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16. VALUE INVESTOR  Jun 17, 2016 9:14:03 AM IST Reply

Mahanagar Gas Limited IPO

Analysis of upcoming IPO of Mahanagar Gas has been loaded on LinkExternal Link

You can access it in the Free Zone in New Issue Analysis section (no login required). The section can be accessed at:

New issue (IPO) Analysis:
Not ‘mahan’, but ‘sahi daam’

Mahanagar Gas Limited is entering the primary market on Tuesday 21st June 2016, with an offer for sale of upto 2.47 crore equity shares of Rs. 10 each, by promoters, in the price band of Rs. 380 to Rs. 421 per share, with an employee discount of Rs. 38 per share (no retail discount). Issue, representing 25% of the post issue paid-up capital, will raise Rs. 938 crore and Rs. 1,040 crore at the lower and upper price band respectively (all secondary money) and will close on Thursday 23rd June.

Mahanagar Gas, a city gas distribution company, is an equal joint venture between GAIL and British Gas (now owned by Royal Dutch Shell), each owning 45%, with balance 10% held by Maharashtra State Govt. Company supplies compressed natural gas (CNG) to 4.7 lakh vehicles, through 188 CNG filling stations and distributes piped natural gas (PNG) to 8.6 lakh households and 2,900 commercial establishments in Mumbai and its adjoining areas. It has recently been awarded distributorship for Raigad district in Maharashtra. For FY16, company sold 2.43 mmscmd gas, split 74:26 between CNG and PNG by volume, and 71: 29 by turnover.

Despite operating in Mumbai for nearly 20 years, its coverage is quite low. Of Mumbai’s 27.1 lakh households, as per 2011 census, it caters to only 8.6 lakh households (as at 31 March 2016) - barely 32% of market size. Increased households over 2011-16 will only lower this penetration number. No wonder company’s growth has been slow. Market size is huge, given the untapped potential in Mumbai itself, where majority of the distribution infrastructure is already in place, in addition to the new market of Raigad.

While company’s topline grew at a CAGR of 12% between FY12 to FY16, from Rs. 1,309 crore to Rs. 2,079 crore (on volume CAGR of 6%), net profit growth was missing, as net profit remained stagnant from Rs. 307.7 crore in FY12 to Rs. 308.7 crore in FY16. EBITDA growth was also paltry at CAGR of 1.8% during FY12-16 (FY16 EBITDA Rs. 556 crore versus FY12 EBITDA of Rs. 518 crore), as company is unable to pass on higher input costs to customers. Cost of inputs, accounting for 47% of sales in FY12, shot up to 59% in FY16, which proportionately dented EBITDA margin - slipping from 40% in FY12 to 27% in FY16. Low growth in profitability also resulted in Return on Equity (RoE) declining from 29% in FY12 to 20% in FY16.

Of FY16’s PBT of Rs. 467 crore, Rs. 30 crore was earned on account of treasury operations on surplus cash, which implies about 6% of profits from non-core activities. Corollary, only 5-7% p.a. return is generated on liquid investments, which is quite low. Returns of 10%-12% p.a., with better treasury management, is warranted, to make the idle cash sweat prudently!

As of 31st March 2016, equity stood at Rs. 89.34 crore, which currently stands at Rs. 98.78 crore, on account of conversion of CCDs by Maharashtra Govt. on 7th June 2016. Net worth, as of 31-3-16, stood at Rs. 1,528 crore, of which, Rs. 560 crore is cash and equivalents, while company has sundry debt of Rs. 4 crore. Thus, it is a debt free company with surplus cash of Rs. 56 per share. While company is yet to declare dividend for FY16, for FY13, FY14 and FY15, it paid dividend of Rs. 17.50 per share, which indicates an attractive dividend yield of 4.2%.

Majority of the gas (entire CNG requirement and PNG for households, which accounts for ~85% of volume sold) is sourced under the administered price mechanism from the Govt., at concessional rate, currently at US$ 3.06 per mmbtu. Quantity of 110% of last 6 month’s consumption is available to the company under this mechanism, for distribution as CNG and PNG to households. Hence, in some sense, sales volumes for the company is capped i.e. it cannot shoot up drastically in a short span of time. This remains a drawback.

