Aavas Financiers IPO Review and list of anchor investors

Aavas is a retail, affordable housing finance company, primarily serving low and middle-income self-employed customers in semi-urban and rural areas in India. A majority of its customers have limited access to formal banking credit. According to ICRA Report, the Company had the lowest GNPAs as of March 31, 2018, and the second highest growth rate of assets under management for the last three financial years, among affordable housing finance companies that had assets under management between Rs 25 billion and Rs 200 billion.

aavas

Aavas Financiers raises Rs 520 cr from 34 anchor investors

List of Anchor investors:

 

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IPO Dates & Price Band:

  • IPO Open: 25-September-2018
  • IPO Close: 27-September-2018
  • Issue Size: Approx Rs. 1734 Crore
  • Offer for Sale: 16,249,359 Equity Shares
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs. 818 to 821  Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%

Market Lot:

  • Shares: Apply for 18 Shares (Minimum Lot Size)
  • Amount: Rs.14,778

Allotment & Listing:

  • Basis of Allotment: 03-October-2018
  • Refunds: 04-October-2018
  • Credit to demat accounts: 05-October-2018
  • Listing: 06-October-2018

Lead Managers:

  • Edelweiss Capital Limited
  • HDFC Bank Limited
  • ICICI Securities Limited
  • Spark Capital Advisors (India) Private Limited
  • Citigroup Global Markets India Private Limited

Company Promoters:

  • Lake District Holdings Limited
  • Partners Group ESCL Limited

share holder

Main object of the issue:

The Offer comprises a Fresh Issue by our Company and an Offer for Sale by the Selling Shareholders.The object for which the Net Proceeds of the Fresh Issue will be utilized towards augmenting its capital base to meet its future capital requirements arising out of growth in the business.

Competitive Strengths:

The company has a strong distribution network with deep penetration serving underserved customers in rural and semi-urban markets.

In-house sourcing model is leading to superior business outcomes: A direct sourcing and collection system enables a company to optimally price offerings and maintains asset quality.

The company has implemented a robust and comprehensive credit assessment, risk management and collections framework to identify, monitor and manage risks inherent in operations.

The company has access to diversified and cost-effective long-term financing.

The company has made significant investments in information technology systems and implemented automated, digitized and other technology-enabled platforms and proprietary tools, to strengthen offerings and derive greater operational, cost and management efficiencies.

Company’s management team has extensive knowledge and understanding of the housing finance business and the expertise and vision to organically scale up business.

penetration

loan penetration

U.S. Student Debt – The Next Financial Crisis?

Strategies:

The company intends to continue to expand in an on-ground contiguous manner, to drive greater and deeper penetration in the eight states in which it operates and sets up an additional 70 branches during Fiscal 2019.

The company plans to continue to focus on low and middle-income self-employed customers and increase the market share of existing products in the rural and semi-urban markets of India.

The company has been able to access cost-effective debt financing and reduced average cost of borrowings over the years due to several factors, including financial performance and improving credit ratings.

The company intends to increase product portfolio and improve cost efficiency through the use of technology and data analytics

The company intends to continue to undertake initiatives to increase the strength and recall of ‘Aavas’ brand to attract new customers.

world to gdpLoan penetration

loan penetration

The housing shortage in India

The housing shortage of india

CreditAccess IPO Review and the list of anchor investors

Financials:

  • The company consistently delivered high-profit growth in the last five years.
  • It invested in creating capacity and increasing the number of branches, which helped its loan book grow at an annualized rate of 58.6 percent and profit at 71.3 percent.
  • Gross non-performing loans were 0.34 percent of total advances as of March, while its net interest margin is high at more than 7 percent.
  • Aavas has a strong capital adequacy ratio of 61.55 percent, leading to a lower return on equity of 11.2 percent in the year through March.

Ownership vs rented scenario

ownership vs rented

Negative:

Aavas business requires substantial capital and any disruption in its sources of capital could have an adverse effect on its business, results of operations, financial condition and cash flows.

The risk of non-payment or default by borrowers may adversely affect its business, results of operations, financial condition and cash flows.

Aavas are affected by changes in interest rates for its lending and treasury operations, which could cause its net interest income to decline and adversely affect its business and results of operations.

Aavas downgrade in its credit ratings could increase its borrowing costs, affect its ability to obtain financing, and adversely affect its business, results of operations, financial condition and cash flows.

Aavas may face asset-liability mismatches, which could affect its liquidity and adversely affect its business and results of operations.

Aavas operations are concentrated in four states of western  India,  particularly Rajasthan and any adverse developments in this region could have an adverse effect on its business, results of operations, financial condition and cash flows.

Aavas inability to recover the full value of collateral, or amounts outstanding under defaulted loans in a timely manner, or at all, could adversely affect its results of operations.

The Indian housing finance industry is highly competitive and its inability to compete effectively could adversely affect its business and results of operations.

Aavas are exposed to operational and credit risks which may result in NPAs, and Aavas may be unable to control or reduce the level of NPAs in its portfolio.

Aavas Company and its Directors are involved in certain legal and other proceedings. Any adverse outcome in such proceedings may have an adverse effect on its business, results of operations and financial condition.

The bankruptcy code in India may affect its rights to recover loans from its customers.

Valuations:

At the upper end of the price band, the company demands a price that is 4.1 times its post-infusion book value for the year 2017-18. That’s higher than its established peers, especially when it offers a lower return on equity.

Comparison with Peers:

PEERS

Grey market trend:

Current Grey market premium is Rs. 25/- ( Fall from Rs. 170/- )

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 before making any actual investment decisions, based on information published here

Ircon International IPO Review and current GMP

Ircon International is a government company under the Ministry of Railways. Ircon International is a leading integrated Indian engineering and construction company in India. Ircon is integrated Indian Engineering and construction company, specialising in major infrastructure projects including railways, highways, bridges, flyovers, tunnels, aircraft maintenance hangars, runways, EHV substations, electrical and mechanical works, commercial and residential properties, development of industrial areas, and other infrastructure activities. It provides EPC services on a fixed-sum turnkey basis as well as on an item-rate basis for various infrastructure projects.

In 2016, it ranked number 248 in the list of the top 250 international contractors by Engineering News Records of the United States. Headquartered in New Delhi, it has 26 project offices and five regional offices to support and manage its business operations throughout India and five overseas project offices in SriLanka, Bangladesh, Malaysia, South Africa and Algeria to provide onsite support overseas.

As on December 2017, it had an order book of Rs. 22387 crore.

IRCON

Its workforce as of January 2018 consisted of 1175 full-time employees i a stand-alone basis. It has a debt-free financial profile and comfortable liquidity position. The company has received several awards including Dun and Bradstreet Infra Awards 2016 in Construction & Infrastructure development Railways, CIDC Vishwakarma Awards 2016 and the India Pride Awards 2015-16.

IPO Dates & Price Band:

  • IPO Open: 17-September-2018
  • IPO Close: 19-September-2018
  • IPO Size: Approx Rs. 470 Crore
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs. 470 to 475  Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 99,05,157 Shares
  • Discount: Rs.10 (Retail & Employees)

Market Lot:

  • Shares: Apply for 30 Shares (Minimum Lot Size)
  • Amount: Rs. 13,950 (For RII & EMP)
  • Amount: Rs. 14,250 (For QIB & HNI)

Allotment & Listing:

  • Basis of Allotment: 25-September-2018
  • Refunds: 26-September-2018
  • Credit to demat accounts: 26-September-2018
  • Listing: 28-September-2018

Lead Managers:

IDBI Capital Markets & Securities Limited
Axis Capital Limited
SBI Capital Markets Ltd

Registrar to the IPO:

Karvy Computershare Private Limited.

Competitive Strengths:

Our business operates in diverse sectors covering many countries;

Excellent execution track record through strong operating systems and controls;

Strong financial performance and credit profile;

Visible growth through robust order book and steady execution; and
Qualified and experienced employees and proven management team.

Business Strategy:

Continue expanding our geographical footprint within and beyond India.

Paradigm shift in revenue generation.

Focus on high-value projects in the construction business to benefit from economies of scale.

Actively bid for new projects.

Maintain favorable financial risk profile.

Explore different models of project execution to optimize our project portfolio.

Explore potential ways to capture sectorial initiatives undertaken by the Government to improve economic growth.

Attract and retain talented employees.

The promoters:

The President of India acting through the ministry of Railways.

share holder

Objects of the issue:

To carry out the disinvestment of up to 9,905,157 Equity Shares and
to achieve the benefits of listing the Equity Shares on the Stock Exchanges.

The Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.

HDFC AMC IPO Review, Current GMP and List of Anchor Investors

  NHAI awarding is expected to rise over the next three years (km)   

NHAI

Company Financials (Reinstated-Standalone):

The company generated revenue of Rs 4,158.8 Crores for the year ended Mar-14 and Rs 4,123 Crores for the year ended Mar-18.

The company posted a profit of Rs 740 Crores for the year ended Mar-14 and profit of Rs 390.8 Crores for the year ended Mar-18.

Its EPS for FY18 was Rs 40.1 and 3 years average EPS is Rs 38.65.

road

national

Negative:

Ircon’s business and revenues are substantially dependent on construction and infrastructure projects are undertaken or awarded by government authorities and other entities funded by the government. Any change in government policies, the restructuring of existing projects or delay in payments to us, may adversely affect its business and results of operations.

If Ircon faces adverse publicity and incur costs associated with warranty claims or from defects during construction, its business, results of operations and financial condition could be adversely affected.

Projects included in its order book and its future projects may be delayed, extended, modified or canceled for reasons beyond its control which may materially and adversely affect its business, prospects, reputation, profitability, financial condition and results of operations. Revenues generated from its projects are also difficult to predict and are subject to variations driven by various factors.

If Ircon is not successful in managing its growth, its business may be disrupted and its profitability may be reduced.

