Indostar Capital Finance IPO – Should you invest?
Mumbai based Indostar Capital Finance IPO would open for subscription on 9th May, 2018. Indostar Capital Finance Limited is a leading Non Bankinug Finance Company (NBFC) in India. Indostar Capital Finance revenues grew at 31% CAGR in the last 5 years. It earns decent profits of over 28%. Since its financials are good, experts are on positive view about this company. What are positive factors in IPO of Indostar Capital Finance Limited? What are the hidden factors in Indostar Capital Finance IPO? Should you invest in Indostar Capital Finance IPO? Let me provide some insights about this IPO and do the review.
About Indostar Capital Finance Ltd
They are a leading non-banking finance company (NBFC) registered with the Reserve Bank of India as a systemically important non-deposit taking company. They are a professionally managed and institutionally owned organization which is primarily engaged in providing bespoke Indian Rupee denominated structured term financing solutions to corporates and loans to small and medium enterprise (SME) borrowers in India. They recently expanded its portfolio to offer vehicle finance and housing finance products. Although, they operated in a challenging credit environment in the initial years of its business operations, where in 2012, 2013 and 2014, inflation in India was 8.4%, 9.9% and 9.4%, respectively, and India’s fiscal deficit was 5.7%, 4.8% and 4.5%, respectively, of its GDP, through upfront capitalization of its business, its domain expertise and focus on its customers, experienced management team and vigilant monitoring of its assets, its business has experienced growth since the commencement of its operations in 2011. Bettheyen fiscal 2013 and 2017, its Total Credit Exposure and total revenue grew at a CAGR of 30.0% and 31.4%, respectively.
Indostar Capital Finance IPO Issue details
IPO opening date: 9-May-2018
IPO closure date: 11-May-2018
Face Value: Rs 10 per share
Issue price band: Rs 570 to Rs 572 per share (Confirmed on 1st May, 2018)
Issue size: Yet to know
IPO Lot size: 26 shares and 26 shares there-off
Minimum investment: Rs 14,872 on higher price band
Leading Managers: JM Financial, Kotak Mahindra Capital, Morgan Stanley, Motilal Oswal Investment, Nomura financials
Listing: BSE / NSE
Objects of the Indostar Capital Finance Limited IPO issue
The Objects of the issue are
1) Offer for Sale: The Selling Shareholders will be entitled to the proceeds of the Offer for Sale of their respective portions of the Offered Shares, respectively net of their share of the Offer related expenses. Company will not receive any proceeds from the Offer for Sale.
2) Offer related expenses
Promoter of the company is Indostar Capital.
Company Financials (reinstated-Standalone)
1) The company generated revenue of Rs 241.5 Crores for the year ended Mar-13 and Rs 715.5 Crores for the year ended Mar-17. Revenues for 9 months ended Dec-2017 was Rs 584.4 Crores.
2) The company posted a profit of Rs 90 Crores for the year ended Mar-13 and profit of Rs 209 Crores for the year ended Mar-17. Profits for 9 months ended Dec-17 was Rs 169.7 Crores.
3) Its FY17 EPS is Rs 28.4 and last 3 years average EPS is Rs 26.7. Its 9 months ended EPS is Rs 21.5.
What are the key strengths of Indostar Capital Finance Limited?
Here are the key strengths of the company.
1) Highly motivated, professional and experienced management team
2) Well-established corporate and strong SME lending businesses
3) High asset quality achieved through robust credit assessment and risk management framework
4) Proven track record of delivering results
5) Well diversified funding profile
6) Ownership by institutional investors ensuring international corporate governance standards
What are the Strategies of Indostar Capital Finance Ltd?
Here are the key strategies of the company.
1) Fits Pillars strategy focused on secured lending.
2) Expand its geographical footprint and sitscing platform for its products across India.
3) Increase use of technology and data analytics to support business growth and improve efficiency as theyll as to further strengthen its risk management framework.
4) Continue to create brand awareness to become the preferred NBFC for borrowers in its target customer segments.
Reasons to invest in Indostar Capital Finance IPO
1) Strong Revenue growth of 31% CAGR in the last 5 years
2) Good profits of over 28% in the last 5 years.
3) Well known and leading NBFC company in India.
Risk Factors / Reasons not to invest in an Indostar Capital Finance IPO
1) They are affected by volatility in interest rates for both its lending and treasury operations, which could cause its net interest income to vary and consequently affect its profitability.
2) They have expanded into new lines of business and if they are unable to successfully run the new businesses profitably, its results of operations and financial condition may be affected
3) They have experienced significant growth in recent years and they may not be able to sustain its growth or manage it effectively.
4) Any disruption in its sitsces of funding could adversely affect its liquidity and financial condition.
5) The quality of its portfolio may be impacted due to higher levels of NPAs and its business may be adversely affected if they are unable to provide for such higher levels of NPAs
6) They operate in a highly competitive industry and its inability to compete effectively may adversely affect its business
7) They are subject to laws and regulations governing the banking and financial services industry in India and changes in laws and regulations governing us could adversely affect its business, results of operations and prospects
8) They depend on the services of its management team and employees. its inability to retain existing members of its management team and recruit new members for its management team may adversely affect its business.
9) They have significant exposure to certain sectors and to certain borrowers and if these exposures become non-performing, such exposures could increase the level of non-performing assets in its portfolio and affect its business, future financial performance and results of operations and the quality of its asset portfolio its corporate lending business, particularly the real estate loan portfolio, is significantly dependent on its operations in the Mumbai Metropolitan Region, and any adverse changes in the conditions affecting these markets can adversely impact its business, financial condition and results of operations
10) There is outstanding litigation pending against us and its directors, which, if determined adversely, could affect its business, results of operations and financial condition.
11) As an NBFC, non-compliance with the RBI’s observations made during its periodic inspections could expose us to penalties and restrictions
12) They have had negative net cash flows in the past and may continue to have negative cash flows in the future.
13) Some of its Group Companies and Subsidiaries have incurred losses in the past.
14) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
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Recommendation / Investment strategy – Indostar Capital Finance IPO (this section updated on 2nd May after issue price is announced)
1) On FY2017 EPS of Rs 28.45 and on upper price band of Rs 572, P/E works out to be 20x. On last 3 years average EPS of Rs 26.7, P/E works out to be 21.4x. Based on 9 months ended Dec-17 EPS of Rs 21.5, P/E works out to be 26.6x. Its listed peers like Piramal Enterprises is trading at P/E of 36x (Highest) and Repco Home Finance is trading at P/E of 20x (Lowest) and industry average is 28.6x. Hence Indostar Capital Finance Issue Price of Rs 572 at P/E of 20x to 26.6x is reasonably priced.
2) Company posted strong revenue growth of 31% CAGR in the last 5 years. Its margins are also on higher side. Its issue price is reasonably priced. Considering all these positive factors, investors can invest in this IPO for 2-3 years time frame. One may or may not get listing gains.
Disclaimer: I do not 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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Indostar Capital Finance IPO – Should you invest