Ujjivan Financial Services IPO review

Ujjivan Financial Services Ltd. (UFSL) is a well established player in Micro Finance sector and is in operation since 2005. Company’s missions of providing a full range of financial services to the economically active poor who are not adequately served by financial institutions bear fruits.

It’s business is primarily based on the joint liability group lending model for providing collateral free, small ticket-size loans to economically active women. Ujjivan Financial Services also offers individual loans to Micro & Small Enterprises (“MSEs”).

On October 7, 2015, the company was one amongst 10 companies in India, out of a total of 72 applicants, to receive in-principle approval from the RBI to set up a small finance bank.

Ujjivan Financial Anchor Allocation @Rs.210 per share for Rs. 265 cr.

Birla MF – 30.04 cr
Birla Life – 25.04 cr
UTI MF – 25.04 cr
Tata MF – 25.04 cr
Sundaram MF – 25.04 cr
I-Pru MF – 25.04 cr
Rel MF – 25.04 cr
Bajaj Allianz – 15.04 cr
HDFC Life – 15.04 cr
Rel Life – 15.04 cr
Max Life – 7.04 cr
Tata AIA Life – 7.04 cr
BNP Paribas – 5.05 cr
Canara Robeco – 5.05 cr
Forefront – 5.05 cr
LIC Nomura – 5.05 cr
Canara HSBC Life – 5.05 cr
Total – Rs. 264.75 cr

They offers group loans and individual loan as per their customer requirements. That include agricultural, education, home improvement, home purchase and livestock loans. In addition to loan products, they also provide non-credit offerings comprising of life insurance products, in partnership with insurance providers such as Baja Allianz Life Insurance, Kotak Mahindra Life Insurance, and HDFC Life Insurance Company Ltd.

Ujjivan Financial operations is spread across 24 states and union territories, and 209 districts across India. serve over 2.77 million active customers through our 469 branches and 7,786 employees.


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Thyrocare Technologies IPO review

Objects of the Issue:

1. Augmenting capital base to meet future capital requirements;
2. General corporate purpose.

Issue Detail:

Issue Open: Apr 28, 2016 – May 2, 2016

Issue Type: Book Built Issue IPO

Issue Size: 42,270,760 Equity Shares of Rs 10 aggregating up to Rs 887.69 Cr
Fresh Issue of Equity Shares of Rs 10 aggregating up to Rs 358.16 Cr
Offer for Sale of 24,968,332 Equity Shares of Rs 10 aggregating up to Rs [.] Cr

Face Value: Rs 10 Per Equity Share

Issue Price: Rs. 207 – Rs. 210 Per Equity Share

Market Lot: 70 Shares

Minimum Order Quantity: 70 Shares

Share holders in Ujjivan Financial Services

Shareholders in Ujjivan Financial Services

To provide exit option to its existing stakeholders and to raise fresh funds to meet its future capital requirements, the company is coming out with a maiden IPO consisting of primary as well as secondary offer.

On performance front
, while the company enjoys well experienced and trained staff as well as loyal customers trust, its AUM and business marked CAGR of 51% and 41% respectively for last five fiscals. Its top and bottom lines has been growing steadily.

For last three fiscals its total income and net profits were Rs. 233.93 cr. / Rs. 32.84 cr. (FY13), Rs. 357.66 cr. / Rs. 58.42 cr. (FY14) and Rs. 611.88 cr. / Rs. 75.79 cr. (FY15). For first nine months ended 31.12.15 it has reported net profit of Rs. 122.31 crore on a total income of Rs.729.64 crore.

If we attribute these earnings on annualized basis on fully diluted equity post IPO then asking price is around 15 P/E that augurs well compared to its listed peers.


In principle approval received from RBI to set up small finance bank ( SFB ) which can boost its revenues in future.

On the uppar price band of Rs.210/- and on FY15 EPS OF Rs.10.63, PE ratio works out to 19.7x. Similarly on last 3 years EPS of Rs.8.93, PE ratio works out to be 23.5x.

PE ratio between 19.7 and 23.5.

It’s competitors, SKS micro finance PE ratio is 36x and shriram city union finance is 17.5x and the industry average is 28x. Hence, i feel the upper price band of Rs.210 per share is reasonably priced.


Company may not be able to set up the proposed SFB ( small finance bank ) within the timelines prescribed by the RBI

There can be no assurance that they will be able to replicate its past business performance, growth and profitability during the SFB transition period.

