Indian equities fell in-line with global stocks after minutes released by the US Federal Reserve suggested tapering of the Fed’s stimulus plan by late 2021. Besides, rampant spread of the Delta variant of Covid-19 and faltering global growth worried investors.
The 30-share Sensex index declined 300 points, or 0.4 per cent, and closed at 55,329 levels on Friday while the Nifty50 index ended at 16,451 levels, down 118 points or 0.7 per cent. Both the indices had hit intra-day lows of 55,014 and 16,376, respectively, earlier today.
The broader markets, meanwhile, were hit harder by the selloff as both, the BSE MidCap and SmallCap indices fell 2 per cent each. The advance to decline ratio favoured sellers and India VIX — the volatility index — surged 8.6 per cent.
Sectorally, the Nifty Metal index cracked 6 per cent while the FMCG index rose 2 per cent.
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Large-cap stocks staged a spectacular rally on Friday, and lifted benchmark indices to fresh all-time highs. Tata Consumer Products (up 4 per cent) emerged as the top gainer, followed by TCS, LT, HCL Tech, Tata Steel, HDFC Bank, Bharti Airtel, Infosys, Wipro, HDFC, RIL, and ITC.
Overall, the S&P BSE Sensex went past the 55,400-mark for the first time and hit a new milestone of 55,488 in the intra-day trade. Meanwhile, the broader 50-share index on the NSE surpassed the 16,450-mark and rallied ahead to hit an all-time high of 16,543.6.
By close, both the indices were quoting at 55,437 and 16,529 levels, up 593 and 165 points, respectively.
On the contrary, broader indices underperformed and ended mildly lower. The MidCap and SmallCap indices slipped 0.06 per cent and 0.01 per cent, respectively.
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Verdict: Go for it!
Rs. 5,000 cr IPO:
- 70% OFS by promoter Nirma Group (95% holding to drop to 71%)
- 30% fresh issue for paring Rs. 7,130 cr debt by Rs. 1,350 cr
IPO Date: Mon 9th Aug to Wed 11th Aug 2021
Price band: Rs. 560-570 per share
Mcap: Rs. 20,350 cr, implying 25% dilution
Listing: 23rd Aug 2021
India’s Fifth Largest Cement Maker
Nirma Group’s Nuvoco Vistas has 22.32 MTPA cement capacity, 78% in fastest growing East market, where it is #1 player, and balance in North India. Company acquired 8.3 MTPA East-focused Emami Cement (Nu Vistas) in June 2020. 50% of its power requirement is met through captive sources. 1.5 MT capacity at Jharkhand is being commissioned next month, while another 1.2 MT is coming up at Bihar, which would hike total capacity to 25 MTPA by FY23.
FY21 Performance to Improve
FY20’s 90% capacity utilization dropped to 78% in FY21, as Q1FY21 volumes plummeted to 1.75 MT on account of lockdown. However, as the entire sector re-bounded, company’s capacity utilization in H2FY21 jumped to 93%, with sales at 10.4 MT in H2 over 17.3 MT in FY21. In FY21, revenue stood at Rs. 7,500 cr, on an average realization of Rs. 221 per bag. While Q1FY22 volumes have dipped marginally QoQ, volume for FY22 may easily rise to 20 MT i.e. 85% utilization, on strong sector-wise demand outlook.
EBITDA and Profitability
FY21 EBITDA stood at Rs. 1,500 cr or Rs. 966/MT, impacted due to lowerQ1FY21 volumes and one-time costs on Emami acquisition, leading to net loss of Rs. 26 cr in FY21. But Q4FY21 net profit came at Rs. 38 cr, with 4th quarter EBITDA strengthening to about Rs.1,045/MT, on operating leverage and industry-wide uptick in realisations from early March.
In FY22, EBITDA may improve by about Rs. 150/MT YoY, driven by (i) power cost saving from 2 upcoming plants (ii) Emami synergy benefits (iii) better product mix – 25% premium products over 20% and 85% trade sales from 73% in FY21.
