbine industries. The recent trends have shown the adoption of EVs growing in the two-wheeler and passenger vehicle industries. However, the adoption of EVs in the heavy commercial vehicle industry has been insignificant due to high upfront costs, range limitations, and charging infrastructure availability in rural and remote areas. Also, heavy-duty vehicles such as trucks, off-highway vehicles, and tractors require more power and have different operating requirements than PVs, which makes it more difficult to switch to EVs. As a result, many heavy-duty vehicles will continue to use traditional internal combustion engines (“ICE”) or alternative engine technologies that require crankshafts. In recent times, hydrogen, LNG, and CNG combustion engines are among the most promising alternative engine technologies for the commercial vehicle industry. Such technologies also require a crankshaft as a product to operate. With the company engaged in the machining and crankshaft business for heavy horsepower vehicles, any change to combustion engines other than the traditional one will benefit the company over a longer time period.

 

Valuation and Outlook:

Happy Forgings Ltd. is an engineering-led manufacturer of complex and safety-critical, heavy forged, and high-precision machined components in India. While catering to the global OEMs engaged in the manufacturing of commercial vehicles in the automotive sector and manufacturer of farm equipment and industrial equipment in the non-automotive sector, the company is a leading player in the domestic crankshaft manufacturing industry. Keeping its focus on producing market accretive value-added products and possessing the second-largest production capacity for CVs and high-horsepower industrial crankshafts in India, the company has transitioned from being a forging-led business to a machined component manufacturer. This transition is reflected in the growth of the company over the years and the share the machining component business in the total revenue of the company. The machining component business comprised 70-80% of the total revenue of the company during the fiscal years 2021-2023 which also demonstrates its increased focus on machined products over the years. The company derives 75-80% of its revenue from its top 10 customers. This number is expected to fall to 50% which reflects that the company is building a newer client base and reducing its dependency on the old client base. With the global forging and machining market estimated to grow at a CAGR of 5.2% by 2029  and the Indian crankshaft market for automotive, farm tractors and industrial engines estimated to grow at a CAGR of 8.3%  by value between fiscal 2024 and 2029, the company emerges as the one-stop solution to cater to such market demand in the automotive and non-automotive segments. On the financial performance front, the company’s Revenue/EBITDA/PAT grew at a CAGR of 43%/46.6%/55.4% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 36.4x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

RBZ Jewellers Ltd IPO : SUBSCRIBE

RBZ Jewellers Ltd IPO : SUBSCRIBE
  • Date

    19th Dec, 2023 - 21st Dec, 2023

  • Price Range

    Rs. 95 to Rs. 100

  • Minimum Order Quantity

    150

  • (D) RHP

    -

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Company Overview

Having a history of more than 15 years in the jewellery industry, RBZ Jewellers Ltd. (RBZ) is one of the leading organized manufacturers of gold jewellery in India, specializing in Antique Bridal Gold Jewellery and distribution to reputable nation-wide retailers and significant regional players in India. RBZ holds approximately 1% of the total organized wholesale gold jewellery market in India. The company designs and manufactures a wide range of Antique Bridal Gold Jewellery which consists of Jadau, Meena and Kundan work and sell it on a wholesale and retail basis. They also process and supply Antique Bridal Gold Jewellery on job work basis to national retailers. Their customer base in wholesale business includes reputed national, regional and local family jewellers spread across 20 states and 72 cities within India. RBZ also operates its retail showroom under the brand name “Harit Zaveri” and is an established player in Ahmedabad. RBZ offers jewellery for bridal, occasional and daily wear at various price range in their retail showroom along with exports to the Middle East region. They carry out their manufacturing operations from a well-equipped and modern facility situated at Ahmedabad, Gujarat having advanced technologies in casting, laser and 3-D printing. The manufacturing facility has an area admeasuring 23,966 sq. ft and is owned by them. Their retail showroom is spread over 11,667 sq. ft. and is situated in Satellite area, Ahmedabad, Gujarat in the vicinity where other large retailers have their presence. RBZ owns an area admeasuring 10,417 sq. ft. of their showroom space and area admeasuring 1,250 sq. ft. is occupied on lease basis.

Objects of the issue:

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

  • Funding the working capital requirements of the company ;
  • General corporate purposes. 

 

Investment Rationale:

Organized manufacturing arrangement under one roof enables strong financial performance

RBZ has a manufacturing setup consisting of bench-working artisans, technology for laser cutting, laser engraving and state-of-the-art casting units. The company has progressive dyes, hydraulic press dyes, and an in-house 3D printing machine to convert CAD images into CAM. The RBZ manufacturing facility can process and manufacture everything from nuggets to necklaces, specifically for gold bridal jewellery, which is done under one roof using a mix of the latest machines and human skills, comprising jewellery designers and well-trained and skilled artisans. They own the premises at which the manufacturing facility is situated. The facility under one roof brings efficiency, control, supply assurance, and large-scale supplies crucial to meeting customers’ demands. It also helps command better management oversight, secure precious metals due to reduced movement, and, most importantly, control manufacturing process loss. This enables the company to control costs, increase profit margins, and provide them a competitive advantage. The company’s large skilled workforce with knowledge and expertise in jewellery making is a key competitive strength that has enabled it to establish and maintain reputation and brand. This organized setup is found favourable by large retailers who deliver quality products to their customers as the dependability on products and predictability of supply is easier for them. In the six months ended September 30, 2023, the manufacturing capability of processing gold jewellery stood at 2,040 kgs.

Access to diversified sources of capital and effective cost of funds

One of the company’s key strengths in jewellery is its broad reach and presence across India. With a customer base in 20 states and 72 cities, they have established a strong foothold in the market and deeply understand local customer preferences and trends. The company has relationship with national retailers like Titan Company, Malabar Gold, Joyalukkas India, Senco Gold and other prominent retailers such as Kalamandir Jewellers, PN Gadgil Jewellers, and prestigious family retailers such as Hazoorilal Jewellers, Om Jewellers, C. Krishniah Chetty Jewellers, Vummidi Bangaru Jewellers and CH Jewellers. These key ten customers contributed 18.6% of the total revenue of the company for FY23. They also export to the Middle East region. The client mix and geographical spread helps them to understand customer preferences across regions, cultures, and socioeconomic strata, one of their key strengths in rolling out designs as per emerging trends.

