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Emcure Pharmaceuticals Ltd. : SUBSCRIBE

emcure pharma logo
  • Date

    03rd July, 2024 -05th July, 2024

  • Price Range

    Rs. 960 to Rs. 1,008

  • Minimum Order Quantity

    14

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Price Lot Size Issue Date Issue Size
₹ 960 to ₹ 1,008 14 03rd July, 2024 – 05th July, 2024 ₹ 1,952.03 Cr

Company Overview

Emcure Pharma Ltd. is an Indian pharmaceutical company engaged in developing, manufacturing, and marketing a broad range of pharmaceutical products across several major therapeutic areas globally. The company is an R&D-driven company with a differentiated product portfolio that includes orals, injectables and biotherapeutics, enabling it to reach a range of target markets across 70 countries, with a strong presence in India, Europe and Canada. The company has experienced rapid growth in sales in India in recent years, contributing 48.2% of sales from the domestic market, and the rest came from overseas markets in FY24. The company’s competitive advantage in the domestic market stems from a differentiated product portfolio, allowing it to establish a presence in most major therapeutic areas, including gynecology, cardiovascular, VMN, HIV antivirals, bloodrelated and oncology/anti-neoplastic. The company has strong capabilities and a proven brandbuilding track record, with six brands ranked among the 300 highest-selling brands in the IPM w.r.t. domestic sales for MAT FY24. The company has also established an international presence by either developing its front-end distribution capabilities or focusing on alliances with local companies and MNCs with an established presence in the therapeutic areas of focus. The company’s core strength lies in its ability to research, develop and manufacture in-house specialty pharmaceutical products for high-growth therapeutic areas, for which there is limited competition and high barriers to entry. The company has 13 manufacturing facilities across India, which are capable of producing pharmaceutical and biopharmaceutical products across a wide range of dosage forms, including oral solids, oral liquids, injectables, including liposomal and lyophilized injectables, biotherapeutics and complex APIs, including chiral molecules, iron molecules and cytotoxic products.

Objects of the issue:

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

  • Repayment/Prepayment of certain outstanding borrowings;
  • General corporate purposes.

Investment Rationale:

Long-standing market presence helps to leverage position in the domestic market

The company has a strong foothold in the domestic market, focusing on Indian domestic branded generics since 1995. It has shown successful growth in several key therapeutic areas and has outperformed the IPM in domestic sales between MAT FY20 and MAT FY24. The company’s relationships with global innovators have supported growth, allowing it to bring new technologies and products to the Indian market. The company has also established a strong position in therapeutic areas such as gynecology, cardiovascular, blood-related, pain and analgesics, and oncology/antineoplastics, driven by a unique product portfolio and early product launches. Separate management teams predominantly handle acute and chronic therapeutic area businesses, employing personalized strategies based on the differing needs of each area. The company’s strong marketing and distribution capabilities further solidify its leading position in the Indian pharmaceutical market, enhancing long-term growth prospects for the domestic business.

Fast-growing product portfolio to enhance visibility in international markets

Emcure Pharma has established a presence in international markets, which is believed to be a strong complement to domestic business and provide growth opportunities. The company employs a calibrated and differentiated approach to entering and deepening its presence in each market to address its unique characteristics, such as its regulatory landscape, market size, competitive landscape, and product scope. This allows them to strategically select local partners, acquire local companies or rights of pharmaceutical products, and establish subsidiaries with their own on-the-ground sales force in these markets. The company sells a portfolio of products internationally in over 70 countries, with Europe and Canada currently being the primary international markets. Its product portfolio in international markets comprises a mix of specialty branded generics, injectables and generic products. They also sell in-house products like iron, chiral, biotherapeutics, injectables, and photochemistry products, most of which are developed and manufactured by the company.

This diverse product range and global presence create a resilient business model with multiple revenue streams, leveraging their manufacturing and R&D capabilities. Emcure Pharma has a successful track record of entering new markets through strategic expansions, allowing it to utilize its R&D and manufacturing strengths in India while efficiently establishing distribution channels in Canada and Europe. Their focus in international markets is on developing and commercializing unique products with less competition, allowing for higher margins. Their growth strategies have deepened their presence in existing markets and enabled profitable expansion into new markets.

Valuation

Emcure Pharma Ltd. is a significant player in the pharmaceutical industry, having niche products for key therapies and a global market presence. The company is well-positioned to capitalize on its market position and expand rapidly. Emcure plans to enter the domestic market, particularly in rural areas, with its key brands in established therapies while continuing to develop unique products to meet patient needs. They have also increased their sales force over the last two years to expand their geographical presence. The company will also focus on expanding its international presence by increasing the sales force or establishing partnerships through unique products with less competition, leading to higher margins. The company’s revenue has grown at a compounded annual growth rate (CAGR) of 7% between FY2022-24. However, the topline has been increasing gradually, and there has been a dip in profitability mainly due to high finance costs. The company anticipates a substantial improvement in its bottom line as it plans to repay its borrowings with the proceeds. Emcure’s financial performance is driven by leveraging its leadership position in key therapeutic areas, established presence in international markets, proven track record in building brands, higher entry barriers, focus on R&D and strong manufacturing capabilities. The issue is valued at a P/E of 36.6x on the upper price band based on FY24 earnings, which is deemed fair. Therefore, we recommend a SUBSCRIBE rating for the issue.

Vraj Iron and Steel Ltd. : SUBSCRIBE

  • Date

    26th June, 2024 - 28th June, 2024

  • Price Range

    Rs. 195 to Rs. 207

  • Minimum Order Quantity

    72

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Price Lot Size Issue Date Issue Size
₹ 195 to ₹ 207 72 26th June, 2024 – 28th June, 2024 ₹ 171.00 Cr

Company Overview

Vraj Iron and Steel is engaged in the manufacturing and sales of Sponge Iron, MS Billets, and TMT Bars under the brand Vraj. It currently operates through two manufacturing plants which are located at Raipur and Bilaspur in Chhattisgarh spread across 52.9 acres. As of December 31, 2023, the aggregate installed capacity of its manufacturing plants was 231,600 TPA (comprising of intermediate and final products). Its manufacturing plant at Raipur also includes a captive power plant with an aggregate installed capacity of 5 MW as of December 31, 2023. The company’s primary products including Sponge Iron, TMT Bars, MS Billets and by-products including Dolochar, Pellet and Pig Iron cater to a mix of customers that consist of industrial customers and end-users. The company sells its products directly as well as through brokers / dealers. As of December 31, 2023, the company had a workforce of 531 employees and workers, comprising of 296 permanent employees including three Directors, nine employees at the Registered Office, 193 employees at Raipur plant and 91 employees at Bilaspur plant and 235 contract workers. The company’s EBITDA margin stood at 21.6%, 15.8%, 12.0% and 10.0% and PAT margin at 14.8%, 10.5%, 6.9% and 3.8% for 9MFY24, FY23, FY22 and FY21, respectively.