Undemanding Valuation
With an Enterprise value (EV) of about Rs. 24,900 cr, Nuvoco’s EV of $143/MT, as well as EV/EBITDA of 11x, is the lowest among all the large capacity cement makers – Ultratech ($250, 14x respectively), Shree ($280, 18x), Ambuja ($240, 11x), ACC ($150, 11x), Dalmia Bharat ($150, 12x), Ramco ($195, 15x) and JK Cement ($235, 15x).
Post IPO, company’s debt-equity ratio will halve to 0.5 from 0.9 at present. Net-debt-to-EBITDA of 3x is likely to decline to 1.2x in next 2 years, on expected strong cash generation.
Having established a sizeable capacity, the company looks well placed to improve utilization levels as well as expand margins, all backed by very well-respected promoter.
Conclusion
High Growth Visibility, Strong Sector Outlook and Undemanding Valuation make this IPO an excellent and quality mid-cap pick, both from the short term and portfolio holding point of view. Apply for Nuvoco!
The original review has been penned by Geetanjali Kedia, appears on sptulsian.com and is available here.
Shares of Reliance Industries single-handedly knocked Sensex and Nifty lower on Friday after the Supreme Court ruled in favour of Amazon, stalling Reliance Retail’s Rs 24,000 crore deal with Future Retail. Further, while RBI’s policy decision was along expected lines, the 5:1 vote on maintaining accommodative stance and rise in CPI projection for FY22 to 5.7 per cent from 5.1 per cent earlier also concerned markets, indicating that debate on inflation is gaining centre stage.
The domestic benchmark indices snapped their 4-session winning run. The 30-pack Sensex closed the day at 54,278, down 215 points or 0.39 per cent. Meanwhile, NSE Nifty settled the day 56 points or 0.35 per cent at 16,238.
IndusInd Bank, Tech Mahindra, Bharti Airtel, Maruti were the top gainers in the 30-pack Sensex while Reliance Industries, Ultratech Cement, Tata Steel, HCL Tech were the top losers.
The broader markets outperformed, with Nifty Midcap index rising 0.06 per cent and Nifty Smallcap 0.04 per cent. Sectorally, Nifty Realty and Nifty Media were the top losers while Nifty IT was the best performer.
Overall, for the five days ended Friday, Nifty ended the historic week, up 1.97 per cent high, above 16,000 mark for the worst time and also snapped its two-week losing run.
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- DIL is the largest franchisee of Yum Brands in India.
- The company is also the largest player in the QSR segment.
- Outlets of DIL are most fancied amongst today’s generation.
- Re-run of the Zomato saga is very much likely for this IPO as well.
- Cash surplus/risk seekers may consider investing in this negative P/E offer.
Preface:
While we have witnessed madness in the rush for loss-making companies maiden floats in the recent past with the historic saga of Zomato, there are four IPOs lined up for opening on a single day i.e. 4th of August 2021. DIL is one of them and has also become the talk of the town on the lines of performance by Zomato, the latest loss-making company’s debut as well as companies like Burger King, Barbeque Nations in the recent past. Few Dividend scheme MFs investing in Zomato IPO has raised eyebrows.
On the one hand, the Primary market has started a new equation of valuations for loss-making companies, permission from regulators for loss-making companies to float on the other hand has surprised one and all. If we recall the Controller of Capital Issues (CCI) regime, loss-making companies IPOs were not at all permitted. While SEBI has been alarming on issue price band for more than a decade now, it has not done any concrete thing on this issue.
However, according to seasoned players, CCI was a controller of issues and hence was empowered to do so, whereas, post opening up of financial sector for global play, SEBI being a regulator, is trying to just regulate the security market. When advanced countries have seen listings of loss-making companies, why India cannot follow the same. All such companies do run disclaimed on the front page of offer documents about their loss-making status and likely continuation of the said trends for coming years. Thus it is for the knowledgeable investors to take a final call on their investment decisions.
However, it is worthwhile to note that SEBI has initiated its plans on the book-building process and pricing mechanics as per a recent media release. Let us hope that it takes a prudent measure on this aspect to protect retail investors masses.