At upper end of price band of Rs. 421, company’s market cap will be Rs. 4,160 crore and enterprise value (EV) Rs. 3,600 crore. The historic EV/EBITDA multiple, on FY16 EBITDA of Rs. 556 crore, is 6.5 times, while historic PE multiple, on PAT of Rs. 309 crore, is 13.5x. Estimating FY17 EBITDA of Rs. 575 crore leads to EV/EBITDA multiple of 6.3x and PE multiple of 13x, based on the current year estimated earnings.
Despite poor growth and below:
Particulars for FY16

Mahanagar Gas
Indraprastha Gas
Gujarat Gas
Sales Volume
in mmscmd
Revenue per scm
EBITDA per scm
Net Margin

Market Price
EV/EBITDA multiple
PE multiple

Mahanagar is the 3rd largest city gas distribution company in India, trailing Gujarat Gas and Indraprastha Gas, operating in Gujarat and Delhi/NCR respectively. Although it is nearly half the size of its peers, both its EBITDA margin and net margin are much higher, even in relation to Indraprastha Gas, which draws nearly 80-85% sales from CNG and domestic PNG, similar to Mahanagar. Gujarat Gas focusses more on the commercial and institutional segment. On valuation front too, Mahanagar scores over both its peers, on all counts – EV/EBITDA and PE multiple, EBITDA per scm and EV per scm. Hence, issue pricing is attractive.

Despite stagnant financial performance, company’s margins remain healthy vis-à-vis peers. Attractive pricing coupled with bright industry prospects make this issue a buy. One can apply at the upper band for both listing gains and with a medium term view.

Disclosure: No interest.
15. VALUE INVESTOR  May 10, 2016 9:46:38 AM IST Reply

Ujjivan Financial Services Ltd IPO

227, not a good listing.
14. VALUE INVESTOR  May 9, 2016 8:05:22 PM IST Reply

Thyrocare Technologies Ltd IPO

I Have seen that happen again and again on this forum, if some people are doing
good work like eagleeye, septa and RKS for the general benefit of everyone. Some new people who join this forum and start abusing them, so that they get discourage and leave this forum. It is in general interest of this forum, if they keep silent and ignore these people.
13. VALUE INVESTOR  May 6, 2016 6:57:16 PM IST Reply

Parag Milk Foods Ltd IPO

I don''t understand the logic in reducing 5 Rs on the lower price band :-)
Anyhow, they will fix issue price at higher price band, once the issue sails through.
Kaloos promoters!!!
12. VALUE INVESTOR  May 6, 2016 6:40:30 PM IST Reply

Ujjivan Financial Services Ltd IPO

0 out of 4 in Thyrocare
0 out of 4 in ujjain.

very luck
11. VALUE INVESTOR  May 6, 2016 6:06:10 AM IST Reply

Thyrocare Technologies Ltd IPO

septa, what happened to your 8 application.
Did you get?
10. VALUE INVESTOR  May 6, 2016 2:43:44 AM IST Reply

Thyrocare Technologies Ltd IPO

NO ALLOTMENT 0 out of 4 :-(
I never get in IPOs with high premium
9. VALUE INVESTOR  May 4, 2016 1:41:35 PM IST Reply

Parag Milk Foods Ltd IPO

SP Tulsian analysis:

Parag Milk Foods Ltd IPO:
Pricing unsweetens this milk
Parag Milk Foods is entering the primary market on Wednesday 4th May 2016, to raise Rs. 300 crore via a fresh issue of equity shares of Rs. 10 each and an offer for sale (OFS) of upto 205.73 lakh equity shares, both in the price band of Rs. 220 to Rs. 227 per share. Retail investors will get a Rs. 12 discount on the final issue price. The total fund raising aggregates to Rs. 767 crore, at the upper end of the price band, of which, OFS portion is Rs. 467 crore. Representing 15.8% of the post issue paid-up capital at the upper end, issue closes on Friday 6th May.
Motilal Oswal is one of the BRLMs to the issue and its PE fund, India Business Excellence Fund, is also a selling shareholder in the OFS, selling over 60 lakh shares, valued at Rs. 137 crore. If the BRLM is also on the sell side, conflict of interest is bound to rise and no points for guessing whose side will be favoured! Wonder why this was not red-flagged by SEBI, keeping in mind the interest of prospective shareholders.
Parag Milk Foods sells milk, ghee, cheese, paneer, curd and other dairy-based products under Gowardhan, Go,Topp Up and Pride of Cows brands, with an aggregate milk processing capacity of 2 million litres per day. It has cheese production capacity of 40 MT per day and distribution network comprising of 15 depots, 104 super stockists and over 3,000 distributors, as of February 29, 2016. Geographically, nearly 55% of company revenues are contributed by western regions.
For FY15, consolidated revenue rose 32% YoY to Rs. 1,441 crore. Dairy business having wafer thin net margin, standing at 1.8% for FY15, led to net profit of just Rs. 26 crore, yielding an EPS (basic) of Rs. 4.47, calculated on higher equity base, post bonus issue on 26-5-15. Although EBITDA rose 28% YoY to Rs. 108 crore, EBITDA margin slipped to 7.5% in FY15, from 7.7% of FY14. Despite sales CAGR of 24.6% over FY13-15, PAT CAGR registered only 12%, as rise in finance cost and employee expenses restricted bottomline growth.
For 9MFY16, however, PAT of Rs. 32 crore (EPS Rs. 4.67 for 9 months) has already surpassed FY15 PAT of Rs. 26 croreby 23%, as also EBITDA margin has widened by 127 bps over FY15, to 8.77%.
Company’s net worth, as of 31-12-15, stood at Rs. 278 crore, with promoters currently holding 61.13% stake, which will shrink to 54% post IPO, as 2 promoters are participating in the OFS, along with India Business Excellence Fund (Motilal Oswal PE) and IDFC PE Fund. Company’s consolidated net debt stands at Rs. 340 crore, as of 31.12.15 (down from Rs. 424 crore, as on 31.3.15). This will further reduce by Rs. 100 crore, thanks to repayment via fresh issue proceeds, while balance proceeds will be used for expansion and modernization of existing manufacturing facilities.
At upper end of the price band, Parag Milk will have market cap of Rs. 1,598 crore and Enterprise Value of Rs. 1,838 crore, which leads to EV/EBITDA of about 12 times, on an estimated EBITDA of Rs. 154 crore for FY16. Company is likely to close FY16 with an EPS below Rs.7, on an equity base of Rs. 70.42 crore, leading to a PE multiple of over 32 times. While the growth and margin expansion in 9MFY16 are quite encouraging, valuations seem stretched, vis-à-vis peers.
1. Kwality Limited, having 3 million litres per day milk processing capacity, which is not only 50% more thanthat of Parag, across 6 units in North India, but also has nearly 4 times the sales of the latter, at Rs. 6,000 crore, indicating higher value added products. It is currently ruling atEV/EBITDA and PE multiples of 10x and 18x respectively, based on FY16 estimated earnings.
2. Heritage Foods, with current milk processing capacity of 1.5 million litres per day and retail network of 1,08,000 outlets, is currently ruling at PE multiple of about 25x.
3. Prabhat Dairy, which made its debut on the bourses in September 2015, has milk processing capacity of 1.5 million litres per day, is currently trading at EV/EBITDA multiple of less than 10 times, based on annualized 9mFY16 earnings.
Turning back the pages of history, one recalls that Prabhat Dairy IPO was earlier priced in the band of Rs. 140 to Rs. 147 per share, which was revised downward to Rs. 115 to Rs. 126 per share, due to extremely poor subscription numbers. Its IPO was finally priced at the lower end at Rs. 115 per share, with Rs. 5 per share retail discount, and the share is currently languishing below its IPO price.Thus, although dairy has attracted a lot of investment from both national and international PE funds, it does not seem to enjoy that kind of fancy in the listed space.
While dairy business may aspire to get valuation of FMCG companies, reality is a lot different. Wafer thin margins coupled with lack of pricing power in producers’ hand due to commoditization of productsand extremely competitive landscape,remain some of the key challenges facing the industry.
To conclude, despite healthy growth expected, Parag Milk Food’s IPO is richly valued, especially in relation to peers. All future financial upside seems to have already been priced in, leaving little room for growth.
Stretched valuations infer a clear advice towards NOT subscribing to this issue.
8. VALUE INVESTOR  May 2, 2016 9:23:01 AM IST Reply

Parag Milk Foods Ltd IPO

Grey Market Premium of Thyrocare & Ujjivan IPOs Jumped.
But, Parag Milk Foods IPO Crashed
8.1. Shivajee  May 2, 2016 11:32:39 AM IST

Parag Milk Foods Ltd IPO

what is the jumped gmp of Ujji and Thyro?
7. VALUE INVESTOR  Apr 29, 2016 9:34:26 AM IST Reply

