Retirement Fund : What is a Systematic Withdrawal Plan ( VIDEO )

If you are planning to take a sabbatical from work or are retiring soon, you may be looking at different investment options that give a regular income. Usually, a lump sum is invested in getting regular fixed amounts later. Popular products include post office monthly income scheme, Senior Citizens Savings Scheme and monthly income plans (MIPs). A lesser-known option is the systematic withdrawal plan (SWP) in mutual funds. Recently, some funds have even removed the exit load on SWPs if you were to withdraw up to 15-20% in the first year, to encourage people who want to start investing in this instrument. Here is a look at what an SWP is.

What is SWP?

Systematic Withdrawal Plan (SWP) is a service offered by mutual funds which provide investors with a specific amount of payout at a pre-determined time interval, like monthly, quarterly, half-yearly or annually.

How is SWP better than the dividend option?

An SWP is more reliable than a dividend plan when it comes to regular income. In the dividend plan of an equity fund, both the quantum and frequency of dividend is not guaranteed, and it largely depends on market movements and the profits that the asset management company makes.

swp 4
Mr. A invests Rs 15,00,000 in SWP and Mr. B invests the same amount in a bond/deposit scheme with 8% interest. Assuming SWP amount is kept at Rs 10,000 per month or Rs 1,20,000 per year or 8% of the investment amount. Also, let’s assume a return 8% in monthly investment plan or SWP. Both Mr. A and Mr. B are in 30% tax slab and continue to get SWP and interest income for ten years respectively.

In the above example, Mr. A would have paid Rs 37,537- as capital gains tax, while Mr. B would be liable to pay Rs 3,60,000 as a tax on interest income. Over a ten years period, they would have got Rs 12,00,000 as SWP amount or interest income respectively. If funds are not withdrawn even after ten years, Mr. A would have paid only 3.12% tax while Mr. B would have paid 30% tax on Rs.12,00,000 if the inflation rate is 6% per annum.

In another example, Mrs. Joshi has retired with Rs. 1,03,00,000 as separation benefit. Her children are well settled, and she stays alone. The corpus received on retirement has to be invested suitably, and it is decided that 45-50 percent of the total amount will be invested in equity while the balance (50-55 %) will be invested in debt instruments.

Rs.56,00,000 is invested in fixed income instruments to generate regular income. The balance Rs 47,00,000 is invested across different diversified equity schemes. At present, since Mrs. Joshi does not require any additional fund over and above what she receives, her fixed income savings are sufficient. However, over a period, say two years later, the returns from her fixed income schemes can become inadequate to cover her requirements. It is at this juncture that Mrs. Joshi can opt to avail the Mutual Fund SWP option. This withdrawal from her equity-based funds will be tax-free, and this is an additional benefit received.

Another example,

swp1

SWP2.1

swp3

Benefits of Mutual Fund SWP

From the above examples, it is amply clear that the SWP option of the Mutual Funds has its definite advantages. The two major gains derived from this option are again dwelt upon:

Mutual Fund SWP and Regularity:

Mutual Fund SWPs’ provide the assurance of getting a fixed amount at a pre-determined time frequency. Among the other options, frequency and pay-out of the dividend-paying monthly income plans are not certain or fixed beforehand. Sometimes, if the fund cannot generate sufficient profits, you might have no dividends to be paid. Hence every month you will have different amounts coming in and some month there might be no money received. SWP is a definite boon in such a scenario.

Inflation Protection through Mutual Fund SWP:

Most of the fixed income instruments do not insulate the investor against the inevitable effect of inflation. The Mutual Fund SWP scores in terms of generating returns to keep up with inflation especially is one opts for the equity fund route.

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Mutual Fund SWP and Tax advantage

In case of investments in equity mutual funds for a period of more than a year, the long-term capital gain is exempted. Only short-term capital gains are taxable at the rate of 15% on withdrawals from equity mutual funds investment within one year. Whereas in case of investments in debt schemes, the short-term capital gain ( an invested period is less than 3 years) is added to the investors income and taxed as per their tax slab. Long-term capital gains in debt schemes are taxed at the rate of 20% with indexation. In Systematic Withdrawal Plan (SWP), the tax is paid only on the gains made due to the NAV movement and not on the principal part in the withdrawals making the overall tax incidence lesser.

Unlike SWP, in traditional investment options, the entire gain is taxed according to the investors’ tax bracket (the highest currently being 30 %) considering if the investor falls under the highest tax bracket.

Regular supplemental income

The option of SWP in the mutual fund can help you by providing a steady source of income from your investments. This is especially useful for those who need money when their cash flow comes to a halt like a retirement, or at a time when supplemental income becomes a necessity due to the altered circumstances in life.

Meet financial goals

If planned well ahead of time, SWPs can provide a steady flow of money when most needed. They can therefore be linked to long term financial goals, such as providing a steady income in one’s retirement years or managing your child’s educational expenses.

If planned well ahead of time, SWPs can provide a steady flow of money when most needed.

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Who can use SWP?

Systematic Withdrawal Plan (SWP) can be utilized by those who are planning for their retirement in the coming years. Usually, the large amount of money that one receives at the time of retirement is invested in traditional savings instruments which attract income tax at the normal rates. Instead, they can make a lump sum investment in mutual funds with SWP facility. In this case, along with earning capital appreciation on the invested amount, he/she can receive a fixed amount monthly. It will help you in getting a regular income like salary even after retirement.

However, the use of SWPs may not be restricted to retirees alone. It is also useful for middle-aged professionals who have the responsibility of their family. They can use SWP option to get a constant source of fund for their dependents. They can plan it for their child’s educational expenses. They can even plan for a steady source of money for their retired parents.

One can easily make all the necessary calculations before investing.

A mutual fund SWP is designed keeping in mind the needs, interests and financial goals of the investors. By judiciously using tools like Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP), you can meet your financial goals without having to go through the hassle of timing the markets and making wrong financial decisions that may cost you dearly and throw you off track.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Disclaimer

The above information is prepared for the purpose of investor education only and intended to consider as investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Investors should consult their financial advisers before taking any investment decision.

Prataap Snacks Ltd. IPO Review and GMP

Prataap Snacks Ltd. (PSL) an Indore based company is one of the top six Indian snack food companies in terms of revenues in 2016, and among the fastest growing companies in the Indian organized snack market between 2010 and 2016. PSL is present in three major savory snack food categories in India and all its products are sold under the “Yellow Diamond” brand. As of July 31, 2017, PSL had 40 flavors of Chips and extruded snacks and 23 varieties of Namkeen in the market. It is set to launch special snacks for health conscious consumers and also sweet bites in the near future.

Despite operating in the same industry, Prataap Snacks does not directly compete with big players like Frito Lays or Parle. It focuses on underserved smaller markets.

Prataap Snacks raises Rs 143 crore from anchor investors.