About the Company:
Devyani International Ltd. (DIL) is the largest franchisee of Yum Brands in India and also among the largest operators of chain quick-service restaurants (“QSR”) in India (Source: Global Data Report), on a non-exclusive basis, and operate 655 stores across 155 cities in India, as of March 31, 2021, and 696 stores across 166 cities in India, as of June 30, 2021.
Yum! Brands Inc. operates brands such as KFC, Pizza Hut and Taco Bell brands and has a presence globally with more than 50,000 restaurants in over 150 countries, as of December 31, 2020. In addition, DIL is a franchisee for the Costa Coffee brand and stores in India. Its business is broadly classified into three verticals that include stores of KFC, Pizza Hut and Costa Coffee operated in India (KFC, Pizza Hut and Costa Coffee referred to as “Core Brands”, and such business in India referred to as the “Core Brands Business”); stores operated outside India primarily comprising KFC and Pizza Hut stores operated in Nepal and Nigeria (“International Business”); and certain other operations in the F&B industry, including stores of own brands such as Vaango and Food Street (“Other Business”). Revenue from Core Brands Business, together with International Business, represented 83.01%, 82.94% and 94.19% of its revenue from operations in Fiscals 2019, 2020 and 2021, respectively.
Following the onset of COVID-19, it has increased focus on safety by the introduction of contactless delivery and takeaway, ensuring greater cleanliness of stores, additional safety measures such as frequent sanitization and temperature checks. Among measures, it adopted to counter the effects of COVID-19 include re-developing menus to focus on delivery and takeaway options. DIL also introduced measures to reduce fixed and variable costs and sought rental waivers from store landlords and lessors. It also rationalized certain loss-making stores to ensure that the company continues to maintain a profitability position and strong financial performance. DIL serves a wide range of customers across various price points as a multi-dimensional comprehensive QSR player. It will continue to invest in technology to maintain its competitive advantage.
Issue Details / Capital History:
To part finance its plans for repayment/prepayment of certain borrowings (Rs. 324 cr.) and general corpus funding, DIL is coming out with a maiden IPO via book building route to mobilize Rs. 1838 cr. at the upper price band of the issue. The issue comprises a fresh equity issue worth Rs. 440 cr. (approx. 48888840 shares) and an offer for sale of 155333330 equity shares of Re. 1 each (worth Rs. 1398 cr.). The company has fixed a price band of Rs. 86 – Rs. 90 per share. The issue opens for subscription on August 04, 2021, and will close on August 06, 2021. The minimum application to be made is for 165 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 16.98% of the post issue paid-up capital of the company.
DIL has reserved 550000 equity shares for its eligible employees and out of the residual portion, it has allocated 75% for QIBs, 15% for HNIs and 10% for retail investors.
Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., CLSA India Pvt. Ltd., Edelweiss Financial Services Ltd. and Motilal Oswal Investment Advisors Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue.
Having issued initial equity at par, DIL raised further equity in the price range of Rs. 15 to Rs. 43.33 per share (based on FV of Re. 1 per share) between July 2000 and March 2021. It has also issued bonus shares in the ratio of 2 for 1 in February 2002, 3.3 for 1in May 2011 and 1 for 1 in January 2012. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. Rs. N.A., Rs. 0.66, Rs. 3.24 / Rs. 3.24 and Rs. 30.61 per share.
Post issue, DIL’s current paid-up equity capital of Rs. 115.36 cr. will stand enhanced to Rs. 120.25 cr. At the upper price band of the issue, DIL is looking for a market cap of Rs. 10822.71 cr.
Financial Performance:
On the financial performance front, on a consolidated basis, DIL has posted turnover/net profits (loss) of Rs. 1323.68 cr. / Rs. – (59.29) cr. (FY19), Rs. 1535.04 cr. / Rs. – (78.75) cr. (FY20) and Rs. 1198.90 cr. / Rs. – (81.32) cr. (FY21). While it has marked a setback in the top line for FY21, it has reported higher losses for all these years.
