- BFSL is one of the leading players in biscuits and bakery product segments.
- The company supplied its products under two brands “CREMICA” and “ENGLISH OVEN”.
- Its financial performance for the last three fiscal was almost static.
- Super performance for the FY21 first half amidst COVID-19 pandemic is a bit surprising.
BFSL has paid a yearly dividend of 7.5% for the last three fiscals.
ABOUT COMPANY:
Mrs Bectors Food Specialities Ltd. (BFSL) is one of the leading companies in the premium and mid-premium biscuits segment and the premium bakery segment in North India, according to the Technopak Report. The company manufactures and markets a range of our biscuits such as cookies, creams, crackers; digestives and glucose under our flagship brand ‘Mrs. Bector’s Cremica’. It also manufactures and market bakery products in savoury and sweet categories which include breads, buns, pizza bases and cakes under our brand ‘English Oven’. BFSL supplies its products to retail consumers in 26 states within India, as well as to reputed institutional customers with pan-India presence and to 64 countries across six continents during the Financial Year ended March 31, 2020. The company has six manufacturing units – 2 in Punjab and 1 each in Himachal Pradesh, Uttar Pradesh, Maharashtra and Karnataka.
According to Technopak Report, ‘Mrs. Bector’s Cremica’ is one of the leading biscuit brands in the premium and mid-premium segment in Punjab, Himachal Pradesh, Jammu and Kashmir and Ladakh and ‘English Oven’ is one of the largest selling brands in the premium bakery segment in Delhi NCR, Mumbai and Bengaluru. BFSL is the largest supplier of buns in India to reputed QSR chains such as Burger King India Limited, Connaught Plaza Restaurants Private Limited, Hardcastle Restaurants Private Limited, and Yum! Restaurants (India) Private Limited (Source: Technopak Report).
Recently, it has introduced new products such as sub breads, pizzas, garlic breads, cheese garlic bun fills, and frozen cookies for retail as well as institutional customers and during period April 1, 2020, to September 30, 2020, its diversified product portfolio for bakery segment consists of 118 SKUs.
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- BKIL is growing international QSR Chains in India.
- “BURGER KING”, “POPEYES”, “TIM HORTONS” are the world brands.
- The company has suffered losses for reported financial periods.
- On PE and P/BV parameters, the issue is priced aggressively.
- 97% of owned outlets is the prime positive factor at present.
- Changing lifestyle, shifting preference of habits posse’s big concerns.
ABOUT COMPANY:
Burger King India Ltd. (BKIL) is one of the fastest-growing international QSR chains in India during the first five years of operations based on the number of restaurants. (Source: Technopak) As the national master franchisee of the BURGER KING® brand in India, it has exclusive rights to develop, establish, operate and franchise Burger King branded restaurants in India. Company’s master franchisee arrangement provides with the ability to use Burger King’s globally recognised brand name to grow its business in India while leveraging the technical, marketing and operational expertise associated with the global Burger King brand.
The globally recognised Burger King brand, also known as the “HOME OF THE WHOPPER®”, was founded in 1954 in the United States and is owned by Burger King Corporation, a subsidiary of Restaurant Brands International Inc., which holds a portfolio of fast-food brands that are recognized around the world that include the BURGER KING®, POPEYES® and TIM HORTONS® brands. The Burger King brand is the second-largest fast-food burger brand globally as measured by the total number of restaurants, with a global network of 18,675 restaurants in more than 100 countries and U.S. territories as at September 30, 2020.
BKIL’s customer proposition focuses on value leadership, offering customers variety through innovative new food offerings at different dayparts, catering to the local Indian palate, offering a wide range of vegetarian meal options, and its taste advantage and flame grilling expertise.
Following fancy for ready to eat and lavish lifestyle, BKIL was able to reach a milestone of 200 outlets in India in the first five years of operations. All was going well till FY20, but then COVID-19 pandemic played a spoil sport and the company faced the music with a severe setback in the first half of the current fiscal. With the sudden change in lifestyle and awareness of healthy food habits to survive in the pandemic is a big concern for this chain of stores.
As of September 30, 2020, BKIL had 261 restaurants, including eight Sub-Franchised Burger King Restaurants, across 17 states and union territories and 57 cities across India. Of our 261 restaurants as of September 30, 2020, 226 were operational. As at the date of this Red Herring Prospectus, it had 259 Company-owned Burger King Restaurants and nine Sub-Franchised Burger King Restaurants, of which 249 were operational; including two sub-franchised Burger King Restaurant.
BKIL plans to continue to build its restaurant network using a cluster approach and penetration strategy with the objective to provide greater convenience and accessibility for customers across relevant geographies. BKIL owns around 97% of the total outlets in India. Management is confident of achieving the target of opening 700 outlets PAN India by extended timeframe up to December 2026 despite current slowdown witnessed following a pandemic.
ISSUE DETAILS / CAPITAL HISTORY:
To part finance its plans for repayment/prepayment of outstanding borrowings (Rs.164.98 cr.), capital expenditure for own outlets (Rs. 177.00 cr.) and general corpus fund needs, BKIL is coming out with a maiden combo offer of fresh equity issue worth Rs. 450 cr. and offer for sale of 60000000 equity shares of Rs. 10 each to mobilize Rs. 810.00 cr. (at the upper price band). BKIL has fixed a price band of Rs. 59 – Rs. 60 for this book built IPO. The company will issue approx. 75000000 fresh equity shares at the upper price band of the issue. Minimum application is to be made for 250 shares and in multiples thereon, thereafter. The issue opens for subscription on December 02, 2020, and will close on December 04, 2020. Post allotment shares will be listed on BSE and NSE. The issue constitutes 35.37% of the post issue paid-up capital of the company.
The company has reserved 75% of the issue for QIBs, 15% for HNIs and 10% for Retail investors.
Having raised initial equity at par, BKIL issued further equity in the price range of Rs. 20 to Rs. 90 per share from November 2014 to November 2020 including pre-IPO placement of 13200000 shares at Rs. 44 per share by way of a rights issue to promoters in May 2020 and 15712820 shares at Rs. 58.50 each to Amansa Investment on November 18, 2020. With this issue, BKIL is looking for a market cap of approx. Rs. 2290 cr. post this issue.
The average cost of acquisition of shares by the promoters is Rs. 23.11 per share. Post issue, BKIL’s current paid-up equity capital of Rs. 306.65 cr. will stand enhanced to Rs. 381.65 cr.
The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., CLSA India Pvt. Ltd., Edelweiss Financial Services Ltd. and J M Financial Ltd. While Link Intime India Pvt. Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, BKIL has posted turnover/net profit (loss) of Rs. 388.74 cr. / Rs. – (82.23) cr. (FY18), Rs. 644.13 cr. / Rs. – (38.28) cr. (FY19) and Rs. 846.83 cr. / Rs. – (76.57) cr. (FY20). Thus while the top line has shown rising trends, bottom line expressed negative earnings with inconsistency.
For the first half of the current FY21, it has posted a loss of Rs. – (118.95) cr. on a turnover of Rs. 151.65 cr. verses loss of Rs. – (17.43) cr. on a turnover of Rs. 425.37 cr. for the corresponding previous period. The company suffered a severe setback for the first half of the current fiscal on account of COVID-19 pandemic. Management clarified that the company is generating cash surplus, but due to accounting provisioning, it posted losses for all these years.