Objects of the issue:

The company proposes to utilise the net proceeds in the following manner:

  • Funding of capital expenditure towards the “Expansion Project” at Bilaspur plant:
  1. Repayment or prepayment of borrowings from HDFC Bank obtained by the company for the capital expenditure towards the expansion project at Bilaspur plant and
  2. Capital expenditure towards the expansion project at Bilaspur plant.
  • General corporate purposes.

Investment Rationale:

Integrated and well-established manufacturing footprint enables a competitive advantage

 

The integrated nature of the company’s manufacturing plants has resulted in the control over all aspects of operations (with the exception of sourcing of primary raw materials) as well as operating margins, thereby enabling the company to focus more on quality and create multiple points of sale across the steel value chain. The company primarily focuses on manufacturing three main products, Sponge Iron having a total capacity of 120,000 TPA, MS Billets with a total capacity of 57,600 TPA and TMT Bars having a total capacity of 54,000 TPA. The company also has a captive power plant with an installed capacity of 5MW which helps to reduce energy cost. The company is proposing to expand these capacities by adding capacity of Sponge Iron in Bilaspur with 115,500 TPA, MS Billets with 153,000 TPA and captive power plant with 15MW, respectively, as their capacity utilization has been increasing steadily over the past three fiscals. Hence, the company believes that an expansion of these capacities will enable it to cater to the evolving and increasing demand of the steel industry and scale its business further.

Diversified product mix with a strong focus on value added products

The company’s products primarily comprise of Sponge Iron, TMT Bars and MS Billets, amounting to 96.9% 97.0%, 95.3% and 96.4% of total revenue from operations for 9MFY24, FY23, FY22 and FY21, respectively. The company’s diversified product mix has reduced their dependency on a particular product and de-risked its revenue streams. For 9MFY24, FY23, FY22 and FY21, the company witnessed a shift in its sales mix, with TMT Bars contributing 30.3%, 34.9%, 24.4% and 15.4%, respectively. Sponge Iron has also contributed around 53% share to their revenue from operations during the last three years and 9MFY24. The company believes that such integrated operations will result in cost efficiencies and higher operating margins going ahead.

Valuation

The average global finished steel consumption per capita was recorded at 222 kg in CY22. In comparison, India has a consumption rate of 81.1 kg per capita in CY22 which is considerably lower than the global average. The National Steel Policy estimates that the per capita finished consumption of steel in India will increase to 158-160 kg by 2031. Further, steel output has an output multiplier of 1.4x on GDP and an employment multiplier of 6.8x domestically. Thus, the steel industry is expected to showcase significant domestic potential and play a key role in the future economic growth of India. The domestic growth prospects aligns with Vraj Iron and Steel which is a Sponge Iron, MS Billets and TMT Bars manufacturing company with a strong focus on improving operational efficiency, robust supply chain management and prudent debt management. The company is aiming to be a cost-efficient steel manufacturer and penetrate deeper into the regional market to capture a higher share of the existing market. The company is also planning to expand its existing manufacturing and power plant capacity which will further help in improving its financial performance and provides an edge over its competitors. On the financial front, the Revenue/EBITDA/PAT grew at a CAGR of 33%/67%/121% between the fiscal years 2021 and 2023. On the upper price band, the issue is valued at a P/E of 8.6x  based on FY24 earnings, which we feel is fairly valued. We, therefore, recommend a SUBSCRIBE rating for the issue.

Allied Blenders and Distillers Ltd. : SUBSCRIBE

  • Date

    25th June, 2024 - 27th June, 2024

  • Price Range

    Rs. 267 to Rs. 281

  • Minimum Order Quantity

    53

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Price Lot Size Issue Date Issue Size
₹ 267 to ₹ 281 53 25th June, 2024 – 27th June, 2024 ₹ 1,500.00 Cr

Company Overview

Having established a market leadership position in the alcoholic beverages market in India, Allied Blenders and Distilleries Ltd. is one of the largest Indian Owned-India Made Foreign Liquor (IMFL) company offering a broad range of alcoholic beverages such as whisky, brandy, rum, vodka, and gin. The company is one of the four spirit companies in India that has a pan-India sales and distribution footprint and is also a leading exporter of IMFL. After entering into the mass premium whisky segment in 1988, its brand “Officer’s Choice Whisky” has been one of the top-selling whisky brands all over the globe. Over the years, the company has expanded and introduced its products in various categories and segments. As a result, the company had an estimated market share of 12% in the Indian whisky market as of March 2023. The company owns and operates its distillery from the state of Telangana, having an in-house distillation capacity of Extra Neutral Alcohol (ENA) of 600 lakh liters per annum. The company also has extensive bottling facilities across India, either operated by the company or contract bottling facilities on an exclusive and non-exclusive basis. In order to maintain the legacy of the brand and company, the company ensures the quality of its products by maintaining oversight and a quality control check at its manufacturing and bottling locations. In order to facilitate quality control, the company facilitates procurement of raw materials such as ENA and packing materials to its bottlers. Such internal practices combined with experienced management has enabled the company to capitalize on the growth opportunities in the Indian alcoholic beverages industry over the years.

Objects of the issue:

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

  • Prepayment or scheduled repayment of a portion of certain outstanding borrowings availed by the company and;
  • General corporate purposes.

Investment Rationale:

Well-positioned to benefit from tailwinds in the Indian IMFL industry

India is one of the fastest-growing alcoholic beverage markets in the world. However, India’s per capita consumption is significantly lower than the global per capita consumption. The low per capita consumption coupled with positive demographic factor which adds more than 13 million people each year to the population eligible for drinking, makes India an attractive market for alcoholic beverages. Therefore, there exists significant potential for future growth in the alcoholic beverages market in India. IMFL, the largest segment of the Indian alco-beverage market, is expected to grow at a CAGR of 5.7% in volume terms between FY2023-28. Various other factors such as the growing number of people joining the workforce and dismantling of social barriers to alcohol consumption is set to drive the growth in the alcoholic beverage market in India. Hence, we believe that the company is well-positioned to reap the benefits emanating from sectoral tailwinds backed by an extensive portfolio of offerings across the mass premium segment.

