IndoStar Capital Finance IPO to raise Rs 1,844 crore comprises a fresh issue of Rs 700 crore and an offer-for-sale (OFS) of 20 million equity shares. initial public offering (IPO) on 9 May. Mumbai based Indostar Capital Finance Limited is a leading non-banking finance company (NBFC) registered with the RBI as a systemically important non-deposit taking company. IndoStar Capital Finance IPO is being offered at a price band of Rs 570-572 per share.
IndoStar Capital Finance IPO: Details
|Issue Period||Wed May 9-Friday, May 11, 2018|
|Issue Details||Fresh Issue upto Rs.700 Cr|
|and Offer for Sale of 20,000,000 Equity Shares|
|Issue Size (Rs. Cr)||Rs. 1,844 Cr|
|Price Band||Rs.570 – 572|
|Bid Lot||26 Equity Shares|
|Issue Structure :|
|QIB||50% of the offer|
|NIB||15% of the offer|
|Retail||35% of offer -1,12,83,217 Shares- Rs. 645.40 Cr|
|Retail Applications needed for 1x||4,33,970|
|BRLMs||JM Financial, Kotak Mahindra Capital, Morgan Stanley, Motilal Oswal, Nomura Financial|
|Registrar||Link Intime India Pvt. Ltd.|
About IndoStar Capital Finance Limited
- IndoStar is a non-banking finance company “NBFC” registered with the Reserve Bank of India as a systemically important non-deposit taking company. We are a professionally managed and institutionally owned organization which is primarily engaged in providing structured term financing solutions to corporates and loans to small and medium enterprise “SME” borrowers in India.
- The Company has recently expanded its portfolio to offer vehicle finance and housing finance products through its wholly-owned subsidiary IndoStar Home Finance Private Limited.
- IndoStar Capital Finance Limited has a diverse basket of lenders which include 14 public sector banks, 13 private sector banks, 21 mutual funds, 4 insurance companies and other
- IndoStar Capital Finance Limited distribution network includes 548
personnel as part of in-house sales team, and about 949 3rd party
direct sales associates.
- Indostar has opened its 100th branch in Vadodara, Gujarat, on April 6, 2018.
IndoStar Capital Finance Limited : Financials
|Revenue from Operations||580.1||719.3||643.9||528||394.5|
|Revenue Growth (%)||–||11.70%||21.90%||33.80%||–|
|Profit Before Tax||249.9||323||293.2||226||169.2|
|Profit after Tax||164||210.7||191.6||149||112.1|
|Net Profit Margin||28.20%||29.20%||29.70%||28.20%||–|
|Equity Share Capital||78.7||78.3||73.3||68.3||68.3|
|Long Term Borrowings||1,541.80||1,910.60||1,758.80||1,613.80||1,191.50|
|Short Term Borrowings||1,312.00||786.5||499.4||343.9||166.8|
|Net Interest Margin||6.90%||6.80%||6.50%||6.00%||6.60%|
|Return on Av Assets||3.80%||4.10%||4.40%||4.20%||4.20%|
|Return on Av Equity||10.90%||12.20%||13.60%||12.30%||10.40%|
|Post Issue Equity||91.14|
|EPS Post Issue ( annulized)||23.99|
|PE – (annuallized)||23.84|
|CAGR Sales 3 Yrs||22.17%|
|CAGR Net Profit 3 Yrs||23.41%|
|Market cap / Sales||7.25|
IndoStar Capital Finance IPO: Issue Objectives
Proceeds from the Fresh Issue will go towards augmenting its capital base to meet future capital requirements.
To achieve benefits of listing on the Exchanges and carry out offer for sale of equity shares.
IndoStar Capital Finance IPO: Pros
- IndoStar Capital Finance Limited has diversified funding and brand equity as it is owned by international institutional investors.
- IndoStar Capital Finance Limited provides loans to real estate, financial services, poultry products, infrastructure and digital cable sectors in India and these sectors as on 31st dec 2017, 41.6%, of its Total Credit Exposure comprised of loans towards real estate, and 10.8%, 6.9%, 3.5% and 2.3% of our Total Credit Exposure comprised of loans towards financial services, poultry products, digital cable and energy sectors, respectively. As part of its diversification strategy, company has increased exposure to the transportation and housing sectors.
- IndoStar Capital Finance Limited long-term debt is presently rated CARE AA-; Stable and IND AA-/Stable respectively, by CARE Ratings Limited and India Ratings and Research Private Limited. CARE Ratings Limited, ICRA Limited and CRISIL Limited has each rated its commercial paper debt as CAREA1+, ICRA A1+ and CRISIL A1+, respectively, which is the highest rating for short-term debt. Its subsidiary, IndoStar Home Finance Private Limited, has its short-term commercial paper debt rated as CARE A1+ and ICRA A1+.
- As a systemically important non-deposit taking NBFC, Company is required to maintain a capital adequacy ratio of at least 15.0% of the aggregate risk-weighted assets of its balance sheet. Company’s capital adequacy ratio was 31.6% and 33.8% as of December 31, 2017 and March 31,2017, respectively.
- The promoters will continue to hold about 59% stake in company post IPO.
IndoStar Capital Finance IPO: Risks
- Company is vulnerable to volatility in interest rates for both its lending and treasury operations
- IndoStar Capital Finance Limited has recently entered into new lines of business like our portfolio such as vehicle finance and housing finance products.
- NPA’s have shown marginal increase.
- Company has significant exposure to certain sectors like real estate and to certain borrowers.
- Company has high dependence on Mumbai Metropolitan Region (“MMR”) for its corporate lending business, particularly the real estate loan portfolio, as 93.9% of its real estate loans fdisbursed in the MMR.
|Company||Indostar||L&T Fin||Capital First||Shriram Transport|
IndoStar Capital Finance IPO: Assessment
CRISIL Research estimates the loan book of NBFCs to post 15% CAGR growth between financial year 2018 and financial year 2019. NBFCs have gained market share at the expense of banks owing to focused lending, widening reach, and resource-raising ability.
- Presence of famed institutional investors is likely to ensure good visibility and corporate governance standards.
- IndoStar Capital Finance Limited has experienced significant growth in recent years. Its total revenue has grown at a CAGR of 22% and Net profits have grown at a CAGR of 23% from fiscals 2014 to 2017.
- Corporate lending accounts for 76.8% of its total lending and is considered as relatively risky compared with retail loan segment.
- Company has a high concentration of loans to real estate sector and most of these are in Mumbai Metropolitan Region.
- Company’s Gross NPAs were 1.7% of Gross Advances as of December 31, 2017, as compared to 1.4% as of March 31, 2017 and 0.2% as of March 31, 2016. This ts Gross NPAs and provisions have increased in recent periods.
At post issue P/BV of ~1.9x , the company’s valuations are reasonable when compared to peers like L&F Finance, Shriram Transport. However the company is mainly into corporate Lending.
My stance on on IndoStar Capital Finance IPO is slightly Positive as it has has good management backed by international institutions and valuations are in line with other players. However on the flip side IndoStar Capital Finance has high exposure to cooperate lending and is new to retail lending. I shall apply subject to company getting good response to the IPO in first two days.