Reblog: Review IndoStar Capital Finance Limited IPO

After a lull in the month of April 2018, long wait for main board IPO for financial year 18-19 is over with a non-banking finance company breaking the ice with its float of around Rs. 1850 crore. Details of the first main board IPO of this fiscal is given hereunder:

Indostar Capital Finance Ltd. (ICFL) is a leading non-banking finance company (“NBFC”) registered with the Reserve Bank of India as a systemically important non-deposit taking company. It is a professionally managed and institutionally owned organization which is primarily engaged in providing bespoke Indian Rupee denominated structured term financing solutions to corporate and loans to small and medium enterprise (“SME”) borrowers in India. ICFL recently expanded its portfolio to offer vehicle finance and housing finance products. Although, the company operated in a challenging credit environment in the initial years of our business operations business has experienced growth since the commencement of operations in 2011. Between fiscal 2013 and 2017, its total credit exposure, total revenue and net profits grew at a CAGR of 30.0%, 31.4% and 23.7% respectively. Its corporate lending business which was at 99.8% in FY 2015 declined to 76.8% for the period ended 31.12.17 and for the said periods, its SME lending business grew from 0.2% to 22.7%. Vehicle financing operations started from November 2017 and housing finance operations started from March 2018.

As of 28th February 2018, it conducted its operations through 71 branches across India with central office support at Mumbai. As on the said date, its distribution network included 548 personnel and approx. 949 third party direct sales associates. Promoters are part of the Everstone Group. Company’s gross NPAs accounted for 0.6%, 0.2%, 1.4% and 1.7% of Gross Advances, while net NPAs accounted for 0.5%, 0.2%, 1.2% and 1.3% of Net Advances, respectively. Its average Cost of Borrowings in fiscal 2015, 2016 and 2017 and the nine-month period ended December 31, 2017 was 11.9%, 11.1%, 10.3% and 9.1%, respectively. Currently, ICFL has around 100 branch network.

To part finance its existing funding activities,  ICFL is coming out with a maiden IPO of via book building route with a price band of Rs. 570-572 per share for approx. 32237762 shares of Rs.10 each to mobilize Rs.1837.55 cr.  – Rs. 1844.00 crore based on lower and upper price bands.  The issue comprises of fresh equity issue worth Rs. 700 crore (approx. 12237762 shares) and offer for sale of 20000000 equity shares. The issue opens for subscription on 09.05.18 and will close on 11.05.18. Minimum application is to be made for 26 shares and in multiples thereon, thereafter. BRLMs to this issue are JM Finance Ltd., Kotak Mahindra Capital Co. Ltd., Morgan Stanley India Co. Pvt. Ltd., Motilal Oswal Investment Advisors Ltd. and Nomura Financial Advisory and Securities (India) Pvt. Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue. Post allotment, shares will be listed on BSE/NSE. Having raised initial equity at par, it raised further equity in the price range of Rs. 100 to Rs. 315 per share. The average cost of acquisition of shares by the promoter selling shareholders and other selling shareholder is Rs. 130 to Rs. 133.27 per share. Issue constitutes 35.37% of the post issue paid-up capital of the company. Post issue its current paid up equity capital of Rs. 78.90 crore will stand enhanced to Rs. 91.14 cr.

On the performance front, for last four fiscals (on a consolidated basis) ICFL has posted total revenue/net profits of Rs. 396.91 cr. / Rs. 112.13 cr. (FY14), Rs. 528.06 cr. / Rs. 149.04 cr. (FY15), Rs. 644.05 cr. / Rs. 191.64 cr. (FY16) and Rs. 719.92 cr. / Rs.210.80 cr. (FY17). For the first nine months ended on 31.12.17 of FY18 it has earned a net profit of Rs. 164.08 cr. on revenue of Rs.585.95 cr. For last three fiscals, it has posted an average EPS of Rs. 25.53 and an average RoNW of 11.62%. The issue is priced at a P/BV of 2.17 based on its NAV of Rs.263.96 as on 31.12.17. If we annualize latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 24 against the industry average of 28.66. As per offer documents it is showing its listed peers as L & T Finance, Piramal Enterprise, Aditya Birla Capital, Capital First, Shriram Transport Fin., Sundaram Fin., Cholamandalam Inv. , Repco Home that are trading at a P/E of around 25, 31,48, 21, 25, 36, 28 and 21 (as on 02.05.18).

On BRLM’s front, 5 merchant bankers associated with the offer have handled 42 public issues in the past three years out of which 9 public issues closed below the issue price on listing date.

Conclusion / Investment Strategy

The issue appears fully priced. However, considering growth prospects for the segment it is in, investors may consider an investment for long term.

The original review is penned by Dilip Davda, appears on and is available here.

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