Details of Ujjivan Small Finance Bank IPO

Introduction

Ujjivan Small Finance Bank is raising Rs.750 Cr through a fresh IPO issue (Initial Public Offer) from December 2, with a price band Rs.36-37 per share. The bank issued IPO to comply with RBI’s licensing regulations and raise growth capital. In this article, we will do a detailed analysis of key financials, objectives and details of IPO, and the valuation of the Ujjivan Small Finance Bank.

Ujjivan Small Finance Bank IPO Analysis

Company Overview

• Ujjivan Small Finance Bank Ltd (USFB) is a mass market focused bank in India, catering to financially unserved and underserved segments.
• Promoter, Ujjivan Financial Services Limited (UFSL), commenced the operations as an NBFC in 2005, is the holding company of the bank.
• On 7, October, 2015, UFSL received RBI In-Principle Approval to set up a Small Finance Bank (SFB). Thus, after it UFSL incorporated Ujjivan Small Finance Bank Limited as a wholly-owned subsidiary.
• USFB has a diversified portfolio with branches spread across 24 states and union and a customer base of 4.9 million as of September 30, 2019.

Key Financials of Ujjivan Small Finance Bank

• Net Interest Margin (NIM) : Bank has NIM 10.8% for Q2 FY20. NIM numbers are comparatively very high as compared with other banks.
• Loan Book : A strong growth in bank’s loan book is seen QoQ as well as YoY. Gross Advances stands at Rs.12,864 Cr for Q2 FY20.
• Asset Quality : As Gross NPA is 0.9% and Net NPA is 0.3%, we can see that asset quality of the bank is very good, on account of the strong growth in micro-banking advances growth.
• Capital Adequacy Ratio (CAR) : For Q2 FY20, CAR of bank is 18.8% and will improve to around 22% post IPO.

Ujjivan Small Finance Bank IPO – Objectives & Details

Objectives of IPO

• As part of the licensing conditions, the bank has to list within three years even when the holding company is listed. So, the bank planned IPO now for complying RBI’s licensing conditions.
• The bank was planning to raise around Rs.1,000 Cr in total for fulfilling the above objective. Out of Total Rs.1,000 Cr :
  • Rs.250 Cr was raised through Pre-IPO placement route this month and
  • Rs.750 Cr is planned to raised through a fresh issue, IPO

Details of IPO

• The IPO details of Ujjivan Small Finance Bank are given in the above table.
• In the Pre-IPO Placement, banks has already issued 71,428,570 Equity Shares, Aggregating to Rs.250 Cr
• While in the fresh IPO issue, bank is going to issue 208,333,333 Equity shares, aggregating Rs.750 Cr

Valuation of Ujjivan Small Finance Bank

Valuation Comparison with Listed Industry Peers

• While doing the valuation comparison of the Ujjivan Small Finance bank with its industry peers, the PE ratios of all the peer banks are enlisted in the above chart.
• USFB has averaged out the PE ratios of its industry peers, which came to be 29.64. Thus USFB set its PE ratio at 30 (at the floor price). And the issue price is also set in the range Rs.36-37 per share.
• Thus, we can see that the bank is trying to list at its fair valuation by executing the valuation comparison with its industry peer banks.

Valuation of Bank

• After IPO, the promoter’s holding is going to decrease to 85% as mentioned by Joel Rebello, Ujjivan bank’s CEO.
• Thus, total 15% divestment is there through IPO route, which corresponds to Rs.1,000 Cr.
• Thus, the Total valuation of the bank is calculated with the above scenario. It come at around Rs.6,667 Cr.

IRCTC Listing – What Should Investors Do?

Introduction

In this article, we are going to see the IRCTC Ltd (Indian Railway Catering & Tourism Corporation) bumper listing gains on its listing debut on BSE and NSE on 14th October. Shares of IRCTC rose as much as 132% to Rs.743, as compared to issue price of Rs.320. What should investors do after such grand debut?

IRCTC Ltd Bumper Listing Gains

IRCTC IPO was subscribed 112 times

• Shares of IRCTC Ltd made a grand debut on Monday, 14th October, after they got listed on BSE and NSE with a 101.25 premium over issue price of Rs.320. Its initial public offering (IPO) received the highest ever subscription among PSUs.
• The IPO of IRCTC was subscribed a massive 112 times. It received Rs.72,000 Cr worth of bids. The retail category was subscribed nearly 15 times while qualified institutional buyers (QIBs) segment got subscribed 109 times and non-institutional investors (NIIs) category 355 times.
• This IPO was open for subscription between 30th September and 3rd October. The issue comprised an offer-for-sale of 2.01 Cr shares of face value of Rs.10 each.
• The issue price was fixed at Rs.320 per share, which is the higher end of the IPO price band. Retail investors and employees of the company received shares at a discount of Rs.10 per share. Hence the final IPO price for them is Rs.310 per share.

