India’s IPO market is again turning busy with Aditya Birla Sun Life AMC IPO schedule to open on 29 September for subscription. The offer, priced in the range of INR695 – 712 per share, aims to mobilize as much as INR2,768.26 crore by selling 38,880,000 shares. All the shares will be offered by existing shareholders, valuing the firm at nearly INR20,505.6 crore at the upper end of the price band. Following the successful listings of HDFC AMC and Reliance Nippon AMC, investors will be surely looking positively to this IPO as well. This is also visible in the strong grey market premium the offer is commanding. Through Aditya Birla AMC IPO review, we try to find out if the company’s valuation leaves something on the table for investors.
Originally SEL lined up its secondary offer in 2018, but finally enters the market now.
Dilution in promoter’s stake remains a major concern.
The issue is by way of offer for sale, no fresh equity is being raised.
Based on its financial data, the issue appears reasonably priced.
Preface: The company originally filed its offer documents for the same number of shares as OFS in August 2018 to mobilize around Rs. 1400 cr. and also received SEBI node, but it skipped the issue amidst uncertainties prevailed in the markets as claimed. At that time there were five BRLMs for fundraising exercises. It refiled offer documents in June 2021 and is now finally entering the capital market with its secondary offer with three BRLMs (Credit Suisse and BNP Paribas are not on the list). If we weigh both DRHPs, then the company has posted consistent growth in its top line but the bottom line marked inconsistency. However, based on financial data since FY16, the company remained cash-rich and did not want any fresh funding. The major concern that remains is the diminishing promoter’s holding which will come down to 36.56% from 43.91% post this issue. It’s worthwhile to note that while the secondary market was in a sluggish mood, this IPO mulled a collection of Rs. 1400 cr. and now when the secondary market is in pink of its health, they are planning mobilization of Rs. 1283 cr. i.e. they have reduced the valuation and kept something on the table for new investors.
About Company:
Sansera Engineering Ltd. (SEL) is an engineering-led integrated manufacturer of complex and critical precision engineered components across automotive and non-automotive sectors. Within the automotive sector, it manufactures and supplies a range of precision forged and machined components and assemblies that are critical for engine, transmission, suspension, braking, chassis and other systems for the two-wheeler, passenger vehicle and commercial vehicle verticals. Within the non-automotive sector, the company manufactures and supplies a range of precision components for the aerospace, off-road, agriculture and other segments, including engineering and capital goods. SEL supplies most of its products directly to OEMs in finished condition, resulting in significant value addition by it.
SEL is one of the top 10 global suppliers of connecting rods within the light vehicle segment (passenger vehicles with a gross vehicle weight of 3.5 tonnes or less, “Light Vehicle”) and one of the top 10 global suppliers of connecting rods within the commercial vehicle (“CV”) segment for CY 2020. (Source: The Ricardo Report).
AOL is manufacturing speciality chemicals and critical APIs.
Robust performance in pre-IPO year raises concern.
Based on financial parameters, IPO is fully priced.
Risk seekers/cash surplus investors may consider the investment.
ABOUT COMPANY:
Ami Organics Ltd. (AOL) is a research and development (“R&D”) driven manufacturer of speciality chemicals with varied end usage, focused on the development and manufacturing of advanced pharmaceutical intermediates (“Pharma Intermediates”) for regulated and generic active pharmaceutical ingredients (“APIs”) and New Chemical Entities (“NCE”) and key starting material for agrochemical and fine chemicals, especially from its recent acquisition of the business of Gujarat Organics Limited (“GOL”)(“Acquisition”). As per the F&S Report, it is one of the major manufacturers of Pharma Intermediates for certain key APIs, including Dolutegravir, Trazodone, Entacapone, Nintedanib and Rivaroxaban. The Pharma Intermediates which the company manufactures, find application in certain high-growth therapeutic areas including anti-retroviral, anti-inflammatory, anti-psychotic, anti-cancer, anti-Parkinson, anti-depressant and anti-coagulant, commanding significant market share globally.