Access to an extensive pan-India distribution network, with an ability to scale business

The Indian alco-beverage industry operates in a highly regulated environment with state-specific policies impacting industry volumes. Therefore, high inter-state duties compel Indian spirits producers to set up owned or engage third-party manufacturers in every state. Also, licenses are required to produce, bottle, store, distribute, and retail alco-beverage products. Due to these factors, distribution is also highly controlled, both at the wholesale and retail levels. All these factors serve as potential entry barriers for new players. Further, distribution of alco beverage products is highly controlled by state governments and the entry of new players in distribution is prohibitive due to high regulation across states and strong relations between current players and retail outlets which may include exclusive arrangements. The company’s extensive operations across India, presence in multiple states, and current capacity ensure that the company is able to effectively address these issues which has allowed it to garner a significant share of the mass premium market and a noticeable and growing market share for their premium products

Valuation

Over the years, India has been one of the fastest-growing alcoholic beverage markets in the world, with a consumption of pure alcohol estimated to be 3.2 liters per capita in 2023. The IMFL is the largest segment of the Indian alco-beverage market both in volume and value terms. With the Indian alco-beverage market crossing more than a billion cases per annum mark in FY23, a volume-based analysis shows that the alcohol beverage market in India is almost equally divided between country liquor, IMFL and beer with a small contribution from wines in FY23. Various factors such as lower per capita consumption of alcohol and positive demographic factor which adds more than 13 million people each year to the population eligible for drinking has made the country an attractive market for alcoholic beverages. Over the years, the IMFL segment has recorded sales of 38.5 crore cases in FY23, growing at around 8% YoY, and is expected to reach 145.1 crore cases in volume by FY28. With the figures substantiating industry growth, the company is set to benefit from such industry dynamics. By leveraging their strength in popular segments by carrying out branding, the company is set to tap into the growing demand of IMFL. On the financial front, revenues grew to Rs.71,057 million in FY 23 from Rs. 63,788 million in FY21 whereas EBITDA and PAT fell to Rs.1,850 million and Rs.16 million in FY23 from Rs.1,940 million and Rs.127 million in FY21, respectively. On the valuation front, the issue looks expensive on the price-to-earnings multiple front and ahead of its peer set. However, looking at the alcohol industry dynamics and company’s strong positioning in the IMFL landscape, we would advise high-risk investors to “Subscribe” to the issue for listing gains.

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Stanley Lifestyles Ltd. : SUBSCRIBE

  • Date

    21st June, 2024 - 25th June, 2024

  • Price Range

    Rs. 351 to Rs. 369

  • Minimum Order Quantity

    40

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Price Lot Size Issue Date Issue Size
₹ 351 to ₹ 369 40 21st June, 2024 – 25th June, 2024 ₹ 537.02 Cr

Company Overview

Founded in 2007, Stanley Lifestyles Limited is a leading designer and manufacturer of super-premium, luxury, and ultra-luxury furniture under the brand “Stanley”, building customer loyalty through quality products and targeted marketing campaigns like “Beautiful Living” and “Luxury Unlimited”. Their diverse product range includes Seating (sofas, recliners, dining chairs), Cased Goods (coffee tables, dining tables), Kitchens and Cabinets (wardrobes, bar cabinets), Mattresses and Beds, and Automotive and Other products like customizable shoes and leather seat covers. By the end of 2023, Stanley operated 38 company-owned stores and 24 franchisee-operated stores across major Indian cities. Their Bengaluru facility, spanning 15,000 square feet, houses the product development department with 778 employees. Recognized for quality and craftsmanship, Stanley engages in targeted marketing and introduced 88 new products in Fiscal 2023, reinforcing its position in the luxury furniture market.

Objects of the issue:

The company proposes to utilize the net proceeds towards the funding of the following objects:

  • Opening new stores under format “Stanley Level Next,” “Stanley Boutique,” and “Sofas & More by Stanley”;
  • Establishing anchor stores;
  • Renovating existing stores: “Stanley Level Next,” “Stanley Boutique,” and “Sofas & More by Stanley”;
  • Capital expenditures for machinery and equipment;
  • General corporate purposes.

Investment Rationale:

Market leadership coupled with diverse product range offers headroom for growth 

‘Stanley is a leading super-premium and luxury furniture brand in India, known for its extensive manufacturing and retail operations. With the largest number of stores and the fastest revenue growth in the industry, Stanley’s retail presence is three times that of its nearest competitor as of January 31, 2024 (RedSeer Report). Founded by first-generation entrepreneurs, Stanley transitioned from premium automotive seating to high-quality, personalized home furniture, offering bespoke products. Their range includes sofas, cabinetry, and furniture for every room, available in over 300 colors and 10 types of leathers and fabrics, allowing customers to achieve a coordinated home aesthetic. By leveraging the trend towards organized retail, Stanley has increased its market share and average billing size, particularly in key locations like Sadashivnagar in Bengaluru. Stanley’s diverse portfolio and commitment to quality position it for sustained growth and market leadership. 

Extensive Pan-India presence and design-led innovation places it on the forefront of the luxury furniture sector

With strategically located stores across major metropolitan cities and numerous franchisee-operated outlets, Stanley Lifestyles ensures broad accessibility and strong market penetration throughout India. They retail their furniture products primarily through three store formats, each catering to a different segment of the market i.e. Stanley Level Next (ultra-luxury), Stanley Boutique (luxury), Sofas & More by Stanley (super premium). Stanley excels in design-led innovation, leveraging over 15 years of retail experience to understand and cater to diverse customer preferences nationwide. In Fiscal 2023 alone, they introduced 88 new products, complemented by 71 new products by December 31, 2023, under the “Stanley” brand. With a dedicated 15,000 square-feet product development division in Electronic City and a team including a master Italian designer and 48 employees, Stanley continuously updates its offerings, from modern recliner sofas to kitchen and storage solutions. They prioritize customer feedback, employ European expertise, and attend international furniture shows to ensure their products align with global trends while reflecting local tastes. This approach underscores Stanley’s commitment to maintaining market relevance and quality, driving their leadership in the luxury furniture sector.

Valuation

The real estate boom in India has propelled significant growth in the furniture market, driven by urbanization, rising incomes, and a shift towards tier-II cities. Home renovations and upgrades are fueling demand for furniture and home goods as consumers seek to enhance their living spaces. Despite setbacks during COVID-19, the tourism and hotel industries are rebounding, contributing to increased demand for aesthetic and comfortable furniture. The luxury and super-premium furniture segment, comprising 8% of the overall market, is expanding due to the rise in dual-income households and the preferences of urban millennials and Gen Z for quality and trendy décor. Stanley, as a market leader, stands to benefit from these trends, supported by impressive CAGR in revenue/EBITDA/PAT at 46%/66%/326%, respectively. Additionally, the company has shown improvement in EBITDA margin, increasing from 15.2% in FY21 to 19.7% in FY23. The company has demonstrated consistent enhancement in its Return on Capital Employed (ROCE), progressing from 5.5% in FY21 to 16.6% in FY23. Similarly, its Return on Equity (ROE) has shown steady improvement, rising from 1.0% in FY21 to 16.3% in FY23. The company commands a high valuation at a P/E of 57.9x based on FY2023 earnings. However, considering the industry dynamics and growth prospects, we recommend a SUBSCRIBE rating for the issue.