For the last three fiscals, BKIL has posted an average EPS of Rs. – (2.43) and an average RoNW of – (23.78%). Thus the issue is expressing negative P/E. The issue is priced at a P/BV of 7.87 based on its NAV of Rs. 7.62 (against FV of Rs. 10) as on September 30, 2020. The issue is priced at a P/BV of 3.01 on the basis of post-issue NAV of Rs. 19.93 (at the upper cap)
COMPARISION WITH PEERS:
As per offer documents, BKIL has shown Jubilant Foodworks and Westlife Developments as its listed peers. They are currently trading at a P/Es of around 229.66 and 00 (at the close of November 27, 2020, at BSE). However, they are not strictly comparable on an apple to apple basis.
MERCHANT BANKER’S TRACK RECORDS:
On BRML’s front, four lead managers associated with this issue have handled 22 public issues in the past three years out of which 9 issues closed below the issue price on listing date.
CONCLUSION / INVESTMENT STRATEGY
Burger King met with fancy among the younger generation that helped the company for speedy expansion of its footprint. But in the current situation of COVID-19 pandemic and changing lifestyle habits and shifting preference with rising awareness of immunity diet, Burger King will find it difficult to maintain the progress made in the last five fiscals. Company has huge carried forward losses that are represented in its NAV of Rs. 7.62 (against face value of Rs. 10) as on September 30, 2020. Thus issue appears aggressively priced. Due to its carried forward losses, BKIL has reserved 75% quota for QIBs and they may support the issue for smooth sailing. Extended gestation period may take long to wipe out accumulated losses. The segment is crowded with many organized/unorganized players and posing tough competition. Once normalcy restores, BKIL may achieve the targeted plans. Considering all these, cash surplus, risk savvy investors may consider investing in this issue with a long term perspective.
The original review was written by Dilip Davda, appears on chittorgarh.com and is available here.
- GPL has a major stake (74%) from China-based Fosun Pharma.
- IPO constitutes 26.45% of the post issue paid-up equity.
- Issue appears fully priced based on P/E and P/BV parameters.
- The company has not paid any dividend in the last three fiscal.
- Negative sentiment for China connection globally raises major concern.
PREFACE:
Gland Pharma has been the talk of the town ever since it filed DRHP for its mega maiden float in pharma segment. It has a very interesting story of its existence. The company formed by PVN Raju in 1978 found a big stakeholder in the form of Fosun Pharma of China that acquired 74% stake in October 2017. Thereafter, the company marked tremendous growth in top and bottom line till FY20. However, ever since COVID-19 pandemic, China is facing a trade war and boycott from the world over and thus this company with major China stake is at the centre stage for the Indian capital market.
As we know not only the Government of India, but even countries like the US, UK, Germany, Japan have started cutting their business deals with China. As this process has been aggravated since April/May 2020, it would be of major concern for the future outlook of this pharma company. According to market circles, unless some big Indian or other multinational stakeholder jumps in to acquire the stake, it will be very difficult to presume the fate of this company in the near term.
In the past, we have seen pharma/healthcare sector IPOs of Eris Life (Rs. 1741.16 cr.), Alkem Lab (Rs. 1349.61 cr.), Laurus Lab (Rs. 1331.80 cr.), Metropolis (Rs. 1204.29 cr.), Aster DM (Rs. 980.14 cr.) and thus, this is the biggest ever IPO in pharma sector for Indian capital market history so far. So on this count too this IPO is a talk of the town.
It’s a known fact that over 80% raw material for pharma business is coming in India from China and it dominates this space globally. But in the present context of negative sentiment for China connections globally post COVID-19 pandemic, once again this IPO is drawing the attention of one and all in regard to responding it. This is indicative from the GMP as it started with a big bang even when formal pricing announcement was missing. And now that pricing announcement is made, it has witnessed a big slide in GMP quotes. If market circles to be believed, this IPO may see a re-run of SBI Card that created fancy before IPO and marked dull listing on debut day.
ABOUT COMPANY:
Gland Pharma Ltd. (GPL) is one of the fastest-growing generic injectables-focused companies by revenue in the United States from 2014 to 2019 (Source: IQVIA Report). It sells products primarily under a business to business (“B2B”) model in over 60 countries as of June 30, 2020, including the United States, Europe, Canada, Australia, India and the Rest of the world. The company has a consistent compliance track record with a range of regulatory regimes across these markets. It also has an extensive track record in complex injectables development, manufacturing and marketing and a close understanding of the related sophisticated scientific, technical and regulatory processes.
It has expanded from liquid parenterals to cover other elements of the injectables value chain, including contract development, own development, dossier preparation and filing, technology transfer and manufacturing across a range of delivery systems. Its promoter, Shanghai Fosun Pharma, is a global pharmaceutical major.
GPL is focused on meeting diverse injectables needs with a stable supply of affordable and high-quality products. It has established a portfolio of injectable products across various therapeutic areas and delivery systems. GPL is also present in sterile injectables, oncology and ophthalmics, and focus on complex injectables, NCE-1s, First-to-File products and 505(b) (2) filings. GPL’s delivery systems include liquid vials, lyophilized vials, pre-filled syringes, ampoules, bags and drops. The company is expanding development and manufacturing capabilities in complex injectables such as peptides, long-acting injectables, suspensions and hormonal products as well as new delivery systems such as pens and cartridges.
GPL is currently following the B2B segment and has up the sleeve B2C market as well. The company has seven manufacturing facilities in India, comprising four finished formulations facilities with a total of 22 production lines and three API facilities. As of June 30, 2020, it had manufacturing capacity for finished formulations of approximately 755 million units per annum.
As of June 30, 2020, it had a sales force of over 200 employees and an extensive countrywide distribution network to ensure coverage in approximately 2,000 corporate hospitals, nursing homes and Government facilities. On the same date, GPL had a workforce of 3766 excluding contract labourers.
As of June 30, 2020, the group had 267 ANDA filings in the United States, of which 215 were approved and 52 were pending approval. The 267 ANDA filings comprise 189 ANDA filings for sterile injectables, 50 for oncology and 26 for ophthalmics related products. Out of these 267 ANDA filings, 101 represent ANDAs owned by it, of which 71 ANDA filings are approved and 30 are pending approval. As of the same date, the group had a total of 1,427 product registrations, comprising 371 product registrations in the United States, Europe, Canada and Australia, 54 in India and 1002 in the Rest of the world.
ISSUE DETAILS / CAPITAL HISTORY:
To finance its needs of working capital (Rs. 769.50 cr.), capital Expenditure (Rs. 168.00 cr.), general corpus fund (SHALL NOT EXCEED 25% OF THE NET ISSUE PROCEEDS) GPL is coming out with a maiden IPO of combo offer of fresh equity issue (Rs. 1250.00 cr.) and offer for sale (Rs. xx cr.). It consists fresh equity issue of approx 8333335 shares of Re. 1 each (at the upper price band) and offer for sale of 34863635 shares. Thus the overall issue will be for approx. 43196970 equity shares. The issue opens for subscription on November 09, 2020, and will close on November 11, 2020. The company has fixed the price band of Rs. 1490 – Rs. 1500 per share. Minimum application is to be made for 10 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. GPL mulls mobilizing Rs. 6436.35 cr. – Rs. 6479.55 cr. (Based on lower and upper price bands) through this IPO. The issue constitutes 26.46% of the post issue paid-up capital of the company.