Company results of operations and income are dependent on its ability to manage interest rate risk,and an inability to manage its interest rate risk may have a material adverse effect on its buisness prospects and financial performance.

They are exposed to operational and credit risks which may results in NPA.


Considering the status enjoyed by this company in MFI business and the plans for transition into a small finance bank, investment in this IPO will bring reasonable rewards in coming years. ( Readers must consult a qualified financial advisor prior to making any actual investment decisions )


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Thyrocare Technologies IPO review

Thyrocare Technologies, a pan – India diagnostics chain with focus on preventive and wellness health offerings under the Aarogyam brand is set to tap the markets today with its initial public offer (IPO).

Company raised Rs 144 crore by allotting 3.22 million shares to anchor investors that included DSP Blackrock, HDFC MF and Birla Sunlife MF. The shares were allotted at Rs 446/-.

Thyrocare competes with diagnostics chains such as the recently listed Dr Lal PathLabs. That apart, SRL Diagnostics, Metropolis Healthcare and Apollo Clinic are some of its other competitors.


The offer for sale is essentially to enhance the company’s brand name and provide liquidity to existing shareholders, analysts say. The company will not receive any proceeds from the offer.

Company Promoters:

Biggest shareholders

Objects of the Issue:

The object of the issue are to:

1. Achieve the benefits of listing the Equity Shares on the BSE and the NSE; and

2. Carry out the sale of up to 10,744,708 Equity Shares by the Selling Shareholders.

Issue Detail:

Issue Open: Apr 27, 2016 – Apr 29, 2016
Issue Type: Book Built Issue IPO
Issue Size: 10,744,708 Equity Shares of Rs 10 aggregating up to Rs 479.21 Cr
Offer for Sale of 10,744,708 Equity Shares of Rs 10 aggregating up to Rs [.] Cr
Face Value: Rs 10 Per Equity Share
Issue Price: Rs. 420 – Rs. 446 Per Equity Share
Market Lot: 33 Shares
Minimum Order Quantity: 33 Shares
Listing At: BSE, NSE

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Alkem Laboratories Limited IPO Review

Syngene International Limited IPO Review

For giving exit option to its existing stakeholders,
the company is coming out with a maiden IPO purely with secondary offer (i.e. Offer for sale). Thyrocare is offering 10744708 equity share of Rs. 10 each via book building route and has fixed a price band of Rs. 420-446. Thus it plans to mobilize Rs. 451.28 cr./Rs. 479.21 cr. based on lower and upper price bands.

It is important to highlight that apart from CX Partners, Norwest Venture Partners (NVP) and Samara Capital also hold important equity positions in the company – 9.4% and 2% respectively. However, both companies will not be participating in the IPO. This is something we like.

On performance front, it has posted net profit of Rs. 44.43 crore on a turnover of Rs. 190.34 crore for FY 15 on a consolidated basis. For first nine months of the current fiscal it has posted net profit of Rs. 40.02 crore on a turnover of Rs. 180.47 crore. If we attribute latest earnings on annualized basis on the current paid up equity capital of Rs. 53.72 crore, then the asking price is at a P/E of around 45. That compares well with its peer that recently went public and quotes at a P/E of 85 plus.

The company has issued three bonuses in the span of 16 years so far in the ratio of 1 for 1 in November 2003, 5 for 2 in March 2006 and 3 for 1 in September 2014. Between 2003-2006 it issued shares at a price of Rs. 200 per share. It also issued few shares in March 2013 at a price of Rs. 75 per share.


PE ratio between 45 times to 45.5 times

Its competitors Dr. lal paths lab trading at a PE ratio of 87 times. There are no other listed peers.Hence,difficult to determine with one peer comparison that whether the issue price is priced over priced or under priced.

Company revenues grown at 23% CAGR in last 5 years.It is generating good margin in the last 5 years.

Portfolio of specialized tests with an emphasis on wellness and preventive healthcare

Pan-India collection network supported by logistics capabilities and information technology infrastructure

Capital efficiencies in its diagnostic testing business


There are various proceedings pending against the company and its Directors,Subsidiary, Promoters and certain group companies,which,if determined against them, may have an adverse effect on its business.

The company operates in a highly-competitive and fragmented industry

Changing technology and new product introductions poses risk to demand

Relies significantly on its ASPs to source samples and thereby sell its pathology testing services

Other risk ( Internal and external ) can be viewed in the draft prospectus from page no. 15 onwards.