DEE Development Engineers Ltd. : SUBSCRIBE

  • Date

    19th June, 2024 - 21st June, 2024

  • Price Range

    Rs. 193 to Rs. 203

  • Minimum Order Quantity

    73

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Price Lot Size Issue Date Issue Size
₹ 193 to ₹ 203 73 19th June, 2024 – 21st June, 2024 ₹ 418.01Cr

Company Overview

DEE Development Engineering Ltd. is an engineering company specializing in process piping solutions for oil and gas, power, chemicals, and others. With over three and a half decades of experience, the company provides high-pressure piping systems, piping spools, industrial fittings, and other products. The company is a leading global provider of process pipe solutions for complex industrial requirements. It is currently India’s largest player in process piping solutions in terms of installed capacity.  The company offers specialized process piping solutions, including engineering and pre-fabrication services. The company’s expertise covers the engineering of process/power piping systems, pre-fabrication activities such as cutting, beveling, welding, radiography, post-weld heat treatment, hydro-testing, pickling, passivation, grit blasting, painting, and working with complex metals. The company has seven manufacturing facilities located strategically across five locations in India and one in Thailand. The cumulative installed capacity as of FY23 stood at 94,500 MTPA. The company has initiated operations at the New Anjar Facility I, with an installed capacity of 3,000 MTPA. It plans to set up New Anjar Facility II with a proposed capacity of 9,000 MTPA, thus increasing the total capacity from 3,000 MTPA to 15,000 MTPA. The company has also built long-term relationships with clients in various industries and continues to attract new business due to the company’s ability to meet customer requirements. The customer base includes domestic and overseas clients, including Fortune 500 companies in India and multinational corporations.

 

Objects of the issue:

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

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

 

Investment Rationale:

Leading industry player with high entry barriers provide ample growth opportunities

DEE Development Engineering Ltd. is an engineering company providing specialized process piping solutions for industries such as oil and gas, power, process industries and chemicals through engineering, procurement and manufacturing services. The company leadership position can be attributed to factors such as long-standing relationships with certain global customers, business experience, domain expertise and consistent quality of products. The company’s leadership position offers competitive advantages such as product pricing, reduced costs due to economies of scale, ability to scale business, customer loyalty and higher client base.  As per the D&B Report, India’s process piping solutions industry has high entry barriers due to the requirement of skilled labour with complex manufacturing technology, high capital investment and robust design and execution capability. Given the nature of the application of products and engineering processes to critical industries such as oil and gas and power (including nuclear), their products and engineering processes are subject to and measured against high-quality standards and stringent specifications of customers. Over the years, the company has built strong relationships with many customers, owing to its technical capabilities, track record, timely deliveries, and good and consistent quality products and engineering capabilities. Additionally, the level of technical skill and expertise essential for developing in-house engineering processes and handling complex metals require a significant amount of training that can only be achieved over time and involves high initial investment as well as a recurring cost, thereby creating further entry barrier for new entrants.

Long-standing customer relationships to aid sustained growth ahead

DEE Development Engineering Ltd. has 35 years of business operations and established long-term customer relationship across industries. The company believes that the ability to address the various and stringent client requirements over long periods enable it to obtain additional business from existing clients and new clients in an industry marked by high entry barriers. They have a balanced mix of domestic and overseas customers, including certain Fortune 500 companies in India and various multinational corporations.  The customer relationships are led primarily by the ability to develop processes, meet stringent quality and technical specifications and manufacture customers’ products in a timely and cost-effective manner. As a result, they have a history of high customer retention and have been manufacturing products for specific customers for over a decade.  The company believes that such long–term association with customers offers significant competitive advantages such as revenue visibility, industry goodwill, and a deep understanding of customers’ requirements, which are a testament to the quality of products and services. These enduring customer relationships have helped them expand product offerings and geographic reach. The company’s long-term relationships and ongoing active engagements with customers also allow them to plan capital expenditure to enhance the ability to benefit from increasing economies of scale, thereby ensuring a competitive cost structure to achieve sustainable growth and profitability.

Valuation

DEE Development Engineering Ltd. has evolved as one of the key players in process piping solutions in India w.r.t. installed capacity, with a strong focus on automation and process excellence to drive operational efficiencies and offerings to its customers. The company is increasing its focus on high-margin products with additional contributions from modular skids and usage of high-grade materials, forging technology tie-ups with select global OEMs to derive consistent order flow to become a preferred partner for its clients for the next few years. On the industrial front, the Indian pipe process industry has a decent growth outlook and is expected to grow at a CAGR of 6.1% between FY23 and FY30, supported by oil and gas, chemicals/petrochemicals, ethanol, and biomass, and power sectors. The company’s revenue has grown at a CAGR of 10% between FY21-23. The company has initiated the capacity expansion plans mentioned above, which will help it to improve its financial performance in the future.  Further, the company is deleveraging its balance sheet by reducing debt. As we advance, the company’s financial performance is likely to be driven by its robust balance sheet, long-standing customer relationships, capacity expansion, higher entry barriers, and strong management team holding impressive backgrounds. The issue is valued at a P/E of 56.4x on the upper price band based on FY24 earnings, which we feel is fairly valued given the strong growth prospectus and stickiness of customer. We, therefore, recommend a SUBSCRIBE rating for the issue.