Bandhan Bank IPO Review and the list of anchor investors

Railway sector projects contribute approximately 86.70% of its Order Book as of March 31, 2018. Any change in the sector causing a decline in the numbers of project available may adversely affect its revenues and profitability.

Ircon’s projects are exposed to various implementation and other risks and uncertainties which could lead to material adverse effect on its business, prospects, financial condition and results of operations.

Ircon’s projects may be adversely affected by public and political oppositions, conflicting local interests, elections and protests.

There are certain legal proceedings pending against us and some of its Subsidiaries, which, if determined against them or us, may have a material adverse impact on its business, its financial condition, its reputation and results of operations.

Valuation:

Valuation of the company now. On FY2018 consolidated EPS of Rs 42.13 and on an upper price band of Rs 475, P/E works out to be 11.2x. On last 3 years average consolidated EPS of Rs 40.62, P/E works out to be 11.7x. Similarly, for standalone nos, the P/E is in between 11.9x to 12.2x. Means company is asking for a higher price band Rs 475 where P/E would be in the range of 11.2x to 12.2x. No listed peers are doing similar business.

Grey market trend:

Current GMP is is Rs. 40/-, and Kostak is Rs. 225/-

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 before making any actual investment decisions, based on information published here

CreditAccess IPO Review and the list of anchor investors

CreditAccess Grameen is a Bengaluru-based leading micro-finance institution, focused on providing micro-loans to women customers predominantly in rural areas in India. It is the third largest NBFC-MFI in India by gross loan portfolio end March 2017. The wide range of lending products addresses the critical needs of customers throughout their life cycle and includes income generation, family welfare, home improvement and emergency loans. The customer-centric business model, wide range of product offerings, as well as well designed product delivery and collection systems, has enabled the company to achieve high customer retention rates and low credit costs.

The company focuses on customers in rural areas in India, who largely lack access to the formal banking sector and present a latent opportunity for offering micro-loans. The products are built on a deep understanding of the requirements of customers. The flexibility of products in terms of ticket sizes, end-uses and repayment options etc. and the manner of their delivery differentiates it from competitors and generates customer loyalty.

CreditAccess

CreditAccess Grameen raises Rs 339 cr from anchor investors.

The company has allotted 80,41,617 equity shares to 21 anchor investors

Among the anchor investors are Neuberger Berman Emerging Markets Equity Fund, Eastspring Investments India Equity Open, Pictet – Indian Equities, ICICI Prudential Banking and Financial Services Fund, Sundaram Mutual Fund, Citigroup Global Markets Mauritius and BNP Paribas Arbitrage.

List of anchor investor

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IPO Dates & Price Band:

  • IPO Open: 08-August-2018
  • IPO Close: 10-August-2018
  • IPO Size: Approx Rs.1130 Crore (Approx)
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs.418 to 422  Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 1,02,81,317 Shares

Market Lot:

  • Shares: Apply for 35 Shares (Minimum Lot Size)
  • Amount: Rs.14,770

Allotment & Listing:

  • Basis of Allotment: 16-August-2018
  • Refunds: 20-August-2018
  • Credit to demat accounts: 21-August-2018
  • Listing: 23-August-2018
  • Category-wise Break up:

Anchor – 80,41,618 Shares = 339.36Crs

QIB – 53,61,079 Shares = 226.24Crs

NII – 40,20,809 Shares = 169.68Crs

RII – 93,81,888 Shares = 395.92Crs (Lot size: 35 = 2,68,054 Forms)

  • Total Issue – 2,68,05,394 Equity Shares = 1,131.19Crs.
  • Lead Managers:

ICICI Securities Limited

Credit Suisse Securities (India) Private
Limited

IIFL Holdings Limited

Kotak Mahindra Capital Company Limited

  •  Registrar to the IPO

Karvy Computershare Private Limited

The Promoters:

The  Promoter is CreditAccess Asia N.V., a multinational company specializing in MSE financing (micro and small enterprise financing), which is backed by institutional investors and has micro-lending experience through its subsidiaries in four countries in Asia. The Promoter has provided capital funding to the company, from time to time and provides with access to potential fundraising opportunities in the debt capital markets.

Objects of the Issue:

The Offer comprises of the Fresh Issue and the Offer for Sale.
The Company will not receive any proceeds from the Offer for Sale.
The net Proceeds from the Fresh Issue will be utilized towards augmenting the capital base to meet future capital requirements of the company which are expected to arise out of growth in the Company’s assets, primarily the Company’s loans and advances and other investments.

HDFC AMC IPO Review, Current GMP and List of Anchor Investors

Adult population with bank account

111

Strengths:

Customer-centric business model resulting in high customer retention.

Deep penetration in rural areas characterized by low competition and built through contiguous district-based expansion.

Robust customer selection and risk management policies resulting in healthy asset quality.

Strong track record of financial performance and operating efficiency.

Diversified sources of borrowings and effective asset-liability management

graph

Negative:

Operations of the company are concentrated in Karnataka and Maharashtra, with 191 of 516 branches located in Karnataka and 144 branches located in Maharashtra. About 58.1% of gross AUM is originated in Karnataka and 26.7% in Maharashtra. In the event of a regional slowdown in the economic activity in these states, or any other developments including political unrest, drought/floods and other natural calamities, or social upheaval in these states can affect its financials and prospects adversely.

Microfinance loans are unsecured and are susceptible to various operational and credit risks which may result in increased levels of NPAs, thereby adversely affecting business. Furthermore, as there is typically limited financial information available about focus customer segment and many of customers do not have any credit history supported by tax returns, bank or credit card statements, statements of previous loan exposures, or other related documents, it is difficult to consistently carry out credit risk analyses on customers.

An increase in its portfolio of non-performing assets and its provisions may materially and adversely affect its business and results of operations.

The past performance and growth of its business are not indicative of its future performance and growth.

Creditaccess’s business is particularly vulnerable to interest rate risk, and volatility in interest rates could have a material adverse effect on its net interest income, net interest margin and its financial performance.

Any downgrade of its credit ratings may increase its borrowing costs and constrain its access to capital and debt markets and, as a result, may adversely affect its net interest margin and its results of operations.

Creditaccess’s Promoter has invested in Sahayata Microfinance Private Limited, which has been involved in various financial irregularities and discrepancies in the past.

Competition from banks and financial institutions, as well as state-sponsored social programs, may adversely affect its profitability and position in the Indian microcredit lending industry.

There are outstanding legal proceedings involving its Company and some of its Directors, and adverse outcomes in such proceedings may negatively affect its business and results of operations.

There is significant competition from other MFIs and banks in India (including SFBs). Some commercial banks are also beginning to directly compete with for-profit MFIs for lower income segment customers in certain geographies.

The rise of digital platforms and payment solutions may adversely impact the business model and there may be disintermediation in the loan market by fintech companies.

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

Valuation:

The annualized EPS on post-issue equity works out to Rs 8.69 for FY2018. At the price band of Rs 418 to Rs 422, P/E works out 48.1 to 48.5 times.

Post-issue, the book value (BV) is Rs 143.41 at the issue price of 418 and Rs 143.55 at the issue price of Rs 422. P/BV works out to 2.91 times at lower price band and 2.94 times at the upper price band.

Among peers, Bharat Financial Inclusion is trading at P/BV of 5.69 times, Satin Creditcare at P/BV of 1.55 times and Equitas Holdings at P/BV of 2.19 times.

CreditAccess Grameen: Financials
1403 (12) 1503 (12) 1603 (12) 1703 (12) 1803 (12)
Income from operations 142.34 268.16 456.95 701.75 865.55
Other Income 5.49 13.27 9.77 7.52 9.65
Total Income 147.83 281.43 466.72 709.26 875.21
Interest Expended 72.25 129.05 208.25 316.54 354.57
Operating Expense 44.52 68.70 112.31 155.39 194.50
Operating Profits 31.05 83.68 146.17 237.33 326.14
Depreciation / Amortization 0.53 1.92 2.61 4.43 5.17
Profit before tax and Provisions 30.53 81.76 143.56 232.90 320.97
Provisions and write off 5.73 6.84 14.02 108.60 128.12
Profit before tax 24.80 74.92 129.54 124.30 192.86
Provision for tax 8.17 26.19 46.30 44.00 68.22
PAT 16.63 48.73 83.24 80.30 124.64
EPS*(Rs) 1.16 3.40 5.81 5.60 8.69
* Annualized on post issue equity of Rs 143.36 crore, Face value Rs 10 per share, Figures in Rs crore
Source: Source: CreditAccess Grameen Prospectus

The following table sets forth our key financial and operational metrics as of or for the periods indicated

The following table sets forth our key financial and operational metrics as of or for the periods indicated

Comparison with Listed Industry Peers

PE

Grey market premium:

GMP as on 8th Aug 2018 @ 16.00 is Rs. 10 /- , Kostak is Nil /- 

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 before making any actual investment decisions, based on information published here

HDFC AMC IPO Review, Current GMP and List of Anchor Investors

HDFC Asset Management Corporation (HDFC AMC) coming up with an IPO. The company got SEBI’s nod for the initial public offer. The company incorporated in 1999 based in Mumbai. HDFC Mutual Fund is asset management company which provides services in savings and investments. The company is JV between Housing Development Finance Corporation Limited (“HDFC”) and Standard Life Investments Limited (“SLI”). HDFC is a bigger name in finance and housing market. The company is doing well in India and the coming years will be good for the company as per the financial results. It caters various products portfolio covering five principal segments across the individual and group categories, namely participating, non-participating protection term, non-participating protection health, other nonparticipating and unit-linked insurance products. HDFC Standard life has 66,372 individual agents along with 414 branches across India.