Considering the brand image and the operational methods, the company is poised for bright prospects ahead. Investment in this IPO will bring reasonable rewards in coming years. Investment may be considered for short to long term. ( Readers must consult a qualified financial advisor prior to making any actual investment decisions )


No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Critical Illness treatments now in Installment/EMI form will be a mode of relief

Over the last decade, the cost of medical treatment has grown at a rate of 10 percent.

Let us first understand the kind of critical illnesses that are covered by various insurance companies which are cancer, end stage renal failure, multiple sclerosis, benign brain tumour, motor neuron disorder, end stage lung disease, major organ transplant and heart valve replacement.

As per a WHO report published in 2014, heart disease was the biggest killer of people around the globe and in India too, where it killed more than 12 lakh people. It was followed by Lung Disease and Stroke which killed 1,061,863 and 881,702 people, respectively.

Cancer too is quickly emerging as a major cause of death among Indians with 548,015 cancer deaths reported in 2014. Among the different types of cancers, Oral Cancer is the biggest threat, followed by Breast Cancer. Diabetes, Liver diseases, and Kidney diseases also took more than 6 lakh lives in the India in 2014.

The below diagram states the estimated deaths per 1 lac people in the world according to World Health Organization :

Critical illness

This diseases are mainly caused due to the changing work patterns, long working hours, high-stressed jobs, junk food, smoking and alcohol, little or no exercise leading towards the so-called lifestyle diseases. The traditional health policies pay for hospitalization and domiciliary expenses and certain critical illness policies provide coverage to only a few critical illnesses. Therefore this leads to less adoption and ignorance towards opting for such health insurance policies.

The differences between a regular Health Insurance policy and Critical Illness policy offered by Insurance Companies are as below:

Differencr between Health insurance and critical illness

As per IRDA (Insurance Regulatory & Development Authority), India still continues to have the highest levels of under-penetration of health insurance and med claim in the world, with only 0.16% of the total population insured for health. Little wonder then that 70% of healthcare expenses are met from one’s pocket. This healthcare expenses cause greater financial burden on the family, more chances which lead deaths due to untimely treatments, high stress levels on the family members, etc.

The below diagram shows the approximate cost of medical treatments of the critical illness diseases :

Rising cost of medical Treatments

Therefore, such higher cost of treatments can be relaxed by designing products which can offer Installment/EMI option facility which are tied up with the hospital & insurance companies. The way the installment can be routed is through a credit card in which an empaneled list of hospitals is provided to the credit card holder. The patient has to inform the Center for the drug or medical service to be undergone and its confirmation for opting EMI facility thereby to finance the necessary formalities.

The advantages of such plans provided by hospitals & Banks will hence lead to deferred financial burden, more effective treatments with no waiting period leading to savior of deaths, assigned payment period from (3– 60) months period based on the financial profile and the debt paying capacity of the borrower, no lump sum cost to bear, inducting knowledge towards adopting health insurance policies at earlier age etc.

Thus in my opinion, a country where poor and low income groups still qualifies for more than 80% of the population in the vast majority of India’s 1.2billion citizens such medical plans will add to the convenience, savior to life and a mode of relief to such income groups.

MCLR : New Lending Rate on Bank Loans – Details and Review

Loans sanctioned on or after 1st April 2016 will be priced using the New MCLR Base Rate (Marginal Cost Linked Rate).

Each bank would publish new base rates for different maturities and the rate of interest on a loan would be derived as sum of:

MCLR Base Rate

Risk premium and operating cost mark up

The applicable MCLR rate will be the rate corresponding to the interest rate reset frequency of the loan. So, a home loan with a reset every one year will be priced with the 1 year MCLR base rate as the benchmark and a home loan with a 3 month reset will be price with the 3 month MCLR rate as the benchmark.

Base Rate is the minimum interest rate at which a bank can lend except for loans to its own employees, its retired employees and against bank’s own deposits

What is MCLR ?

MCLR (Marginal Cost of funds-based lending rate): Corporates/SME’s/Retail Borrowers to Benefit

It’s a new methodology which will replace Base Rate, a minimum lending interest rate decided by banks based upon its cost of raising funds.

How do Banks lend currently?