Having issued/converted initial equity at par, the company raised further equity in the price range of Rs. 2.50 to Rs. 48.69 between January 1996 and December 2007. The company also bought back shares in the price range of Rs. 139.81 – Rs. 344.81 between July 2014 and October 2017. It has also issued bonus shares in the ratio of 1 for 1 in February 1994, 1 for 2 in October 1994. (Based on FV of Re. 1 per share).
The average cost of acquisition of shares by the promoters/ other selling stakeholders is Rs. NIL, Rs. 30.12 and 605.12 per share. Post issue, GPL’s current paid-up equity capital of Rs. 15.50 cr. will stand enhanced to Rs. 16.33 cr. With this issue, the company is looking for a market cap of Rs. 24492.42 cr.
The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd., Haitong Securities India Pvt. Ltd. and Nomura Financial Advisory & Securities (India) Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, GPL has posted total income/net profits of Rs. 1671.68 cr. / Rs. 321.05 cr. (FY18), Rs. 2129.77 cr. / Rs. 451.86 cr. (FY19) and Rs. 2772.41 cr. / Rs. 772.86 cr. (FY20). For Q1 of FY21, it has posted a net profit of Rs. 313.90 cr. on a total income of Rs. 916.29 cr. Currently, around 67% revenue comes from exports to the US, and as known about US-China trade war imbroglio, added tension following Corona pandemic, it is difficult to assume the sustainability of this export business.
For the last three fiscals, GPL has posted an average EPS of Rs. 38.11 and an average RoNW of 18.08%. The issue is priced at a P/BV of 5.86 based on its NAV of Rs. 255.79 as on June 30, 2020, and at a P/BV of 4.70 based on post issue NAV of Rs. 319.29. (Based on upper price band).
GPL has posted CAGR of 27.38% in revenue, EBITDA of 36.90%, restated profits of 55.15% from fiscal 2018 to 2020. Its debt-equity ratio was 0.001 as on June 30, 2020.
For the last three fiscals, GPL has not declared any dividend payouts. (Refer page 185 of RHP).
If we attribute the latest earnings on a fully diluted equity post issue, then asking price is at a P/E of around 19.5. Based on FY20 performance, the asking price is at a P/E of 31.7. Thus prima facie issue is fully priced. The prime concern is the sustainability of Q1 performance in the present context of opposing China connected goods/technology/tie-ups/investments.
BRLM’s TRACK RECORD:
The four Book Running Lead Managers associated with this issue have handled 15 public issues in the past three years, out of which 5 issues closed below the issue price on listing date.
COMPARISION WITH LISTED PEERS:
As per offer documents, GPL has no listed peers to compare with.
Conclusion / Investment Strategy
No doubt that currently, the pharma sector is attracting investors following COVID-19 pandemic and the search of remedies for it globally. This company has posted good performance for the last three fiscals and spectacular numbers for Q1 of FY21, but will it sustain going forward is a major concern in the present context of negative sentiment for China connections globally. Based on P/BV and P/E parameters, the issue appears fully priced. Considering all these, though it sounds lucrative bet for the long term, risk savvy, cash surplus investors may consider investment at their own risk in this China connected IPO.
The original review is written by Dilip Davda and appears on Chittorgarh.com. It is available here.
- UTI AMC is the second-largest AMC with a track record of 55+ years.
- It is making a secondary offer for listing benefits and providing exit to existing stakeholders.
- Last three fiscals financial data has shown declining trends.
- Investors may consider an investment with a long term perspective.
PREFACE:
UTI AMC is the revamped version of UTI and is the second-largest AMC having 55+ years track record. With the adoption of new technologies and well-managed portfolio plans, it is gaining grounds. However, for the last three fiscals, it has seen inconsistency in financial performance which is attributed to certain provisioning as per guidelines of regulators. It is back on track with its FY21 Q1 performance claims management.
ABOUT COMPANY:
UTI Asset Management Company Ltd. (UTI AMC) is the second-largest asset management company in India in terms of Total AUM and the eighth largest asset management company in India in terms of mutual fund QAAUM as of June 30, 2020, according to CRISIL. As of June 30, 2020, it also had the largest share of monthly average AUM attributable to B30 cities of the top ten Indian asset management companies by QAAUM as of June 30, 2020, according to CRISIL. UTI AMC caters to a diverse group of individual and institutional investors through a wide variety of funds and services.
The company manages the domestic mutual funds of UTI Mutual Fund, provide portfolio management Services (“PMS”) to institutional clients and high net worth individuals (“HNIs”), and manage retirement funds, offshore funds and alternative investment funds. As of June 30, 2020, its total QAAUM for domestic mutual funds (“Domestic Mutual Fund QAAUM”) was Rs. 1,336.3 billion, while another AUM was Rs. 8,493.9 billion. With 10.9 million Live Folios as of March 31, 2020, its client base accounts for 12.2% of the approximately 89.7 million folios that, according to CRISIL, are managed by the Indian mutual fund industry. UTIAMC’s history and track record in the mutual fund industry, strong brand recognition, distribution reach, performance and client relationships provide a platform for future growth.
The company and its predecessor (Unit Trust of India) have been active in the asset management industry for more than 55 years, having established the first mutual fund in India. For purposes of the SEBI Mutual Fund Regulations, the four sponsors are the State Bank of India (“SBI”), Life Insurance Corporation of India (“LIC”), Punjab National Bank (“PNB”) and Bank of Baroda (“BOB”) (collectively, the “Sponsors”), each of which has the Government of India as a majority shareholder. T. Rowe Price Group, Inc., a global asset management company, is another major shareholder (through its subsidiary T. Rowe Price International Ltd. (“TRP”)).
UTI AMC has a national footprint and offers its schemes through a diverse range of distribution channels. As of June 30, 2020, its distribution network includes 163 UTI Financial Centres (“UFCs”), 257 Business Development Associates (“BDAs”) and Chief Agents (“CAs”) (40 of whom operate Official Points of Acceptance (“OPAs”)) and 43 other OPAs, most of which are in each case located in B30 cities. Company’s IFAs channel includes approximately 53,000 Independent Financial Advisors (” IFAs”) as of June 30, 2020. The company believes that its BDA and CA network distinguishes from other asset management companies in India, as BDAs and CAs, who are engaged by it on an exclusive basis primarily in B30 cities, allow the company to efficiently and effectively develop, maintain and service its relationships with distributors and investors.
UTIAMC’s banks and distributors (“BND”) channel involves distribution arrangements with domestic and foreign banks, as well as with national and regional distributors. In addition, it has dedicated sales teams for institutional and public sector undertaking (“PSU”) clients and also offer products directly through UFCs, digital applications and website. Company’s distribution channels are supported by 459 relationship managers (“RMs”) (as of June 30, 2020), who interact with clients and distributors and help generate new business and maintain existing relationships. Investors are also able to directly invest in its mutual funds through mobile applications for customers. It also has offices in London, Dubai, Guernsey and Singapore, through which it markets offshore and domestic mutual funds to offshore investors who seek to invest in India.