HDFC AMC offers a wide range of savings and investment products across asset classes. As of December 31, 2017, it offered 127 schemes categorized into-

  • 28 equity-oriented schemes
  • 91 debt schemes
  • 3 liquid schemes
  • 5 other schemes (including exchange-traded schemes and funds of fund schemes).

The company also provides portfolio management and segregated account services to HNIs, family offices, trusts, domestic corporates and provident funds etc. As of December 31, 2017, it managed a total AUM of ₹75.78 billion as part of its portfolio management and segregated account services’ business.

HDFC AMC raises Rs 732 cr from anchor investors.

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HDFC MF
Outlook of the Firm:

Strong support from established parentage and trusted brand i.e. HDFC, Standard Life;

Reliable and consistent financial performance growth;

Focus towards multi-channel distribution footprint to access the customers;

Leading digital platform which helps customers and distributors.

IPO Dates & Price Band:

IPO Open: 25-July-2018
IPO Close: 27-July-2018
IPO Size: Approx Rs.2800 Crore (Approx)
Face Value: Rs.5 Per Equity Share
Price Band: Rs. 1095 to 1100  Per Share
Listing on: BSE & NSE
Retail Portion: 35%
Equity: 25,457,555 Shares

Market Lot:

Shares: Apply for 13 Shares (Minimum Lot Size)
Amount: Rs.14,300

IPO Allotment & Listing:

Basis of Allotment: 01-August-2018
Refunds: 02-August-2018
Credit to demat accounts: 03-August-2018
Listing: 06-August-2018

Registrar:

Karvy Computershare Private Limited

Lead Managers:

Axis Capital Limited
BoA Merrill Lynch
Citigroup Global Markets India Private Limited
CLSA India Private Limited
HDFC Bank Limited
ICICI Securities Limited
IIFL Holdings Limited
J.P. Morgan India Private Limited
JM Financial Consultants Private Limited
Kotak Mahindra Capital Company Limited
Morgan Stanley India Company Pvt Ltd
Nomura Financial Advisory And Securities (India) Pvt Ltd

Promoters Of the Company:

Housing Development Finance Corporation Limited,
Standard Life (Mauritius Holdings) 2006 Limited,
Standard Life Aberdeen PLC

Objects Of The Issue:-

To avail the benefits of listing the Equity Shares on the Stock Exchanges and;
To carry out the sale of Offered Shares by the Selling Shareholders.

HDFC SHAREHOLDER

Qualitative factors

Consistent market leadership position in the Indian mutual fund industry;

Trusted brand and strong parentage;

Strong investment performance supported by comprehensive investment philosophy and risk management;

Superior and diversified product mix distributed through a multi-channel distribution network;

Focus on individual customers and customer-centric approach;

Consistent profitable growth; and

Experienced and stable management and investment teams.

HOUSE HOLD SAVINGStrong growth is foreseen in household financial savings

India has historically been and is expected to remain a savings economy. The gross domestic savings rate (as a percentage of GDP) is higher than those of major economies such as the US, the UK, France, Japan and Germany.

As of 2016, India’s gross domestic savings rate stood at 29%, compared with the global average of 25%. Household savings in India has witnessed growth from ₹20.7 trillion in Fiscal 2012 to ₹24.8 trillion in Fiscal 2017, although its share as a percentage of GDP remained subdued during the period. The past two years have seen a quantum spurt in investments into capital markets, with the household allocation to shares and debentures increasing from 2% in Fiscal 2015 to 10% in Fiscal 2017 as well as a sharp increase in the mutual fund assets under management (“AUM”).

MFAUM AS PER GDPFor the period April 2015 to December 2017, the individual investors’ AUM grew at a CAGR of 33% to ₹11.4 trillion. In Fiscal 2018, CRISIL Research expects CPI inflation to fall further and average 4%. Over the long term, too, the RBI is committed to keeping inflation low and range-bound. Lower inflation gives an impetus to overall savings, as people can save more. CRISIL Research expects financial savings to increase with the government’s strong stance against black money and diminishing attractiveness of real estate and gold, along with improvement in financial education among households and measures taken towards financial inclusion.

SAVING

Reliance Nippon Life Asset Management ( First MF ) IPO Review

Current scenario

Robust AUM growth since Fiscal 2013, due to the rising individual investors’ participation and equity market.

Mutual funds have emerged as a strong counterweight to foreign institutional investors (“FIIs”)

Systematic Investment Plans (“SIPs”) book size has doubled since April 2016

Other revenue streams

Portfolio management services

Alternative investment funds

Offshore management /advisory services

INDIAGrowth Drivers

Equity mutual funds are perceived as long-term wealth creators.

Financial inclusion, investor education and investor-friendly regulations to boost mutual fund penetration.

Growing awareness can boost acceptability of mutual funds as an investment vehicle.

Spending on investor awareness rising.

Regulations to incentivise investments in smaller cities

Retirement money can be a big impetus

Tax benefits on equity-linked savings scheme (“ELSS”) a huge draw

Guidelines on a categorisation of schemes to make investing easier

Technology to be a key enabler for growth

Instant access facility a viable alternative to a savings account

EQUITY AUM

Key Challenges

Low level of financial awareness

Competition from other financial instruments

Retail expansion at a reasonable cost

EQUITY AUM TOP10Negative

There are outstanding proceedings against us, Promoters, Directors and Group Companies and any adverse outcome in any of these proceedings may adversely affect its profitability and reputation and may have an adverse effect on its business, results of operations and financial condition.

Adverse market fluctuations and/or adverse economic conditions could affect its business in many ways, including by reducing the value of our AUM, causing a decline in its investment management fees, portfolio management fees or fees from advisory services, reducing its systematic transactions, and causing its customers to withdraw their investments, each of which could materially reduce and adversely affect its revenue, business prospects, financial condition and results of operations.

If its investment products underperform, its AUM could decline and adversely affect its revenues, reputation and brand.

HDFC AMC AUM may be constrained by the unavailability of appropriate investment opportunities or if we close or discontinue some of its schemes, products and services.

ICICI Sec. IPO Review and the list of anchor investors

HDFC AMC’s historical growth rates may not be indicative of its future growth and if we do not manage its growth effectively, its financial performance could be adversely affected.

Failure to continue with its existing distribution relationships or to secure new distribution relationships may have a material adverse effect on its competitiveness, financial condition and results of operations.

HDFC AMC rely on third-party service providers in several areas of its operations and may not have full control over the services provided by them to us or to its customers.

If its techniques for managing risk are ineffective, HDFC AMC may be exposed to material unanticipated losses.

MF SCHEME

HDFC AMC may not be able to implement its growth strategies.

Any concentration in its investment portfolio could have a material adverse effect on its business, financial condition and results of operations.

HDFC AMC is dependent on the strength of its brand and reputation, as well as the brand and reputation of other HDFC group entities and Standard Life Investments group companies.

HDFC AMC face competition from other asset management companies, alternative investment funds and other companies providing portfolio management and segregated accounts services and from alternate investments products available in the market.

HDFC AMC’s business would suffer if we lose the services of its key management and other personnel and we are unable to adequately replace them.

HDFC AMC may have negative cash flows.

Valuation

Revenues of the company have increased at CAGR of 20% from Rs 858.55 crore in FY2014 to Rs 1759.75 crore in FY2018. The company has posted healthy 19% CAGR growth in net profit to Rs 721.62 crore in from FY2018 from Rs 357.77 crore in FY2014.

The company has consistently delivered RoE of above 40% for last five years to FY2018.

Post-issue valuation is Rs 23319 crore at the upper price band of Rs 1100 per share and Rs 23213 crore at the lower price band of Rs 1095 per share.

EPS for FY2018 works out to Rs 34.04 on post-IPO equity basis. The scrip is offered at P/E multiple of 32.3 times FY2018 EPS at the upper price band.

The post-issue book value (BV) is Rs 101.9. The scrip is offered at a P/BV multiple of 10.8 times at the upper price band of Rs 1100 per share.

The recently listed peer company, Reliance Nippon Life Asset Management Company is trading at P/E multiple of 25.4 times FY2018 EPS and a P/BV multiple of 5.8 times. Reliance Nippon Life AMC is the fourth largest mutual fund in India with average AUM of Rs 244903.56 crore end March 2018, which has recorded RoE of above 24% for last three years to FY2018.

Conclusion:

The company posted revenue of 19% CAGR in the last 5 years. It earns decent profits. However, its issue price is highly priced. I would have been excited if the issue price was on the lower side. Considering its brand in the mutual fund business and positive factors, investors can invest in this IPO for 4-5 year tenure.

Grey market premium:

GMP as on 25 July 2018 @ 18.00 is Rs.460 /- to 465/- , Kostak Rs.1650/- 
GMP has remained steady for whole day.

 

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 before making any actual investment decisions, based on information published here

Varroc Engineering IPO Review

Varroc Engineering Pvt Ltd is global providers of automotive parts. The company manufactures and supplies components and subassemblies for automobile, consumer durable, and white goods industries. They offer injection molded engineering plastic components, multilayer co-extruded thermoplastic sheets, injection and compression molded automotive and allied rubber products, polyurethane foam seat assemblies, rear view mirrors, air cleaner assemblies, and acrylic and polyurethane painted parts.

The company has three subsidiaries namely, Durovalves India Pvt Ltd, Varroc Exhaust Systems Pvt Ltd and Varroc European Holding BV. The company is based in Aurangabad, India with manufacturing plants in Noida, Gurgaon, Delhi, Pantnagar, Chennai, Pune, and Mumbai, India; Amsterdam, the Netherlands; Warsaw, Poland; and Milan, Italy.

Varroc Engineering Pvt Ltd was incorporated in the year 1988. During the year 2001-02, the company entered into technical collaboration/ assistance agreements with Mitsuba Corporation, Japan for the manufacture of Flywheel Magneto Assemblies and Driver Gear for Starter Motor. Also, they came into technical collaboration/ assistance agreements with Shindengen Manufacturing Company Ltd, Japan for the manufacture of CDI & RR.