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The Company has a pan-India distribution network of included 205 super stockists and over 3,400 distributors & is supported by strategically located manufacturing facilities. The company owns and operates three manufacturing plants, one located at Indore and the other two located at Guwahati, in Assam.( Detailed note about this Industry and the company is given in Page-bottom Box.Please study the same) Faering, another PE fund had picked up a 4% equity stake in Prataap Snacks for Rs. 45 crores ( valuing the company for Rs. 1125 crores) but it will not be participating in the IPO.

psl ipo

Issue Details:

•    IPO Open: 22-September-2017
•    IPO Close: 26-September-2017
•    IPO Size: Approx Rs. 200 Crores
•    Face Value: Rs. 5 Per Equity Share
•    Price Band: Rs. 930 to 938 Per Share
•    Listing on: BSE & NSE
•    Retail Portion: 35%
•    Equity Shares: 30,05,770 Shares

Market Lot:

•    Shares: Apply for 15 Shares (Minimum Lot Size)
•    Amount: Rs. 14,070

IPO Allotment & Listing:

•    Basis of Allotment: 29-September
•    Refunds: 03-October
•    Credit to demat accounts: 04-October
•    Listing: 05-October

Lead Managers:

Edelweiss Financial Services Limited

JM Financial Institutional Securities Limited

Spark Capital Advisors (India) Private Limited

Registrar:

Karvy Computershare Private Limited

The promoters :

  • Arvind  Mehta
  • Amit  Kumat
  • Apoorva  Kumat
  • Rajesh Mehta
  • Naveen Mehta
  • Arun Mehta
  • Kanta Mehta
  • Rita Mehta
  • Premlata  Kumat
  • Sudhir Kumat
  • Swati  Bapna
  • Rakhi Kumat
  • Sandhya Kumat

Objects of the issue are:

1.Repayment / pre-payment, in full or part, of certain borrowings (Rs .50 crores )

2 Funding capital expenditure requirements for  expansion including through setting up of new production facility and modernization of existing manufacturing facilities at Indore & Guwahati and contract manufacturing facility at Bangalore (Rs. 72 crores )

3. Investment in subsidiary, Pure N Sure, for repayment / pre-payment of certain borrowings (Rs 24 crores )

4.Marketing and brand building activities ( Rs. 40 crores )

PSP1

Negative

There are outstanding legal proceedings against its Company, Group Companies, and Directors which may adversely affect its business, financial condition and results of operations.

Any actual or alleged contamination or deterioration of its products or any negative publicity or media reports related to its products or its raw materials could result in legal liability, damage its reputation and adversely affect its business prospects and consequently its financial performance.

Inadequate or interrupted supply and price fluctuation of its raw materials and packaging materials could adversely affect its business, results of operations, cash flows, profitability and financial condition.

A company operate in a highly competitive industry. An inability to maintain its competitive position may adversely affect its business, prospects and future financial performance.

Failure to develop, launch and market new products due to unpredictable consumer preferences may have a material adverse effect on its business, results of operations, profitability, and financial condition.

Failure to effectively manage its future growth and expansion may have a material adverse effect on its business prospects and future financial performance.

CDSL IPO : Most awaited IPO in India


PSL’s business prospects and results of operations may be adversely affected if any future capacity expansion plans are not successfully implemented.

If PSL fail to maintain and enhance its brand and reputation, consumers recognition of its brands, and trust in PSL, and its products, its business may be materially and adversely affected.

PSL’s inability to expand or effectively manage its growing super stockists and distribution network or any disruptions in its supply or distribution infrastructure may have an adverse effect on its business, results of operations and financial condition.

Any disruption in the supply chain could have an adverse impact on its business, financial condition, cash flows and results of operations.

Termination of its agreements with its contract manufacturing facilities may adversely affect its business, results of operations and financial condition.

PSL’s procurement operations in relation to potatoes are concentrated in Madhya Pradesh and any adverse developments affecting this region could have an adverse effect on its business, results of operations and financial condition.

PSL’s Promoters may cease to be in control of the Company post listing of the Equity Shares pursuant to the Issue.

Stringent food safety, consumer goods, health and safety laws and regulations may result in increased liabilities and increased capital expenditures.

Positive

Deeper penetration in existing markets and explore select new territories.

Expand and modernize our production capabilities.

Increased advertising and marketing activities.

Expand its product portfolio into healthier snacks segment and confectionaries.

HOW CAN YOU SETTLE YOUR INSURANCE CLAIM IF REJECTED?

Business Strengths

Innovation has driven diversified product portfolio.

Value proposition for consumer.

Strategic supply chain for a pan-India distribution networ.

Successful track record and professional management.

Financials

Prataap Snacks’ net worth was close to Rs 238 crore as of March 31, translating into a book value of Rs 102 apiece after issuing the new shares.

At the upper end of the price band of Rs 938 , earnings per share and price-earnings ratio for the year ended March (after issuing new shares) stands at Rs 4.7 and 196 times, respectively. Revenue rose at a CAGR of 27.3 percent and EBITDA increased by 10.4 percent over five years to March.

Net profit showed a negative CAGR of 10 percent, as company’s profit fell 63 percent to Rs 10 crore in the year to March due to potato crop-related issues.

Its total debt stood at Rs 101 crore, while the debt-to-equity was 0.4 times. This will further reduce by Rs 40 crore as the company repays part of the debt from IPO proceeds.

The company has reduced its working capital cycle to nine days from 32 in five years to March, and improved its asset turnover ratio to 4.5 times from 2.7 times.

On the upper price band of Rs.938 and on consolidated restated FY17 EPS of Rs. 4.7,P/E ratio works out to 222x. Even based on last 3 years restated consolidated EPS of Rs. 7.63, P/E ratio works out to 122x. It means PSL’s asking higher price band of Rs. 938 in the P/E ratio of 122x to 196x. Its peers Britania industries are trading at P/E ratio of 56x and DFM foods at P/E ratio of 88x.

Hence Prataap Snacks Ltd. IPO issue price at P/E ratio of 122x to 196x is over priced.

Grey market premium

Current Grey market premium as on today at Rs.300-350 with Kostak at Rs.250-300.

DISCLAIMER

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.

SBI Life insurance IPO and Current GMP

SBI Life Insurance Company Limited ( Incorporated in 2000) is leading private life insurer. It is a joint venture between the State Bank of India and BNPPC(an insurance subsidiary of BNP Paribas), BNPPC has operations across 36 countries across the world and is among the leading life insurance company across the world whereas  BNP Paribas is one of top 10 global financial institution in terms of revenue.

The Company has developed a multi-channel distribution network comprising bank branches of SBI,individual agent network of 93,849 agents.It has also developed other distribution channels including direct sales and sales through corporate agents, brokers, insurance marketing firms and other intermediaries.

SBI Life Insurance raises Rs 2,226 crore from 69 anchor investors.

Please check the list of Anchor investors.