Its clients include domestic individual investors (which represented 43.8% of the total closing AUM for domestic mutual funds (“Domestic Mutual Fund Closing AUM”) as of June 30, 2020), corporate and other institutional investors (which represented 45.4% of Domestic Mutual Fund Closing AUM as of June 30, 2020), and banks and other financial institutions (which represented 3.5% of Domestic Mutual Fund Closing AUM as of June 30, 2020). Trusts (5.7%) and non -resident Indians (“NRIs”) (1.7%) represented the remainder of Domestic Mutual Fund Closing AUM as of June 30, 2020.
It manages 153 domestic mutual fund schemes, comprising equity, hybrid, income, liquid and money market funds as of June 30, 2020. Company’s Domestic Mutual Fund QAAUM was Rs. 1,336.3 billion as of June 30, 2020, which accounted for approximately 5.4%, or the eighth largest amount, of the total QAAUM invested in all mutual funds in India as of June 30, 2020, according to CRISIL.
ISSUE DETAILS / CAPITAL HISTORY:
For listing gains and to provide an exit to existing stakeholders, UTI AMC is coming out with a maiden IPO of an offer for sale of 38987081 shares of Rs. 10 each. The issue opens for subscription on September 29, 2020, and will close on October 01, 2020. The company has fixed the price band of Rs. 552 – Rs. 554 per share. Minimum application is to be made for 27 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. UTI AMC mulls mobilizing around Rs. 2152.09 cr. – Rs. 2159.88 cr. (based on lower and upper price band) through this IPO. Issue constitutes 30.75% of the post issue paid-up capital of the company.
The company has reserved 200000 shares for eligible employees. From the residual portion, it has reserved 50% for QIBs, 15% for HNIs and 35% for retail category.
Having issued initial equity at par, the company issued further equity in the price range of Rs. 200 to Rs. 260 between August 2015 and September 2015. It has also issued bonus shares in the ratio of 4 for 1 in December 2006 and 3 for 2 in December 2007.
The average cost of acquisition of shares by the promoters / selling stakeholders ranging from Rs. 99.76 to Rs. 200.43 per share. Post issue, UTIAMC’s current paid-up equity capital of Rs. 126.79 cr. will remain the same post-issue following secondary offer. With this issue, the company is looking for a market cap of Rs. 7024.01 cr. (based on upper price band). Current paid-up equity capital stands supported by free reserves of Rs.2708.14 cr. as on June 30, 2020.
The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., Axis Capital Ltd., Citigroup Global Markets India Pvt. Ltd., DSP Merrill Lynch Ltd. (BofA Securities), ICICI Securities Ltd., JM Financial Ltd., and SBI Capital Markets Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, on a consolidated basis, UTI AMC has posted revenue/ net profits of Rs. 1162.75 cr. / Rs. 405.09 cr. (FY18), Rs. 1080.89 cr./ Rs. 347.93 cr. (FY19) and Rs. 890.96 cr. / Rs. 275.49 cr. (FY20). Thus it has shown declining trends in income. However, for the Q1 of FY21, the company has earned a net profit of Rs. 101.08 cr. on revenue of Rs. 271.07 cr.
For the last three fiscals, on a consolidated basis, UTI AMC has posted an average EPS of Rs. 24.83 and an average RoNW of 12.02%. The issue is priced at a P/BV of 2.48 based on its NAV of Rs. 223.60 as on June 30,, 2020 (based on upper price band).
If we attribute annualize latest earnings and attribute on fully diluted equity post issue, then asking price is at a P/E of around 17.37 against industry average P/E of 38.64. However, if we attribute FY20 earnings then the issue is at a P/E of 25.49. Thus prima facie issue is fully priced based on latest earnings.
BRLM’s TRACK RECORD:
The seven Book Running Lead Managers associated with this issue have handled 28 public issues in the past three years, out of which 09 issues closed below the issue price on listing date.
COMPARISION WITH LISTED PEERS:
As per offer documents, UTI AMC has shown HDFC AMC (market cap Rs. 44746 cr.) and Nippon Life AMC (market cap Rs. 15565 cr.) as its listed peers. They are currently trading at a P/Es of 35.19 and 35.08 respectively. (As on September 25, 2020 noon).
Conclusion / Investment Strategy
UTI AMC has emerged as the second-largest AMC post revamp. According to management, they are back on track with its improved performance for FY21 Q1. The company is gearing to give the best services to its clients and investors with modern technology and research-based investments. Considering its financial performance so far, the issue appears fully priced. Investors may park their funds with a long term perspective.
The original review is penned by Dilip Davda, appears on Chittorgarh.com and is available here.
- MDSL is one of the defence public sectors undertaking with “Mini Ratna-1” status.
- A regular dividend-paying company since last 15 years.
- MDSL has orders on hand worth Rs. 54000 cr. plus to be executed in the next 6/7 years.
- The issue is priced reasonably to benefit one and all.
- Investors may consider investment for the medium to long term.
PREFACE:
MDSL filed its DRHP in the month of March 2018 and is now finally coming with its maiden IPO in September 2020. Management clarified that while the volatile market was at center stage, regulatory clearances and other unforeseen circumstances caused the delay. It enjoys a virtual monopoly in destroyers and submarine buildings.
ABOUT COMPANY:
Mazagon Dock Shipbuilders Ltd. (MDSL) is a defence public sector undertaking shipyard under the department of defence production, MoD (Ministry of Defence) with a maximum shipbuilding and submarine capacity of 40000 DWT (Source CRISIL Report). The company is engaged in the construction and repair of warships and submarines for the MoD for use by the Indian Navy and other vessels for commercial clients. It is a wholly-owned Government of India company, conferred with the “Mini Ratna-I” status in 2006, by the DPE. MDSL is India’s only shipyard to have built destroyers and conventional submarines for the India Navy. It is also one of the initial shipyards to manufacture Corvettes (Veer and Khukri class) in India.
Thus MDSL has business divisions in which it operates are Shipbuilding (includes building and repairs of naval ships), Submarine and heavy Engineering. The company is currently building four P-15 B destroyers and four P-17A stealth frigates and undertaking repair and refit of a ship for the Mod for use by the Indian Navy. MDSL is currently building/in the process of delivering four Scorpene-class submarines under a transfer of technology agreement with Naval Group as well as one medium refit and life certification of a submarine for the Mod for use by the Indian Navy. Since 1960, the company has built a total of 795 vessels including 25 warships, from advanced destroyers to missile boards and three submarines (source CRISIL report). The company has also delivered cargo ships, passenger ships, supply vessels, multipurpose support vessels, water tankers, tugs, dredgers, fishing trawlers, barges and border outposts for various customers in India as well as abroad (source CRISIL).
MDSL’s shipyard is strategically located on the west coast of India, on the sea route connecting Europe, West Asia and the Pacific Rim, a busy international maritime route. Some of the vessels built and delivered by MDSL in the past include six Leander class frigates, three Godavari class frigates, three corvettes, four missile boards, six destroyers, four submarines and three Shivalik class frigates for the Mod for the use by the Indian Navy and constructed and delivered seven offshore patrol vessels to the Indian Coast Guard.
