Indostar Capital IPO kicks off today; should you buy into this Rs 1,850-crore offering?
Indostar Capital is a non-banking finance company, which raised a little over Rs 553 crore from anchor investors on Tuesday. The company's IPO committee has finalised allocation of 96,71,329 equity shares to as many as 24 investors at Rs 572 apiece, also the upper price band for the offer.
Indostar Capital launched its Rs 1,850-crore initial public offer (IPO) on Wednesday in the price band of Rs 570-572 per equity share, under which it seeks to raise Rs 700 crore through fresh share issuance and the balance through an offer-for-sale involving up to 2 crore shares. The issue will close on Friday.
Indostar Capital is a non-banking finance company, which raised a little over Rs 553 crore from anchor investors on Tuesday. The company's IPO committee has finalised allocation of 96,71,329 equity shares to as many as 24 investors at Rs 572 apiece, also the upper price band for the offer. At this price, the total amount works out to be Rs 553.19 crore.
Proceeds of the fresh issue will be used to augment capital base to meet future capital requirements. The promoters and the existing shareholders will dilute up to 30 per cent of their ownership through the public issue.
The company is 42.3 per cent owned by the private equity fund Everstone Capital, while ACP Libra owns 16.35 per cent and Beacon India PE owns 10.8 per cent.
The issue is being managed by JM Financial, Kotak Mahindra Capital, Morgan Stanley, Motilal Oswal and Nomura.
Here is what brokerages recommend on the issue:
Aditya Birla Capital
Backed by strong promoter, Indostar has delivered strong performance across all the parameters in just a short span of nearly 7 years. All its 4 principal line of business are well-set for healthy growth. Consolidated credit has the potential to grow at nearly 25 per cent for next couple of years. Proportion of CV (high yielding portfolio) is expected to increase considerably which shall support NIM.
Indostar has made necessary investment for its CV business, the benefit of which will be soon reaped. Return ratios are strong with RoA of 3.8 per cent as on 9MFY18. It has come down slightly from 4.2 per cent in FY15 owing to higher proportion of SME book (relatively lower yielding) and increased expenditure on branches for CV business. Going ahead, CV business is all set to pick-up which shall support RoA at current levels going ahead. Besides, it is noteworthy that Indostar is adequately capitalized with capital adequacy ratio of nearly 32 per cent.
At the price band of Rs 570-572, the issue is priced at 23.8x (both on lower as well as upper band) of its FY17 earnings whereas it is available at 1.9x P/BV which seems to be attractive. The pre-issue return on equity is 12.4 per cent whereas Net Interest Margin (NIM) stands at 7.8 per cent which is one of the best among its competitors. Between Fiscal 2013 & 2017, company’s total credit exposure & total revenue grew at a CAGR of 30 per cent & 31.4 per cent, respectively, whereas profit after tax has improved at CAGR of 23.7 per cent.
With strong financial performance over the years, experienced management with ample years of business experience, diversification of portfolio by entering in new segments and attractive P/BV, we believe that the issue is available at attractive valuations. Hence, we recommend investors to subscribe the issue at cut-off price.
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At the upper end of the price band, ICFL is valued at 2.2 times of Q3FY18 book value (Pre-IPO) and on post dilution basis at 1.9x of Book value. The strong sponsorship of Everstone and other shareholders, along with a wellcapitalised balance sheet and an experience and focused management provide an excellent base for the next level of growth. Based on the above positive factors we assign SUBSCRIBE rating to the issue.
Risks and concerns:
IndoStar has expanded into new lines of business, if the company is unable to successfully run the new businesses profitably, its results of operations and financial condition may be affected.
The company experienced significant growth in recent years and may not be able to sustain its growth or manage it effectively.
The company has significant exposure to certain sectors and to certain borrowers and if these exposures become non-performing, such exposures could increase the level of NPAs in its portfolio and affect its business, future financial performance and results of operations and the quality of its asset portfolio.
The company utilizes the services of certain third parties for parts of its operations. Any deficiency or interruption in their services could adversely affect its business and reputation.