Thyrocare Technologies Ltd IPO

ICICIDIRECT SITE IS NOT WORKING. anybody else facing similar problem?
7.1. Deepika rana  Apr 29, 2016 9:39:47 AM IST

Thyrocare Technologies Ltd IPO

not working on mozilla

try on google chrome
7.2. Septa  Apr 29, 2016 9:43:33 AM IST

Thyrocare Technologies Ltd IPO

it is working on my MAC
7.3. BULLS OF INDIA  Apr 29, 2016 9:50:32 AM IST

Thyrocare Technologies Ltd IPO

now working on firefox too.
7.4. VALUE INVESTOR  Apr 29, 2016 9:51:26 AM IST

Thyrocare Technologies Ltd IPO

Look like old site is working, but new site is not working. Please file ipo application before old site also goes off.
7.5. VALUE INVESTOR  Apr 29, 2016 9:52:16 AM IST

Thyrocare Technologies Ltd IPO

Looks like old site is working. File ipo application using old site link. New site is not working.
7.6. VALUE INVESTOR  Apr 29, 2016 9:54:09 AM IST
6. VALUE INVESTOR  Apr 26, 2016 7:35:02 PM IST Reply

Ujjivan Financial Services Ltd IPO

SP Tulsian analysis of UFSL:
New issue (IPO) Analysis:
An Attractive Debut

Ujjivan Financial Services is entering the primary market on Thursday 28th April 2016, to raise Rs. 358 crore via a fresh issue of equity shares of Rs. 10 each and an offer for sale (OFS) of upto 249.68 lakh equity shares, both in the price band of Rs. 207 to Rs. 210 per share. The total fund raising aggregates to Rs. 883 crore, at the upper end of the price band, of which, OFS portion is Rs. 525 crore. Representing 35.5% of the post issue paid-up capital at the upper end, issue closes on Monday 2nd May.

Bengaluru based Ujjivan Financial is a microfinance company serving over 27.7 lakh customers, through its 470 branches pan India, enjoying a market share of 11.15% of India’s NBFC-MFI business. Having received an in-principle approval from RBI to set up a small finance bank (SFB), foreign shareholding in the company is to be brought down to 49% or less, by April 6, 2017, and hence existing foreign investors are pruning their holding to ~44%, from current 77.10%, via this IPO.

For FY15, Ujjivan recorded a stupendous 57% YoY growth in net interest income (NII), at Rs. 328 crore vis-à-vis Rs. 208 crore in FY14, with net assets under management (AUM) almost doubling to Rs. 3,219 crore as of 31-3-15, from Rs. 1,617 crore, a year ago. All this, with asset quality remaining steady - Net NPA of just Rs. 60 lakh, representing 0.02% of Net Advances. Company ended FY15 with PAT of Rs. 76 crore, against Rs. 58 crores YoY, up 31%, leading to an EPS of Rs. 11.24, against Rs. 8.91.

Coming on to the just concluded fiscal, NII of Rs. 408 crore posted during first 9M of FY16, has already surpassed FY15’s Rs. 328 crore, by 24%, that too in just 9 months’ time. PAT of Rs. 122 crore is a smart 60% rise, again in just 9 months, although asset quality has softened a tad bit, with Net NPA of Rs. 1.79 crores, representing 0.04% of Net Advances, as of 31-12-2015. However, this is not a concern at all, the number being so minute! Company has improved its NIM to 12.31%, RoA to 3.74% and RoE to 20.4%, which are all very robust parameters, besides bringing down cost-to-income ratio to 62% from 73%+, recorded in the previous fiscal.

Having Net AUM of Rs. 4,540 crore, as at 31-12-15, Ujjivan is being valued at 1.75x on pre-issue book value of approximately Rs. 120 (as on 31-3-16), at the upper price band of Rs. 210, while it works out to 1.58x post IPO, which is quite attractive, considering the present comparable peer Equitas Holding, which has received excellent response from institutional investors on its listing last week, currently ruling at a multiple of over 2x. SKS Microfinance, with over 1,300 branches and Gross Loan Portfolio of Rs. 6,177 crore (as on 31-12-15 ex AP & Telangana), is currently ruling at price to book of 5.7x.

Ujjivan is likely to close FY16 with an EPS of about Rs. 16.50, on equity base of Rs.101.20 crore, leading to a PE multiple of less than 13 times, on historic basis. This is cheaper than Equitas Holdings on earning multiple as well, the latter’s PE being close to 22.5x. Equitas is currently a holding company, and this should not make much of a difference, as Ujjivan will also eventually become a holding company, when its existing business will be transferred to SFB upon commencement of SFB operations.