As on the date of filing RHP, the company has a healthy order book worth Rs. 54000 cr. which is to be executed in the next six to seven years. MDSL suffered a severe setback in 2003 to 2005. The company has an uninterrupted dividend track record for the last 15 years.
ISSUE DETAILS / CAPITAL HISTORY:
For listing gains and to disinvest Government of India’s stake, MDSL is coming out with a maiden IPO of an offer for sale of 30599017 shares of Rs. 10 each. The issue opens for subscription on September 29, 2020, and will close on October 01, 2020. The company has fixed the price band of Rs. 135 – Rs. 145 per share. Minimum application is to be made for 103 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. MDSL mulls mobilizing around Rs. 413.09 cr. – Rs. 443.69 cr. (based on lower and upper price band) through this IPO. Issue constitutes 15.17% of the post issue paid-up capital of the company.
The company has reserved 345517 shares for eligible employees. From the residual portion, it has reserved 50% for QIBs, 15% for HNIs and 35% for retail category.
Having issued/converted entire equity at par, the company issued bonus shares in the ratio of 1 for4 in March 2017. The company also bought back 24900000 equity shares @ Rs. 101.80 in December 2017 and 22410000 equity shares at Rs. 124 in March 2020.
The average cost of acquisition of shares by the promoters/ selling stakeholders is Rs. 16.47 per share. Post issue, MDSL’s current paid-up equity capital of Rs. 201.69 cr. will remain the same as this is a secondary offer. With this issue, the company is looking for a market cap of Rs. 2924.51 cr. (based on upper price band). Current paid-up equity capital stands supported by free reserves of Rs.2867.44 cr. as on March 31, 2020.
The issue is jointly lead managed by Yes Securities Ltd., Axis Capital Ltd., Edelweiss Financial Services Ltd., DAM Capital Advisor Ltd. (erstwhile IDFC Securities Ltd.) and JM Financial Ltd., while Alankit Assignments Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On financial performance front, for the last four fiscals, on a consolidated basis MDSL has posted revenue/comprehensive net profits of Rs. 4274.86 cr. / Rs. 598.26 cr. (FY17), Rs. 5027.63 cr. / Rs. 496.17 cr. (FY18), Rs. 5204.67 cr./ Rs. 532.47 cr. (FY19) and Rs. 5535.31 cr. / Rs. 477.06 cr. (FY20).
For the last three fiscals, on a consolidated basis, MDSL has posted an average EPS of Rs. 22.03 and an average RoNW of 16.21%. The issue is priced at a P/BV of 0.95 based on its NAV of Rs. 152.17 as on June 30, 2020 (based on upper price band). For the last three fiscals, MDSL has distributed on an average Rs. 23.4 cr. as yearly dividend payouts.
If we attribute FY20 earnings on fully diluted equity post issue, then asking price is at a P/E of around 6.39 (based on upper price band), against peer group average P/E of 7.5. The issue is reasonably priced leaving something on the table for all.
BRLM’s TRACK RECORD:
The five Book Running Lead Managers associated with this issue have handled 23 public issues in the past three years, out of which 09 issues closed below the issue price on listing date.
COMPARISION WITH LISTED PEERS:
As per offer documents, MDSL has shown Cochin Shipyard, Reliance Naval and Garden Reach Shipbuilders as its listed peers. They are currently trading at a P/Es of 7.36, 00 and 13.33 (as on September 24, 2020). However, they are not truly comparable on an apple to apple basis.
Conclusion / Investment Strategy
MDSL, a Mini Ratna-1, has been a profit-making and dividend distributing PSU under MoD. It has orders worth Rs. 54000+ crore on hand which are to be completed in 6 to 7 years. Its financial track record so far has been indicating sustained top line with ups and down in PAT due to certain provisioning. Being a maiden IPO from a shipyard that builds destroyers and submarine is sure to catch fancy post listing. Investors may consider investment for the medium to long term perspective in this reasonably priced issue.
The original review is authored by Dilip Davda, appears on Chittorgarh.com and is available here.
- RML is engaged in cloud communication platform providing services.
- Over the years, it has gained global acceptance for its niche play.
- The company has shown growing financial performances.
- Issue is priced reasonably around 19 P/E
- RML is set to generate fancy post listing being the first mover.
ABOUT COMPANY:
Route Mobile Ltd. (RML) is providing a cloud-communication platform as a service (“CPaaS”) to enterprises, over-the-top (“OTT”) players and mobile network operators (“MNOs”). According to the ROCCO Report 2020, it ranked as a tier one application-to-peer (“A2P”) service provider internationally. Further, it ranked second globally as a tier-one A2P service provider in 2017. (Source: ROCCO Report 2017). RML also ranked first for ‘value-added services’ provided, its ‘implementation process’ and ‘uptime performance’ among tier-one vendors. (Source: ROCCO Report 2017).
Company’s enterprise solution comprises two primary components – the front-end that provides an interface for enterprises to integrate with, and a back-end which is directly integrated with over 240 MNOs, and provides access to over 800 MNOs across the globe, as of June 30, 2020, enabling it to leverage their SMS and voice channels for digital communication (“Super Network”). Further, the backend is also integrated with OTT-business messaging solution providers and is capable of supporting Rich Communication Services (“RCS”) business messaging, offering multiple channels of communication to enterprises. RML’s Omni-channel platform enables enterprises to leverage various modes of digital communication to engage with their stakeholders – including customers, employees and vendors.
Company’s range of enterprise communication services includes application-to-peer (“A2P”) / peer-to-application (“P2A”) / 2Way Messaging, RCS, OTT business messaging, voice, email, and Omni-channel communication. Further, it also offers SMS analytics, firewall, filtering and monetization, SMS hubbing and Instant Virtual Number (“IVN”) solutions to MNOs across the globe. Its clients include some of the world’s largest and well-known organizations, including a number of Fortune Global 500 companies.
As of June 30, 2020, the company has serviced over 30,150 clients, cumulatively since inception, across sectors including social media, banking and financial services, aviation, retail, internet/ e-commerce, logistics, healthcare, hospitality, media and entertainment, pharmaceuticals and telecom. As on the date of this Red Herring Prospectus, its global operations included nine direct and 12 step-down subsidiaries serving its clients through 18 locations across Africa, Asia Pacific, Europe, Middle East and North America. Consistent with the strategy of pursuing inorganic growth to deepen a relationship with MNOs and broaden product and service portfolio, RML acquired 365squared Limited with effect from October 1, 2017, which operates in SMS analytics, firewall, filtering and monetization. Further, it also acquired Call2Connect, effective April 1, 2017, a company which offers voice, non-voice and consulting BPO services to some of the largest enterprises in India.