Valuation and Outlook:

The company has more than 15 years of experience in the jewellery industry. They design and manufacture a wide range of antique bridal gold jewellery, consisting of Jadau, Meena, and Kundan, and sell them in wholesale and retail markets. They also process and supply Antique Bridal Gold Jewellery on a work basis to national retailers. Their wholesale customer base includes reputed national, regional, and local family jewellers spread across 20 states and 72 cities within India. RBZ also operates its retail showroom under the “Harit Zaveri” brand and is an established player in Ahmedabad. They also export their jewellery to the Middle East region. They manufacture operations from a well-equipped, modern facility in Ahmedabad, Gujarat, with advanced casting, laser, and 3-D printing technologies. The company also has a track record of sustained consolidated revenue from operations, growing at a CAGR of 64.0% during FY21-23 period. Overall, the company’s diverse jewellery collections comprising different manufacturing techniques and varieties, a strong brand presence in the Indian jewellery industry, and a wide reach and presence across India have helped it to grow its business successfully. The issue is valued at a P/E of 13.4x on the upper price band based on FY23 earnings, which is fairly valued. We, therefore, recommend an “SUBSCRIBE” rating for the issue.

Credo Brands Marketing Ltd IPO : SUBSCRIBE

Credo Brands Marketing Ltd IPO : SUBSCRIBE
  • Date

    19th Dec 2023 - 21st Dec 2023

  • Price Range

    Rs. 266 to Rs. 280

  • Minimum Order Quantity

    53

  • (D) RHP

    -

Download Report

Company Overview

Incorporated in 1998, Credo Brands Marketing Ltd. (MUFTI) is better known by its apparel brand MUFTI. This alternative clothing brand is becoming increasingly relevant as India has become economically liberated since the 1990s. MUFTI began more than three decades back to detract Indian men from the monotonous formal wear comprising pale blue and white shirts and dark pants. MUFTI, promoted by Kamal Khushlani, came to the rescue by launching an offbeat and offline product for the young and happening Indian market. The idea of MUFTI was to give voice to the expressive self of the person dressing. Today, MUFTI has grown into a pan-Indian brand that promises to be part of every Indian man’s wardrobe. MUFTI caters to every mood and is more mood-based than occasion-based. It offers choices across authentic, urban, relaxed casual, and athleisure products. Its product categories span shirts, jeans, Polo, T-shirts, sweaters, outerwear, Blazers, Chinos, and trousers. Even as the company got the design and manufacturing act together, the big challenge was in the marketing side of the business. Today, MUFTI reaches out through its nationwide presence through multi-brand outlets (MBOs) and Exclusive Brand Outlets (EBOs). Mufti began its journey with MBOs across India but soon graduated to EBOs by 2006. Today, Mufti products are available across over 1,750 doors (379 EBOs, 1,305 MBOs, and 89 Department Stores). MUFTI sources and procures over 4 million units annually across India and international sourcing routes.

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 of up to 19,634,960 equity shares aggregating up to Rs. 550 crores;
  • To achieve the benefits of listing the equity shares on the stock exchanges.
Investment Rationale:

Strong brand equity with presence across a wide category of products de-risks the business model

The company’s product mix has evolved significantly over the past several years, from consisting only shirts and trousers in the year 1998 to a wide range of products, including t-shirts, sweatshirts, jeans, cargos, chinos, jackets, blazers and sweaters in relaxed holiday casuals, authentic daily casuals to urban casuals, party wear and also athleisure categories as on date. MUFTI’s diverse product range comes under India’s mid-premium to premium price range of clothing. The product’s main competitors, in similar price brackets, are brands such as Jack & Jones, Levi’s, Pepe Jeans and U.S. Polo Assn. Further, the company has longstanding relationship with partners across its manufacturing, supply, and distribution network, with some of these partners associated with the brand since its inception. As of September 30, 2023, MUFTI had a network of 48 fabric and accessories suppliers and 48 manufacturing partners, with the top five suppliers from whom it sources raw materials and manufacturing partners being associated with the company for an average of eight years each. This vast network is instrumental in MUFTI’s ability to introduce products promptly. Additionally, the company has a pan-India presence, with its reach extending from Major Metros to Tier-3 cities. MUFTI’s online presence complements MUFTI’s offline channels through its website and various other e-commerce websites.

Business model is scalable and largely asset-light, aiding performance in the long run

With a focus on creating a holistic casual wear brand, the company outsources its manufacturing operations while all design aspects are managed in-house. This helps them maintain an asset-light model concerning plant, property, and equipment. This structure provides agility with their longstanding sourcing partners, allowing them to increase or decrease their supply based on the demand from their various channels. While they outsource their manufacturing, they continue to maintain oversight over each stage of the process, with centralized ordering of fabric and accessories to meet timelines for each stage of production by their manufacturing partners. Additionally, Credo has an experienced in-house textile print and pattern team comprising of 17 experienced graphic designers, illustrators, textile designers, and technicians. This allows them to deliver different designs to their consumers season on season. Their designers have cumulative experience of more than 202 years, having worked in domestic and international retail markets, providing an understanding of global trends and design practices.

Valuation and Outlook:

The men’s apparel market in India is projected to be Rs. 2.2 lakh crores in FY23 and has grown at a CAGR of 9.6% from FY15-20. It is anticipated to post strong growth rate of 18% CAGR to reach Rs. 4.3 lakh crores by FY27 which sets the stage for a dynamic landscape within which Credo Brands Marketing emerges as a noteworthy player, showcasing a distinctive blend of strengths. The company’s qualitative advantages include a strong brand equity spanning a diverse product range, safeguarding against business model risks. Operating on a scalable and asset-light model, MUFTI demonstrates flexibility for expansion with minimal capital investments. The brand’s unwavering presence as a trendsetter in men’s fashion and strong in-house design competencies establish formidable entry barriers. Financially, MUFTI has reported an impressive CAGR of around 42% between FY21 and 23, with net profits doubling over the previous year and showing multifold increase compared to FY21. While the boost in profitability is positive, projecting the June quarter profit figures for FY24 indicates a significant potential shortfall compared to earlier performance. Anticipating a seasonal upswing in the upcoming quarters due to the winter sale of items like jackets and sweaters, it is premature to make definitive remarks about the overall financial performance for FY24. However, the surge in FY23 has translated into marked improvement in net profit margins (15.5% in FY23) and ROE (30% in FY23). The company operates in a segment where the margins are stable, and that is evident in the robust growth in the ROE and net margins in the last two years, underlining the strength of its brand and effective product positioning. Turning to valuation, the IPO offers a competitive P/E ratio of 23.2x times based on FY23 EPS, reflecting reasonable pricing, especially considering the impressive earnings growth rate and an industry average P/E of 95.2x. We, therefore, recommend investors to “SUBSCRIBE” for listing gains to the issue.