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Issue Details

IPO Open: 20-September-2017
IPO Close: 22-September-2017
IPO Size: Approx Rs.8400 Crore (Approx)
Face Value: Rs. 10 Per Equity Share
Price Band: Rs. 685 to 700 Per Share
Listing on: BSE & NSE
Equity Shares: 120,000,000

Market Lot:

Shares: Apply for 21 Shares (Minimum Lot Size)
Amount: Rs. 14700

IPO Allotment & Listing:

Basis of Allotment: 27-September-2017
Refunds: 28-September-2017
Credit to demat accounts: 29-September-2017
Listing: 03-October-2017

Lead Managers

Axis Capital Limited
BNP Paribas
Citigroup Global Markets India Private Limited
Deutsche Equities India Private Limited
ICICI Securities Limited
JM Financial Consultants Private Limited
Kotak Mahindra Capital Company Limited
SBI Capital Markets Limited

Registrar to the IPO

Karvy Computershare Private Limited.

The promoters :

State Bank and BNPPC( an insurance subsidiary of BNP Paribas )

Object of the issue :

a. to achieve the benefits of listing Equity Shares on the Stock Exchanges and
b. to carry out the sale of up to 120,000,000 Equity Shares by the Selling Shareholders.

sbi lifeGlobal Life Insurance Industry

Growth in the global life insurance industry has been almost stagnant after the financial crisis in 2008. Before the crisis, the total premium of the industry grew at 4% CAGR (in nominal dollar terms) during 2003 to 2007.However, there was a revival in growth from 2014 onwards, as the global life insurance industry recorded 3.5% CAGR growth during 2013-2016 on the real premium basis.

Growth was primarily driven by  China, where premium grew over 15% CAGR during the period.(Source: CRISIL Report)

Growth in the post-crisis era has been primarily driven by emerging markets, where premiums grew 6.6% CAGR during 2009 to 2016.Growth in the Indian life insurance industry has been in-line with the emerging market average during the period.(Source: CRISIL Report)

Asia is the largest market for life insurance, accounting for 38% of the premium collected. India’s share in the global market was 2%.(Source: CRISIL Report)

globalWhen it comes to the global insurance industry, 55% of the premium comes from life insurance (and the rest from non-life), compared with 78% for India and 50% for other emerging markets. At 3.5%, the global life insurance industry’s penetration is 80 basis points more than that of India’s. (Source: CRISIL Report)

chartChina’s life insurance penetration was low and stagnant at 1.7% from 2006 to 2014. However, the industry’s growth has been stupendous over the past decade, with insurance density quadrupling from US$ 34.1 in 2006 to US$ 127 in 2014. China was in a high economic growth phase during this period, with its nominal  GDP growing at 18% CAGR, according to the International Monetary Fund (IMF).(Source: CRISIL Report)

In purchasing- power parity (PPP) terms, China’s per capita GDP increased from US$ 5,800 in 2006 to US$ 13,130 by 2014.

China’s scorching growth subsequently led to soaring insurance density. Therefore, the life insurance industry grew 4x during 2006 to 2014 on a total-premium basis. (Source: CRISIL Report)

Penetration of Insurance in India

At current prices, India’s GDP was ₹151.9 trillion as of fiscal 2017. India’s life insurance penetration stood at 2.7% in 2016, compared with 4.4% in 2010. Among Asian countries, life insurance penetration in Thailand, Singapore and  South Korea were at 3.7%, 5.5%, and 7.4%, respectively, in 2016. Hence this suggests the untapped potential of the Indian life insurance market.

The protection gap for India stood at US$ 8.5 trillion as of 2014, which was much  higher compared with its Asian counterparts. The protection margin for India was highest among all the countries at 92% in Asia Pacific.(Source:  CRISIL Report)

With India expected to be the fastest-growing Asian economy GDP increasing  at 10% CAGR in the next five years (in dollars, current prices), according to IMF  forecast (published in April 2016) the Indian life insurance industry seems poised for strong growth in the years to come. (Source: CRISIL Report)

As per IMF data, India is expected to grow at a significantly faster rate as compared with China and the rest of the world.Therefore, increasing per capita GDP will fuel growth in the life insurance industry, evidenced in China’s scenario.The per capita GDP for India over the next five years (2017 – 2022) is expected to grow at 8.5% CAGR as compared with 4.7% in the 97 previous  five  years.  Further,

Further,the prevailing low insurance density and penetration in the country  will also support strong growth in the life insurance sector on account of the low base. (Source: CRISIL Report )

Growth projection for different countries

growthNegative

It’s Company, Directors, Promoters and certain Group Companies are involved in certain legal and other proceedings.

An inability to maintain its market share, implement growth strategies or effectively address the requirements of specific customer segments by maintaining a strategic portfolio of insurance products may materially and adversely affect its business operations and prospects, and consequently its financial condition and results of operations.

Any termination of, or adverse change in, its bancassurance arrangements, and in particular its bancassurance agreement with the State Bank, or a decline in performance standards of its bancassurance partners, may have a material adverse effect on its business, results of operations and financial condition.

A significant proportion of its New Business Premiums are generated by a certain category of products. Any adverse regulatory or market development that adversely affects the sale of such products could have a material adverse effect on its business, financial condition and results of operations.

Any adverse change in its relationship with its individual agents and other distribution intermediaries, a decline in performance of its agent or other distribution network or an inability to enter into additional distribution arrangements may have a material adverse effect on our business, results of operations and financial condition.

Its investment portfolio is subject to liquidity risk and volatility in the market value of such financial instruments and may be concentrated in certain asset classes.

Changes in interest rates may have a material adverse effect on its business and results of operations.

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Any actual or alleged misconduct or fraudulent activity, including any mis-selling by its employees, agents or other intermediaries may result in customer claims or regulatory action against the company, which could adversely affect its reputation, business prospects, financial condition and results of operations.

An inability to verify the accuracy and completeness of information provided by  or on behalf of its customers and counterparties may subject to company to fraud, misrepresentation and other similar risks, which could adversely affect its business, financial condition and results of operations.

Its business reputation is critical to maintaining market share and growing its business and any adverse publicity may have a material adverse effect on its  business, prospects, financial condition and results of operations.

Any catastrophic event, including any major natural disaster, could result in significant claims which could have a material adverse effect on its business, prospects, financial condition and results of operations.

Company are subject to various credit risks in the course of its operations which may expose us to significant losses.

Company do not own the “SBI” trademark or the “SBI Life” logo, and the termination of the SBI Trademark License Agreement with State Bank or otherwise inability to use the “SBI” name or the “SBI Life” logo may materially and adversely affect its business, prospects, financial condition and results of operations.

Company benefit from its relationship with State Bank and BNPPC, in particular  drawing from their established brand equity and goodwill among customers. Any adverse change in these relationships may adversely affect its business and financial performance.

Positive

Largest private life insurer with a consistent track record of rapid growth.

Significant brand equity and pre-eminent Promoters.

Expansive multi-channel distribution with pan-India bancassurance channel and high agent productivity.

Sustainable business model is driven by robust financial position, superior investment performance, diversified product portfolio and effective risk management.

  1. Robust financial position supported by high operating efficiencies.
  2. Superior investment performance.
  3. Diversified product portfolio.
  4. Effective risk management

Strong focus on customer service standards.

Professional and Highly Experienced Board of Directors and Senior Management Team.