RML is an associate member of the GSMA and an accredited open hub connectivity solution provider with internally developed cloud communications platform allowing it to handle both A2P and peer-to-peer (“P2P”) traffic for enterprises, OTT players and MNOs. In addition, Route Mobile (UK) Limited is also an associate member of GSMA. In the three months ended June 30, 2020, through its cloud communications platform, it processed more than 6.95 billion billable transactions. In Fiscal 2020, its platform managed more than 30.31 billion billable transactions from clients and was used by more than 2,700 clients while it managed more than 24.74 billion billable transactions in Fiscal 2019. RML has established direct relationships with MNOs that provide clients with global connectivity. As of June 30, 2020, it had direct relationships with over 240 MNOs and four short messaging service centres hosted in various geographies across the globe. RML is able to access more than 800 networks across the world, with a headcount of 318 as of June 30, 2020.
ISSUE DETAILS / CAPITAL HISTORY:
To part finance its plans of repayment/prepayment of certain borrowings (Rs. 36.5 cr.), acquisition and other strategic initiatives (Rs. 83 cr.), purchase of office premises in Mumbai (Rs. 65 cr.) and general corpus funds, RML is coming out with a maiden IPO with a combo offer of fresh equity issue (Rs. 240 cr.) and offer for sale (Rs. 360 cr.). It consists fresh equity issue of approx 6857142 shares of Rs. 10 each and offer for sale of approx 10285714 shares. The issue opens for subscription on September 09, 2020, and will close on September 11, 2020. The company has fixed the price band of Rs. 345 – Rs. 350 per share. Minimum application is to be made for 40 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. RML mulls mobilizing around Rs. 600 cr. (based on upper price band) through this IPO. Issue constitutes 30.15% of the post issue paid-up capital of the company.
Having issued entire equity at par, the company also issued bonus shares in the ratio of 39 for 1 (January 2011), 9 for 1 (December 2015) and 3 for 2 (September 2016). Thus entire current paid up equity is issued at par coupled with bonus shares. The average cost of acquisition of shares by the promoters is Rs. 0.01 per share. Post issue, RML’s current paid-up equity capital of Rs. 50.00 cr. will stand enhanced to Rs. 56.86 cr. With this issue, the company is looking for a market cap of Rs. 1990 cr.
The issue is jointly lead managed by ICICI Securities Ltd., Axis Capital Ltd., Edelweiss Financial Services Ltd. and IDBI Capital Markets & Securities Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, RML has posted revenue/net profits of Rs. 509.49 cr. / Rs. 46.68 cr. (FY18), Rs. 852.38 cr. / Rs. 54.53 cr. (FY19) and Rs. 968.10 cr. / Rs. 69.10 cr. (FY20). For the Q1 of FY21, it has earned a net profit of Rs. 26.93 cr. on revenue of Rs. 312.30 cr. Management is confident of sustaining its growth story considering the relationship with its long term marquee global clients. It has marked CAGR of 38% in revenue and total billable transactions for the past three fiscals.
For the last three fiscals, on a consolidated basis, RML has posted an EPS of Rs. 12.24 and RoNW of 26.55%. The issue is priced at a P/BV of 5.89 based on its NAV of Rs. 59.40 as on June 30, 2020.
If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 18.47. Since this company will be the first mover in the segment, there is no average industry P/E is available.
BRLM’s TRACK RECORD:
The four Book Running Lead Manager’s (BRLM’s) associated with this offer have handled 22 public issues in the past three years, out of which 9 issues closed below the issue price on listing date.
COMPARISION WITH LISTED PEERS:
As per offer documents, RML has no listed peers to compare with.
CONCLUSION / INVESTMENT STRATEGY:
At sub 19 P/E issue appears reasonably priced. being the First Mover Company, it will generate investors’ fancy post listing. This segment has entry barriers and this company is enjoying its leadership with niche place among its clients. Investors may consider investment for short to long term.
The original review has been penned by Dilip Davda, appears on chittorgarh.com and is available here.
- HMTL is a versatile digital business, product engineering and infra management solution provider company.
- It has established its niche with the successful execution of customer-centric developments.
- HMTL has posted the growing pattern for its top and bottom lines.
Based on Q1 FY21 parameters, the issue is lucratively priced.
PREFACE:
Ashok Soota and his group have incorporated this company. It is well known that earlier Ashok Soota emerged as the leader and instrumental in the growth of MindTree which was incorporated in August 1999. Subsequently, this company was taken over by L & T group in the year 2019. Ashok Soota exited this company in 2010 itself and parted with his stake in the company to other founders.
ABOUT COMPANY:
Happiest Minds Technologies Ltd. (HMTL) is claiming to have been positioned as “Born Digital. Born Agile”. It focuses on delivering a seamless digital experience to its customers. HMTL’s offerings include, among others, digital business, product engineering, infrastructure management and security services. Its capabilities provide an end-to-end solution in the digital space. The company believes that it has developed a customer-centric focus that aims to fulfil their immediate business requirements and to provide them strategically viable, futuristic and transformative digital solutions.
HMTL helps customers in finding new ways to interact with their users and clients enabling them to become more engaging, responsive and efficient. It also offers solutions across the spectrum of various digital technologies such as Robotic Process Automation (RPA), Software-Defined Networking/Network Function Virtualization (SDN/NFV), Big Data and advanced analytics, Internet of Things (IoT), cloud, Business Process Management (BPM) and security.
As of June 30, 2020, HMTL had 148 active customers. Its repeat business (revenue from existing customers) has steadily grown and contributed a significant portion of its revenue from contracts with customers over the years indicating a high degree of customer stickiness. The company believes its agility and resilience has stood out in recent years. In the three months ended June 30, 2020, and in Fiscal 2020, it delivered 90.1% and 87.9% respectively of projects through the agile delivery methodology. Over the years and currently, during the ongoing outbreak of Novel Coronavirus, it has successfully implemented business continuity plans including to achieve efficient work-from-home practices to ensure connectivity across the enterprise.
As of March 31, 2020, HMTL had a Glassdoor rating of 4.1 on a scale of ‘1- 5’, among the highest for Indian IT services companies (Source: Frost & Sullivan Report). The Company has been recognized and rewarded. In the Great Place to Work® survey for 2019, it has been ranked fourth in IT services, in India’s Top 25 Best Workplaces for IT & IT-BPM and among India’s Top 25 Best Workplaces for Women.
ISSUE DETAILS / CAPITAL HISTORY:
To part finance its long term capital requirements (Rs. 101 cr.) and general corpus funds, HMTL is coming out with a maiden IPO with a combo offer of fresh equity issue (Rs. 110 cr.) and offer for sale. It consists fresh equity issue of approx 6626505 shares of Rs. 2 each and an offer for sale of 35663585 shares. The issue opens for subscription on September 07, 2020 and will close on September 09, 2020. The company has fixed the price band of Rs. 165 – Rs. 166 per share. Minimum application is to be made for 90 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. HMTL mulls mobilizing around Rs. 697.79 – Rs. 702.02 cr. (based on lower and upper price bands) through this IPO. Issue constitutes 28.80% of the post issue paid-up capital of the company.
Having issued initial equity at par, the company raised further equity in the price range of Rs. 3 to Rs. 26. It has also issued bonus shares in the ratio of 162 for 1 (Nov. 2011). The company also converted preference shares into equity in the ratio of 163 for 1 (in March 2020, May 2020 and July 2020). Preference shares were having a face value of Rs. 652 per share and were issued in the price range of Rs.4890, Rs. 5500, Rs. 5930, Rs. 6150, Rs. 6700 and Rs. 11410 per share between October 2011 and April 2018.