VarrocDuring the year 2004-05, the company entered into agreements with Electric Components & Industries Europe Srl, Italy for the acquisition of designs of Electronic Dashboard and LED Tail Light relating to the manufacture of dashboard instrument cluster and lighting equipment of motorcycle.

During the year 2005-06, the company increased the production capacity at various units namely Auto Electric Switches at Waluj Pant-IV, Plastic Auto Components at Pune Plant-I, Rear view Mirror Assembly at Pune Plant-II and Automobile Seat Assembly at Pune Plant-II. They commenced commercial production in their Binola Plant and Waluj Plant-VII from January 1, 2006 and March 1, 2006 respectively.

Varroc Engineering Ltd. raised Rs 583.73 crore by selling shares to 30 anchor investors.

The international anchor investors included Schroder International Selection Fund, Nomura Fund Ireland Public Ltd., DSP BlackRock, First State Investments, while L&T Mutual Fund, Bajaj Allianz Life Insurance, ICICI Prudential AMC, Kotak Mutual Fund and SBI Mutual Fund were some of the domestic funds which participated in the anchor allotment.

List of the anchor investors

Download (PDF, 493KB)

The promoter and two investors will sell shares to raise up to Rs 1,950 crore through the IPO of the Aurangabad-based company which supplies parts to Jaguar Land Rover, Bentley and even Tesla Inc.

Tata Group’s investment arms – Tata Capital and Omega TC – and promoter Tarang Jain will offload 2 crore shares at Rs 965-967 apiece. The world’s sixth largest exterior automotive lighting maker won’t get any share of the proceeds.

Varroc Engineering IPO Dates & Price Band:

  • IPO Open: 26-June-2018
  • IPO Close: 28-June-2018
  • IPO Size: Approx Rs.1945 Crore (Approx)
  • Face Value: Rs.1 Per Equity Share
  • Price Band: Rs. 965 to 967 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 2,02,21,730 Shares

Market Lot:

  • Shares: Apply for 15 Shares (Minimum Lot Size)
  • Amount: Rs.14,505

IPO Allotment & Listing:

  • Basis of Allotment: 3-July-2018
  • Refunds: 4-July-2018
  • Credit to demat accounts: 5-July-2018
  • Listing: 6-July-2018

The promoters:

Tarang Jain

Main objects of the issue are:

1) to achieve the benefits of listing the Equity Shares on the Stock Exchanges and
2) to carry out the Offer for Sale by Selling Shareholders

Lead Managers:

Citigroup Global Markets India Private Limited
Credit Suisse Securities (India) Private Limited
IIFL Holdings Limited
Kotak Mahindra Capital Company Limited

Registrar to the IPO:

Link Intime India Private Limited

Our Strengths

We believe that the following are our primary strengths

Strong competitive position in attractive growing markets

Our Strategies

Focus on high growth markets for our Global Lighting Business

Focus on increasing customer revenue for our India Business

Continue to invest in our R&D, design, engineering and software capabilities in order to capitalize on future trends.

Pursue strategic joint ventures and inorganic growth opportunities

Focus on operational efficiency

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Qualitative Factors

Strong competitive position in attractive growing markets

Strong, long-standing customer relationships

Comprehensive product portfolio

Low cost, strategically located manufacturing and design footprint

Robust in-house technology, innovation and R&D capabilities

Consistent track record of growth and operational and financial efficiency

ICICI Sec. IPO Review and the list of anchor investors

45

Positive

The company’s Global Lighting Business, which focuses on the design, manufacture, and supply of exterior lighting for passenger vehicles, is the sixth-largest tier-1 automotive exterior lighting manufacturer globally and one of the top three independent exterior lighting players (by market share in 2016) (Source: Yole).

Strong, long-standing relationships with many of its customers. In the Global Lighting Business, it has a relationship with a large British car manufacturer since 2006. In the Indian Business, it has a longest-standing relationship is with Bajaj since 1990.

It has a comprehensive portfolio of products in the markets which allow it to be a one-stop-shop for the customers and to cross-sell products.

A global footprint of 36 manufacturing facilities spread across seven countries, with six facilities for the Global Lighting Business, 25 for India Business and five for other Businesses.

Key Parameter 

The Revenue is growing at CAGR of 13.96% from FY15 to FY18.

The PAT is growing at CAGR of 10.43% from FY14 to FY18.

The company is has total debt of around 1390 Cr on books as on 9MFY18.

The Company’s EBITDA Margins are in the range of 6-10% in last 4 years.

The Company is generating positive cash flows from operations from FY13-17

Financials:

Total Income of 2016-17 INR 9702.87 Crore

Total Income of 2017-18(9M) INR 7415.42 Crore

Net Profit of 2016-17 INR 303.39 Crore

Net Profit of 2017-18 (9M) INR 307.96 Crore

Earnings per Share (EPS) INR 27.74

Earnings per Share 2017-18 (9M) INR 22.84

Earnings per Share 2017-18 (12M) INR 30.45( expected )

Equity Capital as on 31.12.2017 INR 134.81 Crore

Upper Price Band/last EPS: 31.76

Book Value of the Share as on 31.12.2017 INR 212.06

Upper offer price/Book Value Ratio: 4.56

Return on Net Worth: 13.88% for 2016-17

ICICI Sec. IPO Review and the list of anchor investors

Negative

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

Pricing pressure from customers may adversely affect its gross margin, profitability and ability to increase its prices, which in turn may materially adversely affect its business,results of operations and financial condition.

Its business is dependent on certain major customers, with whom we do not have firm commitment agreements. The loss of such customers, a significant reduction in purchases by such customers, or a lack of commercial success of a particular vehicle model of which we are a significant supplier could adversely affect its business, results of operations and financial condition.

Varroc is exposed to counterparty credit risk of its clients and any delay in receiving payments or non-receipt of payments may adversely impact its results of operations.

Varroc is heavily dependent on the performance of the global passenger vehicle market and the two wheeler and three wheeler markets in India. Any adverse changes in the conditions affecting these markets can adversely impact its business, results of operations and financial condition.

Varroc failure to identify and understand evolving industry trends and preferences and to develop new products to meet its customers demands may materially adversely affect its business.

Varroc is subject to environmental and safety regulations that may adversely affect its business and we have been subject to environmental notices in respect of certain of its manufacturing facilities and may be subject to further notices in the future.

Varroc employees are members of unions and we may be subject to industrial unrest, slowdowns and increased wage costs, which may adversely affect its business and results of operations.

Varroc insurance coverage may not be adequate to protect us against all potential losses, which may have a material adverse effect on its business, financial condition and results of operations.

Varroc has unsecured borrowings that may be recalled by the lenders at any time.

Varroc has experienced negative cash flows in prior periods and any negative cash flows in the future could adversely affect our financial condition and the trading price of its Equity Shares.

Valuation

At the higher price band of Rs 967, the P/E on FY 2018 EPS (on current diluted equity of Rs 13.48 crore) of Rs 33.4 works out to 29. Currently, all the comparable listed players are trading at very high P/E multiples.

Minda Industries, Motherson Sumi Systems and Endurance Technologies are some of the comparable listed peers. Minda Industries reported consolidated net sales of Rs 4470.56 crore and Pat of Rs 310.19 crore in FY 2018, giving an EPS of Rs 35.6. At the current market price of Rs 1262, the stock trades at around 35.4 times its FY 2018 consolidated earnings.

Motherson Sumi Systems reported consolidated net sales of Rs 56293.32 crore and Pat of Rs 1597.01 crore, giving an EPS of Rs 7.6. At the current market price of Rs 307, the stock trades at around 40.5 times its FY 2018 consolidated earnings.

Endurance Technologies reported consolidated net sales of Rs 6538.14 crore and Pat of Rs 390.75 crore, giving an EPS of Rs 27.8. At the current market price of Rs 1262, the stock trades at around 45 times its FY 2018 consolidated earnings.

Grey Market Trend

As on 26 June 2018 GMP Rs. 62/-, Kostak Rs.350/-

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 before making any actual investment decisions, based on information published here.

 

RITES Ltd IPO Review

RITES Ltd. are a wholly owned Government Company, a Miniratna (Category –I) Schedule ‘A’ Public Sector Enterprise and a leading player in the transport consultancy and engineering sector in India and the only company having diversified services and geographical reach in this field under one roof.(Source: IRR Report). Based on Public Enterprise Survey 2015 – 2016

RITES Ltd. Company is ranked no. 1 based on net profit and dividend declared in Industrial Development and Technical Consultancy Services sector (Source: IRR Report) .

RITES Ltd. have an experience spanning 44 years and have undertaken projects in over 55 countries including Asia, Africa, Latin America, South America and Middle East regions. RITES Ltd. are the only export arm of Indian Railways for providing rolling stock overseas (other than Thailand, Malaysia and Indonesia). RITES Ltd. are a multidisciplinary engineering and consultancy organization providing diversified and comprehensive array of services from concept to commissioning in all facets of transport infrastructure and related technologies.

RITES Ltd. have significant presence as a transport infrastructure consultancy organization in the railway sector. However, RITES Ltd. also provide consultancy services across other infrastructure and energy market sectors including urban transport, roads and highways, ports, inland waterways, airports, institutional buildings, ropeways, power procurement and renewable energy. RITES Ltd. have, over the years, served various public sector undertakings, government agencies and instrumentalities and large private sector corporations, both in India and abroad.

RITES Ltd. were incorporated by the Ministry of Railways, Government of India (“MoR”) and have the benefit of being associated with the Indian Railways, which is the fourth longest rail network in the world (Source: IRR Report ).