Akme Fintrade (India) Ltd. : SUBSCRIBE

  • Date

    19th June, 2024 - 21th June, 2024

  • Price Range

    Rs. 114 to Rs. 120

  • Minimum Order Quantity

    125

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Price Lot Size Issue Date Issue Size
₹ 114 to ₹ 120 125 19th June, 2024 – 21st June, 2024 ₹ 132.00Cr

Company Overview

Incorporated in 1996, Akme Fintrade India Ltd. is a non-deposit taking non-systematically important NBFC registered with the RBI and offers lending solutions to rural and semi-urban populations. The company has a portfolio of offerings which primarily include vehicle and business finance products to small business owners. The company has over two decades of experience in the industry, with a strong track record of financial performance, and higher customer retention which reflects operational efficiency. The company has its footprint in the states of Rajasthan, Madhya Pradesh, Gujarat, and Maharashtra, having over 12 branches and over 25 points of presence both digital and physical and has served over 2,00,000 customers till date. The company has two business verticals namely vehicle financing and business financing to small business owners. The vehicle financing vertical primarily involves providing finance for the purchase of two-wheeler and three-wheeler passenger vehicles. With customers mainly being transporters, small businesses, self-employed and salaried individuals, they generally contribute 10-30% of the purchase price and the rest is funded by the company. As of 31 December 2023, the credit exposure for the segment stood at Rs. 78.8 crores where the loans are mostly secured through hypothecation of the purchased assets. The company’s lending business involves lending to small business owners including SME and MSME businesses, businessmen, traders, manufacturers, and self-employed professionals. The property securing these loans is typically completed and largely self-occupied residential and commercial property. As at 31 December 2024, the company’s total credit exposure stood at Rs. 379.5 crores, out of which 79.2% of total credit exposure is of SME/ business loan.

Objects of the issue:

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

  • The company proposes to utilize the Net Proceeds from the Issue towards augmenting the   capital base of the company to fulfil its future capital requirements, which are anticipated to arise as a result of the expansion of the business and assets. Further, a portion of the proceeds from the Issue will be used towards meeting Issue-related expenses.

Investment Rationale:

Proven execution capability with a strong rural and semiurban focus

The company has a long history of serving rural and semi-urban markets with high growth potential and has a sustained track record of financial performance and operational efficiency through consistently high rate of customer acquisition and retention and low-cost expansion into underpenetrated areas. This corroborates with its focus on clients in the rural and semi-urban areas. The importance of the rural market is underlined by the fact that despite the pace of urbanization and rural to urban migration that has happened in India for the past two decades, 70% of the total population and  approximately 65% of the total households in India are still concentrated in the rural market. Also, the current institutional credit agencies primarily meet the agri-credit needs of the  population while their non-agri-credit needs are yet untapped which provides a huge opportunity for the company.

Well-established vehicle finance business and small business lending model

Various factors that have contributed to the continued growth and success of the company’s  business model includes the experience and expertise of the company in identifying and sourcing potential clients, ability to offer customized solutions to address the customer’s financial needs and the company’s ability to structure its loan products in a way where the company enjoys a relatively higher internal rate of return. The company has maintained a core focus on conservative credit assessment and risk management, thereby offering loans to clients with proven track records and ensuring the associated risk remains low. The company’s focus on stringent cash flow-based borrower assessment and collateralizing the loan through completed and mostly self-occupied properties has provided sustained and continued growth to the company.

Valuation

With India’s economy showing signs of resilience and GDP growing at an estimated 7.3% in FY24, the capacity utilization in the Indian manufacturing sector is recovering as industries have stepped up their production volumes. Following a 7.2% GDP growth in FY23, the industrial production index showed a growth of 5.2% in FY23. However, amidst a difficult and uncertain external environment, the government’s union budget appears to be balanced as it focuses on achieving inclusive and   sustainable growth. Also, a sustained momentum in economic activity supported by domestic drivers point towards the rising confidence of households. Such confidence is also witnessed by strong growth in NBFC credit due to a mix of favorable regulations, innovative product offerings, and high credit appetite by consumers. When analyzed, around 37% of NBFC credit is concentrated in the industrial sector, and among the sector 82% is concentrated in large industries, thereby the MSME sector remaining unpenetrated by institutions. However, with vehicle financing dominating the retail loan portfolio of the NBFC industry in FY23, the retail credit segment witnessed aggressive growth. Such dominance can be attributed to the NBFC industry’s leadership position in the two-wheeler loan segment where it has the majority market share. With the average debt situation in rural households ranging between Rs. 60,000-Rs. 88,000, the institutional credit mechanism to meet the                  non-agriculture credit demand in rural India is poorly developed. Also, the higher transaction cost, low ticket size, risk profile, and lack of collaterals have made this segment unattractive for formal credit agencies. However, the situation seems to have improved due to the introduction of microfinance services which has improved the credit flow to the rural markets. Although it has made lower progress compared to the banking and NBFC sectors in the urban market, there exists ample untapped opportunity in the rural market for a structured credit product that will directly benefit the company in the future period. On the financial performance front, the company’s Revenue/EBITDA/PAT degrew to Rs.695 million/Rs.482 million/Rs.158 million in FY 2023 from Rs.862 million/Rs.673 million/ Rs.163 million in FY 2021. On the upper price band, the issue is valued at a P/E of 20.5x based on FY2023 earnings. Though the prospect for the company’s business segments look promising, we would look for more clarity and confirmation on the financial performance trajectory. We, therefore, recommend high risk-appetite investors to “Subscribe” to the issue for listing gains.

Le Travenues Technology Ltd. : SUBSCRIBE

  • Date

    10th June, 2024 - 12th June, 2024

  • Price Range

    Rs. 88 to Rs. 93

  • Minimum Order Quantity

    161

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Price Lot Size Issue Date Issue Size
₹ 88 to ₹ 93 161 10th June, 2024 – 12th June, 2024 ₹ 740.10Cr

Company Overview

Le Travenues Technology Ltd. is a technology-focused travel planning company which focuses on empowering Indian travelers to plan, book, and manage their trips across rail, air, buses, and hotels. With a vision to become the most customer-centric travel company, the company’s OTA platforms allow travelers to book train tickets, bus tickets, and hotel booking in a seamless manner which is driven by technology and a culture of innovation. The company’s focus is to provide customer experience by providing an uninterrupted booking experience and providing other travel utilities such as PNR status and confirmation predictions, pricing and train seat availability alerts, alternate route planning, flight status updates, AI-based travel itinerary planner, etc. Over the years, the company has also been able to cross-sell and upsell tickets and value-added services or other ancillary services to booking services such as ixigo assures, Assured Flex, Abhi assured, seat selection, visa processing, and many more. Such value-added services accounted for 31% of the total bookings sold. The company also endeavors that its OTA platforms can build significant user adoption and engagement by offering convenience, utility, and value-added customer-centric solutions for travel-related issues. The company also has the highest app usage and engagement among all key OTA players and standalone transactional train mobile apps in India as of September 2023 in terms of Monthly Active Users and sessions per user per month.

 

Objects of the issue:

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

Þ Part funding working capital requirements of the company;

  • Investment in cloud infrastructure and technology; and
  • Funding inorganic growth through unidentified acquisitions and other strategic initiatives and general corporate purposes.