The average cost of acquisition of shares by the promoters/ selling stakeholders is Rs. 24.91 and Rs. 34.68 per share. Post issue HMTL’s current paid-up equity capital of Rs. 28.05 cr. will stand enhanced to Rs. 29.37 cr. With this IPO, HMTL is looking for a market cap of Rs. 2437.94 cr. approx. The issue is jointly lead managed by ICICI Securities Ltd. and Nomura Financial Advisory and Securities (India) Pvt. Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, HMTL has posted revenue/net profits (Loss) of Rs. 489.12 cr. / Rs. – (22.47) cr. (FY18), Rs. 601.81 cr. / Rs. 14.21 cr. (FY19), Rs. 714.23 cr. / Rs. 71.71 cr. (FY20). For Q1 of FY21, it has earned a net profit of Rs. 50.18 cr. on revenue of Rs. 186.99 cr. Thus after FY19, it has posted growth in revenue as well as net profits.
On a consolidated basis, for the last three fiscals, HMTL has posted an average EPS of Rs. 2.55 and an average RoNW of 3.1%. Based on HMTL’s NAV of Rs. 23.7 as on June 30, 2020, issue is priced at a P/BV of 7 (on the basis of upper cap).
If we annualize the latest FY21-Q1 results (with super-profits) and attribute it on fully diluted equity post IPO, then asking price is at a P/E of around 12 against the industry average of 27. On the basis of its trailing earnings and paid-up equity as on March 31, 2020, the issue is priced at a P/E of around 31. Management attributed the rise in net profit for Q1-FY21 for their ongoing cost-cutting as well as rent reduction for its staffing parks, following the work from home strategy. Despite pandemic, they had around 77% business running smoothly and yielding rewards. Management is confident of maintaining reasonable growth in their net earnings.
BRLM’s TRACK RECORD:
The two Book Running Lead Manager’s (BRLM’s) associated with this offer have handled 11 public issues in the past three years, out of which 5 closed below the issue price on listing date.
COMPARISION WITH LISTED PEERS:
As per offer documents, HMTL has shown TCS, Infosys, LTI and MindTree as its listed peers. They are currently quoting at a P/Es of around 27.5, 24.37, 27.52 and 25.04 (as on September 02, 2020). However, they are not strictly comparable on an apple to apple basis.
Conclusion / Investment Strategy
Based on financial parameters, the issue appears fairly priced with something on the table. The company has adopted a mindful IT strategy for its future growth. Investors may consider subscribing this IPO for medium to long term rewards.
The original review is authored by Dilip Davda, appears on Chittorgarh.com and is available here.
ABOUT COMPANY:
Rossari Biotech Ltd. (RBL) is one of the leading specialty chemicals manufacturing companies in India. It is providing customized solutions to specific industrial and production requirements of customers that are primarily in FMCG, apparels, poultry and animal feed industries. RBL has well-diversified activities and has a vast product portfolio comprising home, personal care and performance chemicals, textile specialty chemicals, animal health and nutrition products. Besides India, the company’s operation is spread across 17 foreign countries. According to the F & S Report, as on 30th September 2019, RBL is the largest manufacturer of textile specialty chemicals in India and it providing textile specialty chemicals in a sustainable, eco-friendly yet competitive manner. As on May 31, 2020, it had a wide range of 2030 different products (consisting of 1543 products for textile specialty chemical alone).
The company derives 46.81% of its total revenues from its home, personal care and performance chemicals, 43.71% from textile specialty chemicals and the rest from animal feeds and nutrition products. To stay tuned with the time and demand of its customers, RBL keeps monitoring the fast-changing trends across the segment it deals with. The company enjoys a long term relationship with most of its top customers. In domestic markets, the company’s client list includes HUL, Arvind Ltd., Raymonds, Panasonic, IFB, Bosch, etc.
The company has its R & D facilities with two most modern facilities in the western region. As on 31st May 2020, it has a network of 204 distributors for the domestic market and 29 distributors across the 17 countries and two international offices in the primary markets of its reach.
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CY 2020 started with the main-board IPO of ITI Ltd. that failed to garner the desired amount despite extension and change in the price band. However, SBI Card IPO created unprecedented hype ever since it filed DRHP with regulator and surprised one and all with hectic grey market premium activities even before the announcement of the price band, lot size etc. Anyway, since this IPO is currently the “Talk of the Town” and is attracting fancy across the board, it is expected to make new records of oversubscription opines primary market experts. But they cautioned that “Please do not be carried away with grey market activities, investors must study the fundamentals before investing.”
ABOUT COMPANY
SBI Cards and Payment Services Ltd. (SBI Card) a subsidiary of SBI is one of the leading credit card issuers in India, which is one of the fastest-growing economies in the world with an expanding and under-penetrated credit card market. As per the survey, India has just 3% penetration (lowest in the world) in the credit card segment leaving ample scope for advancement.
SBI Card is the second-largest credit card issuer in India, with a 17.6% and 18.1% market share of the Indian credit card market in terms of the number of credit cards outstanding as of March 31, 2019, and November 30, 2019, respectively, and a 17.1% and 17.9% market share of the Indian credit card market in terms of total credit card spends in fiscal 2019 and in the eight months ended November 30, 2019, respectively, according to the RBI. It offers an extensive credit card portfolio to individual cardholders and corporate clients which include lifestyle, rewards, travel and fuel, shopping, banking partnership cards and corporate cards covering all major cardholder segments in terms of income profiles and lifestyles.
It started operations in 1998, and since then SBI’s parentage and highly trusted brand have allowed it to quickly establish a reputation of trust, reliability and transparency with cardholders. According to the RBI, SBI Card has grown its business faster than the Indian credit card market over the past three years both in terms of numbers of credit cards outstanding and amounts of credit card spends. From March 31, 2017, to March 31, 2019, its total credit card spends grew at a 54.2% CAGR (as compared to a 35.6% CAGR for the overall credit card industry, according to the RBI) and the number of its credit cards outstanding grew at a 34.5% CAGR (as compared to a 25.6% CAGR for the overall credit card industry, according to the RBI).
It has a broad credit card portfolio that includes SBI Card-branded credit cards as well as co-branded credit cards that bear both the SBI Card brand and co-brand partners’ brands. It offers four primary SBI branded credit cards: SimplySave, SimplyClick, Prime and Elite, each catering to a varying set of cardholder needs. It is also the largest co-brand credit card issuer in India according to the CRISIL Report and has partnerships with several major players in the travel, fuel, fashion, healthcare and mobility industries, including Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, IRCTC, OLA Money and Yatra, among others. Its credit cards portfolio is tailored to meet a diverse range of cardholder needs across the entire spectrum of its cardholders’ income profiles and lifestyles, from the “premium” cardholder category to the “affluent”, “mass affluent”, “mass” and “new to credit” categories. The company issues credit cards in partnership with the Visa, MasterCard and RuPay payment networks, and is continuously looking to expand its payment network partnerships to broaden the reach and functionality of credit card offerings.