RITES-Limited-1Since its inception in 1974, RITES Ltd. have evolved from its origins of providing transport infrastructure consultancy and quality assurance services and have developed expertise in Design, engineering and consultancy services in transport infrastructure sector with focus on railways, urban transport, roads and highways, ports, inland waterways, airports and ropeways;

Leasing, export, maintenance and rehabilitation of locomotives and rolling stock;
 
Undertaking turnkey projects on engineering, procurement and construction basis for railway line, track doubling, 3rd line, railway electrification, up gradation works for railway transport systems and workshops,railway stations, and construction of institutional/ residential/ commercial buildings, both with or without equity participation; and
Wagon manufacturing, renewable energy generation and power procurement for Indian Railways through our collaborations by way of joint venture arrangements, subsidiaries or consortium arrangements.

 

RITES-Limited-2

In India, its clients include various central and state government ministries, departments, instrumentalities as well as local government bodies and public sector undertakings.These include Indian Railways,NTPC, Dedicated Freight Corridor Corporation of India Limited,High Speed Rail Corporation of India Limited, Public Works Department,DMRC, Steel Authority of India Limited, Rashtriya Ispat Nigam Limited, Hindustan Petroleum Corporation Limited, Bharat Coking Coal Limited, Metro Link Express for Gandhinagar and Ahmedabad (MEGA) Company Limited,Indian Port Rail Corporation Limited, Airports Authority of India, among others. We also engage with various large private sector corporations including L&T Metro Rail (Hyderabad) Limited, Kanti Bijlee Utpadan Nigam Limited(KBUNL), Cimmco Limited,Titagrah Wagons Limited, Snowmex Engineers Limited, Unity Infraprojects Limited, Rajdeep Buildcon PrivateLimited, Mahalsa Constructions Private Limited, Marymatha Constructions Limited,AFCON Infrastructure Limited, INCAP, ARK Services, MNEC Consultants Private Limited, Indian Geotechnical Services Limited,Geokno India Private Limited and NATRIP Implementation Society among others.

RITES Ltd IPO Dates & Price Band:

  • IPO Open: 20-June-2018
  • IPO Close: 22-June-2018
  • IPO Size: Approx Rs.466 Crore (Approx)
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs.180 to 185 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 2,52,00,000 Shares
  • Discount: Rs.6 (Retail & Employees)

Market Lot:

  • Shares: Apply for 80 Shares (Minimum Lot Size)
  • Amount: Rs.14,800 (For HNI & QIB)
  • Amount: Rs.14,320 (For RII & EMP)

Allotment & Listing:

  • Basis of Allotment: 28-June-2018
  • Refunds: 29-June-2018
  • Credit to demat accounts: 02-July-2018
  • Listing: 03-July-2018

Lead Managers:

1. Elara Capital (India) Private
2. IDBI Capital Market Services Limited
3. IDFC Bank Limited
4. SBI Capital Markets Limited
4 book running lead managers handled 31 Public issues during last 3 years and out of which  10 issues closed below the offer price on listing day.

Registrar to the IPO:

Link Intime India Private Ltd

The Offer and the Objects

This IPO is part of Government’s disinvestment plan.

The government wants to divest 12.6 percent of its stake in the company.

The IPO comprises an offer for sale (OFS) of 2.52 crore shares.

Competitive Strengths

Comprehensive range of consultancy services and a diversified sector portfolio in the transport infrastructure space

Large order book with strong and diversified clientele base across sectors

Technical expertise and business divisions with specialized domain knowledge

Experienced management personnel and technically qualified team

Strong and consistent financial performance supported by robust internal control and risk management system

Preferred consultancy organization of the Government of India including the Indian Railways

Strategies

Leverage our experience and continue to build on our core competencies in transport infrastructure sector

Strengthen our EPC/Turnkey business

Expand our international operations

Expand our operations in the power procurement and renewable energy sector through our subsidiary, Railway Energy Management Company Limited, which is the only entity mandated for procurement of power from third parties and for captive renewable energy generation, for the Indian Railways

Overview of Indian Infrastructure Industry

GoI has been very proactive and has brought in a variety of measures to step up public investments – which include substantial increase in budgetary outlays in high – impact sectors, push for private sector investments, building institutional capacity through establishment of new infrastructure PSUs, and intensive implementation follow – up for completion of projects. This is reflected in the strong growth of the infrastructure sector since 2002. The sectoral investments over the last 3 five year plans are shown in the table below.

infrastucture
trend

Positive

The standalone order book of Rs 4818.68 crore end March 2018 included 353 ongoing projects of over Rs 1 crore each. Around 53% of the orders are from consultancy services, 3% from leasing services, 14% from overseas customers and around 30% is from turnkey construction projects. Of the total contracts on hand, 77% are from Central and state governments and the rest from others. The order book comprises a highest value export order of Rs 680 crore from Srilankan Railways for supply of locomotives.

Most of the local and global clients are Central government, state governments, national governments, governmental instrumentalities, corporations, authorities and PSUs and large private organisations. There has been no incidence of any bad debts or non-recovery of dues.

As per the Planning Commission, railways will see an investment of around Rs 4.9 trillion in the 13th Five_year Plan ending in March 2022 (FY 2022) compared with Rs 2.4 trillion in the 12th plan that ended in FY 2017. A significant increase in investments will boost the order book and earnings.

The asset-light business model is useful to make handsome gains.

More than 65% of the revenues come from sale of services and around 25% from sale of products and rest from others.

Hindustan Aeronautics Limited IPO Review and Current GMP

Negative

There are outstanding legal and tax proceedings involving the Company. Any adverse decision in such proceedings may expose us to liabilities or penalties and may adversely affect its business, financial condition, results of operations, cash flows and future prospects.

RITES Ltd. depend on the Ministry of Railways, GoI (“MoR”), central/state governments and central/state PSUs fora significant portion of contracts on its order book which are awarded on a nomination basis. There is no assurance that future contracts will be awarded to us on nomination basis by these clients. This may result in an adverse effect on its business growth, financial condition and results of operations.

RITES Ltd. depend on the MoR for a significant portion of its business including equipment, technical staff etc. Any changes in the government policies or decisions by the MoR may result in an adverse effect on its business growth, financial condition and results of operations.

RITES Ltd. current order book may not necessarily translate into future income in its entirety or could be delayed. Some of its current orders may be modified, cancelled, delayed, put on hold or not fully paid for by its clients, which could adversely affect its business reputation, which could have a material adverse effect on its business, financial condition, results of operations and future prospects. negative

RITES Ltd. face certain competitive pressures from the existing competitors and new entrants in both public and private sector. Increased competition and aggressive bidding by such competitors is expected to make its ability to procure business in future more uncertain which may adversely affect its business, financial condition and results of operations.

RITES Ltd. are dependent on the line of credit provided by the GoI and other funding agencies provided to countries that we operate in. In the event there is any change in the policies of the GoI or the funding agencies or the countries utilization of line of credit or the line of credit is withdrawn or reduced, its business and operations may be adversely affected.

The GoI has significant influence over its actions which may restrict its ability to manage its business. Any change in GoI policy could have a material adverse effect on its financial condition and results of operations. Further, announcements by the GoI relating to increased salary and allowances for government and public sector employees will increase its expenses and may adversely affect its financial condition in the years of implementation.

RITES Ltd. enter into joint ventures and consortium arrangements for completion of its projects which may expose us to additional liabilities on account of its partners failure or underperformance and any premature termination of which, may adversely affect its business, reputation, financial condition and results of operations.

Financials

Date Total Revenue Total Expenses Profit after Tax
9M FY 2018 Rs. 1,061.1 Rs. 669.4 Rs. 239.0
FY 2017 Rs. 1,563.7 Rs. 1,044.7 Rs. 353.3
FY 2016 Rs. 1,226.7 Rs. 773.2 Rs. 280.0
FY 2015 Rs. 1,159.1 Rs. 691.8 Rs. 314.0
FY 2014 Rs. 1,223.5 Rs. 835.8 Rs. 258.8
FY 2013 Rs. 1,083.1 Rs. 753.5 Rs. 238.1
**(All Figures in Rs. Crores)

 Valuations

  • Earnings Per Share (EPS): Rs. 17.64
  • Price/Earnings (P/E) ratio: Rs. 10.20 – Rs. 10.48
  • Return on Net Worth (RONW): 17.28%
  • Net Asset Value (NAV): Rs. 102.06

Grey Market Trend

As on 19 June 2018 GMP INR 32, Kostak INR 400

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 before making any actual investment decisions, based on information published here.

ICICI Sec. IPO Review and the list of anchor investors

ICICI Sec. is a leading technology-based securities firm in India that offers a wide range of financial services including brokerage, financial product distribution and investment banking and focuses on both retail and institutional clients. It has been the largest equity broker in India since fiscal 2014 by brokerage revenue and active customers in equities on the National Stock Exchange, powered by its significant retail brokerage business, which accounted for 90.5% of the revenue from its brokerage business (excluding income earned on our funds used in the brokerage business) in fiscal 2017.

ICICI Securities Raises Rs 1,718 Crore From Anchor Investors.

Download (PDF, 1.85MB)

 

ICICI-Securities-IPO

Its retail brokerage and distribution businesses are supported by its nationwide network, consisting of over 200 of its own branches, over 2,600 branches of ICICI Bank through which its electronic brokerage platform is marketed and over 4,600 sub-brokers, authorized persons, independent financial associates and independent associates as at September 30, 2017.

ICICI Sec. is empanelled with a large cross-section of institutional clients.

IPO Dates & Price Band:

  • IPO Open: 22-March-2018
  • IPO Close: 26-March-2018
  • IPO Size: Approx Rs.4017 Crore (Approx)
  • Face Value: Rs.5 Per Equity Share
  • Price Band: Rs.519 to 520 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 10%
  • Equity: 77,249,508 Shares

Market Lot:

  • Shares: Apply for 28 Shares (Minimum Lot Size)
  • Amount: Rs.14,560

Allotment & Listing:

  • Basis of Allotment: 2-April-2018
  • Refunds: 3-April-2018
  • Credit to demat accounts: 4-April-2018
  • Listing: 5-April-2018

The promoters:

ICICI Bank Ltd.