In the year to March, its mis-selling ratio of 0.20 percent was the lowest among the top five private life insurers, compared to ICICI Prudential’s 0.76 percent. In the year to March, SBI Life had the highest persistency ratio among the top five private life insurers.

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Business Strategies

Capitalize on insurance industry growth opportunities.

Ensure profitable growth through balanced product portfolio and expansive distribution network.

Enhance brand equity and continue to focus on customer satisfaction.

Leverage technology to improve operating efficiencies and support growth Financial.

  • SBI Life’s net worth was Rs 5,552 crore as of March, according to its red herring prospectus.
  • The embedded value, the consolidated value of shareholders’ interest in the business, rose 32 percent in the year to March.
  • At the upper end and lower end of the price band, the stock will trade at 4.23 times and 4.14 times its embedded value, respectively.
  • It earned Rs 1,037 crore in new business at a margin of 15.4 percent in the year to March.
  • SBI Life’s net premium rose 33 percent to Rs 20,850 crore for the year ended March.
  • It reported a profit of Rs 955 crore, up 13 percent year-on-year.
  • SBI Life has declared dividends every year since 2012.

Peer Comparison

The company has a market share 20.69 percent among private life insurers and 11.16 percent of the entire industry. It’s has only one listed rival in ICICI Prudential Life Insurance Company. Another private rival, HDFC Standard Life, is also awaiting the market regulator’s nod for its initial share sale.

Financial and Valuations

Total income/net profits of Rs. 17369.42 cr. / Rs. 727.75 cr. (FY14), Rs. 23186.49 cr. / Rs. 814.87 cr. (FY15), Rs. 19119.72 cr. / Rs. 844.10 cr. Rs. 30277.51 cr./ Rs. 954.65 cr. (FY17). For Q1 of the current fiscal, it has reported a net profit of Rs. 313.45 cr. on a total income of Rs. 6388.37 crore.

Comapany is asking higher price band of Rs.700/- in the P/E ratio of 73x to 78x .ICICI Pru life share price is trading at Rs.427/- which is at P/E ratio of 36x. Means SBI Life issue price at P/E ratio of 73x to 78x is overpriced.

Grey market premium

Current Grey market premium is Rs. 19/-

DISCLAIMER

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.

ICICI Lombard IPO Review and Current Grey market premium

Incorporated in 2000, ICICI Lombard General Insurance Company Ltd founded as a joint venture with ICICI Bank Limited and Canada’s Fairfax Financial Holdings is engaged in providing various general insurance products and services in India. They mainly offers fire, engineering, hull, aviation, motor, casualty, health, travel, energy, personal accident, marine, liability, home, rural, and credit insurance products and services.

ICICI Lombard allotted 2.46 crore shares to 64 anchor investors, according to an exchange filing. Shares were offered at the upper end of the price band of Rs 661/-

Anchor investors include Nomura, Amansa, Franklin Templeton, DSP Blackrock, Abu Dhabi Investment Authority, Birla Sun Life, FIL Mauritius, Kuwait Investment, Russell Investment, Arch ReInsurance, Goldman Sachs, Wasatch Emerging Fund, MSD India, BNP Paribas, Aurigin, CitiGroup, SocGen, Reliance Nippon, Invesco MF, HDFC Std Life Insurance, ABN Amro, UniSuper, RochDale, DHFL Pramerica, EastSpring Investment, Canara Rebeco, Kotak Mahindra, Axis, IIFL, Sundaram, Motilal Oswal, Greater India, Edelweiss, Samsung India Securities, Pioneer Investment, HSBC and Master Trust Bank of Japan.

Highlights

ICICI Bank will sell 3.1 crore shares.

An indirect subsidiary of Fairfax Financial Holdings will offload 5.6 crore shares.

ICICI Bank’s holding will fall to 55.95 percent from 62.95 percent.

Fairfax’s stake will come down to 9.91 percent from 21.9 percent.

Of the total 8.6 crore equity shares, 5 percent will be reserved for ICICI Bank shareholders.

ICICI-Lombard

ICICI Lombard IPO Dates & Price Band

•    IPO Open: 15-September-2017
•    IPO Close: 19-September-2017
•    IPO Size: Approx Rs. 5700 Crore (Approx)
•    Face Value: Rs. 10 Per Equity Share
•    Price Band: Rs. 651 to 661 Per Share
•    Listing on: BSE & NSE
•    Retail Portion: 35%
•    Equity Shares: 86,247,18

    Market Lot:

•    Shares: Apply for 22 Shares (Minimum Lot Size)•   Amount: Rs. 14542

•   Amount: Rs. 14542

    Lead Managers:

•    DSP Merrill Lynch Limited
•    ICICI Securities Limited
•    IIFL Holdings Limited
•    CLSA India Private Limited
•    Edelweiss Financial Services Limited
•    JM Financial Institutional Securities Limited

Registrar:

Karvy Computershare Private Limited

Allotment & Listing:

•    Basis of Allotment: 22-September
•    Refunds: 25-September
•    Credit to demat accounts: 26-September
•    Listing: 27-September

Promoters:

The Promoter of the Company is ICICI Bank

Objects of the Issue:

1.    To achieve the benefits of listing the Equity Shares of the Company on the Stock Exchanges;

2. To carry out the sale of up to 86,247,187 Equity Shares by the Selling Shareholders; and

3. Enhance the “ICICI Lombard” brand name and provide liquidity to the existing shareholders.

India Non Life Insurance Sector Overview

The Indian non-life insurance sector offers different products such as motor, health, crop, fire, marine, liability, travel, aviation and home insurance aimed at meeting different protection needs of retail customers, government as well as corporate customers.The industry operates under a “cash before cover” model under which insurers are not required to assume underwriting risk until premiums are received except in the case of government sponsored schemes such as mass health and crop insurance.Most Indian non – life insurance contracts are annual except certain product offerings in a few segments such as home, health, personal accident, crop insurance and travel insurance. Indian non- life insurers also do not discount reserves including IBNR / IBNER which are determined using actuarial methods.

The Indian non life insurance sector has been regulated by the Insurance Regulatory and Development Authority of India (IRDAI). IRDAI was constituted as a statutory body to regulate and develop the insurance industry in 1999 and received statutory status in April 2000. The IRDAI regulates the insurance sector in all states in India, and any regulatory changes or product approvals are enforced uniformly across the country.

The size of the Indian non life insurance sector was ₹ 1.28 trillion on a GDPI basis as of 31st March 2017. Indian non life insurance sector GDPI grew at a CAGR of 17.4% between fiscal 2001 and fiscal 2017.

According to Swiss Re, India was fifteenth largest market in the world and the fourth largest market in Asia in 2016, behind China, Japan and South Korea. India was also amongst the fastest growing non life insurance markets over 2011- 2016, growing at 14.5% (as per Swiss Re).Despite its size and growth profile, India continues to be an underpenetrated market with a non-life insurance penetration of 0.77% in 2016, as compared to 1.81% in China, 1.70% in Thailand, 1.67% in Singapore and 1.62% in Malaysia and a global average of 2.81% in 2016. At US$13.2 in 2016, insurance density also remains significantly lower as compared to other developed and emerging Market economies.