For the last three fiscals, DIL has (on a consolidated basis) posted an average EPS of Rs. – (0.76) and an average RoNW of – (24.26%). The issue is priced at a P/BV of 87.38 based on its NAV of Rs. 1.03 as of March 31, 2021, and at a P/BV of 19.52 based on its post-issue NAV of Rs. 4.61 (at the upper cap).
As the company has been incurring losses for the last three fiscals, its P/E is negative. (NOT ASCERTAINABLE)
Comparison With Listed Peers:
As per offer documents, DIL has shown Jubilant Foodworks, Westlife Development and Burger King as its listed peers. They are currently trading at a P/E of around 133.56, 00 and 00 (as of July 30, 2021). However, they are not truly comparable on an apple to apple basis.
Dividend Policy:
The company has not declared any dividend for the three fiscal years preceding the date of DRHP and until the date of RHP. It will follow a prudent dividend policy post listing based on its earnings and future prospects.
Merchant Banker’s Track Records:
The four BRLMs associated with the offer have handled 24 pubic issues in the past three years, out of which 6 issues closed below the issue price on the listing date.
India’s stock markets are getting matured to match the global market’s behaviour. The recent saga of Zomato may see a re-run of history for this food segment loss-making enterprise that has been on its footprint expansion mode. Though the financial parameters and negative P/E is not on the radar for this issue, it will play just on the sentimental count for a while. Hence cash surplus/risk seekers may consider investing in this fancy foods outlet most preferred by today’s generation.
The original review has been authored by Dilip Davda, appears on chittorgarh.com and is available here
Domestic equities witnessed sharp profit booking in the fag end of the session as European stocks slipped in early trade and US stock futures hinted at a muted start on Wall Street later today.
After ruling higher for better part of the day, domestic equities witnessed sharp profit booking in the fag end of the session as European stocks slipped in early trade and US stock futures hinted at a muted start on Wall Street later today.
Concerns about the fast-spreading Delta variant and regulatory actions in China dragged the pan-European STOXX 600 index down 0.5 per cent while Dow Jones Futures were quoting 100 points, or 0.3 per cent, lower. Nasdaq Future, meanwhile, tumbled 1.1 per cent and those linked to S&P500 declined 0.6 per cent. Earlier in Asia, Nikkei skidded 2 per cent, and Kospi and Hang Seng erased over 1 per cent each.
Against this backdrop, the frontline S&P BSE Sensex gyrated 376 points in intra-day trade and ended 66 points, or 0.13 per cent, lower at 52,587 levels dragged by Bajaj Finance (down 2.5 per cent), Bajaj Finance, SBI, Tata Steel, Titan, Asian Paints, Axis Bank, IndusInd Bank, and Nestle India.
It’s NSE counterpart, Nifty50, shut shop at 15,763 levels, down 15 points or 0.1 per cent. The broader markets, however, outperformed with the BSE MidCap and SmallCap indices zooming 0.52 per cent an 0.69 per cent, respectively.
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Mumbai-based Glenmark Life Sciences plans to launch its IPO on 27 July for subscription. The company is a developer and manufacturer of select high value, non-commoditized active pharmaceutical ingredients (APIs). Here are 10 key things you need to know before investing in Glenmark Life IPO.
1 Offer Structure
Like most public offers this season, Glenmark Life IPO will involve issuance of new shares as well as a sale by existing shareholders. The company aims to raise INR1,060 crore by issuing fresh shares.
In addition, 63,00,000 shares will be sold by its promoter Glenmark Pharmaceuticals.
2 Offer Pricing
Glenmark Life Sciences has filed its Red Herring Prospectus (RHP) and has revealed offer pricing in the range of INR695 – 720 per share.
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After a volatile start, benchmark indices swiftly rose in noon deals to end near the day’s high level on Friday. ICICI Bank and ITC (up 3 per cent each), followed by Axis Bank, Kotak Bank, SBI, and HCL Tech were the top contributors towards the indices’ rally.