Lead Managers:

DSP Merrill Lynch Limited

Citigroup Global Markets India Private Limited

CLSA India Private Limited

Edelweiss Financial Services Limited

IIFL Holdings Limited

SBI Capital Markets Limited

Object of the issue:

The objects of the Offer for the Company are to achieve the benefit of listing the Equity Shares on the Stock Exchanges and for the sale of Equity Shares by the Promoter Selling Shareholder. Further, the Company expects that the listing of Equity Shares will enhance its visibility and brand image and provide liquidity to its existing shareholders.

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Our Strengths

Largest Equity Broker in India Powered by Our Proprietary Technology Platform.

Natural Beneficiary of Fundamental Transformation in the Indian Savings Environment.

Strong and Growing Distribution Business with an “OpenSource” Distribution Model.

Superior Customer Experience through Product and Technology Innovation.

Strategic Component of the ICICI Ecosystem.

Strong Financial Performance with Significant Operating Efficiency.

Experienced Senior Management Team.

i8Our Strategies

Strengthen its Leadership Position in the Brokerage Business.

Continue Investing in Technology and Innovation.

Strategically Expand its Financial Product Distribution Business Through Cross-Selling.

Leverage its Leadership in Equity Capital Markets to Strengthen its Financial Advisory Businesses.

Diversify its Revenue Streams and Continue Reducing Revenue Volatility.

Future Supply Chain Solutions Ltd IPO Review

Negative

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

i1

General economic and market conditions in India and globally could have a material adverse effect on its business, financial condition, cash flows, results of operations and prospects.

ICICI Sec. rely heavily on its relationship with ICICI Bank for many aspects of its business, and its dependence on ICICI Bank leaves us vulnerable to changes in its relationship.

The operation of its businesses is highly dependent on information technology, and ICICI Sec. are subject to risks arising from any failure of, or inadequacies in, its IT systems.

ICICI Sec. rely on its brokerage business for a substantial share of its revenue and profitability. Any reduction in its brokerage fees could have a material adverse effect on its business, financial condition, cash flows, results of operations and prospects.

ICICI Sec. is subject to extensive statutory and regulatory requirements and supervision, which have a material influence on, and consequences for, its business operations.

ICICI Sec. may fail to detect money laundering and other illegal or improper activities in its business operations on a timely basis.

There are operational risks associated with the financial services industry which, if realised, may have a material adverse effect on its business, financial condition, cash flows, results of operations and prospects.

ICICI Sec. faces intense competition in its businesses, which may limit its growth and prospects.

ICICI Sec. may not be able to sustain its growth or expand its customer base.

ICICI Sec. faces certain other risks related to its distribution business, which accounts for a significant portion of its revenue and profitability.

ICICI Sec. face various risks due to its reliance on third-party intermediaries, contractors and service providers.

ICICI Sec. face various risks in relation to its investment banking business.

ICICI Sec. may incur losses on its treasury and trading business from market volatility or its investment strategies.

Its Promoter, ICICI Bank, and some of its Directors and related entities may be subject to conflicts of interest because they compete against us and have interests in companies which are in the same line of business as us.

Credit risks in our day-to-day operations, including in its investment portfolio, may expose us to significant losses.

ICICI Sec. have experienced negative cash flows in the prior years.

Cash Flow

i2Financial

Its profit after tax was INR 717.5 million, INR 891.9 million, INR 2,938.7 million, INR 2,387.2 million, INR 3,385.9 million and INR 2,460.5 million in fiscals 2013, 2014, 2015, 2016 and 2017 and the six months ended September 30, 2017, respectively, and its return on equity has exceeded 30.0% for each measured period since fiscal 2013. For fiscal 2017, our return on equity was 69.2%.

Comparison of Listed Peers

i4Valuations

Annualised EPS works out to Rs 10.48 for the year ended March 2017. At the upper end of the price band, shares will trade at 49.6 times its earnings.

High valuations despite less capital intensive business.

Grey market premium

Current GMP is Rs.6/-, and  Kostak is Rs.300/- (sellers)

 

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 before making any actual investment decisions, based on information published here

Hindustan Aeronautics Limited IPO Review and Current GMP

Hindustan Aeronautic is engaged in manufacturing, development, design, repair and servicing of products like helicopters, aero-engines, aero space structures, aircraft and many more. Hindustan Aeronautic India has the unique products portfolio and the operations have names like Bangalore Complex, MiG Complex, Helicopter Complex, Accessories Complex, and Design Complex and they have over 11 production division with 11 R&D centers in India.

Their major domestic customers are Indian Air Force, Indian Army, Indian Navy, Indian Coast Guard, Indian Space Research Organisation, Defence Research & Development Organisation, Ordnance Factory Board, ,Border Security Force, Oil & Natural Gas Cooperation of India, Govt. of Karnataka, Govt. of Jharkhand, Govt. of Maharashtra, Geological Survey of India, Bharat Heavy Electricals Ltd. They export their products in France, USA, Mauritius, Israel, Ecuador, Namibia, Nepal, Russia, UK, Oman, Malaysia, Thailand, Germany and Vietnam. The company received “Excellent” rating from Government of India from 2002 to 2016.

Hindustan Aeronautics is ‘Navratna’ company since June 2007 and the largest DPSU in India. It is the 39th largest aerospace company in the world in terms of revenue. The company was also awarded Raksha Mantri’s Award for excellence in performance under institutional category in FY 2008, FY 2010, FY 2011, FY 2013 and FY 2016.

386_Para_hawk-i

IPO Dates & Price Band:

  • IPO Open: 16-March-2018
  • IPO Close: 20-March-2018
  • IPO Size: Approx Rs. 4482 Crore (Approx)
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs.1214 to 1240 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 34,107,525 Shares
  • Discount:  Rs.25 for Retail & Employee

Market Lot:

  • Shares: Apply for 12 Shares (Minimum Lot Size)
  • Amount: Rs.14,580 (For Retail & Employee)
  • Amount: Rs.14,880 (For QIB & HNI)

IPO Allotment & Listing:

  • Basis of Allotment: 26-March-2018
  • Refunds: 27-March-2018
  • Credit to demat accounts: 27-March-2018
  • Listing: 28-March-2018

The promoters:

The President of India

Acting through the Department of Defence Production Ministry of Defence.

 Lead Managers:

SBI Capital Markets Ltd
Axis Capital Ltd

Registrar to the IPO:

Karvy Computershare Pvt Ltd.

387_Para_alh civil 3

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Outlook of the Indian Aerospace and Defence Sector

India has the third largest military in the world and is the sixth largest spender in Defence. India is also one of the largest importers of conventional defence equipment and spends approximately 30% of its total defence budget on capital acquisitions. 60% of Indian’s defence – related requirements are currently met through imports.

In addition, the ‘ Make in India ’initiative by the Government is focusing its efforts on increasing indigenous defence manufacturing with the aim of becoming self – reliant.

The opening up of the defence sector for private sector participation is helping foreign OEMs to enter into strategic partnerships with Indian companies and leverage opportunities in the domestic market as well as global markets.

India’s focus on indigenous manufacturing in the defence sector has yielded certain benefits as the MoD over the last two years unveiled several products manufactured in India including the LCA Tejas, the composites sonar dome, a portable elemedicine system for the armed forces, penetration – cum – blast and thermobaric ammunition specifically designed for the Arjun tanks, the Varunastra heavyweight torpedo manufactured with 95% locally sourced parts and medium-range surface-to-air missiles. The Defence Acquisition Council under the MoD cleared defence sector transactions with a value of more than 820 billion under the buy and Make (Indian) and Buy Indian categories. These transactions include the procurement of Light Combat Aircraft, T-90 tanks, mini UAVs and light combat helicopters.

121Our Strengths

India has the third largest military in the world and is the 6th largest spender in the defence sector.

60% of total defence requirements of India as on today is met from imports. Hindustan Aeronautics is poised to gain under the ‘Buy and Make (Indian)’ procurement category. The company has all the necessary capabilities and technology (including licensed technology) to capture maximum relevant defence budget spend going ahead.

Long credible history of research, design and development, manufacturing and maintenance, repair and overhaul (“MRO”) services.

Setting up a goal: First step to Financial Planning ( Video )

Established track record in offering product lifecycle support extending to periods beyond four decades.

Indian armed forces plan to procure more than 1000 rotary wing aircrafts and will revamp their fleet in next 10-20 years.

Strong design and development capabilities.

Leadership position in the Indian aeronautical industry and strong GoI support.

Diversified product portfolio.

Strong financial track record.

Experienced management team and operating team.

141

Our Strategies

Expand its operations through partnerships or collaboration.

Diversify through expansion in new growth areas.

Diversify further into the civil aircraft segment for both manufacturing and servicing opportunities.

Develop in-house capabilities to design and develop specialized products including aero – engines.

Leverage Existing Cost Advantage.

Developing Human Capital.

Enhancing customer satisfaction.

Optimising operations towards becoming a lead integrator of aircraft platforms.

151

Negative

There are outstanding legal and tax proceedings involving its Company. Any adverse decision in such proceedings may expose us to liabilities or penalties and may adversely affect its business, financial condition, results of operations and cash flows.

Hindustan Aeronautics depend heavily on MoD contracts. A decline or reprioritisation of funding in the Indian defence budget, that of customers including the Indian Army, Indian Air Force and Indian Navy (the “Indian Defence Services”), Indian Coast Guard, Border Security Force, Central Reserve Police Force and Paramilitary forces or delays in the budget process could adversely affect its ability to grow or maintain its sales, earnings, and cash flow.