The following charts set forth a comparison of growth rates of non – life insurance, penetration and density across select countries.
 
ICICI1
india insurance

ICICI2

Negative

Some of its Directors, its Promoter and certain Group Companies are involved in certain legal and other proceedings.

Catastrophic events, including natural disasters, could materially increase its liabilities for claims by policyholders, result in losses in its investment portfolios, and have a material adverse effect on its business, financial condition, and results of operations.

ILGI are involved in insuring assets and other works of the government or participating in government sponsored insurance programs and the government or its agencies have in the past and may in the future initiate
investigations /inquiries and issue prohibitory orders against it, which could materially adversely affect its business, financial condition, results of operations and cash flow.

There are certain risks related to its crop/weather insurance offering that could have a material adverse effect on its business, financial condition, results of operations and prospects.

ILGI’s business, financial condition, results of operations and prospects may be materially and adversely affected if ILGI is not able to maintain its market position, sustain its growth, develop new products or target new markets.

ILGI’s reliance on motor vehicle manufacturers and ICICI Bank and other key distribution partners subject us to a concentration risk and the termination of, or any adverse change to, its relationships with motor vehicle manufacturers and ICICI Bank and such other key distribution partners, or their performance, may have a material adverse effect on its business, financial condition, results of operations and prospects.

Any termination of, or any adverse change to, its ability to attract or retain its agents, both corporate and individual, and key sales employees, could have a material adverse effect on its business, financial condition, results of operations and prospects.

Differences between its actual claim payments and those assumptions and estimates used in the pricing of its products could have a material adverse effect on its business, financial condition, results of operations and prospects. Credit risks in its day to day operations, including in its reinsurance contracts, may expose it to significant losses.

ILGI cede a significant percentage of its reinsurance to GIC Re. Any adverse change in its relationship with GIC Re could result in a material adverse effect on its business and results of operations.

A portion of its corporate premium comes from a limited number of large clients, and the loss or downsizing of any of these clients could adversely affect its business, results of operation, financial condition, and cash flows.

Positive

Consistent market leadership and demonstrated growth.

A diverse product line with multi – channel distribution network.

Delivering excellence in customer value.

Robust risk selection and management framework.

Focus on investments in technology and innovation.

Strong investment returns on a diversified portfolio.

Superior operating and financial performance.

The experienced senior management team and enabling work culture.

Valuations

ICICI Lombard enjoy strong financial with operating profit CAGR growth of 21.8% and PAT CAGR growth of 16.1% between FY13 to FY17. Though the combined ratio (Loss Ratio + Expense Ratio) is higher among its private peers at 104% but because of higher return on investment with higher share of Equity investment, company was able generate ROE of 20% in FY17. Even the Combined Ratio has improved from 107.1% in FY16 to 104% in FY17 and further to 102.4% in Q1FY18. Though we do not have comparable listed peer of ICICI Lombard but as compared to other consumer facing NBFC peer like Bajaj Finance, Gruh Finance, ICICI prudential and PNB Housing finance the share is offered at lower valuation of PE of 41.2 and P/BV of 7.6 with ROE of 18.6% on training basis.

Recommendation

We recommend to Subscribe with long term ( short term investor may avoid ) perspective considering the market opportunity, number one positioning and strong financial of the company.

Grey market premium

Currently Grey market preimum is Rs. 20/- and Kostak is Rs. 0/-

DISCLAIMER

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.

Capacit’e Infraprojects Ltd. IPO Review

Mumbai based, Capacit’e Infraprojects (Incorporated in Aug 2012,) is a construction company focused on metro cities in India. Capacit’e Infra provide end-to-end construction services for residential & corporate office buildings. It also develops buildings for educational, hospitality and healthcare sectors.

Its majority of the projects are in Mumbai, Pune, NCR and Bengaluru & its client-list includes Kalpatru, Godrej Properties, Lodha Group, Rustomjee, Prestige Estates and Oberoi Constructions. At present, it has 51 ongoing projects. The current order book comprises of residential(96%), commercial(3% ) and balance 1% of institutional projects. The Company at present has over 1,688 employees and 10,678 contract workers.

Capacit’e Infraprojects Raises 120 Crore From Anchor Investors.

Reliance Capital Trustee Company Ltd and ICICI Prudential Growth Fund DSP Blackrock India T.I.G.E.R Fund, Goldman Sachs India Ltd, HSBC Global Investment Funds, ICICI Prudential Growth Fund, Reliance Mid and Small Cap Fund, SBI Infrastructure Fund and Kotak Midcap Fund.are among the 15 anchor investors.

IPO1Issue Details

IPO Open: 13-September-2017
IPO Close: 15-September-2017
IPO Size: Approx Rs.400 Crore (Approx)
Face Value: Rs. 10 Per Equity Share
Price Band: Rs. 245 to 250 Per Share
Listing on: BSE & NSE
Retail Portion: 35%

Market Lot:

Shares: Apply for 60 Shares (Minimum Lot Size)
Amount: Rs.15000

Allotment & Listing:

Basis of Allotment: 21-September
Refunds: 22-September
Credit to demat accounts: 22-September
Listing: 25-September

Lead Managers:

Axis Capital Limited
IIFL Holdings Limited
Vivro Financial Services Private Limited

Registrar

Karvy Computershare Private Limited

Company Promoters :

Murugavel Janakiraman
Rahul R Katyal
Subir Malhotra

HOW CAN YOU SETTLE YOUR INSURANCE CLAIM IF REJECTED?

Positive

Continue to remain focused on building construction.

Expand in the mass housing segment.

Expand its presence in cities with high growth potential. ( MMR, NCR, Bengaluru, Chennai, Hyderabad and Pune )

Undertake projects on a design – build basis.

Increase its focus on and execute a greater number of projects on a lock and key basis.

Bid for, and undertake, projects in the public sector.

Capitalise on changes in the construction industry that will arise on account of the implementation of the RERD Act.

Some of its clients include Kalpataru, Oberoi Constructions Limited, The Wadhwa Group, Saifee Burhani Upliftment Trust, Lodha Group, Rustomjee, Godrej Properties Limited, Brigade Enterprises Limited and Prestige Estates Projects Limited.

Exclusive focus on the construction of buildings in the main cities.

Large Order Book with marquee client base and repeat orders.

Experienced Promoters, Directors and management team.

Ownership of modern system formworks and other Core Assets.

Access to a skilled workforce.

Strong financial performance.

Au Financiers (India) Limited IPO! Put in or out ?

Negative

CIL’s business is manpower intensive and CIL dependent on the supply and availability of a sufficient pool of contract laborers from sub contractors at its project locations. Unavailability or shortage of such a pool of contract labor or any strikes, work stoppages, increased wage demands by workers or changes in regulations governing contractual labor may have an adverse impact on its cash flows and results of operations.

CIL may be subject to liability claims or claims for damages or termination of contracts with its clients for failure to meet project milestones or defective work, which may adversely impact its profitability, cash flows, results of operations and reputation.