Muthoot Microfin Ltd. IPO : SUBSCRIBE

Muthoot Microfin
  • Date

    18th Dec, 2023 - 20th Dec, 2023

  • Price Range

    Rs. 277 to Rs. 291

  • Minimum Order Quantity

    51

  • (D) RHP

    -

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Company Overview

Incorporated in 1992 in Mumbai, Muthoot Microfin Ltd. is a part of Muthoot Pappachan Group, a business conglomerate with a presence across financial services, automotive, hospitality, real estate, information technology infrastructure, precious metals, and alternate energy sectors. The Muthoot Pappachan Group has a history of over 50 years in the financial services business. The NBFC is a microfinance institution providing micro-loans to women customers (primarily for income generation purposes) with a focus on rural regions of India. Muthoot has a wide range of lending products catering to rural households’ life-cycle needs. The company primarily provides loans for income-generating purposes to women customers living in rural areas. Its loan products comprise (i) group loans for livelihood solutions such as income-generating loans, Pragathi loans (which are interim loans made to existing customers for working capital and income-generating activities), individual loans and Suvidha loans (which are digital loans accessible through the Mahila Mitra application and made to existing customers to enable quick access to funds); (ii) life betterment solutions including mobile phones loans, solar lighting product loans and household appliances product loans; (iii) health and hygiene loans such as sanitation improvement loans; and (iv) secured loans in the form of gold loans and Muthoot Small & Growing Business (“MSGB”) loans. As of September 30, 2023, the NBFC had 3.19 million active customers, who are serviced by 12,297 employees across 1,340 branches in 339 districts in 18 states and union territories in India. Through its branch network, it focuses on under-served rural markets with growth potential, to ensure ease of customer access. Muthoot Microfin is the fifth largest NBFC-MFI in India in terms of gross loan portfolio as of March 31, 2023, the third largest amongst NBFC-MFIs in South India in terms of gross loan portfolio, the largest in Kerala in terms of MFI market share, and a key player in Tamil Nadu with an almost 16% market share.

Objects of the issue:

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

  • Towards augmenting the capital base to meet future capital requirements; and
  • General corporate purposes.
Investment Rationale:

Brand recall and synergies with the Muthoot Pappachan Group

The Muthoot Pappachan Group has a history of over 50 years in the financial services business. The NBFC is the second largest company under the Muthoot Pappachan Group, in terms of AUM for FY23. Due to its relationship with the Muthoot Pappachan Group, the NBFC benefits from the brand recall and significant marketing and operational benefits. With the history of its group company catering to customers in economically weaker sections, Muthoot Microfin better understands the needs of women in rural households and designs lending products to cater to their requirements. For the growth of its operations and expansion of its customer base and geographical footprint across India, Muthoot Microfin leverages cross-selling opportunities to offer diverse products to meet multiple needs of its target customers. It is interesting to take note that the NBFC is also in the process of developing a Super App along with the Muthoot Pappachan Group, wherein it plans to integrate its Mahila Mitra application with all Muthoot Pappachan Group products and databases on to a single platform. This will allow customers to access all the Group loan offerings on a single platform, thereby maximizing cross-selling opportunities.

Access to diversified sources of capital and effective cost of funds

Muthoot Microfin has a well-diversified funding profile that underpins its liquidity management system, credit rating, and brand equity. The NBFC received an upgraded credit rating of A+/Stable by CRISIL on October 19, 2022, which was reaffirmed on January 19, 2023. The lender secures cost-effective funding through a variety of sources, including public sector banks, private sector banks, small finance banks, foreign banks, other non-banking financial institutions, developmental financial institutions, and public investors, together with NCDs, pass-through certificates, and direct assignment of loans. Muthoot Microfin’s promoters and its holding companies have not provided any corporate guarantees in relation to the borrowings availed by it, which demonstrates the trust of the lenders in its business model. Muthoot Microfin maintains a conservative ALM policy recognizing its operating metrics. It has an aggregate loan provision of 2.05% of its total loan portfolio as of September 30, 2023, which is higher than the regulatory requirements applicable to NBFCs. The NBFC reduced its average effective cost of borrowings from 11.08% in FY21 to 10.94% for FY23. Further, between FY22 and FY23, its aggregate cost of borrowings increased by 0.50% to 10.94%, notwithstanding a 2.50% increase in the policy rate by the RBI, which reflects its ability to secure cost-effective funding. In addition, its ability to continue securing cost-effective funding during the NBFC crisis in 2018 and the COVID-19 pandemic reflects its resilient business model. Furthermore, its ability to secure cost-effective funding will allow it to improve margins without increasing the cost of securing a loan for its customers.

Valuation and Outlook:

Although India’s household credit penetration on MFI loans has increased, it is still on the lower side. As of FY23, the microfinance industry had clocked a CAGR of 21% between FY2018-23. With economic revival and unmet demand in rural regions, it is expected that the overall portfolio size will reach Rs. 4.9 trillion by the end of the FY25. During FY2023-25 period, NBFC-MFIs are expected to grow at a much faster rate of 25-30% compared with the MFI industry. Key drivers behind the superior growth outlook include increasing penetration into the hinterland and expansion into newer states, faster growth in the rural segment, expansion in average ticket size, and support systems like credit bureaus. Muthoot Microfin has a long-standing track record of high customer retention in loan cycles 2 and 3. Its well-balanced customer distribution across loan cycles indicates a focus on acquiring new customers, as well as retaining existing ones. Muthoot’s group loans (including income-generating loans and Pragathi loans) are based on a group lending model, catering exclusively to women. An informal JLG (typically comprising between eight to 45 members) provides joint and several guarantees for loans obtained by each member of the JLG. While the lender’s operations have historically been concentrated in South India, they have in recent years expanded into North, East, and West India and have a total of 707 branches across North, West, and East India as of September 30, 2023, representing 52.8% of its total branches as of September 30, 2023. Moving forward, the NBFC expects a significant portion of its future geographic expansion to include rural areas in these regions of India and intends to grow the branches in four key states: Uttar Pradesh, Bihar, Rajasthan, and Punjab, which are underpenetrated. As the lender will utilize 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 2.3x, we believe the company is fairly valued and advise investors to “Subscribe” from a medium to long-term perspective.