As a result of national securities concerns,certain information in relation to its business and operations is classified as ‘secret and confidential’ pursuant to which we have not disclosed such information in this RHP nor provided such information to the BRLMs and other intermediaries and advisors involved in the Offer.

The MoD contracts are not always fully funded at inception and are subject to termination. Its inability to fund such contracts at the time of inception or any termination could have a material adverse effect on its financial condition and results of operations.

Its Company is not in compliance with certain provisions of the Companies Act and/or SEBI Listing Regulations in relation to terms of reference of the Audit Committee and the Nomination and Remuneration Committee.

Ongoing disclosure of information in relation to its Company after the listing of the Equity Shares on the Stock Exchanges may be limited and may not be in compliance with the SEBI Listing Regulations and other applicable laws.

The GoI has significant influence over its actions which may restrict its ability to manage its business. Any change in GoI policy could have a material adverse effect on its financial condition and results of operations.

EMI VS SIP ( Be controlled or take control )

Its current order book may not necessarily translate into future income in its entirety. Some of its current orders or requests for a proposal which we have received may be modified, cancelled, delayed, put on hold or not fully paid for by its customers, which could adversely affect its results of operations.

Hindustan Aeronautics is involved in a dispute with the Ministry of Defence of Ecuador relating to their termination of an agreement with us relating to the supply of helicopters to the Ecuadorean Air Force. Its revenue and exports may be adversely affected as a result.

Hindustan Aeronautics also operate in evolving markets, which makes it difficult to evaluate its business and future prospects.

Its earnings and margins may vary based on the mix of its contracts and programs, its performance, and its ability to control costs.

Its business could be materially adversely affected if any default of its causes an aircraft or helicopter accident.

ALH Dhruv Helicopters supplied to the Ecuadorean Air Force were involved in accidents, and The Ecuadorean Ministry of Defence has designated the company as a defaulting contractor and has barred it from bidding for future contracts. This can affect the future exports and company’s ability to bid outside India.

The aircraft such as MiG-21 variants, MiG-27 and the Su-30 MKI, as well as engines and other accessories, and repair and overhaul services for these aircraft that are manufactured in India are done through transfer of technology from Russian OEMs as well as pursuant to inter-governmental agreements with Russia. The United States, the United Nations Security Council and other jurisdictions and organizations have implemented comprehensive economic sanctions targeting Russia in recent years. This can have an adverse impact relating to the supply and support from Russian OEMs for the aircraft that Hindustan Aeronautic manufacture under transfer of technology with such OEMs.

Valuation

On the performance front, Hindustan Aeronautic has (on a consolidated basis) posted turnover/net profits of Rs. 17362.00 cr. / Rs. 994.10 cr. (FY15), Rs. 18754.80 cr. / Rs. 2004.30 cr. (FY16) and Rs. 19596.90 cr. / RS. 2624.70 cr. (FY17). For the first half of the current fiscal, it has earned a net profit of Rs. 391 cr. on a turnover of Rs. 5665.90 cr.

For last three fiscals, it has posted an average EPS of Rs. 54 and an average RoNW of 17.67%. Hindustan Aeronautic’s last three fiscal’s EPS stands at Rs. 73 (FY17), Rs. 42 (FY16) and Rs. 21 (FY15). PAT margins for these fiscals were 14%, 12%, and 6% respectively. It has posted CAGR of 9% for revenues, 62% CAGR in PAT for last three fiscals. The issue is priced at a P/BV of 3.46 on the basis of its NAV of Rs. 358 as on 30.09.17.

It has no listed peers to compare with. Hindustan Aeronautic’s sale to Indian Defense Services accounts for nearly 92% (on an average) of its revenues. According to management, first-half results cannot be annualized to compare as it always does better in the second half due to billings only on delivery of products. However, if we annualize latest earnings and attribute it on its paid-up equity then asking price is at a P/E of 53, but if we consider FY 17earnings, then P/E comes to 17.

Grey Market premium

Current GMP is Rs. 4/- and Kostak is Rs. NIL

 

Only LIC policyholders money can save this IPO.

 

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 before making any actual investment decisions, based on information published here

 

Bandhan Bank IPO Review and the list of anchor investors

Bandhan Bank (BB) is a commercial bank focused on serving underbanked and underpenetrated markets in India. It has a banking license that permits it to provide banking services pan-India across customer segments. BB currently offers a variety of asset and liability products and services designed for micro banking and general banking, as well as other banking products and services to generate non-interest income.

Its strength lies in microfinance, including a network of 2,022 doorstep service centers (“DSCs”) and 6.77 million micro loan customers that BFSL transferred to it, which it has grown to 2,546 DSCs and over 9.47 million microloan customers as of September 30, 2017.With the network of 2,546 doorstep service centers (DSCs) and 9.47 million microloan customers, the bank has strong very hold in microfinance. Bandhan bank has 864 bank branches and 386 ATMs serving over 1.87 million general banking customers. Banks distribution network is strong in East and Northeast India, with West Bengal, Assam and Bihar.

Bandhan Bank Raises Rs 1,342 Crore From Anchor Investors.

List of Anchor Investors

Download (PDF, 412KB)

IPO Dates & Price Band:

  • IPO Open: 15-March-2018
  • IPO Close: 19-March-2018
  • IPO Size: Approx Rs. 4470 Crore (Approx)
  • Face Value: Rs. 10 Per Equity Share
  • Price Band: Rs.370 to 375 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 119,280,494 Shares

Market Lot:

  • Shares: Apply for 40 Shares (Minimum Lot Size)
  • Amount: Rs.15,000

Allotment & Listing:

  • Basis of Allotment: 22-March-2018
  • Refunds: 23-March-2018
  • Credit to demat accounts: 26-March-2018
  • Listing: 27-March-2018

The promoters:

Bandhan Financial Holdings Limited,
Bandhan Financial Services Limited,
Financial Inclusion Trust And North east Financial Inclusion Trust.

Lead Managers:

Kotak Mahindra Capital
Company Limited
Axis Capital Limited
Goldman Sachs (India)
Securities Private Limited
JM Financial Institutional Securities Limited
P. Morgan India Private Limited

Registrar:

Karvy Computershare Private Limited

bandhanbank

Main objects of the issue are:

In terms of the RBI New Bank Licensing Guidelines, the Equity Shares of Bank are required to get listed on the stock exchanges within three years from the date of commencement of business of its Bank, i.e., on or before August 22, 2018. In light of the above, since the Bank is required to get listed on the stock exchanges on or before August 22, 2018, the Bank is undertaking this Issue.  The objects of the Fresh Issue are to augment the Bank’s Tier-I capital base to meet the Bank’s future capital requirements.

0

1

2Strategy

Maintain focus on micro lending while expanding further into other retail and SME lending.

Continue to strengthen its liability franchise.

Boost share of non-interest income.

Enhance its digital platform to improve customer acquisition and retention and reduce costs.

Enhance retail banking systems and procedures to improve efficiency.

Strengths

Operating Model Focused on Serving Underbanked and Underpenetrated Markets.

Consistent Track Record of Growing a Quality Asset and Liability Franchise.

Extensive, Low-Cost Distribution Network.

Customer-Centric Approach.

Consistent Financial Performance and Robust Capital Base.

An experienced and professional team, backed by strong independent board.

2Positive

Focus on the underpenetrated region and new products to ensure loan book growth of more than 23 percent over FY18-20.

The net interest margins (NIMs) of the bank was strong at 9.86%, return on equity (RoE) of 25.55% and return on assets (ROA) of 4.07% (each on an annualized basis) in the nine months ended December 2017 compared with 10.34%, 27.88% and 4.39% in the nine months ended December 2016. The bank has maintained good asset quality amidst challenging macro environment. The gross NPAs stood at 1.67% and the net NPA at 0.80% at end December 2017.

The bank has grown quality asset base over the various phase of development. Its gross loan book has grown from and Rs 7768.79 crore as on 23 August 2015 to Rs 15578.44 crore end March 2016 to Rs 24364.39 crore end December 2017, while customers have increased from 6.77 million to 11.99 million. Deposits base have jumped to Rs 25293.96 crore with CASA ratio of 33.2% and retail deposits ratio of 85.1% end December 2017. The growth in low-cost liability business has led to a reduction in the cost of funding, allowing the bank to lower the lending interest rates while maintaining profitable spreads and further grow the portfolio and capture market share.

The bank’s distribution network is relatively low cost, which in particular is a result of “hub and spoke” model of using DSCs and associated bank branches, as well as focus on tech initiatives. This low-cost model is demonstrated by operating cost-to-income ratio was 35.38% for the nine months ended December 2017 and 36.31% for FY2017.

Overall earnings profile looks comfortable, with premium valuations expected to remain.

The issue seems richly priced, but the bank has a unique business model.

5

Negative

Limited operating history and its fast-growing and rapidly evolving business make it difficult to evaluate its business and future operating results on the basis of its past performance, and its future results may not meet or exceed its past performance.

BB cannot effectively compare its financial statements for Fiscal Years 2015, 2016 and 2017 due to irregular terms of duration.

If BB is unable to manage the growth associated with the expansion of its branches, ATMs, and DSCs effectively, its financial, accounting, administrative and technology infrastructure, as well as its business and reputation could be adversely affected.

A substantial portion of its operations is located in East and Northeast India, making us vulnerable to risks associated with having geographically concentrated operations.

Business comprises both traditional general banking activities and modern micro banking activities that expose its business overall to the risks faced by each sector, which may negatively impact its performance.

BB derive a substantial portion of its interest income from advances that are due within one year, and a significant reduction in these short-term advances may result in a corresponding decrease in its interest income.

New India Assurance IPO Review and Current GMP

Microcredit lending has its own unique risks and, as a result, BB may experience increased levels of non-performing loans and related provisions and write-offs that negatively impact its results of operations.