CIL face certain risks relating to its reliance on sub contractors and third parties for supply of raw Materials, non Core Assets and for providing certain services in the construction of its projects that may adversely affect its reputation, business, and financial condition. Failure by its sub contractors and third parties to adhere to regulatory requirements may subject it’s to penalties.

CIL may incur penalties in respect of allotment of equity shares which are not in compliance with the provisions of the Companies Act.

Projects awarded from certain clients contribute a significant portion of its Order Book, and the loss of such clients could adversely affect its business, cash flows, results of operations and financial condition.

CIL is not able to realize the amounts reflected in its Order Book which may materially and adversely affect its business, prospects, reputation, profitability, financial condition and results of operation.

CIL projects and revenues are geographically concentrated in the Mumbai Metropolitan Region (“MMR”), Chennai, National  Capital  Region  (“NCR”)  and  Bengaluru. Consequently, CIL is exposed to risks emanating from economic, regulatory and other changes in these locations which we may not be able to manage successfully and which in turn may have an adverse effect on its revenues, cash flows, profits and financial condition.

There is outstanding litigation involving its Company, its Directors, and its Promoters, which if determined adversely, could affect its business and results of operations.

CIL’s Promoters have extended personal guarantees in connection with certain of its debt facilities.There can be no assurance that such personal guarantees will be continued to be provided by its Promoters in the future.

Valuations

CIL has posted (on a consolidated basis) turnover/net profits of Rs.216.58 cr. / Rs. 4.11 cr. (FY14), Rs. 562.58 cr. / Rs. 32.05 cr. (FY15), Rs. 860.25 cr. / Rs. 48.84 cr. (FY16) and Rs. 1165.97 cr. / Rs. 69.66 cr. (FY17). For last three fiscals, it has posted an average EPS of Rs. 12.32, average RoNW of 30.41%. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of around 24 against industry composite of 20.16. Thus issue appears fully priced. However, it has been outperforming on numbers for past five fiscals (with CAGR of 75% in revenues and 154% of net profits) and considering its order book the company is poised to ripe benefits from Housing for All by 2022, affordable housing and smart city plans.

Grey Market premium

Currently GMP is Rs. 90-100 and 400-450 KOSTAK

Conclusion : Risk savvy investors may consider for listing Gain.

DISCLAIMER

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.

 

 

Matrimony.com Limited IPO Review

The company operates through two segments, namely – 1) matchmaking services and 2) marriage services and related sale of products.

It is the leading provider of online matchmaking services in India in terms of the average number of website pages viewed by unique visitors. Being one of the first companies in providing online matchmaking services in India, Matrimony.com has an early mover advantage among consumers seeking online matchmaking services. It offers a range of targeted and customized products and services that are tailored to meet the requirements of customers based on their linguistic, religious, caste and community preferences.

As of June 30, 2017, the company had a large database of profiles comprising 3.08 million active profiles (being profiles that have been published or logged in at least once during the prior 180-day period), which creates a network effect that attracts more users to register or subscribe through the websites, mobile sites and mobile apps and results in higher customer engagement, which in turn drives monetization of its user base. For FY15, FY16 and FY17, the company had 647,000, 678,000, 702,000 paid subscriptions.

The company has launched marriage services such as MatrimonyDirectory.com, a listing website for marriage-related directory services, including listings for wedding venues, wedding planners, wedding cards and caterers, MatrimonyPhotography.com in Tamil Nadu, Kerala, Andhra Pradesh and Telangana to provide wedding photography and videography services and MatrimonyBazaar.com in Chennai, Coimbatore, Madurai and Trichy to help customers avail wedding-related services such as wedding apparel, venue, stage decorations, photography, make-up, catering and honeymoon packages from various vendors to meet customers’ wedding needs. It has also recently launched MatrimonyMandaps.com, a wedding venue discovery platform, to help customers find the right venue for their wedding in Chennai, Coimbatore, Madurai and Trichy in Tamil Nadu, Hyderabad and Secundrabad in Telangana, Bangalore in Karnataka and Kochi in Kerala.

matriiiiii

Issue Details

IPO Open: 11-September-2017
IPO Close: 13-September-2017
IPO Size: Approx Rs.500 Crore (Approx)
Face Value: Rs. 5 Per Equity Share
Price Band: Rs. 983 to 985 Per Share
Listing on: BSE & NSE
Retail Portion: 10%
Retail Discount: Rs.98
Total Size: 3,767,254 Equity Shares

Market Lot:

Shares: Apply for 15 Shares (Minimum Lot Size)
Amount: Rs.14775
Amount of Retail Discount: Rs.13305

IPO Allotment & Listing:

Basis of Allotment: 19-September
Refunds: 20-September
Credit to demat accounts: 20-September
Listing: 21-September

Objects of the Issue:

The Offer consists of a Fresh Issue by the Company and an Offer for Sale by the Selling Shareholders.

Offer for Sale

The company will not receive any proceeds from the Offer for Sale.

1. Advertising and business promotion activities;
2. Purchase of land for construction of office premises in Chennai;
3. Repayment of overdraft facilities; and
4. General corporate purposes.

Top 10 share holdersshareholderMatrimony already allocates 22,93,277 shares @985 per share to following anchor investors:

Small Cap World Fund 7,64,400
HDFC Prudence Fund 5,80,680
HDFC Capital Builder Fund 81,750
HDFC Growth Fund 1,02,000
Baring Private Equity India 76,153
BNP Paribas Arbitrage 51,370
ICG Q Ltd 1,02,705
Goldman Sachs India Ltd 4,06,095
Threadneedle Specialist Investments Fund 76,755
DB International Ltd. 51369

Industry Outlook

There were approximately 107 million unmarried individuals in India within the marriageable age bracket in 2016, being 18 to 35 years for females and 21 to 35 years for males. It is estimated that approximately 60.5 million marriages will take place in India from 2017 to 2021. Also, it is estimated that as of July 1, 2016, there were approximately 462 million internet users (being individuals of any age who can access the internet at home, via any device type (PC or mobile) and connection) in India, with an internet penetration of 34.80%. The number of internet users in India is expected to reach over 730 million users by fiscal 2020, which would increase the penetration level to approximately 54% of the Indian population.

According to the United Nations Children’s Fund, Human Rights Council and ABC News, as of 2016, approximately 88.40% of marriages in India are arranged. Such arranged marriages are largely facilitated by families, friends, community elders, priests or matchmaking agencies. However, increasing the mobility of individuals in Indian society, increasing freedom of choice over key life decisions and the reach, choice, privacy, speed of communication and interaction provided by the online medium provide an opportunity for online matchmaking service providers. The online matchmaking industry is still at a nascent stage and accounts for approximately 6% of marriages in India.

How to Make Yourself Financially Stable While Facing Job Loss?

Positive

1.Large database of profiles and consequential network effect;

2.Micro- market strategy and customized or personalized services;

3.Strong consumer brand;

4.Wide on – the – ground network for customer acquisition and support;

5.Robust technology and analytics; and

6.Efficient business model.