At close, the S&P BSE Sensex quoted at 52,976 levels, up 138.5 points, or 0.26 per cent. The broader Nifty50, meanwhile, settled above the psychological level of 15,850 at 15,856, up 32 points or 0.2 per cent. The BSE MidCap and SmallCap indices, however, underperformed the benchmarks with the former slipping 0.07 per cent while the latter added 0.11 per cent.
Shares of ITC moved higher by 3 per cent at Rs 213.60 on the BSE in the intra-day trade on Friday, on back of heavy volumes, ahead of its April-June quarter (Q1FY22) earnings on Saturday, July 24. In comparison, the S&P BSE Sensex was up 0.39 per cent at 53,041 levels at 02:20 pm. Trading volumes on the counter more-than-doubled with a combined 36 million equity shares having changed hands on the NSE and BSE till the time of writing of this report.
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Markets oscillated between gains and losses in Friday’s intra-day session as investors remained torn between strong corporate earnings back home and mixed global cues.
The benchmark S&P BSE Sensex ended today’s choppy trade 19 points down at 53,140 levels while the broader Nifty50 shut shop at 15,923-mark, down 1 point. Both the indices hit their respective lifetime highs of 53,291 and 15,962 in intra-day session.
HCL Tech (down over 3 per cent), Eicher Motors, Bajaj Finserv, Infosys, Tata Consumer Products, and Adani ports were the top drags on the benchmarks today. On the flipside, Divis Labs, Bharti Airtel, Ultratech Cement, and Tata Steel were the top gainers.
The mid- and small-cap indices meanwhile, outperformed and ended over 0.4 per cent higher each amid gains in shares of brokerage firms, IRCTC, AB Capital, Datamatics, and RPP Infra.
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- TCPCL is a niche global player in specialty chemicals with SDAs in centre stage.
- It has posted growth in its top and bottom lines for the past three years.
- The issue is priced reasonably compared to listed peers.
- Globally renowned client list with long term relations.
ABOUT COMPANY:
Tatva Chintan Pharma Chem Ltd. (TCPCL) is a specialty chemicals manufacturing company engaged in the manufacture of a diverse portfolio of structure-directing agents (“SDAs”), phase transfer catalysts (“PTCs”), electrolyte salts for supercapacitor batteries and pharmaceutical and agrochemical intermediates and other specialty chemicals (“PASC”). The Company is the largest and only commercial manufacturer of SDAs for zeolites in India. It also enjoys the second-largest position globally. (Source: F&S Report)
In addition, TCPCL is one of the leading global producers of an entire range of PTCs in India and one of the key producers across the globe. (Source: F&S Report) As a manufacturer of specialty chemicals, it focuses on the application of its products which form a key ingredient to customers’ manufacturing and industrial processes. For instance, SDA and PTC products have various applications in green chemistry, which is pertinent considering the growing focus on green and sustainable technologies.
The company continuously strives to improve processes and infrastructure to help reduce its impact on the environment and has accordingly, undertaken various ‘green’ chemistry processes such as electrolysis. Considering the wide application of its products, it serves customers across various industries, including the automotive, petroleum, pharmaceutical, agrochemicals, paints and coatings, dyes and pigments, personal care and flavour and fragrances industries.
Apart from its customers in India, the company also exports products to over 25 countries, including the USA, China, Germany, Japan, South Africa, and the UK. During the Fiscals ended March 31, 2019, 2020, and 2021, exports of products amounted to Rs. 143.52 cr., Rs. 202.02 cr. and Rs. 211.99 cr. which accounted for 69.57%, 76.74%, and 70.58%, of its revenue from operations, respectively. As of March 31, 2021, its portfolio had 154 products in four categories i.e. SDAs, PTCs, Electrolyte Salts and Pharma/Agri intermediates.