Company Overview

• The stellar response for IRCTC IPO may help in supporting the government’s drive to raise funds of Rs.1.1 Trillion by selling stake in PSU firms in FY2019-20. However, not all share sales will evoke such a massive response. IRCTC is an exception because of the quality of businesses it offers.
• Diversified Business :
  • IRCTC was conferred the Mini–Ratna status in May 2008.
  • IRCTC is the only entity authorised by Indian Railways to provide catering services to railways, online railway tickets and packaged drinking water at railway stations and trains in India.
  • It also provides non-railway services including budget hotels, e-catering and executive lounges to create a one-stop solution for customers.
  • The company is in steady business model, which is likely to grow at 12-15%. The revenue of company is expected to boost in the next 1-2 years due to :
    1. Restoration of convenience charges for e-ticket from September 2019 is likely to generate additional annual revenue of Rs.450 Cr.
    2. The company would get additional benefit from the recent corporate tax rate cut regime where effective tax is reduced to 25%.
• The company has healthy balance sheet with over Rs 1,100 crore cash to support capital expenditure.
• It has good dividend pay-out track record, as it paid around 50% average payout in the last 3 years.

Government Holding in IRCTC Ltd

• The Government is executing the divestment programme of PSU stake in state run firms. This move is in accordance with the governments” divestment target of Rs.1.1 Trillion for FY2019-20.
• Thus, government holding in IRCTC is reduced from 100% to 87.4% after issue, by selling the stake of almost 12.6% through public issue.
• As per SEBI’s Regulations and guidelines, any public listed company is entitled to maintain the promoter holding maximum up to 75%. Thus, IRCTC Ltd is further required to reduce its government stake from 87.4% to 75% in near future.

IRCTC Ltd Valuation Analysis

• Here, we have calculated the Profit After Tax (PAT) projections of IRCTC for FY2019-20, assuming the Profit before tax growth of 20%. Thus, after updated reduced corporate tax rates from earlier 36.5% to 25.17%, Profit After Tax comes out to be Rs.386 Cr for FY2019-20. And by considering the PE ratio to be 20, we have made the projections for the market capitalization of IRCTC to be Rs.7,700 Cr for FY2019-20.
• Now, after today’s massive debut if IRCTC listing the stock was trading at PE of around 40, deriving its market cap to be around Rs.11,580 Cr. The over-subscription of IPO by 112 times played a key role in a overwhelming debut of the stock.
• So, we believe that IRCTC stock is currently overvalued and will get corrected by 30% in a course of time.

What Should Investors Do?

There are 3 options which retail investors can opt for :

1. Book Partial Profit : By getting the principal amount invested in IPO and retaining the additional profit, one can opt for partial profit booking. Profits earned can be invested for long-term due to higher earnings visibility of the company.
2. Hold and Stay Invested : One can also hold the entire amount (principal + profit earned) invested and hold the stock in the long-term investment. Because, IRCTC is a good long-term investment bet given its unique business model and monopoly in the business it operates. Hence. one stay invested.
3. Sell Entire Allotment : The most practical option in current scenario is one should get over the listing euphoria. The bumper listing was expected owing to phenomenal over-subscription of the offer. Thus, retail investors, who got allotment in the IPO, should utilise this opportunity to exit. Because the stock which is currently trading at almost 40 PE is possessing a very attractive and overvaluation. So, one can sell the entire allotment in this golden phase because the stock might get corrected to PE of 20-22 in a course of time.

Conclusion

• IRCTC’s overwhelming debut is a bright spot in India’s IPO market. IRCTC’s IPO is the biggest and the most successful among the four companies from the Indian Railways stable that have gone public.
• The company is likely to benefit from monopolistic nature of business, significant growth over FY19-21, an asset-light business model with healthy dividend payouts and strong parentage.
• Retail investors can opt for one of the following 3 options after such a incredible listing of IRCTC :
  • Book Partial Profit
  • Hold as a long-term investment
  • Sell Entire Allotment

Should I Invest or Not? | IRCTC SWOT Analysis

Introduction

In this article, we will discuss IRCTC IPO Analysis with Valuation Angle. The IRCTC IPO is an offer-for-sale and is a part of the government’s divestment programme for FY 2019-20 in which it is divesting 12.6% stake in the company.