 

Investment Rationale:

Leading online travel agency (“OTA”), with significant penetration in the underserved ‘next billion user’ market segment

‘Next billion users’ refers to an existing as well as anticipated market of “new to Internet” users that includes all non-Tier I market demand i.e. all travel demand originating from and/or concluding in Tier II, III and rural areas in India as well as “new to Internet” users emerging from middle- and lower-income groups of Tier I cities. The company is the leading OTA for the ‘next billion users’ with the highest Monthly Active Users for mobile apps across all key OTAs as of September 2023 and also the second largest OTA in India in terms of consolidated revenue from operations in FY23. The number of transactions booked through the company’s OTA platforms increased at a CAGR of 139.4% to 49.07 million in FY2021-23 period. The company’s OTA platforms target the ‘next billion user’ travel market in India and focus on growing organically in this segment through its travel utility products, Value-Added Services, investment in social media marketing, and word-of-mouth marketing. Moreover, as the number of people accessing the internet is increasing on a daily basis in India, especially in rural areas, the overall rural subscribers are expected to increase at a CAGR of 18% in future. As a result, it is expected that additional travel booking and value chain would move from offline mode to online mode.

Diversified business model with significant operating leverage and organic flywheel

The company’s business model consists of a comprehensive mix of product and service offerings with a presence across trains, flights, buses, and hotel businesses which comprehensively addresses the online travel market in India, thereby allowing the company to monetize all aspects of its OTA platforms. The company’s Gross Transaction Value stood at Rs 75,929 million in December 2023 which grew at a CAGR of 86% over two years. The company’s Gross Take Value has also been increasing and stood at 7.71% and 8.14% as on December 2023 and March 2023, respectively. Consecutively, the company’s revenue and profit margins have also been on an increasing trend. The main reason for such growth of the company can be attributed to its technology-driven operations and low operational costs that results in comparatively enhanced operating margins that are improving with scale. The company relies on utility and crowd-sourced driven use cases to acquire users organically and as more users utilize the OTA platform, more additional information gets added to the company’s proprietary algorithms. These activities in turn improve the utility and effectiveness of its services as well as enables the company to offer an enhanced customer experience.

Valuation

With the GDP growth for India being quite strong post the COVID era and the forecast GDP figures being even stronger, the contribution of services sector among the core sectors is set to grow to 67% by FY30. Due to this, the contribution of hotels and transport sector to the real GDP is set to increase to 22% by FY30 mainly due to the growing population which is supported by increased income levels and discretionary spending. Such increasing consumption patterns have led to an increase in mobile and internet penetration, with the rural subscriber segment growth set to outpace urban growth. The overall rural subscribers are set to grow at a CAGR of 18% during FY2023-28 along with the mobile penetration percentage to increase from the current 89% to 95% by 2024. Due to such high rural penetration and growth prospects, the “Next Billion Internet Users” are a highly anticipated consumer class that will determine the consumption in many internet-based industries. One of the beneficiaries of such a trend is the travel and hotel industry. As of FY23, the online penetration for ticket booking stood highest for rail travel at 81% followed by air travel booking and hotel booking at 70% and 32%, respectively, thereby depicting a shift from offline booking to online booking systems. Also, the increasing air traffic among the Tier 2 and 3 cities, the introduction of new railway routes, better and upgraded experience of train travel, and the government’s increased focus on improving the road infrastructure across the country will be the major factors driving the travel industry as a whole. These macro factors coupled with an increasing spending power of the consumer are set to benefit the company’s overall growth in the near future. Considering the financial performance, the company’s Revenue/EBITDA/PAT grew at a CAGR of 92.3%/194.9%/76.2% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 163.2x based on FY2023 earnings. Though the valuations are rich, we believe that the nature of the platform business (high pass-through of revenues) and large industry opportunity size would be the key factors to drive sustained and high earnings growth in future. We, therefore, recommend a “Subscribe” rating for the issue.

Kronox Lab Sciences Ltd. : SUBSCRIBE

  • Date

    03rd June, 2024 - 05th June, 2024

  • Price Range

    Rs. 129 to Rs. 136

  • Minimum Order Quantity

    110

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Price Lot Size Issue Date Issue Size
₹ 129 to ₹ 136 110 03rd June, 2024 – 05th June, 2024 ₹130.15 Cr

Company Overview

Incorporated in 2008, Kronox Lab Sciences Ltd. is engaged in the manufacturing of High Purity Speciality Fine Chemicals of various grades for diversified end-user industries, such as reacting agents and raw materials in the manufacturing of APIs, excipients in pharmaceutical formulations, reagents for scientific research and laboratory testing, ingredients in nutraceuticals formulations, process intermediates and fermenting agents in biotech applications, ingredients in agrochemical formulations, ingredients in personal care products, refining agents in metal refineries; and ingredients in animal health products, amongst others. The company presently operates from three strategically located manufacturing facilities (Unit 1, 2 & 3) at Padra, Vadodara in Gujarat, which is cumulatively spread across 17,454 sq. mts. area with an aggregate installed capacity of 7,242 MTPA. The units are located near several ports including Kandla, Mundra, Hazira and Nhava Sheva.  The company’s portfolio includes 185+ products spanning the family of phosphate, sulphate, acetate, chloride, citrate, nitrates, nitrites, carbonate, EDTA derivatives, hydroxide, succinate, and gluconate.  Over the years, the company expanded its scale of operations and global footprint with customers in over 20 countries, including the United States, Argentina, Mexico, Australia, Egypt, Spain, Turkey, United Kingdom, Belgium, United Arab Emirates, and China. The company also has an in-house research, development and testing laboratory (“RDT Laboratory”) with 16 members to develop new products and test the existing products against the specified industry standards or customer specifications. It continues expanding its product range to meet the demands of the end-user industries.

Objects of the issue:

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

  • The company will not receive any proceeds from the offer and all the offer proceeds will be received by the selling shareholder;
  • General corporate purposes.  

Investment Rationale:

Wide range of products applicable to diversified end-user industries

The company manufactures a broad range of High Purity Speciality Fine Chemicals belonging to the family of citrates, carbonates, phosphates, acetates, sulphate, EDTA derivatives, chlorides, hydroxide, bromide, nitrites, and nitrates. These products have applications across various industries including pharmaceuticals, scientific and laboratory research, nutraceuticals, biotech, agrochemicals, personal care, metallurgy and animal health. Over the years, the company has expanded its portfolio to more than 185 products. In addition to manufacturing products as per these standards, they also undertake custom manufacturing of High Purity Speciality Fine Chemicals to achieve different levels of purity as specified by the customer for their specific requirements. It is important to note that custom manufactured speciality chemicals are high-margin products having specialized usage in the end-user industries. The manufacturing of these products requires deep domain knowledge of chemical compositions, reactions, and combinations with other chemicals when exposed to high temperatures to meet the desired purity level. 