It has a diversified customer acquisition network that enables it to engage prospective customers across multiple channels. It deploys a sales force of 32677 outsourced sales personnel as of December 31, 2019, operating out of 145 Indian cities and which engages prospective customers through multiple channels, including physical points of sale in bank branches, retail stores, malls, fuel stations, railway stations, airports, corporate parks and offices, as well as through telesales, online channels, email, SMS marketing and mobile applications. SBI Card is the leading player in open market customer acquisition in India according to the CRISIL Report. It has a presence in 3190 open market points of sale across India as of December 31, 2019. Also, its partnership with SBI provides with access to SBI’s extensive network of 21961 branches across India, which enables it to market credit cards to SBI’s vast customer base of 445.5 million customers as of December 31, 2019.
Its technology systems also leverage artificial intelligence and process automation technologies to automate routine activities, such as customer service and credit analysis, which have enhanced its operating efficiencies. It has a diversified revenue model whereby it generates both non-interest income (primarily comprised of fee-based income such as interchange fees, late fees and annual fees, among others) as well as interest income on its credit card receivables. The share of its revenue from operations that derive from non-interest income has steadily increased over the past three fiscal years, from 43.6% in fiscal 2017 to 48.9% in fiscal 2019.
ISSUE DETAILS / CAPITAL HISTORY
Currently, SBI group is holding 74% and CA Rover Holdings (26%) equity of SBI Card. To part finance augmenting its capital base to meet future capital requirements, SBI Card is coming out with a maiden combo IPO of fresh equity issue (FV ₹10) as well as offer for sale. SBI Card is issuing fresh equity share shares worth ₹500 cr. (approx 6,622,516 shares) and an offer for sale of 130,526,798 shares. It has fixed the price band of ₹750 – ₹755 and thus mulls mobilizing ₹10,286.20 cr. to ₹10,354.77 cr. (based on lower and upper price bands). The offer includes a reservation of up to 1,864,669 shares for subscription by eligible employees and a reservation of 13052680 shares for subscription by SBI Shareholders (who are holding SBI shares in their demat account on 18.02.2020). The company is offering a discount of ₹75 per share to eligible employees. There is no discount for any other category.
The issue opens for subscription on 02.03.2020 and will close on 04.03.2020 for QIB Bidders and 05.03.2020 for all other categories of bidders. Minimum application is to be made for 19 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. Issue constitutes approx. 14.61% of the post issue paid-up capital of the company.
Having issued initial equity at par, SBI Card raised further equity (52,222,222 shares) by way of the rights issue at a fixed price of ₹90 per share in July 2018 and then issued further equity (95,112,054 shares) in July 2019 on an amalgamation of SBI Business Process.
The average cost of acquisition of Equity Shares for the selling shareholders is in the range of ₹28.69 to ₹81.19 per Equity Share and the offer price at the upper end of the Price Band is ₹755 per equity share. The company will spend less than 1.5% for the overall IPO process.
Post issue, SBI Card’s current paid-up equity capital of Rs.932.33 cr. will stand enhanced to ₹938.95 cr. With this issue, SBI Card is looking for a market cap of approx. ₹70890 cr.
BRLM’s to this offer are Kotak Mahindra Capital Company Ltd., Axis Capital Ltd., DSP Merrill Lynch Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd., Nomura Financial Advisory and Securities (India) Pvt. Ltd. and SBI Capital Markets Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue.
FINANCIAL PERFORMANCE
For the last three fiscals, SBI Card has reported total revenue/net profits of ₹3471.04 cr. / ₹372.86 cr. (FY17), ₹5370.19 cr. / ₹601.14 cr. (FY18) and ₹7286.84 cr. / ₹862.72 cr. (FY19). For nine months period ended on 31.12.19, it has earned a net profit of ₹1161.21 cr. on revenue of ₹7240.16 against a net profit of ₹614.52 cr. on revenue of ₹5278.68 cr. for the corresponding previous period.
For the last three fiscals, SBI Card has posted an average EPS of ₹7.97 and an average RoNW of 24.67%. The issue is priced at a P/BV of 14.60 based on its NAV of ₹51.73 as on 31.12.19. If we annualize latest earnings and attribute it on fully diluted equity post IPO then asking price is at a P/E of around 45.8 making it fully priced issue.
For FY17 to FY19 SBI Card has reported CAGR of 44.6% in revenues, 37.6% in interest income, 53.2% in non-interest income and 52.1% in profit after tax (PAT). With continuing leveraging technology SBI Card all set for expanding customer acquisition capabilities, stimulate growth in credit card transaction volumes and enhance cardholders experience and broadening its portfolio with more tie-ups.
COMPARISION WITH LISTED PEERS
As per offer documents, SBI Card has no listed peers to compare with.
BRLM’S TRACK RECORDS
The six merchant bankers associated with the offer have handled 46 issues in the past three financial years, out of which 17 issues closed below the issue price on listing date.
MAJOR CONCERNS
Any unfavorable change in Government/RBI policy for MDR (Merchant Discount Rate) and unsecured financing pattern are major concerns. Its dependence on SBI and the rising market competition may pose threats.
Conclusion / Investment Strategy
SBI Card enjoys fancy due to parent SBI’s credentials. Being a second-largest plastic money player in a growing economy like India and the first mover in the segment to get listed, it may continue to generate high interest going forward. Although the issue appears fully priced, investors may consider investment for short to long term rewards.
The original review is written by Dilip Davda, appears on chittorgarh.com and is available here.
- USFB is the second-largest SFB in India.
- It has shown growth in its business for the last three fiscals.
- Issue pricing appears reasonable against listed peers.
- Pre-IPO placement worth Rs. 299.19 cr. done at Rs. 35 per share in Nov. 19.
- UFSL shareholder quota offered at a discount of Rs. 2 per share against IPO pricing of Rs. 37 (upper band).
ABOUT COMPANY:
Ujjivan Small Finance Bank (USFB) is a mass-market focused SFB in India, catering to unserved and underserved segments and committed to building financial inclusion in the country. Its Promoter, UFSL (Ujjivan Financial Services Ltd.) commenced operations as an NBFC in 2005 with the mission to provide a full range of financial services to the ‘economically active poor’ who were not adequately served by financial institutions. UFSL’s erstwhile business was primarily based on the joint liability group-lending model for providing collateral-free, small ticket-size loans to economically active poor women. UFSL also offered individual loans to Micro and Small Enterprises (“MSEs”) and adopted an integrated approach to lending, which combined a customer touchpoint similar to microfinance, with the technology infrastructure and related back-end support functions similar to that of a retail bank. On October 7, 2015, UFSL received RBI In-Principle Approval to establish an SFB (Small Finance Bank), following which it incorporated Ujjivan Small Finance Bank Limited as a wholly-owned subsidiary. UFSL, after obtaining RBI Final Approval on November 11, 2016, to establish and carry on business as an SFB, transferred its business undertaking comprising of its lending and financing business to USFB, which commenced its operations from February 1, 2017. The bank is included in the second schedule to the Reserve Bank of India Act, 1934 as a scheduled bank on July 3, 2017. In the short period that it has been operational as an SFB, it is among the leading SFBs in India in terms of deposits, advances, branch count and geographical spread, as of March 31, 2019.
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