IRCTC IPO Analysis with Valuation Angle

Company Profile – IRCTC

• Indian Railway Catering and Tourism Corporation (IRCTC) is a subsidiary of the Indian Railways IRCTC is a central public sector enterprise wholly-owned by the Government of India and under the administrative control of the Ministry of Railways.
• It is the only entity authorised by Indian Railways. It operates in 4 business segments :
  1. Internet ticketing
  2. Catering
  3. Packaging Drinking Water under the “Rail Neer” brand
  4. Travel and Tourism
• The website of the company, www.irctc.co.in, is among the most frequented website with about 25-28 million transactions per month. www.irctc.co.in is the most transacted websites in the Asia-Pacific region.
• It has also diversified into other businesses, including non-railway catering and services such as e-catering, executive lounges and budget hotels, which are in line with its objective to build a “one-stop solution” for customers.

Objectives of IPO

• The issue is an offer for sale and is a part of the government’s divestment programme for FY 2019-20.
• Thus, the main objective of the IPO offer is :
  1. To carry out the disinvestment of 2.016 Crore equity shares by the selling shareholder constituting 12.6% of company’s paid-up equity share capital
  2. To achieve the benefits of listing the equity shares on the stock exchanges.
• The company will not receive any proceeds from the offer and the proceeds from the IPO will go to the promoter of the company.

IPO Details

• IRCTC has launched its initial public offering (IPO) on September 30, 2019 with a plan to raise up to Rs.645 crore. The IPO has a price band of Rs.315-320 per equity share with 2.01 crore shares on sale.
• % Allocation of total number of shares reserved under 3 heads :
  1. Qualified Institutional Investors (FIIs and DIIs) : 50%
  2. Retail Investors : 35%
  3. Non Institutional (High Net Worth) Investors : 15%

IRCTC Key Financials

• Total revenue of IRCTC grew at a CAGR of 10.4% since last two financial years to Rs.1,956 crore. In the same period, EBITDA grew at a CAGR of 9.1% to Rs.372 crore.
• The Net profit in the past two fiscals has grown at a CAGR of 9% to Rs.272 crore. As of FY2019, the company had an operating profit margin and net profit margin of close to 20% and 14% respectively.
• The company has no debt. It is completely a debt-free company. As of FY2019, IRCTC had cash and cash equivalent of close to Rs 1,140 crore.

Revenue Mix FY2019

• Currently, Catering business is the highest contributor in terms of revenue at 55%. Whereas, Travel & Tourism and Internet Booking contribute around 23.29% and 12.35% respectively.
• However, there is a very high growth opportunities for Internet Booking and Travel &Tourism businesses in near future. The revenue growth of these 2 segments is going to add a great value to the overall profitability and business portfolio of IRCTC.

SWOT Analysis

Valuation Angle

• The company is valued at Rs.5,120 crore at the upper price band and the valuation is pegged at Rs.5,040 crore at lower band.
• The company is commanding a price-to-earnings multiple of 18.8 times at the higher end of the price band.
• This is quite attractive considering the factors that work in favour of its business model and its strong return ratios. There is a clear 50% appreciation in market valuation of the company in coming years.
• So, it can be a great deal for a retail investor who can avail a discount of Rs.10 per share for such a big growth effect.

Should You Invest or Not?

• IRCTC has a unique business model and the company does not have any competition across business segments.
• Positive view on the issue based on various parameters such as strong earnings profile, diversified business segment, healthy return ratio, debt-free status, and most important monopoly business.
• Recent tax reduction by government to 25.2% and increase in revenue from service charge for online ticketing will improve profitability substantially going forward.
• There is also significant opportunity for the company to ramp up the catering business given a very large captive audience which is currently being underserved.
• Increasing business volumes from catering and packaged drinking water businesses, along with service charge for online ticket booking will drive earnings growth for the company between FY2019-21.
• IRCTC’s strong business model makes its IPO a good long-term investment.
• At the IPO price band, the stock is available at a price to earnings multiple of 10 times FY2021E EPS, which looks attractive from the perspective of future earnings growth.

Should I Invest in Polycab India IPO Or Not?

Polycab is engaged in the business of manufacturing and selling wires and cables and fast moving electrical goods(FMCG). In this article, we will analyze the Polycab India IPO. Whether should we invest ot not?

Polycab India IPO Details

1. Subscription Dates : Polycab India’s IPO opened for subscription on Friday, 5^th April 2019. The subscription for this IPO will be open till 9^th April 2019.
2. Issue Price : A price band of Rs. 533 – Rs. 538 a piece has been set for the Polycab India IPO.
3. Lot Size : Shares under the Polycab IPO can be subscribed in the lots of 27 units. That is investors can subscribe to the IPO at a minimum of Rs. 14,391- Rs. 14,526 (27 x 533-538).
4. IPO Amount : The IPO is worth Rs. 1,350 Cr. From this the company will retain Rs. 500 Cr with them, will use Rs. 300 Cr for working capital requirements, will pay-off short-terms debt worth Rs. 100 Cr and will use the remaining amount for general corporate purposes.