Suraj Estate Developers Ltd IPO : SUBSCRIBE

Suraj Estate Developers Limited - Logo 2
  • Date

    18th Dec, 2023 - 20th Dec, 2023

  • Price Range

    Rs. 340 to Rs. 360

  • Minimum Order Quantity

    41

  • (D) RHP

    -

Download Report

Company Overview

Suraj Estate Developers has been involved in the real estate business since 1986 and develops real estate across the residential and commercial sectors in the South-Central Mumbai region. They have a residential portfolio in the markets of Mahim, Dadar, Prabhadevi and Parel, sub-markets of the South-Central Mumbai micro-market where the company has established its presence. They are focused primarily on value luxury, luxury segments and commercial segments. The company is now venturing into residential real estate development in the Bandra sub-market. Their focus area of operation is the South-Central region in Mumbai, mainly consisting of Mahim, Matunga, Dadar, Prabhadevi and Parel, as their expertise lies in the redevelopment of tenanted properties under Regulation 33(7) of the Development Control and Promotion Regulations (DCPR) in the Mumbai region. Since most of the land parcels in the South-Central Mumbai market are like redevelopment projects, the company’s core competence lies in tenant settlement, which is a key element for unlocking value on such land parcels. The company does not provide any construction services on its own and is 100% dependent on third-party contractors for the construction services of its projects. Since incorporation, they have completed 42 projects with a developed area of more than 1,046,543 sq. ft. in the South-Central Mumbai region. In addition to the completed projects, they have 13 ongoing projects with a developable area of 2,034,434 sq. ft. and saleable carpet area of 609,928 sq. ft. and 16 upcoming projects with an estimated carpet area of 744,149 sq. ft.

Objects of the issue:

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

  • Repayment/Prepayment of the aggregate outstanding borrowings of the company and their subsidiaries, Accord Estates Pvt. Ltd., Iconic Property Developers Pvt. Ltd. and Skyline Realty Pvt. Ltd.;
  • Acquisition of land or land development rights;
  • General corporate purposes. 
Investment Rationale:

Strong brand recognition along with a longstanding presence in the residential real estate market of South-Central Mumbai region

Suraj Estate Developers is one of the market leaders in combined South-Central Mumbai sub-markets and has deep knowledge of the market regulatory environment. Their longstanding presence in value luxury and luxury segment has helped them to identify opportunities in this market. Their longstanding presence in South Central Mumbai has resulted in a better understanding of emerging trends, customer preferences and significant brand recall. Their in-house redevelopment expertise and the successful delivery of 42 completed projects have helped them build customer trust over the last 36 years. The company believes that its brand reputation enables it to sell throughout the      construction phase of projects and aims to sell over 80% of the saleable area of the project during the construction phase. The company also leverages brand value and focuses on selling a sizeable   percentage of units within the first year from the launch of a project and prior to the receipt of the occupation certificate, which led to generating operating cash flows during the construction phase. Such sales help reduce the need for construction finance and enable them to achieve optimal returns on projects.

Diversified portfolio of product offerings across various price points

The company has a diversified portfolio of residential developments spread across price points, unit sizes and micro-markets in South-Central Mumbai, catering to various economic and demographic segments, from value luxury to luxury residences. Their ability to cater to customers’ needs across income brackets through a range of differentiated product offerings, supported by their technical and execution capabilities, has enabled them to grow their business successfully. They have developed a diversified portfolio of projects, including redevelopment and open plot projects, in the value luxury segment and luxury segment from 1 BHK flats to 4 BHK flats. The diversity in their portfolio of      projects, created by their range of offerings and prices, helps them cater to different market          segments and diversify their risk of dependence on a particular segment.

Valuation and Outlook:

The company has a diversified portfolio of residential developments spread across price points, unit sizes and micro-markets in South-Central Mumbai, catering to various economic and demographic segments, from value luxury to luxury residences. Their ability to cater to customers’ needs across income brackets through a range of differentiated product offerings, supported by their technical and execution capabilities, has enabled them to grow their business successfully. They have developed a diversified portfolio of projects, including redevelopment and open plot projects, in the value luxury segment and luxury segment from 1 BHK flats to 4 BHK flats. The diversity in their portfolio of      projects, created by their range of offerings and prices, helps them cater to different market          segments and diversify their risk of dependence on a particular segment.

Inox India Ltd IPO : SUBSCRIBE

inoxcva_logo-final
  • Date

    14th Dec 2023 - 18thDec 2023

  • Price Range

    Rs. 627 to Rs. 660

  • Minimum Order Quantity

    22.11

  • (D) RHP

    -

Download Report

Company Overview

Inox India Ltd. is engaged in the business of design, engineering, manufacturing, and installation of equipment and systems for cryogenic conditions. Its business consists of three divisions namely industrial gas, LNG, and cryo scientific, out of which industrial gas and LNG divisions account for majority of the revenue. The company offers standard cryogenic tanks and equipment, beverage kegs, bespoke technology, equipment, and solutions as well as large turnkey projects that are used in diverse industries such as industrial gases, LNG, green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals and construction. It also manufactures a range of cryogenic equipment utilized in global scientific research and has a large portfolio of specialized cryogenic equipment engineered to global quality standards. The company offers standardized as well as customized solutions to its customers across the design, engineering, manufacturing, and installation of cryogenic equipment and systems. The company has a diversified marquee domestic and international customer base across industries and geographies including corporate and government customers. The increase in the demand for cleaner fuels such as LNG and hydrogen, as the focus shifts to reduce carbon emissions from conventional energy sources, is expected to drive the demand for cryogenic equipment over geographies. The company is well positioned to capture this demand growth with its in-house technology and LNG product range which spans across the entire value chain.