BB rely primarily on deposits as a low-cost means of funding its loan portfolio and there is no guarantee that we will be able to source sufficient deposits or alternative funding to support its business.

An increase in its portfolio of non-performing assets may materially and adversely affect its business and results of operations.

BB may face risks associated with its large number of branches and widespread network of operations which may adversely affect its business, financial condition and results of operations.

Its business and financial results could be impacted materially by adverse results of legal proceedings.

BB does not own the premises at which its Registered and Corporate Office, branches, ATMs, DSCs and other office premises are located.

Comparison with PEERS

6813Valuation

Bandhan Bank’s EPS for 9M of FY2018 on post-issue equity works out to Rs 10.7. At the price band of Rs 370 to Rs 375, P/E works out to 34.6 to 35.0 times.

Post-issue book value of Bandhan Bank works out to Rs 75.6 at the issue price of 370 and Rs 76.0 at the issue price of Rs 375. P/BV works out to 4.9X and P/Adj BV is at 5.0X at the upper price band.

Among the comparable banks, RBL Bank is trading at P/BV (on 9M FY2018 BV) of 3.0X, AU Small Finance Bank is trading at P/BV of 8.4X, Yes Bank is trading at P/BV of 2.8X, IndusInd Bank is trading at P/BV of 4.4X.

Among the comparable NBFCs and leading microfinance lenders, Equitas Holding is trading at P/BV of 2.8X, Ujjivan Financial Services is trading at P/BV of 2.4X and Bharat Financial Inclusion is trading at P/BV of 5.6X.

Grey Market premium

Current GMP is Rs. 26 /- and Kostak is Rs. 800/-

 

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 before making any actual investment decisions, based on information published here.

Bharat Dynamics IPO Review

Bharat Dynamics is one of the leading defense PSUs in India engaged in the manufacture of Surface to Air missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), underwater weapons, launchers, countermeasures and test equipment. It is the sole manufacturer in India for SAMs, torpedoes, ATGMs (Source: F&S Report). It is also the sole supplier of SAMs and ATGMs to the Indian armed forces (Source: F&S Report).

Additionally, it is also engaged in the business of refurbishment and life extension of missiles manufactured. It is also the codevelopment partner with the DRDO for the next generation of ATGMs and SAMs. It is a wholly-owned GoI company headquartered in Hyderabad and under the administrative control of the MoD, GoI and were conferred the ‘Mini-ratna (Category -1)’ status by the Department of Public Enterprises, GoI. Founded in 1970, it has over four decades of experience in manufacturing missiles and countermeasures and its allied equipment.

BDL

IPO Dates & Price Band:

  • IPO Open: 13-March-2018
  • IPO Close: 15-March-2018
  • IPO Size: Approx Rs.960 Crore (Approx)
  • Face Value: Rs.10 Per Equity Share
  • Price Band: Rs.413 to 428 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 22,451,953 Shares 
  • Retail & Employee Discount: Rs.10

IPO Market Lot:

  • Shares: Apply for 35 Shares (Minimum Lot Size)
  • Amount: Rs.14,630 (For Retail & Employee)
  • Amount: Rs.14,980 (For QIB & HNI)

IPO Allotment & Listing:

  • Basis of Allotment: 20-March-2018
  • Refunds: 21-March-2018
  • Credit to demat accounts: 22-March-2018
  • Listing: 23-March-2018

Company Promoters:

President of India

Government of India

IPO Registrar:

Alankit Assignments Ltd

IPO Lead Managers:

  • IDBI Capital Markets & Securities Ltd
  • SBI Capital Markets Ltd
  • Yes Securities (India) Ltd

Economic Trends & Growth Outlook

The Central Statistics Organization and the Indian Monetary Fund forecasts India to be one of the fastest growing economy for the 2017-18 fiscal period. The Government of India forecasts the economy to grow at 7.1% during the same year. The growth is among the strongest of the G-20 nations.

Foreign Development Investment (FDI) rates have increased in sectors like defense, insurance, and other sectors. As a result FDI has jumped from $ 36 Billion in 2013-14 to $ 60 Billion in 2016-17. Under the ambit of the ‘Make in India’ initiative, investment procedure, license applications, declarations and other processes has been streamlined to boost investor confidence. Applications for permits have been digitized, and a new uniform tax regime (Goods & Services Tax) has been implemented to reduce complexity in taxation.

The Indian Defence Market – Macro Outlook

The Indian defense market is in a state of transition, as a result of new policies promulgated by the government. The Indian Armed Forces have not been able to spend the entire defense budget allocated, owing to straitjacketed procurement procedures and inherent delays; and the gap between allocated and actual defense spending has been increasing over the years. Frost & Sullivan expects the underspend in defense to decrease during the forecast period, as the government modifies policies to simplify procurement. Reduced underspending will drive defense budgets and the market will expand to $68.7 billion, recording a compound annual growth rate (CAGR) of 6.52 %, or $79.17 billion at a CAGR of 8.04 % depending on the government’s ability to simplify procurement through policy initiatives.

Defense Industry Drivers

Drivers

Terrorism, Borders, and Internal Security Problems

problems

New FDI Policies and DPP 2016

keyDefense Procurement Planning in India

defenceImage Source: Frost & Sullivan

New Policy Developments and Implications

11

Indian Defence Exports are on the rise

exportsIndian Defence Budget Forecast 2017-26

budget1

Guided Missile & Torpedo Market Landscape

world

Reliance Nippon Life Asset Management ( First MF ) IPO Review

Competitive Strengths

Modern facilities and infrastructure to deliver quality products in a timely manner.

Increase in indigenization of our products and implementation of the “Make in India” policy.

Quality control of our products.

Strong order book and established financial track record of delivering growth.

Experienced board and senior management team.

Our Strategies

Continue to invest in infrastructure.

Focus on R&D.

Developing new products.

Provide its product offerings to the international market.

Positive

Valuations are lower compared to peers like Bharat Electronics and Apollo Micro System.

Bharat Dynamics has a strong order book and revenue outlook, coupled with superior return ratios compared to peers.

The company has a dominant position as a government-owned defense enterprise.

Strong return ratios, negative working capital management, strong growth track and superior balance sheet (debt-free) are positive.

Negative

BDL is primarily dependent on a single customer, the Indian armed forces through the Ministry of Defence, Government of India (“MoD”). A decline or reprioritization of the Indian defence budget,the reduction in their orders, termination of contracts or failure to succeed in tendering projects and deviations in the short term and long term policies of the MoD or the Indian armed forces in the future will have a material adverse impact on its business, financial condition, and results of operations, growth prospects and cash flows.

As a result of national security concerns, certain information in relation to its business and operations is classified as ‘secret and confidential’ pursuant to which BDL have not disclosed such information in this DRHP nor provided such information to the BRLMs and other intermediaries and advisors involved in this Offer.

Its business operation is based out of three units in Telangana and Andhra Pradesh. The loss of, or shutdown of, its operations at any of its units in Telangana and Andhra Pradesh will have a material adverse effect on its business, financial condition and results of operations.

BDL’s future growth and expansion are limited by its production capacities, the requirements of the MoD and the locations at which we operate.

Do Not Compare Yourself with Other Investors While Making Investment

BDL’s agreements, memorandums of understanding and non-disclosure agreements with various business partners may not yield the benefits we expect.

BDL derive its revenues from the MoD contracts on the achievement of certain milestones. Its contracts with the MoD are subject to termination.

Imposition of liquidated damages and invocation of performance bank guarantees / indemnity bonds by its customers could impact its results of operations and BDL may face potential liabilities from lawsuits and claims by customers in the future.

BDL is subject to a number of procurement rules and regulations of the MoD, Government regulations and other rules and regulations. Its business and its reputation could be adversely affected if BDL fail to comply with applicable rules.

Its business could be adversely affected by an adverse outcome of an audit by the Comptroller Auditor General of India (“CAG”).

The CAG and its current and past statutory auditors have qualified and made certain observations in their audit report on its financial statements in recent financial years.

There are outstanding legal and tax proceedings involving the Company. Any adverse decision in such proceedings may expose us to liabilities or penalties and may adversely affect its business,financial condition, results of operations and cash flows.

BDL has had a negative net cash flows in the past and may continue to have negative cash flows in the future.

Financials:

Total Income of 2016-17 INR 51,980.7 Millions
Total Income of  6M 2017-18 INR 21,902.51 Millions
Earnings per Share (EPS) INR.21.57**
Earnings per Share (EPS) 6M INR.7.21**
Equity Capital as on 30.9.2017 INR 916.41 Million
Equity Capital after the IPO: INR.
Upper Price Band/last EPS: 19.84**
Book Value of the Share As on September 30, 2017  INR 88.96**
**NAV adjusted for bonus shares  in the ratio of 1:1
Upper offer price/Book Value Ratio: 4.81

It has no direct listed peers to compare with in India. In India BEL, Cochin Shipyard, L&T, M&M, Tata Power, Reliance Defense etc. are working on defense projects but their main revenue comes from another sector.

If we compare BDL to some exact peers in the United States – Lockheed Martin P/E 25, Rockwell Collins P/E 27, Northrop Grumman P/E 26, Raytheon P/E 28. BDL is asking same as international peers. Looks like it is fully priced.

Grey Market premium

Current GMP is Rs.4/- and Kostak is Rs.250/-

Conclusion:

BDL share is offered to retail investors at Rs. 418 ( net of retail discount) PE of 18.43 on Estimated EPS for the current year. So the IPO is very very reasonably priced. Yet due to varied factors Grey market lacks any fancy for this IPO and at the time of listing, Wishes of Grey market prevails.

So Listing Gains may not be significant. yet one should APPLY this IPO for solid Medium to long Term Gains.

 

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 before making any actual investment decisions, based on information published here.