7.Retail investor would get 10% discount on issue price for Rs.98/- per share

Negative

The company relies on telecommunications and information technology systems, networks and infrastructure to operate its business and any interruption or breakdown in such systems, networks or infrastructure or its technical systems could impair its ability to effectively provide its products and services.

If third parties, including its current or future competitors, or its employees can circumvent its protection measures which are put in place for the protection of its database or systematically copy its online content or misappropriate confidential information, its business and reputation would be adversely affected.

Company faces significant competition in its online matchmaking business from Indian companies.

The company may fail to convert free members to paid members or fail to retain its existing base of paid members.

Company Restated Consolidated Summary Statements reflect that it had a negative net worth as of March 31, 2014, 2015, 2016 and 2017 and June 30, 2016 and 2017.

The Company has incurred substantial legal expenses in recent years on account of litigation with Rajan Desai and Real Soft Inc. and its settlement.

Further, Consim USA (or the Company if Consim USA fails to do so) is required to make each Settlement Payment by a certain due date and any failure and/or delay in making the Settlement Payments or failure by its Promoter to comply with the terms of the Inter Se Agreement may materially and adversely affect its business prospects, financial condition, results of operations and cash flows.

If its service platforms are misused, it could lead to user dissatisfaction and discourage the use of its products and services and have a material adverse effect on its business and reputation.

The company is vulnerable to liability for fraudulent activities on its websites, mobile sites and mobile apps.

Privacy and data protection legislation and regulations and public perception concerning security and privacy on the Internet may adversely affect its reputation, business and profitability.

According to the United Nations Children’s Fund, Human Rights Council, ABC News, as of 2016, approximately 88.40% of marriages in India are arranged (source: “Arranged/Forced Marriage Statistics–Statistic Brain” Statistic Brain Research Institute, publishing as Statistic Brain. August 16, 2016 http://www.statisticbrain.com/arranged -marriage – statistics ), which refers to marriages that are arranged by people other than the individuals getting married, such as parents, matchmaking agencies, matrimonial sites or a trusted third party. Certain changes in social trends in India away from arranged marriages may lead to a decrease in the number of customers subscribing to its online matchmaking products and services, which will in turn adversely affect its business, prospects, financial condition and results of operation.

The company may be unable to protect its logos, brand names and other intellectual property rights which are critical to its business.

Company Promoter, Subsidiaries, and Directors are parties to certain legal proceedings that, if decided against it or its Promoter, Subsidiaries and Directors could have a material adverse effect on its reputation, business, prospects, financial condition and results of operations.

Selling Shareholders are Bessemer India Capital Holdings II Ltd.,Mayfield XII, Mauritius, CMDB II,Murugavel Janakiraman and Indrani Janakiraman.

Au Financiers (India) Limited IPO! Put in or out ?

Valuation

There is no listed company which provides online matchmaking services, but we can compare with companies providing internet-based services in India like Just Dial and Info Edge. Info Edge operates with naukri.com, jeevensathi.com, 99acres.com, firstnaukri.com, etc.

On the upper price band of Rs 985, the company’s P/E works out to 82.7x with FY17’s EPS of Rs 11.90, while the P/E of Just Dial is 30.21x. Info Edge incurred losses in FY17 and hence its P/E is not available. EV/EBITDA for FY17 of Matrimony.com, Just Dial, and Infoedge was 36x, 11x and 30x respectively. We see the company has stretched valuations as compared to its peers.

Grey Market

Grey market premium as on today at Rs.150-160 with Kostak at Rs.250-300

DISCLAIMER

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.

What are Dynamic Funds? ( Video )

Every stock market investor wants to buy equities when markets are at their low and sell them when markets are at their peak. But it’s easier said than done as it is always hard to resist temptation when markets are near their peak and it’s always tough to find the courage to jump into equity markets when the markets are falling. But if the investors are willing to take the mutual funds route the above can be easily done with the help of dynamic mutual funds.

Dynamic funds switch between different asset classes, depending on their attractiveness.

Dynamic funds are specifically designed to switch seamlessly between equity and debt, depending on the market conditions. The fund manager of this scheme shifts between the asset classes based on their attractiveness as indicated by certain valuation metrics. Hence, in a rising market scenario, these funds will invest a larger portion of the corpus in equities and hold a lesser amount in debt and cash.

DYNAMIC FUND

In the case of a falling market, the scheme will allocate more money to debt and, perhaps, hold more cash, while slashing the exposure to equities. Even hybrid funds do that, but they can’t switch rapidly between asset classes and they’re typically true to one asset class, such as equity in case of balanced funds and they invest less in other asset classes. Dynamic funds aim to switch aggressively between equity and debt and are more opportunistic. In dynamic funds you can buy on dips and sell when the markets are at high levels. These asset allocation funds act as a shield against market downswings and they typically lose less money when the markets are down.

These funds aims to normally invest in equity but can react quickly to a negative market by moving 100 per cent of its assets into money market instruments, fixed income securities and derivatives with an aim to limit the downside risk, in the event that the fund manager is bearish on the market.

Dynamic funds often have another interesting characteristic. The balance between debt and equity is decided not by the fund manager, but by a formula. To be sure, this is not passive investing (as in an index fund), because the recipe for asset allocation is itself a result of research by the fund house, but there is an element of automation involved. Most funds in the space decide their asset allocation based on a clear formula.

For instance, some funds make equity allotments based on the nifty’s PE while some funds follow the PBV ratio. The goal is always to use indicators like P/E ratio and others to define a time when the markets are ready to fall and to reduce equity allocation at that time and to increase it when the market has fallen enough. Either way, this type of fund brings an interesting element into equity fund investing.

Know more About P/E Ratio and its Significance

Normal equity funds are always supposed to be invested in equities. Conceptually, their job is to do better than the equity market, their job is not to make gains but to do better than their benchmark, even if that means falling less than the markets when the markets are falling.

Dynamic funds, on the other hand, implicitly make the promise of being absolute return funds. They define their job as making gains with their equity investments just like non-dynamic equity funds, but additionally as also getting out of equities when the markets are not going to do well.

Typically, dynamic funds underperform as compared to pure equity funds in continuously rising equity markets because these funds sell equities and get into cash as equity markets go up. But when the markets going down or when there are many fluctuations in the market these funds will often perform better than the normal funds.

A well-managed dynamic fund can absolve you of the headache of timing the markets and investors can earn good returns if they remain with these funds for long term. You could consider such a fund for stability in your investments in a volatile climate. However, remember that aggressive rebalancing may not always work in the fund’s favor. It is also not advisable to go by the short-term performance of these funds alone. They can provide good results if they are held for a reasonable time, at least three to five years. These funds are able to make the most of the market ups and downs given adequate room to work.

Note : Mutual fund investments are subject to market risks read all scheme related documents carefully.

Past Performance is Not A Guarantee Of Future Returns.

DISCLAIMER

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.

Dixon Technologies IPO – Review

Dixon Technologies is manufacturing products like the consumer durables, Home appliances like washing machines, Lighting products like a LED bulb, tube lights, CFL bulbs, etc. and mobile phones markets.The Company also provide repair and refurbishment services for set top boxes, mobile phones and LED TV panels.