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;
  • General corporate purpose.
Investment Rationale:

Leading Indian supplier and exporter of cryogenic equipment and solutions

In FY23, the company was the largest supplier of cryogenic equipment in India in terms of revenue. As on CY2022, the global cryogenic equipment market was valued at $11.5 billion and global cryogenic equipment demand is projected to grow at a 6.9% CAGR from CY2023 to reach $16.6 billion by CY2028. As the company designs and manufactures equipment to international norms, the company is well placed to capitalize on global opportunities in cryogenic equipment. As the global focus is shifting towards reducing carbon emissions, the increasing demand for cleaner fuels such as LNG and hydrogen when compared to conventional energy sources will drive the demand for cryogenic equipment across geographies. The company’s range of cryogenic equipment spans the entire cryogenic value chain in its focused sectors which provides an added advantage as these industries require specialized handling and technologically intensive solutions. Hence, the company’s presence in the industry for over 30 years, customized solutions along with an established brand and reputation has enabled it to take a leading market position. With the intention of leveraging these competitive advantages along with its global customer base, the company will continue to capitalize on the demand growth for (i) cryogenic equipments and (ii) the transition to cleaner fuels like LNG and hydrogen.

Strong product development and engineering focus provides competitive advantage.

To maintain its competitive position and address customer needs, product development and engineering activities are critical to the company. Hence, the company’s production activities are focused to develop newer technologies, engineer new products, reduce cost of production, simplify manufacturing processes, improve safety, and reduce the environmental impact of its manufacturing and products. The company’s engineering focus and deep domain expertise gives it the ability to develop bespoke products and systems for its customers, providing the company a competitive advantage over others. During the past three fiscal years, the company’s in-house team has developed cryogenic containers that comply with ISO container standards, LNG fuel stations, LNG/LCNG fuel stations, LNG fuel tanks, cryogenic biological storage, and beverage kegs. During the last five years, the company has added new products such as liquid hydrogen storage tanks, LNG dispensers, LNG fuel tanks, and aluminum trailers.

Valuation and Outlook:

According to CRISIL, India’s GDP is expected to grow at a CAGR of 5.5-6% between FY2023 and 2028, owing to strong demand from the domestic market coupled with government’s capex push, production-linked incentive schemes, and healthier corporate balance sheets. The rising investments in the infrastructure domain, the focus of central and state governments on national infrastructure along with various infrastructure-related government schemes have helped in the continuation of the growth momentum of India’s capex. As there is a global push to reduce carbon footprint and promote the use of clean source of energy such as LNG and hydrogen, Inox India Ltd. is expected to benefit from the long-term demand for cryogenic equipment. The company’s leadership position in cryogenic equipment in India, robust order book, strong product portfolio, marquee clients diversified across sectors and focus on exports should help the company to grow its scale of operations in future. Additionally, the company has delivered healthy financial performance in the past, focused on reduced borrowings and posted strong RoE and RoCE in excess of 25%, thereby providing confidence about its sustained business performance. The company has a track record of sustained Revenue/EBITDA/PAT performance which grew at a CAGR of 27.5%/21.9%/26.0% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 39.2x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.

Doms Industries Ltd IPO : SUBSCRIBE

DOMS
  • Date

    13th Dec, 2023 - 15thDec, 2023

  • Price Range

    Rs. 750 to Rs. 790

  • Minimum Order Quantity

    18

  • (D) RHP

    -

Download Report

Company Overview

Incorporated in 2006, DOMS Industries Ltd. is engaged in making and selling stationery and art products. The company operates under the brand ‘DOMS’ and other brands/sub-brands like ‘C3’, ‘Amariz’, and ‘Fixyfix’. The company is known for creating a variety of high-quality products like pencils and mathematical instrument boxes. DOMS holds a significant market share of 29% for pencils and 30% for mathematical instrument boxes in FY23 in the domestic market. It offers a diverse range of products, including items for school, art materials, paper stationery, kits and combos, office supplies, hobbies and crafts, and fine art products. The company undertakes manufacturing operations in Umbergaon, Gujarat, and Bari Brahma in Jammu and Kashmir. The company has a special partnership with some companies in the FILA Group to distribute and market their products in South Asia which helps them to reach more customers in that region. Their products are available globally due to a strong distribution network that spans across 45 countries covering America, Africa, Asia Pacific, Europe, and the Middle East. Their domestic distribution network for general trade comprises over 120 super-stockists, and over 4,000 distributors along with a dedicated sales team of over 500 personnel covering more than 120,000 retail touch points in 3,500 cities and towns. Additionally, it caters to its consumers through modern trade and e-commerce.

Objects of the issue:

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

  • To partly finance the cost of establishing a new manufacturing facility to expand its production capabilities for a wide range of writing instruments, watercolor pens, markers, and highlighters; and;
  • General corporate purposes.
Investment Rationale:

Leadership position in the Indian stationery and art material industry with the widest range of products

DOMS is the second largest player in India’s branded stationery and art products market, with a market share of around 12% by value in FY23. The company’s core products such as pencils and mathematical instrument boxes enjoy high market shares of 29% and 30% by value in FY23, respectively. They have a wide and differentiated product category, which includes over 3,800 SKUs as of September 30, 2023, and is spread across (i) scholastic stationery; (ii) scholastic art material; (iii) paper stationery; (iv) kits and combos; (v) office supplies; (vi) hobby and craft; and (vii) fine art products. In addition to being present across multiple product categories to cater to diverse demography, they have also ensured their products are available at various price points through its brands ‘DOMS’ and ‘C3’, each of which benefit from strong brand loyalty and unique market positioning. In FY21, FY22, and FY23, and the six months ended September 30, 2023, the company sold an aggregate of 1.48 billion units, 3.06 billion units, 3.93 billion units, and 2.2 billion units across product categories, respectively, and achieved gross product sales of Rs. 4,130.5 million, Rs. 6,930.9 million, Rs. 12,317.3 million, and Rs. 7,768.4 million, respectively. DOMS’ presence across multiple stationery categories and price points has enabled it to be the fastest-growing stationery and art material products company in India in terms of revenue over the period from FY20 to FY23.

