Equitas Holdings IPO – Should you invest?

Equitas Holdings IPO ReviewEquitas Holdings IPO Review

Chennai based, Equitas Holdings IPO would open for subscription on 5th April, 2016. Equitas Holdings Ltd is a diversified financial services provider focused on individuals and micro and small enterprises (MSEs). The company posted revenue growth of over 33% CAGR in last 5 years. There are several positive factors in Equitas Holdings IPO. What are the negative factors in Equitas Holdings IPO?  In this article, I would review Equitas Holding IPO and whether one should invest in this IPO or not.

About Equitas Holdings Limited

The company is a diversified financial services provider focused on individuals and micro and small enterprises (MSEs) that are under served by formal financing channels. Its focus customer segment includes low income groups and economically weaker individuals operating small businesses, as well as MSEs with limited access to formal financing channels on account of their informal, variable and cash-based income profile. These customers require various financial products including small, short-term business loans as well as relatively large, longer tenor enterprise and home loans. The company offers a range of financial products and services that address the specific requirements of these customer segments that take into account their income profile, nature of the business and kind of security available. In November 2014 the RBI introduced the “Guidelines for licensing of small finance banks (SFB) in the private sector” guidelines. Company had applied for an SFB license under the applicable guidelines and on October 7, 2015, the RBI granted us the SFB In-Principle Approval to establish an SFB, subject to the terms and condition of such approval.

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Issue details of Equitas Holdings IPO

  • IPO opens: 5-April-2016
  • IPO closes: 7-April-2016
  • Face Value: Rs 10 per share
  • Issue price band: Rs 109 to Rs 110 per share
  • Issue size: Rs 720 Crores by company (excluding shares sold by selling share holders). Total size would be Rs 2,176 Crores.
  • Minimum shares: 135 shares
  • Lead Managers: Axis Capital, Edelweiss Financial Services, HSBC Securities and Capital Markets (India) and ICICI Securities
  • Listing: BSE / NSE

Download Equitas Holdings IPO Prospectus from SEBI Website at this link.

Purpose of the IPO

1) Offer for Sale – Each of the Selling Shareholders will be entitled to their respective portion of the proceeds of the Offer for Sale. The company will not receive any proceeds from the Offer for Sale. All expenses in relation to the Issue will be shared amongst our Company and Selling Shareholders in accordance with applicable law.

2) Investment in its Subsidiaries to augment their capital base to meet their future capital requirements arising out of the growth in business (the “Investment”); and

3)  General Corporate Purposes.

Company Financials (consolidated-reinstated)

  • Company generated revenue of Rs 239.2 Crores for the year ended Mar-11 and Rs 755.92 Crores for the year ended Mar-15. For 3 months ended Jun-15, it generated revenue of Rs 239.3 Crores.
  • Company posted a profit of Rs 28.51 Crores for the year ended Mar-11 and profit of Rs 106.62 Crores for the year ended Mar-2015. For 3 months ended Jun-15, it generated a profit of Rs 37.38 Crores.
  • Its restated consolidated EPS for FY 2015 is 4.47 and last 3 years average EPS Rs 3.87.

Equitas Holdings IPO - Financials

Reasons to invest Equitas Holdings IPO

  • Excellent revenue growth. The company has grown at 33% CAGR in last 5 years.
  • Good profits of 14% to 15.4% in last couple of years.

Reasons not to invest in an Equitas Holdings IPO

  • The company has incurred loss in FY2012-13 for Rs 3.47 Crores.
  • Although, the company has been granted an SFB In-Principle Approval, they may not be able to set up an SFB within the timelines prescribed or at all which may have an adverse effect on its prospects, reputation and financial condition.
  • The business model and regulatory framework governing SFBs are untested in India. There can be no assurance that we will be able to implement the SFB model successfully in India.
  • The company may not be successful in implementing its SFB growth strategies.
  • The company has no operating history in the banking business and they are subject to all of the business risks and uncertainties associated with setting up a new business in general, and with banking operations in particular.
  • Market acceptance of Equitas brand is critical to its banking business
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 22 onwards.

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Recommendation / Investment strategy:

  • On the higher issue price band of Rs 110 and on last 3 years EPS of Rs 3.87, P/E Ratio works out to be 28x. On last year FY15 EPS of Rs 4.47, P/E ratio works out to be 24x. Its competitor, RepcoOn th
  • Home Finance, P/E ratio is 32 (Highest) and Cholamandalam investment  P/E ratio is 19 (Lowest). Hence the issue price of Rs 110 is reasonably priced.
  • Company shown strong revenue growth in last 5 years. Good margins of around 15% makes this IPO attractive.  While it got Small Finance Bank (SFB) licence, its set-up may take time and its benefits would be seen in coming years. Considering all the above factors, investors can invest in this IPO. Recent IPO’s are listed at below issue price, hence one should be careful while investing in these IPO’s. You should be willing to hold such shares for 3 to 5 years in case the shares of such IPO’s are listed below its issue price.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Equitas Holdings IPO – Should you invest


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