It has developed and commercialized over 450 Pharma Intermediates for APIs across 17 key therapeutic areas since inception and NCE, with a strong focus on R&D across select high-growth high margin therapeutic areas such as anti-retroviral, anti-inflammatory, anti-psychotic, anti-cancer, anti-Parkinson, anti-depressant and anticoagulant, for use across the global pharmaceutical market. AOL’s Pharma Intermediates used for manufacturing of APIs and NCEs portfolio has expanded from over 425 products as of March 31, 2019, to over 450 products as of March 31, 2021.
It recently completed the acquisition of two additional manufacturing facilities operated by GOL which has added preservatives (parabens and parabens formulations which have end usage in cosmetics, animal food and personal care industries) and other speciality chemicals (with end usage in inter alia the cosmetics, dyes polymers and agrochemicals industries) in the existing product portfolio, which command significant market share globally in the supply of certain paraben derivatives, as per the F&S Report). The Acquisition is in line with its inorganic growth strategy of foraying further into the speciality chemicals sector and believes that it will enable it to significantly diversify its existing product portfolio, with an objective of attaining inorganic expansion of business.
As of the date of this RHP, it has eight process patent applications (in respect of intermediates used in the manufacture of Apixaban, Rivaroxaban, Nintedanib, Vortioxetine, Selexipag, Pimavanserin, Efinaconazole and Eliglustat). It currently supplies its products to well-known 150 plus Indian customers and in 25 overseas countries. It has three manufacturing facilities in the state of Gujarat.
ISSUE DETAILS / CAPITAL HISTORY:
To part finance its needs for repayment/prepayment of certain borrowings (Rs. 140 cr.), working capital (Rs. 90 cr.) and general corpus fund, AOL is coming out with a maiden IPO comprising fresh equity issue worth Rs. 200 cr. (approx. 3278688 shares at the upper cap) and an offer for sale of 6059600 equity shares of Rs. 10 each (Rs. 369.64 cr. at the upper cap). Thus overall the company will be raising approx. Rs. 569.64 cr. at the upper price band. The issue opens for subscription on September 01, 2021, and will close on September 03, 2021. The company has fixed a price band of Rs. 603 – Rs. 610 per share. Minimum application is to be made for 24 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.63% of the post issue paid-up equity capital of the company. The company has raised Rs. 100 cr. as pre-IPO placement in August 2021 by the issue of 1658374 equity shares at Rs. 603 per share to few institutional investors. AOL has allocated the issue as 50% for QIBs, 15% for HNIs and 35% for Retail investors.
Book Running Lead Managers to this issue are Intensive Fiscal Services Pvt. Ltd., Ambit Pvt. Ltd. and Axis Capital Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue.
Having issued initial equity at par, AOL raised further equity at Rs. 603.00 per share in August 2021. It has also issued bonus shares in the ratio of 6 for 1 in April 2018 and in the ratio of 2 for 1 in March 2021.
The average cost of acquisition of shares by the promoters/selling stake holders is Rs. 0.48, Rs. 0.56, Rs. 23.49 /Rs. 0.48, Rs. 20.67, Rs. 25.53, Rs. 30.02, Rs. 31.04, Rs. 31.85, Rs. 32.07, Rs. 33.85, Rs. 33.91, Rs. 39.45, Rs. 40.19, Rs. 41.70, Rs. 47.44, Rs. 48.29 and Rs. 58.18 per share.
Post issue, AOL’s current paid-up equity capital of Rs. 33.16 cr. (33158374 shares) will stand enhanced to Rs. 36.44 cr. (approx. 36437062 shares based on upper cap). At the upper price band, the company is looking for a market cap of Rs. 2222.66 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, AOL has posted turnover/net profits of Rs. 238.90 cr. / Rs. 23.30 cr. (FY19), Rs. 242.49 cr. / Rs. 27.47 cr. (FY20) and Rs. 341.99 cr. / Rs. 54.00 cr. (FY21). A sudden jump in the top and bottom lines in a pre-IPO year with a pandemic is a bit surprising.
For the last three years, on a consolidated basis, AOL has reported an average EPS of Rs. 12.71 and an average RoNW of 29.09%. The issue is priced at a P/BV of 11.51 based on its NAV of Rs. 52.99 as of March 31, 2021, and at a P/BV of 4.76 based on its post-issue NAV of Rs. 128.15 per share (at the upper cap).