Robust manufacturing infrastructure, with a focus on backward integration driving efficiencies

The company has 13 manufacturing facilities across Umbergaon, Gujarat, spread over approximately 34 acres of land and covers approximately 1.18 million square feet, making it one of the largest stationery manufacturing facilities in India. It undertakes end-to-end operations, from conceptualization to design, manufacturing, packaging, and distribution of products through its integrated operations at Umbergaon manufacturing facilities. DOMS fully integrated operations comprise procurement of raw materials, moulding, assembling, integration of sub-assemblies into finished products, quality control, and testing of finished products. The company’s facilities and storage depots are also strategically located to achieve a shorter time to market, greater cost competitiveness (through proximity to raw material suppliers), and responsiveness of its inventory position to changes in the portfolio market , thereby allowing them to cater to domestic and international markets more effectively. The backward integrated manufacturing process for its mathematical instrument boxes provided them with significant efficiencies, leading to market leadership position in this product category in a very short period. DOMS’s implementation of SAP as its ERP solution in 2015 has also helped them to standardize its processes and provide for planning, performance monitoring, and provision of real-time information to improve profitability.

Valuation and Outlook:

India has a thriving stationery and art materials industry, and there are several opportunities for the country to become an export hub for stationery products. The demand for stationery products is growing rapidly worldwide, driven by increased literacy rates and education levels. India can capitalize on this demand by producing a diverse range of stationery products at competitive prices. DOMS Industries has demonstrated commendable performance over the past three years, marked by significant growth in revenue and profitability. The company’s remarkable turnaround from losses in FY21 to substantial profits in FY22 has further propelled its financial standing. The company’s asset utilization, as indicated by return on assets (ROA) of 16.1% and an above-average asset turnover of 2.1x for the latest year, is commendable. On the valuation front, the IPO is priced at 30.15x FY24 annualised earnings which we believe is richly valued and sustaining the recent performance on profitability front would be critical in justifying the current valuations. Despite the fully priced P/E, there are notable advantages that DOMS Industries Ltd brings to the market, including market leadership, a strong brand presence, established international partnerships, and a foothold in the export market. We, therefore, recommend a “SUBSCRIBE” for listing gains rating to the issue.

India Shelter Finance Corporation Ltd IPO : SUBSCRIBE

india-shelter-ipo
  • Date

    13th Dec, 2023 - 15th Dec, 2023

  • Price Range

    Rs. 469 to Rs. 493

  • Minimum Order Quantity

    30

  • (D) RHP

    -

Download Report

Company Overview

Headquartered in Haryana, India Shelter Finance Corporation Ltd. (ISFC) is a retail-focused affordable housing finance company with an extensive distribution network comprising 203 branches as of September 30, 2023, and a scalable technology infrastructure across its business operations and the loan life cycle. The company’s target segment is the self-employed customer focusing on first-time home loan takers in the low and middle-income group in Tier II and Tier III cities in India, and affordable housing loans, i.e., loans with ticket sizes lower than Rs. 2.5 million as per the criteria set out in the Refinance Scheme under the Affordable Housing Fund for the Financial Year 2021-22 issued by the National Housing Bank. The company primarily finances the purchase and self-construction of residential properties by first-time home loan takers through home loans and also offers loans against property. Its main focus is serving low and middle-income, salaried, and self-employed individuals, catering to their financial needs. With over 13 years of operations as a housing finance company, the company has a significant presence in the states of Rajasthan, Maharashtra, Madhya Pradesh, Karnataka, and Gujarat’s affordable housing finance market in India.

Objects of the issue:

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

  • to meet future capital requirements towards onward lending; and
  • for general corporate purposes.
Investment Rationale:

Fastest growing AUM among Housing Finance Companies in India, with high yields along with granular and retail-focused portfolio

ISFC achieved AUM growth of 40.8% between FY21-23, registering the highest growth among housing finance companies in India. The strong growth rate reflects the effectiveness of its operational model and the ability to underwrite and serve customers in the targeted segments in Tier II and Tier III cities in India. The company maintains a focus on serving low and middle-income, salaried, and self-employed individuals, catering to their financial needs. They have gained domain knowledge and understanding of the specific financial circumstances and challenges faced by the low and middle-income customer segment, and their underwriting process is tailored towards assessing their creditworthiness. As of September 30, 2023, 100% of their loans catered to the retail segment. ISFC reported the second-highest total income-to-advance ratio at 16.8% compared to its peers and during the same period, it also reported the third-highest yield on advances at 14.9%. The company has been able to maintain a consistently high yield of more than 14% on its portfolio, driven by its commitment to deliver strong financial performance during the last three financial years.

Diversified borrowing profile with a demonstrated track record of reducing financing costs

The housing finance company focuses on maintaining a long-term and diversified borrowing profile by engaging with multiple lenders to ensure timely funding throughout the year. This approach mitigates the risk of relying on a single funding source and enables them to negotiate favourable borrowing costs. ISFC demonstrated the ability to improve its borrowing costs, even in environments characterized by rising interest rates. Their average borrowing costs reduced to 8.3% as of March 31, 2023, from 8.7% as of March 31, 2021. The company leverages its NHB borrowings to support its lending activities, ensuring a reliable and cost-efficient source of funding. In line with its commitment to diversification and innovative financing models, it has also embraced co-lending initiatives that involve partnering with other financial institutions to provide joint lending solutions. Furthermore, as a portion of its portfolio is eligible for priority sector lending, it has carried out securitization and direct assignment transactions, thereby transferring credit risk and ensuring the optimization of its results of operations.