High entry barriers due to long customer approval cycles and strict product standards

The company manufactures and markets High Purity Speciality Fine Chemicals used as reacting agents in the manufacturing of Active Pharmaceutical Ingredients (APIs), as excipients in pharmaceutical formulations, as nutritional ingredients in nutraceutical formulations, as ingredients in personal care products, as mixtures for scientific research and laboratory testing, as refining agents in metal refineries, as ingredients in animal health products and as fermenting agents in biotech applications, among others, for use across the globe. The company’s manufacturing process involves multi-step production and purification processes to manufacture fine chemicals. Further, given the nature of the application, the processes and products are subject to and measured against established domestic and international standards and stringent specifications of customers. Over the years, the company has built strong relationships with customers who recognize technical capabilities and timely deliveries and associate the company with excellent and consistent quality products.

Valuation

The company manufactures high-purity speciality fine chemicals of various grades in particle sizes ranging from 10 mesh to 100 mesh. The company’s manufacturing infrastructure is a key growth driver for their business. Currently, they have three strategically located manufacturing facilities near several ports, which ensures they have ready access to port facilities and can conveniently import raw materials and export their products, providing them with a cost and logistical advantage. Over the years, the company has expanded its product portfolio to more than 185 products spread across diverse applications. They have consistently endeavoured to diversify their portfolio of products to cater to changing customer requirements across various segments and geographies. The company has over a decade’s track record of operations and has a robust balance sheet and cash flow position. They have experienced sustained growth in various financial indicators, including revenue and PAT, and a consistent improvement in their balance sheet position in the last three Financial Years, wherein they have seen an increase in their net worth. As we advance, the company’s financial performance, driven by its robust balance sheet, positive operating cash flows coupled with zero debt position, enables it to fund its strategic initiatives, pursue growth opportunities, create higher entry barriers and diversify into new products by setting up a new manufacturing facility. The issue is valued at a P/E of 25.5x on the upper price band based on FY24E earnings, which is fairly valued. We, therefore, recommend an SUBSCRIBE rating for the issue. 

Awfis Space Solutions Ltd. : SUBSCRIBE

  • Date

    22nd May 2024 - 27th May 2024

  • Price Range

    Rs. 364 to Rs. 383

  • Minimum Order Quantity

    39

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Price Lot Size Issue Date Issue Size
₹ 364 to ₹ 383 39 22nd May, 2024 – 27th May, 2024 ₹598.93 Cr

Company Overview

Incorporated on December 17, 2014, Awfis Space Solutions Ltd. (Awfis) provides a wide spectrum of flexible workspace solutions ranging from individual flexible desk needs to customised office spaces for start-ups, small and medium enterprises, large corporates, and multi-national corporations. The company is one of the largest flexible workspace solutions companies in India as of December 31, 2023, based on total number of centres and ranked first among the top five benchmarked players in the flexible workspace segment with a presence in 16 cities in India. Furthermore, Awfis has 2,295+ clients and has presence in 52 micro markets in India. Apart from offering core co-working solutions, the company has built capabilities to design, build, maintain and manage a wide range of flexible workspace requirements such as Awfis Transform (construction and fit-out services business segment) and Awfis Care (facility management services business segment). The company’s flexible workspace solutions cater to varied seat cohorts ranging from single seat to multiple seats, which can be contracted by clients for a period ranging from one hour to several years. The company has differentiated models for sourcing and procuring workspace comprising the SL (Straight Lease) Model and the MA (Managed Aggregation) Model. Awfis has increased its focus on the lower-risk, asset-light MA model and as of December 31, 2023, 66.4% of its centres are under the MA model, based on total seats. The company also focuses on building mid-size centres to balance operational efficiency, optimal centre margins, occupancy build-up and community engagement. The average size of centres launched since April 2022 is 32,979 sq. ft. of chargeable area.

Objects of the issue:

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

  • Funding capital expenditure towards the establishment of new centres;
  • Funding working capital requirements; and
  • General corporate purposes.

Investment Rationale:

Leadership in a large and growing marketplace positions it favourably for growth

The total addressable market (TAM) for the flexible workspace operators represents a sizeable opportunity of 282 million sq. ft. (in terms of area) and Rs. 474-592 billion (in terms of value) by 2026. This growth is driven by enterprise focus on flexibility, cost optimization, workforce fluidity, reverse migration, workplace evolution, wellness, facilities and amenities, and growth of start-ups in Tier 1 and Tier 2 cities. The flexible workspaces segment can be considered one of the fastest-growing alternative real estate classes, adding value to the entire commercial office ecosystem. The CAGR for leasing flexible workspaces between 2022 and 2026 is expected to be around 18 – 19% in Tier 1 cities. As the largest flexible workspace solutions company in India as of December 31, 2023, based on total number of centres, Awfis is believed to be well-positioned to benefit and capture this growth in the flexible workspace segment. As of December 31, 2023, the company is ranked first among the top five benchmarked players in the flexible workspace segment, with a presence in 16 cities in India. In addition, the company has the largest flexible workspace footprint in Tier 2 cities among the top five benchmarked operators, based on the total number of centres and total area. In addition, the company is present in seven Tier 2 cities, of which five are top Tier 2 cities, and it intends to expand the geographical footprint to three more Tier 2 cities by FY25. 

Growth through an integrated platform approach is a key differentiator

Awfis aims to provide well-suited solutions tailored to meet the needs of its diverse clientele, which spans different demographics, seat cohorts, and industry sectors. Their suite of flexible workspace solutions encompasses its space solutions, Awfis Transform and Awfis Care. The integrated platform strategy spans the major facets of modern workspace requirements, i.e., through backward integration with Awfis Transform by offering design and build services to clients and through forward integration with Awfis Care by providing facility management services for space owners. This integrated platform strategy provides a network effect, wherein each segment serves its primary clientele and complements other segments. As a result, the clients and space owners are introduced to its wider ecosystem, enhancing retention and driving cross-selling opportunities. For instance, a client engaged with the company’s space solutions for flexible office space requirements can be introduced to Awfis Transform for bespoke design and build services for their office space, if any. When a space is designed for its clients through Awfis Transform, they may also opt for its facility management services through Awfis Care. The synergy among these offerings provides its clients and space owners a seamless experience, and this network effect helps the company offer a cohesive, one-stop solution to the clients and is a key differentiator.

