IndoStar Capital Finance IPO Review

IndoStar Capital Finance IPO

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
    financial institutions.
  • 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
INR Crore
Particulars 9mFY18 2017 2016 2015 2014
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
Reserves 1,998.10 1,824.30 1,468.40 1,216.80 1,067.30
Net worth 2,076.80 1,902.70 1,541.80 1,285.20 1,135.60
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
EPS (Rs.) 20.8 28.6 26.7 21.7 16.3
RoNW (%) 7.90% 11.00% 12.40% 11.60% 9.80%
NAV Rs.) 263.9 242.8 210.1 165.5 146.2
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%
Face Value 10
Post Issue Equity 91.14
IPO Price 572
Price/Book Value 2.17
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 5213.21
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. 
Peer Comparison: 
 Company Indostar  L&T Fin Capital First  Shriram Transport
Income 719.3 8531.58 2,772.87 10,902.71
CMP 572 177 615.2 1570.05
FV 10 10 10 10
EPS 23.99 5 23.97 55.42
NAV 304.6 51.87 236.48 498.15
P/E 23.8 35.4 25.7 28.3
P/B 1.88 3.41 2.60 3.15
RONW 11.00% 12.40% 10.37% 11.12%
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. 

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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