TCPCL’s customers include Merck, Bayer AG, Asian Paints Ltd., Ipox Chemicals KFT, Laurus Labs Ltd., Tosoh Asia Pte. Ltd., SRF Limited, Navin Fluorine International Limited, Oriental Aromatics Ltd., Atul Limited, Otsuka Chemical (I) Pvt Ltd., Meghmani Organics Limited, Divi’s Laboratories Limited, Hawks Chemical Company Limited, Firmenich Aromatics Prod. (I) Pvt. Ltd., Jiangsu Guotai Super Power New Materials Co., Ltd. and Jade Chem Co. Ltd.
ISSUE DETAILS / CAPITAL HISTORY:
To part finance its need for funding capital expenditure for expansion of its Dahej facility (Rs. 147.10 cr.), up-gradation of its R & D facility (Rs. 23.97 cr.) and general corpus funds, TCPCL is coming out with a maiden IPO of Rs. 500 cr. comprising of fresh equity issue worth Rs. 225 cr. (2077556 shares) and an offer for sale (OFS) of Rs. 275 cr. (2539244 shares). The company will be issuing approx. 4616800 shares of Rs. 10 each on the basis of the upper price band. TCPCL has fixed a price band of Rs. 1073 – Rs. 1083 per share having a face value of Rs. 10. The issue opens for subscription on July 16, 2021, and will close on July 20, 2021. Minimum application is to be made for 13 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 20.83 % of the post issue paid-up capital of TCPCL. The company has allocated an IPO quota of 50% for QIBs, 15% for HNIs and 35% for retail investors.
Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd. and JM Financial Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue.
TCPCL’s entire equity is issued at par so far. It has also issued bonus shares in the ratio of 1 for 2 in March 2001, 1 for 1 in March 2006, 12 for 10 in March 2009 and 1.5 for 1 in March 2021.
The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.91, Rs. 1.11, Rs. 1.59, Rs. 1.65, Rs. 2.49, Rs. 2.69, Rs. 2.87, Rs. 3.06 and Rs. 4.00 per share. Post-IPO, TCPCL’s current paid-up equity capital of Rs. 20.09 cr. will stand enhanced to Rs. 22.17 cr. Based on the upper price band, the company is looking for a market cap of Rs. 2400.48 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, TCPCL has reported turnover/net profits of Rs. 206.80 cr. / Rs. 20.54 cr. (FY19), Rs. 264.62 cr. / Rs. 37.79 cr. (FY20) and Rs. 306.29 cr. / Rs. 52.26 cr. (FY21). Thus it has posted growth in top and bottom lines for the past three fiscals. It has posted a CAGR of 21.70% in top lines and a CAGR of 59.50% in bottom lines. Its debt-equity ratio stood at 0.54 as of March 31, 2021.
For the last three fiscals, TCPCL has posted an average EPS of Rs. 20.99 and an average RoNW of 30.75%. The issue is priced at a P/BV of 13.11 based on its NAV of Rs. 82.62 as of March 31, 2021, and at a P/BV of 6.14 based on its post-IPO NAV of Rs. 176.39 (based on the cap price).
If we attribute FY21 earnings on fully diluted post issue equity, then the asking price is at a P/E of around 45.95 and thus the issue is reasonably priced as the industry composite is around 56 as per RHP data.
COMPARISON WITH LISTED PEERS:
As per the offer documents, TCPCL has shown Aarti Ind., Navin Fluorine, Alkyl Amines, Vinati Organics and Fine Organics as its listed peers. They are currently trading at a P/E of 60.43, 75.53, 65.61, 73.36 and 80.79 respectively (as of July 13, 2021). However, they are not truly comparable on an apple to apple basis.
DIVIDEND POLICY:
In the last three fiscals, TCPCL has paid a dividend of 50% (on pre-bonus equity) for FY21 only. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects.
MERCHANT BANKER’S TRACK RECORDS:
The two BRLMs associated with the offer have handled 33 public issues in the past three years, out of which 11 issues closed below the issue price on the listing date.
CONCLUSION / INVESTMENT STRATEGY
The company is in a fast forward mode and the issue is reasonably priced. The green chemical industry is fancied by investors across the board. Investment may be considered for short to long term rewards.
The original review was written by Dilip Davda, appears on chittorgarh.com and is available here.