It may be noted that since RBI has issued 10 licenses for SFB and in due course of time, all of them will get listed, which will taper off valuations of the existing listed peers. However, having posted NII and PAT CAGR of over 50% and Net AUM CAGR of whopping 69% over the past 3 fiscals, with handsome NIMs and return ratios (RoE and RoA), fundamentals of the company remain very strong. Moreover, due to the valuation gap vis-à-vis peers, the issue has left a lot of money on the table for prospective investors.

Microfinance industry has started seeing healthy loan volume upticks and players like SKS Micro and Equitas Holdings are leapfrogging with rising profitability. Good monsoon forecast for this season can only make MFI players show higher growth for the next couple of years as well.

To conclude, Ujjivan IPO is attractively valued and investment is advised for listing gains, as also, with a MT view, due to its robust operating performance, professional management, good corporate governance and favourable industry dynamics. Go for it!
5. VALUE INVESTOR  Apr 23, 2016 5:40:16 AM IST Reply

Thyrocare Technologies Ltd IPO

SP Tulsian Review on Thyrocare:
New issue (IPO) Analysis:
Diagnosing correctly

Thyrocare Technologies is entering primary market on Wednesday, 27th April 2016, with an offer for sale of upto 1.07 crore equity shares of Rs. 10 each, in the price band of Rs. 420 to Rs. 446 per share. Offer for sale by promoters comprises 5% of the issue, while balance 95% is being offered by PE investor CX Partners. Representing 20% of the post issue paid-up capital of the company, the issue will raise Rs. 451 crore and Rs. 479 crore at the lower and upper price band respectively and will close on Friday, 29th April, 2016.

Thyrocare Technologies is a Mumbai-based preventive healthcare and diagnostic chain, with a central processing laboratory at Navi Mumbai and 5 regional processing laboratories, offering 198 tests and 59 profiles of tests, having presence in 466 cities through 1,041 service providers. It’s wholly owned subsidiary Nueclear Healthcare Limited (NHL) operates molecular imaging centers in New Delhi, Navi Mumbai and Hyderabad.

For FY15, standalone revenue from operations grew 19% YoY to Rs. 187 crore, with total samples processed rising 30% YoY to 91 lakh. However, EBITDA only rose 6.5% YoY, to Rs. 80.25 crore (42.9% EBITDA margin vis-à-vis 48.1% in FY14), due to a whopping 43% YoY rise in employee cost to Rs.17 crore. Thus, net profit growth contracted to just 5% annually, with net profit coming in at Rs. 48.45 crores, to yield an EPS of Rs. 9.60 for FY15. Since subsidiary NHL is loss making, consolidated PAT for FY15 came in at Rs. 44.44 crores, with EPS of Rs. 8.80.

For 9 months ending 31-12-15, standalone total income is placed at Rs. 175 crores, with EBITDA at Rs. 74.50 crores, resulting in a margin of 42.7%, almost stagnant from FY15, rather a drop of 22 basis points! PAT for 9M FY16 was Rs. 43.60 crores, translating in an annualized EPS of Rs.11 for FY16. As of 31-12-15, company has no debt on its books, while cash and equivalents are Rs. 62 crores.

While its revenue has grown at a CAGR of 16% from Rs. 140 crores in FY13 to Rs. 187 crores in FY15, sadly, EBITDA CAGR has been much lower at 8%, with EBITDA rising from Rs. 69 crores to just Rs. 80 crores during FY13-15, while PAT has actually fallen from Rs. 56.80 crores in FY13 to Rs. 48.45 crores in FY15. Higher personnel cost and depreciation are the culprits for this de-growth in bottom line.

At the upper end of price band of Rs. 446 per share, market cap of the company will be Rs. 2,396 crores and enterprise value (EV) Rs. 2,330 crores. EV/EBITDA multiple based on estimated FY16 EBITDA of Rs. 105 crores, given that Q4 is seasonally stronger for the company, is at 22 times. For FY16, company is likely to report an EPS of closer to Rs. 11 per share, resulting in PE ratio of 40 times, based on FY16 earnings.

Dr. Lal Pathlabs, with 172 labs, 1,554 centres and 7,000+ pick-up points, is currently ruling at PE multiple of over 55x and EV/EBITDA multiple closer to 39x, despite 9MFY16 EBITDA margin of only 26.2%, much lower than Thyrocare’s 40%+. This implies that the latter is valued at a discount to its listed peer, may be due to its lower size, as compared to Dr. Lal.