Valuation and Outlook:

The housing finance sector of India comprises Public Sector Banks, Private Sector Banks, Housing Finance Companies, NBFCs, and other players (including foreign banks, Small Finance Banks, etc.), Of the total Rs. 31 trillion credit outstanding of the housing loans market, HFCs had the second highest market share of 34% in FY23. Within the player groups, HFCs are expected to register strong growth due to their higher market share, deeper penetration in tier-II and tier–III cities, and adequate liquidity support. ISFC’s profitability increased in FY23 owing to improved credit costs and an increase in interest yields. Going forward, borrowing costs are expected to stabilize in FY24 and the overall profitability of housing loans is still expected to be sustained, on account of higher interest income. The company plans to expand its branch staff, extend the branch network within existing geographical areas, and explore opportunities in adjacent markets for diversification. Their credit and risk management policies which is backed by technology and data analytics have helped them to maintain asset quality, leading to a fall in its GNPA to 1.0% as of September 30, 2023, compared to 2.8% as of September 30, 2022. Amongst its peer set, ISFC had the second-highest annualized RoA of 4.7% for the six months ended September 30, 2023. Furthermore, the company has posted steady growth in its top and bottom lines. As the lender will utilize the net proceeds of the fresh equity shares issue to meet future capital requirements towards lending, we are positive about the IPO. At the current adjusted P/BV multiple of 2.5x, we believe the company is attractively valued and advise investors to “Subscribe” to the issue from a long-term perspective.

Fedbank Financial Services Ltd IPO : SUBSCRIBE

Fedbank Financial Services Ltd IPO : SUBSCRIBE
  • Date

    22nd November, 2023 - 24th November, 2023

  • Price Range

    Rs. 133 to Rs. 140

  • Minimum Order Quantity

    107

  • (D) RHP

    -

Download Report

Company Overview

Incorporated in 1995 in Kerala, Fedbank Financial Services Ltd. (FFSL) is a retail-focused NBFC, targeting MSMEs and emerging self-employed individuals (ESEIs) sector. The company has a well-tailored suite of products to match customer needs, including housing loans, small ticket loans against property (LAP), medium ticket LAP, unsecured business loans, and gold loans. The NBFC has registered third fastest AUM growth among NBFCs in the peer set in India, with a three-year CAGR of 33% during FY20-23 period and the fourth fastest annual AUM growth of 42% for three months ended June 30, 2023. As of June 30, 2023, the company’s AUM across various products stood at: 33.1% for gold loans, 25.3% for medium ticket LAP, 24.5% for small ticket LAP and housing loans and 15.8% for unsecured business loans. Additionally, FFSL is the fastest-growing gold loan NBFC in India among the peer set as of March 31, 2023, and had the fastest annual growth among gold loan NBFCs in India as of June 30, 2023. Its operations are spread across 17 states and union territories across India, with a strong presence in the southern and western regions. As of June 30, 2023, they covered 190 districts in 17 states and union territories in India through 584 branches. Due to its “Phygital” doorstep model, a combination of digital and physical initiatives for providing customised services to its customers across all products, the company can validate data and analyse the customers’ creditworthiness. Furthermore, their underwriting process has allowed them to manage defaults and NPAs across all its products.

Objects of the issue:

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

  • Towards augmenting the company’s capital base to meet future capital requirements and onward lending.
  • The selling shareholders will receive the offer proceeds.
Investment Rationale:

Focus on retail loan products with a collateralised lending model targeting             individuals and emerging MSME sector

FFSL focuses on a collateralised lending model for its retail finance segment, targeting ESEI consumers and the emerging MSME sector. As of June 30, 2023, 86.2% of its total loan assets were secured against tangible assets. Its average ticket size was Rs. 0.13 million in the three months ended June 30, 2023. Out of the collateral for the medium ticket LAP and small ticket LAP, 77.4% of the collateral is self-occupied residential or commercial property as of June 30, 2023. As of June 30, 2023, the average LTV on its total loan assets with property collateral at the time of sanctioning the loan was 51.4%. The ESEI and MSME segment is largely unaddressed by lending institutions in India and FFSL’s products meet the specific requirements of its target customers with quick turnaround times and customised services for each customer’s unique needs.

Diversified funding profile with the advantage of lower cost of funds

FFSL’s ability to access diversified funding sources is a key contributor for their growth. They intend to continue diversifying their funding sources, identify new sources and pools of capital, and implement robust asset liability management policies to optimise their borrowing costs further and help expand the net interest margin. Their average cost of borrowing was 8.8% (annualised), 7.8%, 7.4%, and 8.3% for 1QFY24, FY23, FY22 and FY21, respectively. The company can access borrowings at a competitive cost due to their stable credit history, credit ratings, conservative risk management policies and strong brand equity. The NBFC has been rated “AA-” by CARE for its NCDs since 2022 and “AA-” by India Ratings and Research Private Limited for its NCDs and bank loans since 2018. FFSL is one of the only two long-term AA- rated players among the peer set, with a cost of borrowing less than 8.5% between FY19 and FY23. Its rating of “AA” and “AA-“ indicates resilient liability origination despite challenges faced by the Indian economy due to varied factors and the failure of other NBFC companies in India.

Valuation and Outlook:

NBFCs have shown remarkable resilience and gained importance in the financial sector ecosystem, growing from less than Rs. 2 trillion assets under management (AUM) at the turn of the century to Rs. 34 trillion at the end of FY23. 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. By catering to under-banked, lower-income and mass-market customers who are unserved or underserved by banks, NBFCs have enhanced financial inclusion and expanded the market for formal financial services. FFSL has an edge over its peers as it has access to capital from its Promoter, Federal Bank. Additionally, they have grown their liability relationships from 23 lending institutions as of March 31, 2021, to 27 institutions as of June 30, 2023. Additionally, as of June 30, 2023, they have borrowed from 12 private sector banks (including its Promoter, Federal Bank), nine public sector banks, one NBFC, one foreign bank and four other entities (such as the Small Industries Development Bank of India). It has logged the third-fastest AUM growth amongst NBFC peers set in India, with a three-year CAGR of 33% during FY20-23 period. FFSL has also marked steady growth in its top and bottom lines over the last three years. Moreover, the NBFC has an effective underwriting capability due to its experienced underwriting team and established processes, which is likely to keep asset quality issues at bay going forward. On the valuation front, the issue is valued at a P/BV of 3.3x on the upper price band based on the FY23 book value. With most of the positives seemingly priced in, we advise investors to “SUBSCRIBE” to the issue for the benefit of listing gains.