(Base Rate + Bank’s Spread )

When RBI cuts repo rates, Banks automatically gets lower funding costs which should be passed to the customers by reducing the Base Rate of the Bank. Banks spread is based on the tenor & the risk that your personal profile involves (a risk premium). When the base rate changes the benefit has to be passed to both old and new customers which can hence reduce banks margins. So if Base Rate falls, their loan rates fall, Reduce in profits.

The new MCLR concept is that banks HAVE to lend using rates linked to their funding costs. A bank raises money through its dependency on the composition of CASA (Current Account Saving Account), deposits, bonds and wholesale borrowing. It has costs like salaries, rents, electricity, Operational Expenses, Cost of maintaining CRR/SLR etc. It also has to make a certain amount of profit at the very least with NPA Management. So the RBI has put all of this into a formula that banks can use to quantitatively determine how much their lending rate should be.

How is MCLR Calculated?

Banks will have to use four concepts:

• The Marginal Cost of Funds (After considering interest rates on savings/current/term deposits/Return on net worth/Classification of short term & long term borrowing rate)

Marginal cost of funds = marginal cost of borrowings x 92% + return on net worth x 8%.

• Cost of maintaining CRR (How much it therefore costs to maintain CRR with RBI at zero interest rate)

• Operating costs

• Tenor Premium (A TENOR BUCKET premium for how much longer you borrow, so 1 year rate is higher than 6 month rate etc) Eg : if you’ve got 55% money in current accounts, then the MCLR applies to the short term bucket. If you’ve got 30% in three year term loans, then the MCLR applies to that tenor bucket and therefore in that accordance the premium is charged.

Banks will have to publish different MCLR’s as per tenor like :

New rate

So Higher the tenor = Higher the premium charged = Higher the interest rates

And for lesser tenors, Bank passes discount to its customers.

How will this affect Banks?

Banks were previously not allowed to lend below the base rates and there was never a differentiation in rates for longer and shorter tenures which therefore gave rise to money market instruments like commercial paper. For Example, XYZ Shipping company today saw its 90 day commercial at a yield 8.4% which is far lower the MCLR for SBI. Therefore, there will be more borrowing from such government instruments due to attractive rates.

Banks will also offer a reset period for each loan where as per the loan bucket the reset of interest rate will happen. The advantage to customers is that even if the banks do not cut their base rates they will see the benefit of lower rates due to the implementation of MCLR, where a cut in repo rates will reduce the cost of funds for the banks. The disadvantage is if the rate cut happens before the reset period then the customer has to wait till the reset period to enjoy lower rate.

How MCLR works? Example

For instance, ABC Company wants to avail a working capital limit. The company approaches the Bank and after due diligence of its financials, business and overall company performance, the banks sanctions the company a loan of Rs. 1 crore bearing interest rate of 9.20%(MCLR) + 2.5%(Spread). So the interest rate is 11.70%. Though MCLR is reviewed monthly the reset period of the loan is 1 year, which means it will be reviewed yearly. Let say, the MCLR gets revised after 1 year to 9.00% then the applicable interest rate the company will avail will be 11.50%.

Merits/Demerits to Banks and Customers:

The customers will be happy only if the interest rate cycle is in downward trend because as soon as there is a hike in repo rates the MCLR will increase and hence the banks customers will avail loans at higher rates.

• Moving to MCLR will be beneficial to clients availing short term loans like working capital loans, retail loans etc. This will also induce competition into the Banking system.

For a customer it is important to check the spread which the bank is charging. A customer whose creditworthiness is sound can negotiate on the spread and hence can be charged a lower rate.

• As far as banks are concerned, this new rate setting method (MCLR) might hit banks profitability due to decrease in the margins charged.

• With the inclusion of shorter term MCLR rates, banks can compete with the commercial paper market as well.

Lower interest rates will reduce the cost of borrowing for corporates which will improve company revenues and therefore leading to growth in the economy.

• The requirement that MCLR should be revised monthly makes the MCLR very dynamic compared to the base rate, thus moving towards international standards.

• Bank interest margins are protected in part, because a lower MCLR is only applicable to a customer on his reset date.

• There are exemptions to MCLR applicability – one is that if your loan is linked to a benchmark (like MIBOR). Or if a loan is given against a deposit. Or, for restructured accounts where a working capital loan is given.

Moral of the Story being that in essence, the MCLR is determined largely by the marginal cost for funds, specifically by the deposit rate and by the repo rate. Any change in repo rate brings changes in marginal cost and hence the MCLR should also be changed.