If we attribute FY21 earnings on post IPO fully diluted equity, then the asking price is at a P/E of around 41.16, making it a fully priced offer (at the upper cap).
COMPARISON WITH LISTED PEERS:
As per offer documents, AOL has shown Aarti Ind., Hikal Ltd., Valiant Organics, Vinati Organics, Neuland Labs and Atul Ltd., as its listed peers. They are currently trading at a P/E of 56.49, 47.32, 29.98, 66.14, 28.97 and 39.67 (as of August 27, 2021). However, they are not truly comparable on an apple to apple basis.
DIVIDEND POLICY: AOL has not declared any dividend for the last three years to date. However, it will follow a prudent dividend policy post listing based on its financial performance and future prospects.
MERCHANT BANKER’S TRACK RECORDS:
The three BRLMs associated with this issue have handled 27 public issues in the last three years out of which 12 issues closed below the offer price on the listing dates.
CONCLUSION / INVESTMENT STRATEGY Based on super financial performance for FY21, the issue is fully priced. The sustainability of such higher margins going forward is a major concern. Many options at cheaper valuations are available in secondary markets. On financial parameters, AOL is no way near to its listed peers. Greedy pricing is perhaps on account of the current fancy for chemical counters. Hence risk seeker/cash surplus investors may take a call of investment with a long term perspective.
The original review has been authored by Dilip Davda, appears on chittorgarh.com and is available here.
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
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.
IPL is largely banking on differentiated products that are being introduced for the first time.
Investors may consider investing in this IPO with a long term perspective.
ABOUT COMPANY:
Indigo Paints Ltd. (IPL) is the fastest growing amongst top five paint companies in India. The company initially targeted Tier 3 and Tier 4 cities and rural area for its market penetration and is now entering Tier 1 and Tier 2 cities and Metros.
IPL currently manufactures a complete range of decorative paints including emulsions, enamels, wood coatings, distempers, primers, putties and cement paints. It also identifies potential product needs from customers and introduces differentiated products to meet these requirements, and create a distinct market for products. It is the first company to manufacture and introduce certain differentiated products in the decorative paint market in India, which includes Metallic Emulsions, Tile Coat Emulsions, Bright Ceiling Coat Emulsions, Floor Coat Emulsions, Dirtproof & Waterproof Exterior Laminate, Exterior and Interior Acrylic Laminate, and PU Super Gloss Enamel (together, “Indigo Differentiated Products”) (Source: F&S Report). These products are differentiated based on the end-use they cater to, as well as added properties that they possess. The company is currently present in 27 states and 7 Union Territories with extensive penetration in small towns. IPL has installed 4600 tinting machines till September 30, 2020.
Indian Railway Finance Corporation (IRFC) is launching a Rs. 4,633 crore IPO, between Mon 18th Jan 2021 to Wed 20th Jan, 67% of which is fresh issue and 33% offer for sale (OFS) by Government of India, in the price band of Rs. 25-26 per share. Surprisingly, there is no retail discount, unlike most PSU IPOs of the past. Issue represents 13.6% of post-issue capital, with listing on 29th Jan.
IPO to raise Capital, and not simply Disinvestment
Unlike most PSU IPOs which are OFS to only meet government’s disinvestment target, majority of this IPO will provide growth capital, as this wholly-owned subsidiary of the government, funds wagon purchase/project assets of Indian Railways. Being an NBFC, company’s need for funds is high, with last fund raise being a Rs. 2,500 crore rights issue at face value of Rs. 10 in March 2020. Sovereign backing helps keep cost of funds low and NPAs nil.
Zero Tax Paying Company
While company is not exempt from income tax, its actual tax liability was nil in FY20 as well as H1FY21 and will continue to be so, as long term financial leasing of wagons and projects yields huge unabsorbed depreciation in the company’s books and MAT is not applicable. Thus company’s earnings, which is spreads on lease rentals over borrowing cost, translates into profitability, as operating expenses are minimal.
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.
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.
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.
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.