Although Thyrocare has comparatively lower network strength vis-à-vis Dr. Lal PathLabs, its superior margins coupled with double digit growth are seen positive. Thanks to focus on preventive and wellness health segments by diagnostic chains rather than focus on disease, backed by increasing awareness of the younger generation, preventive diagnostic services segment is poised to grow steadily, which is beneficial for the sector as a whole and this company, in particular.

Historically, diagnostic stocks are ruling at abysmally high PE multiples, which is unsustainable over a longer term, as new players get listed on the bourses, leading to a fairer price discovery. But, as of now, we have to live with expensive valuations for such stocks (partly due to the sector growth rates and partly due to scarcity premium being accorded to them) or be left out in the process to invest.

While the pricing of Thyrocare issue is not cheap, one can apply for listing gains, as also, with a MT view, as an investor.
4. VALUE INVESTOR  Apr 21, 2016 8:00:55 PM IST Reply

Equitas Holdings Limited IPO

I sold my 3 lots @ 142 average price. Happy!!! did not buy considering upcoming two ipos.
3. VALUE INVESTOR  Apr 14, 2016 5:35:09 PM IST Reply

Equitas Holdings Limited IPO

Got in 3 out of 4 applications on icicidirect. Happy!!!
2. VALUE INVESTOR  Apr 7, 2016 7:56:54 PM IST Reply

Equitas Holdings Limited IPO

If karvy is registrar, there is going to be heavy rigging and cornering of shares. I have a history of poor allotment with karvy. Let''s see. I like link intime compared to karvy. No Calculation done by us will work by us as they follow their own for their own benefit !!!!
2.1. Septa  Apr 7, 2016 8:09:54 PM IST
2.2. Arup  Apr 7, 2016 8:43:12 PM IST

Equitas Holdings Limited IPO

Karvy is most bogus register
2.3. Shivajee  Apr 7, 2016 8:50:00 PM IST

Equitas Holdings Limited IPO

Don''t say like that, their office near Banjara Hills. I like Banjara herbal fruit face pack and make up items and facial kit.

They make me glow with facial kits and girls stare at malls.
1. VALUE INVESTOR  Apr 3, 2016 9:54:47 AM IST Reply

Equitas Holdings Limited IPO

IndiaInfoline take on equitas
Equitas Holdings Ltd. – Subscribe
Issue Opens: 5-Apr-16, Issue Closes: 7-Apr-16, Price Band: ₹109-110
Equitas Holdings is well diversified in financial services and provides MFI, vehicle finance, MSE finance, and housing finance to customers underserved by the formal financial system. Equitas was founded in 2007 by P. N. Vasudevan, who previously worked with Cholamandalam as vehicle finance head from 1991 to 2005 and later with DCB Bank as head of the consumer banking division. Equitas has exhibited high standards of corporate governance and transparency in conducting business. It has received an in-principle approval for an SFB license by RBI and needs to be compliant before April 7, 2017. Conversion into an SFB would lead to upfront investments on employee addition and training, induction of key management personnel, branding, distribution and delivery of various asset-liability products. After becoming a bank, provisioning expenses will increase on shift to 90 dpd NPL recognition and there would be a negative cost of carry on CRR and SLR. However, Equitas would derive sizeable benefits from lower cost of funds from access to public deposits.
The IPO comprises of a fresh issue of ~6.6cr equity shares and OFS of up to 13.2cr equity shares by existing investors at a price band of ₹109-110. The valuation of Equitas would stand at ~₹3700cr at the upper end. Through the fresh issue, company would raise ~₹720cr. The overall issue will be purely for domestic investors as the intention is to reduce foreign shareholding from 92.6% to ~35%. This is to comply with regulatory requirements of maximum 49% foreign investment in the proposed SFB.
Reasonable valuation – Subscribe
At the upper band, the stock is priced at ~1.85x FY16 P/Adj. BV on post-money basis. We believe that pricing is reasonable given that it is lower than well run private sector banks and it also seems to sufficiently capture the likely compression in RoA over the next couple of years due to required investments. While there is no precedent of this conversion process, given impressive execution track-record, strong reach and substantial customer base of Equitas, we believe it should be able to navigate the challenge successfully and evolve as a profitable SFB after 3-4 years. Long-term investors can subscribe in the IPO.
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