Business Details of Polycab India

1. Business Segments

• Polycab India is in the business of wires and cables. They earn 90% of their revenue from their business of wires and cables, which is their major business. In March 2019, the company’s overall revenue is expected to be around Rs. 7,200 Cr.
• The other business segment is Engineering, Procurement and Construction (EPC). Their EPC division provides electrical turnkey solutions comprising project management, onsite execution and resource management. 3%-4% of the revenue is earned from this business segment.
• The rest of revenue (6%-7%) is earned from Fast Moving Electrical Goods (FMEG). Its FMEG products include electric fans, LED lights, switches, switchgears, solar goods, conducts and accessories. This business segment has a lot of potential and can grow huge just like that of Havells.

2. Presence

• The company has a presence in almost 1 lakh retail stores. Thus, they already have a very strong distributor network.
• This network will also help them grow their FMEG business.

Wires & Cables – Indian Market

• India has a wires & cables market of around Rs. 50,000 Cr to Rs. 55,000 Cr.
• Polycab India earns 90% revenue from wires and cables. Thus, 90% of Rs. 7,200 Cr will amount close to Rs. 6,400 Cr.
• This means that Polycab India has a market share of around 12% to 13%. This is very healthy number. Compared to other organised players such as Havells, the market share of Polycab India is almost twice. Thus, this is very advantageous to the company. Among only organised players, that is leaving all the unorganised players (local brands) aside, Polycab India has a market share of 18%, which is definitely very healthy.
• But the wires and cables business of Polycab has become and general business segment with very less opportunities to do something new.

Financial Numbers of Polycab India

1. Net Profit

A healthy growth in net profit numbers can be observed. In 9MFY18-19 (April 2019 – December 2019), the company has already earned net profit worth Rs. 351 Cr. From this point forward, if maintain the same expectations, the company can report net profits of Rs. 480 Cr.

2. Market Capitalization

• When the IPO gets listed as per the specified prices then the company will have a market capitalization of around Rs. 8,000 Cr.
• This means that Polycab India will be a small cap company. But as the market is already euphoric and along with some listing gains, this stock can also move to the mid-cap category. This is just an assumption and nothing concrete can be said. But according to the current details, it is a small cap company.

3. Price-to-Earnings (PE) Ratio

• If we divide the market capitalization of Polycab India (Rs. 8,000 Cr) with their net profit (Rs. 480 Cr), then the PE ratio of Polycab India comes out to be around 16-17.
• This PE doesn’t look very high and the IPO definitely doesn’t look overvalued, in fact it looks like a fairly valued IPO.

Investors Exit from Polycab India

• Some existing private equity investors are also exiting from the company. This might be because they don’t thing the company will continue to give phenomenal or exponential as it has been until now.
• So, a selling of Rs. 1,150 Cr is being done by some investor. Thus, this will provide the company with extra equity.
• This is nothing to worry about and is a normal part of any company.

Summary

1. There are many other similar fairly valued stocks in the market.
2. There is nothing unique to gain from the IPO of Polycab India, but also nothing negative.
3. As it is involved in wires & cables business, it requires aluminium and copper as raw material, and the prices of these commodities can always vary, which can be problematic. The company is looking for tie-ups with copper production houses to set up their own copper production house. Th company is going through all of this right now.
4. Polycab India fits perfectly in the typical consumption theme.
5. The FEMG business segment of Polycab India can have a lot of scope and opportunities in the coming future.

Notes: –

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are not in any way saying that this is a bad company, or the stock of this company is bad.
• We are also not suggesting anyone to immediately go and subscribe to the IPO of this stock or invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.

Bandhan Bank IPO Details :

• Price band: Rs 370 – Rs 375
• IPO size: Rs 4,413 crore – Rs 4,473 crore
• Subscription dates: 15 -19 March 2018
• Post-IPO valuation: Rs 44,134 crore to Rs 44,730 crore
• Net Profit (FY 17): Rs 1,112 crore
• Return On Equity (FY 17): 28.6 %
• CASA (Dec 31,2017): 33.2 %
• Capital adequacy ratio (Dec 31,2017): 24.85 %
• Total deposits ( Dec 31,2017) – Rs 25,293 crore
• Loan Book (December 31,2017) : Rs 24,364 crore
• Gross NPA (Non Performing Assets) – As of Dec 31,2017 its Gross NPA stands at 1.67 %
• Net NPA – As of December 31,2017 its Net NPA stands at 0.8 %
• Net interest income (FY17): Rs 2,403 crore