Tata Technologies Ltd IPO : SUBSCRIBE

Tata Technologies Ltd IPO : SUBSCRIBE
  • Date

    22nd November, 2023 - 24th November, 2023

  • Price Range

    Rs. 475 to Rs. 500

  • Minimum Order Quantity

    30

  • (D) RHP

    -

Download Report

Company Overview

Tata Technologies Ltd. is a leading global engineering services company offering product development and digital solutions, including turnkey solutions, to global original equipment manufacturers (“OEMs”) and their tier 1 suppliers. The company also leverages its deep domain expertise in the automotive industry to serve its clients in adjacent industries, such as aerospace and transportation and construction heavy machinery (“TCHM”). The company primarily provides outsourced engineering services and digital transformation services to global manufacturing clients which accounts for 80% of its revenue from operations for the fiscal year 2023. The company complements its primary services via products and education business. Through its Products business, the company resells third-party software applications, primarily product lifecycle management (“PLM”) software, and solutions, and provides value-added services such as consulting, implementation, systems integration, and support. The company’s education business provides “phygital” education solutions in manufacturing skills including upskilling and reskilling in relation to the latest engineering and manufacturing technologies to public sector institutions and private institutions and enterprises through curriculum development and competency center offerings through their proprietary iGetIT platform. Such complementary business comprises 20% of total revenue from operations for the fiscal year 2023. The company is a pure-play manufacturing focused Engineering R&D company, primarily focused on the automotive industry. The company’s automotive revenue attributable to the services segment comprised 88.7% of the revenue attributable to the primary services segment for fiscal year 2023. The company endeavors to create value for its clients by helping them develop products that are safer, cleaner and improve the quality of life for its end-customers. The company leverages its deep manufacturing domain knowledge to deliver value-added services to its clients in support of their digital transformation initiatives including product development, manufacturing, and customer experience management. In a world that is becoming increasingly complex with shortening product innovation timelines and rapid technological changes, the company’s globally distributed onshore-offshore service delivery capability and its diverse teams from different parts of the world having multiple skill sets, help the company to suitably address its client’s requirements and solve complex engineering problems for its clients in a real-time environment.

Objects of the issue:

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

  • Achieve the benefits of listing the equity shares on the stock exchanges;
  • Carry out Offer for Sale of up to 95,708,984 equity shares by the selling shareholders.
Investment Rationale:

Deep expertise in the automotive industry

The company’s comprehensive portfolio of services for the automotive industry addresses the product development and enterprise optimization needs of traditional OEM’s and new energy vehicle companies, together with their associated supply chains. The company’s automotive ER&D services span the entire automotive value-chain and includes concept design and styling, tear down and benchmarking (“TDBM”), vehicle architecture, body engineering, chassis engineering, virtual validation, ePowertrain, electrical and electronics, connected, manufacturing engineering, test and validation and vehicle launch. In addition to the spectrum of discrete service offerings, the company also offers turnkey full vehicle development solutions for traditional internal combustion engine (“ICE”) powered vehicles, plug-in hybrids (“PHEV”) and battery electric vehicles (“BEV”) which have been developed over a period of 10 years. In this area, the company’s services extend from concept, detailed design and development, test and validation to the production launch of the vehicle. The company’s automotive domain expertise and deep understanding of its client requirements underpin the approach the company takes in helping its clients leverage digital technologies to optimize the manner in which they conceive, develop, manufacture, sell, and service new products.

Well-recognized brand with experienced promoter and management team

The company benefits from the strong track record, reputation, and experience of its promoter, Tata Motors Ltd., which is part of the Tata Group. The Tata Group is one of the leading business conglomerates in India, with a heritage of over 100 years, comprising more than 28 equity-listed companies across multiple verticals such as technology, steel, and automotive. The company’s promoter is one of the leading global automobile manufacturers in the world, providing integrated and smart e-mobility solutions to its customers in over 125 countries. With an employee base of over 81,800 as of March 31, 2023, the manufacturing facilities of the promoters of the company are located across India, the United Kingdom, and South Korea. Its promoter is the only OEM in India that offers an extensive range of mobility solutions, covering cars, utility vehicles, trucks, and buses. Its promoter has a strong global network of 90 subsidiaries, equity accounted associates, and joint ventures, including

JLR in the United Kingdom and Tata Daewoo in South Korea. Also, the company believes that they are well positioned to benefit from the Tata Group’s business priorities to increase investment in EVs, aerospace, and defense. In addition to benefiting from the high standards of corporate governance and brand value associated with the Tata Group, the company also has the opportunity to leverage and benefit from the Tata Group’s global network for exploring potential business opportunities and acquiring direct access to senior decision-makers at potential end clients.

Valuation and Outlook:

The Global ER&D Services market refers to the sum of ER&D expenditure by global capability centers (“GCCs”) and the ER&D expenditure outsourced to third-party engineering service providers (“ESPs”).  The ER&D spend outsourced to ESPs stood at USD 105-110 billion (Rs. 8,620-9,031 billion) in 2022 out of which Indian Service providers accounted for almost 24%. The Indian ESP market is expected to grow at a CAGR of 14-17%, and accounted for nearly 25% of the overall global outsourced ER&D spend of Rs. 9,031 billion in 2022. With the growth of the ESP market and rise in demand for autonomous and connected technologies driven by regulatory pressures for safety and cost considerations, OEMs are likely to maintain their commitment to providing improved and safer experiences to their clients through the integration of connected and autonomous technologies. Furthermore, in response to the escalating need to meet carbon emission targets, electrification is anticipated to take center stage in the automotive industry. Global automakers are planning substantial investments, estimated at USD 1.2 trillion (Rs. 99 trillion) through 2030, to develop and produce EVs, marking a significant shift away from traditional combustion engines. A similar shift is seen in India as the Government of India intends to have EV sales penetration of 30% for private cars, 70% for commercial vehicles, 40% for buses, and 80% for two and three-wheelers by 2030 due to the immediate focus on decarbonizing the transport sector. In order to bridge this gap and with the advent of industry 4.0, there is an increasing need to equip engineers and technical staff with emerging skill sets. According to Zinnov, the company is currently the only player uniquely positioned to address the needs of educational upgradation in India with its global partner ecosystem and system integration capabilities. The company has a track record of sustained Revenue/EBITDA/PAT growth which grew at a CAGR of 85.4%/112.8%/160.9% during the FY21-23 period, respectively. On the upper price band, the issue is valued at a P/E of 32.51x based on FY23 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.