The company manufacture products for popular retail brands including Panasonic, Philips, Haier, Gionee, Surya Roshni, Reliance Retail, Intex Technologies, Mitashi and Dish.

The company is also a leading Original Design Manufacturer (ODM) in India. The company develops and design products in-house at its R&D facility. It’s ODM business contributes over 25% of its revenue.

The Company has six manufacturing facilities located in the states of Uttar Pradesh and Uttarakhand. The company has  629 permanent employees and 4,030 contractors.

IPO

The Promoter:

Sunil Vachani

Object of the IPO

1.The proceeds from the Offer for Sale shall be received by the Selling Shareholders and Company shall not receive any proceeds from the Offer for Sale.

2. Objects of the Fresh Issue

The company proposes to utilize the Net Proceeds towards funding mainly the following purposes.

1. Repayment/pre-payment, in full or in part, of certain borrowings availed by the Company;

2. Setting up a unit for manufacturing of LED TVs at the Tirupati Facility.

3 Enhancement of its backward integration capabilities in the lighting products vertical at its Dehradun I Facility.

4 Upgradation of the IT infrastructure.

INDIA CE MKT
IPO Particulars:

Issue Opens on 6th September 2017
IPO Closes on :8th September 2017
Issue Type: Book Built Issue IPO
Issue Size: Aggregating to  INR 722.91 crore at upper price band
› Fresh Issue of [.] Equity Shares of Rs 10 aggregating up to INR 60.00 Cr
› Offer for Sale of 3,753,739 Equity Shares of Rs 10 aggregating up to INR 662.91 Cr at upper price band
Face Value: INR10 Per Equity Share
Issue Price: INR 1760-  1766 Per Equity Share
Minimum Order Quantity:8 shares
Listing At: BSE, NSE
Minimum Application Amt for RII: INR  14128

Tentative Schedule :

Offer Opens On: September 06, 2017
Offer Closes On: September 08, 2017
Finalisation of Basis of Allotment: On or about September 13, 2017
Initiation of refunds: On or about September 14, 2017
Credit of Equity Shares to demat accounts: On or about September 15, 2017
Commencement of trading of the Equity Shares: On or about September 18, 2017

Financials :

The company has earned following EPS during last 4 years
In 13-14 Rs. 11.77
In 14-15 Rs. 10.46
In 15-16 Rs. 38.90
in 16-17 Rs. 48.85

Book Value of the share as on 31.3.2017 Rs. 179.96 based on the restated consolidated statement.

Lead Managers:

IDFC Bank,
IIFL Holdings ltd,
MOTILAL OSWAL INVESTMENT ADVISORS LIMITED,
Yes Securities (India) Limited.

Registrar:

Karvy Computershare Pvt ltd

Post allotment, shares will be listed on BSE and NSE. BRLMs to this issue are IDFC Bank Ltd, IIFL Holdings Ltd, Motilal Oswal Investment Advisors Ltd and Yes Securities (India) Ltd. Karvy Computershare Pvt. Ltd is the registrar to the issue. Having issued initial equity at par, it raised further equity in a price range of Rs. 40 to Rs. 330 per share between March 1996 and September 2016. It has also issued bonus shares in the ratio of 4 for 3 on 20th September 2016. Post issue its current paid up equity capital of Rs. 10.98 crore will stand enhanced to Rs.11.32 crore.

Negative

Limited customer base

The company has a very limited customer base. Major five customer covers 82.94% of revenue from operations. The company is incompetent to bring more customers on the table to optimally utilize its idle capacities.

TOP CONSUMERSDixon Technologies are highly dependent on certain key customers for a substantial portion of its revenues. Loss of relationship with any of these customers may have a material adverse effect on its profitability and results of operations.

Dixon Technologies do not obtain firm and long – term volume purchase commitments from its customers.

Dixon Technologies business and results of operations are dependent on the contracts that company entered into.Any breach of the conditions under these contracts may adversely affect its business and results of operations

Dixon Technologies continued success is dependent on its senior management and skilled manpower. Company inability to attract and retain key personnel or the loss of services of its Promoter or Managing Director may have an adverse effect on its business prospects.

Shortages in, or rises in the prices of, raw materials or components for products company manufacturer, which account for the majority of its costs, may adversely affect its business.

Dixon Technologies depend on certain suppliers for its raw materials and other components required for its manufacturing process which could result in delays and adversely affect its output.

Dixon Technologies manufacturing facilities are critical to its business. Any disruption in the continuous operations of its manufacturing facilities would have a material adverse effect on its business, results of operations and financial condition.

Dixon Technologies manufacturing facilities located in Dehradun are availing certain tax benefits which are available for a specified period. Expiry or early withdrawal of such tax benefits may adversely affect its results of operations and prospects.

A success of the products manufactured by Dixon Technologies is driven by user preferences.Obsolescence arising from the changes in technology may affect the demand for its products which may result in price declines.

Certain corporate records and regulatory filings of its Company are not traceable.

Dixon Technologies Promoter, Managing Director and one individual forming part of its Promoter Group, who are also Selling Shareholders, will receive proceeds from the Offer for Sale.

There are outstanding litigations against its Company, Promoter, Directors, and Subsidiary.An adverse outcome in any of these proceedings may affect its reputation and standing and impact its future business and could have a  material adverse effect on its business, financial condition, results of operations and cash flows.

Bharat-22 ETF Complete Portfolio – Will u buy this basket?

Positive

Competitive Strengths.

Leading market position in key verticals.

Strong relationships with a diverse top-tier customer base.

Dixon Technologies major customers are well-respected players in one or more product categories offered by us and include:

Global brands: Panasonic India Private Limited, Philips Lighting India Limited,

Haier Appliance (I) Pvt.Ltd., Gionee

National brands: Intex Technologies (I) Ltd., Surya Roshni Limited

Domestic retail private labels: Reliance Retail Limited, Vijay Sales

Regional brands in Tier I and Tier II cities: Mitashi

Edutainment Pvt. Ltd., Abaj Electronics Pvt. Ltd

Experienced Promoter and seasoned management team.

End to end solutions provider with dedicated research and development capabilities.

Strong Financial Performance and stable cash flows.

Continue to strengthen its existing product portfolio and diversify into products with attractive growth and profitability prospects.performance

Performance

Dixon Technologies has (on a consolidated basis) posted turnover/net profits of Rs. 1097.09 cr./ Rs. 14.71 cr. (FY14), Rs. 1203.13 cr. / Rs. 13.04 cr. (FY15), Rs. 1391.17 cr. / Rs. 42.57 cr. (FY16) and Rs. 2458.26 cr. / Rs. 50.38 cr. (FY17).

For last two fiscals, its top and bottom line has marked spectacular growth which is due to launch of mobile, CCTV and LED lightings related activities. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of around 40 and at a P/BV of 9.8 which makes it a fully priced issue. On consolidated basis last three fiscal’s average RoNW is 26.62%.

Grey market premium :

Currently Grey market premium is Rs.600/-

Conclusion

Risk savvy investors may consider for listing Gain.

DISCLAIMER

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.