Valuation

India is a leading office market globally, driven by a strong, skilled workforce, well-established and evolving infrastructure, robust real estate sector, ample support infrastructure, and a strong economy backed by political stability. As of December 31, 2023, India’s commercial office stock stands at 832 million sq. ft., concentrated in the top nine cities: Bengaluru, Mumbai Metropolitan Region (MMR), Hyderabad, Gurgaon, Chennai, Pune, Noida, Kolkata, and Delhi, listed in order of market size. This stock is organized and purely utilized as office space. The growth in flexible workspace is influenced by enterprises focusing on flexibility, cost optimization, workforce fluidity, reverse migration, workplace evolution, and a focus on wellness, facilities, and amenities, alongside the rise of start-ups in Tier 1 and Tier 2 cities. The demand for flexible workspaces across different seat cohorts (1-50 seats, 51-100 seats, 101-500 seats, and over 500 seats) increased at a CAGR of approximately 29%, 41%, 54%, and 57%, respectively, between 2020 and 2022, based on the total number of customer contracts signed. This trend is expected to continue, with the number of customer contracts signed across cohort sizes increasing proportionately with the overall seat demand in future. Awfis, an emerging leader in India’s flexible workspace solutions, presents an attractive proposition given its unique product profile and promising growth prospects. The company’s capital expenditure per seat was around Rs. 50,000 in FY22 and FY23, and the first nine months ended December 31, 2023. In comparison, the average capital expenditure per seat in 2023 by top operators in India typically ranged between Rs. 80,000 and Rs. 200,000. Awfis’ revenue from customer contracts has grown at a CAGR of 74.9%, from Rs. 178 crores to Rs. 545 crores from FY21 to the nine months ending December 31, 2023. Additionally, the company’s ROCE was 25.3% in FY23Despite steady growth in its top line, Awfis has seen declining losses. Considering the favourable market dynamics and Awfis’ performance, we maintain a positive outlook on the company. Therefore, we recommend a “SUBSCRIBE” rating for the issue from a long-term perspective. 

Go Digit General Insurance Ltd. : SUBSCRIBE

  • Date

    15th May 2024 - 17th May 2024

  • Price Range

    Rs. 258 to Rs. 272

  • Minimum Order Quantity

    55

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Price Lot Size Issue Date Issue Size
₹ 258 to ₹ 272 55 15th May, 2024 – 17th May, 2024 ₹2,614.65 Cr

Company Overview

Go Digit General Insurance (Go Digit) is a leading digital full-stack insurance company, leveraging technology to provide an innovative approach to product design, distribution, and customer experience for non-life insurance products. The company offers motor insurance, health insurance, travel insurance, property insurance, marine insurance, liability insurance, and other insurance products, which customers can customize to their needs. In 9MFY24 & FY2023, Go Digit catered for ~82.5% & 82.1% of the Gross Written Premium (GWPs) written by the digital full stack. Insurance players (including Go Digit, Acko and Navi) make the company the largest digital full-stack insurance player in India. The company has launched 74 active products across all business lines. As of 9MFY24 and FY2023, Go Digit achieved a market share of 6.0% and 5.4%, respectively, in the motor insurance segment. On the technology front, the company has been one of the first non-life insurers in India to operate entirely on the cloud. The company had 1,883 API integrations with partners as of December 31, 2023, with 34.54 million policies issued by partners with API integrations from inception to December 31, 2023.

Objects of the issue:

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

  • Maintenance of solvency ratio;
  • General corporate purposes. 

Investment Rationale:

Focus on empowering distribution partners for superior customer service

The company’s distribution partners include individual agents, POSPs, corporate agents, motor insurance service providers (“MISPs”) and brokers. The company empowers its partners by providing a variety of ways in which its partners can access and interact with them, such as through Aria, an AI-powered bot developed in-house to help distribution partners. The company also works with its partners to provide them with digital insurance solutions that customers can access at the point of sale. The modular APIs are designed to meet the partner’s specific needs. The company has developed APIs for partners that fully integrate the quote process, policy endorsement and cancellation, payments and claims registration with the partners’ systems. The company’s partners can access information and a broad suite of tools that allow them to understand better, target, acquire and service business. Throughout the policy issuance, endorsement, reconciliation and claims processes, the company provides its partners with tools to help them efficiently manage their book of business and provide superior service to customers. Thus, Go Digit empowers distributor partners and provide exceptional customer service, leading to market share gains, healthy growth, and profitability. 

Building technology-enabled solutions to automate underwriting is a key differentiator

Go Digit technology enables efficient underwriting, which is a differentiator among insurers. The company builds technology-enabled solutions and employs a hybrid model of AI-enabled analytics and human assessment to streamline the value chain, assist its customers, partners and employees and drive efficiency. The company’s technology platform empowers customers and partners and allows customers to customize insurance features, such as pricing and coverage. As of December 31, 2023, they had 473 active AI-driven microsystems to automate processes for the benefit of its partners and customers. The company has automated policy issuance in group health insurance through bots that run 24×7 and issue the policy through minimal human intervention. Depending on demand, the system can also scale up or down automatically. Due to the data bank and technological integrations, the company has an efficient underwriting that enables them to design, price and launch new products within a quick turnaround time. The company has also developed self-service options with 24×7 live chatbot assistance for customers and partners on popular messaging tools such as WhatsApp and the company’s website. The company believes that it has overcome challenges historically associated with underwriting motor insurance in India, allowing it to capitalize on the sizable opportunity in the market.

Valuation

Go Digit General Insurance is one of the leading digital full-stack insurance companies, leveraging technology to provide an innovative approach to product design, distribution, and customer experience for non-life insurance products. The company’s business model focuses on making it simpler for customers to understand and customize the products using technology on the front end and in-house developed software at the back end to speed up underwriting and claims processing times. The company’s primary addressable market is the non-life insurance market in India, which is among the top five in the Asia-Pacific region measured by GWP. Traditionally, public general insurers have dominated the Indian insurance market. However, private non-life insurers have captured significant market share, increasing from 40.3% in FY13 to 60.5% in FY23. The market remains fragmented, with no private player holding over 10.0% market share as of 9MFY24.  However, digital full-stack insurance companies have gained market share from incumbents. Go Digit GWP grew by 37.5%, while the private non-life insurers (excluding standalone health insurers) grew by 20.1% YoY in FY23. Further, Go Digit caters for 82.1% of the GWP of the digital full-stack insurance players in FY23. Digital full-stack insurers accounted for 3.3% of the non-life insurance market in FY23 which increased to 4.3% in 9MFY24. In the future, the company intends to maintain a healthy product pipeline focused on continuing innovation, improve its ability to segment risk by increasing the influence of behavioural factors in its underwriting and pricing models and expand its distribution network to increase customer reach and generate new business. Based on qualitative factors, we recommend a SUBSCRIBE rating for the issue.