Month: June 2017

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Central Depository Services (India) Limited (or CDSL), a 50.05% subsidiary of the Bombay Stock Exchange (BSE), has launched its initial public offer (IPO) from June 19 in the price band of Rs. 145-149 a share. The company is expected to raise Rs. 524 crore in this issue and the same will remain open for the next two days only to close on June 21.

This IPO is actually an offer for sale by some of CDSL’s existing shareholders, BSE, State Bank of India (SBI), Bank of Baroda and The Calcutta Stock Exchange, and that is why, the company is not going to get any money for any of its expansion plans or to retire any of its debt. Its other shareholders, HDFC Bank, Standard Chartered Bank, Canara Bank, Bank of India and Union Bank of India, are not selling any stake in this IPO.

CDSL derives its revenues from a multiple sources – issuer charges, transaction charges, IPO/corporate action charges, ECAS charges, e-voting charges, user facility charges, and many other services. It also earns a large part of its revenues from its investments in tax-free bonds and debt mutual funds.  

Before we take a decision to invest in this issue or not, let us first check out the salient features of this IPO:

Price Band – The company has fixed its price band to be between Rs. 145-149 per share and no discount is getting offered to the retail investors.

Size & Objective of the Issue – CDSL will issue around 3.52 crore shares in this issue at Rs. 149  a share to raise Rs. 524 crore from the investors. Out of this amount, the company plans to use crore for repayment/prepayment of some of its loans and redemption/early redemption of its NCDs, crore for the construction and purchase of fit outs for its new stores and the remaining proceeds for general corporate purposes.

Retail Allocation – 35% of the issue size is reserved for the retail individual investors (RIIs), 15% is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

No Discount for Retail Investors – As mentioned above also, the company has decided not to offer any discount to the retail investors.

Anchor Investors – CDSL on Friday finalised allocation of approximately  crore shares to the anchor investors @ Rs. 149 per share for Rs.  crore. Some of these anchor investors include Abu Dhabi Investment Authority, FIL Investments (Mauritius) Limited, Goldman Sachs India Limited, SBI Magnum Tax Gain, ICICI Prudential Dividend Yield Equity Fund and ICICI Prudential Value Fund – Series 6.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 100 shares and in multiples of 100 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,900 at the upper end of the price band and Rs. 14,500 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 100 shares @ Rs. 149 i.e. a maximum investment of Rs. 1,93,700. At Rs. 145 a share also, you can apply for 13 lots only, thus making it Rs. 1,88,500.

Listing – The shares of the company will get listed only on the National Stock Exchange (NSE), as the Bombay Stock Exchange (BSE) holds a majority shareholding in the company pre-IPO and as per the SEBI regulations, a stock exchange and its subsidiaries cannot get listed on its own exchange. The listing will happen within 6 working days after the issue gets closed on 21st June. June 30th is the tentative date for its listing.

Here are some other important dates after the issue gets closed:

Finalisation of Basis of Allotment – On or about June 29, 2017

Initiation of Refunds – On or about June 29, 2017

Credit of equity shares to investors’ demat accounts – On or about June 29, 2017

Commencement of Trading on the NSE/BSE – On or about June 30, 2017

Financials of CDSL

(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Comparison of CDSL & NSDL

Should you invest in CDSL IPO @ Rs. 149?

At Rs. 149 a share, CDSL IPO is priced at 18 times its FY 2016-17 earnings and 2.92 times its net worth as on March 31, 2017, which seems fairly valued to me. In terms of market share, CDSL has been an outperformer, despite NSDL being a dominant player as far as use of technology is concerned. But, that is something CDSL has been doing at the cost of operating revenues and/or margins. It has grown at a steady pace all these years, but I would call it a dull show as the company has not been able to grow its revenues, profits and margins in line with its growth in market share.

Going forward, the business is expected to grow rapidly as the market sentiment has changed dramatically in the last 5-6 months and is expected to remain buoyant going forward as well. But, as the SEBI regulations limits extraordinary price changes by these depositories, I expect CDSL to grow at a relatively moderate pace only. No fireworks are expected in its operating revenues going forward and thus, would advise investing in it just for the listing gains only and not for medium to long-term wealth creation.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

AU Small Finance Bank Limited is all set to enter the primary markets by launching its initial public offer (IPO) from today. It will be a sub Rs. 2,000 crore issue in the price band of Rs. 355-358. Existing shareholders will dilute their current shareholding in this IPO and no fresh shares will be issued during the offer period.

The issue represents 18.79% of the post issue paid-up share capital of the company and as always, will remain open for three days to close on June 30th.

Before we analyse it further and take a decision to invest in it or not, let us first check out some other details of this IPO:

Price Band – The company has fixed its price band to be between Rs. 355-358 per share and no discount is getting offered to the retail investors.

Size & Objective of the Issue – As this is an offer for sale by its existing shareholders, the company will not receive any proceeds from this issue. These selling shareholders include its founders Sanjay Agarwal, Jyoti Agarwal, Shakuntala Agarwal and Chiranji Lal Agarwal, Redwood Investment Ltd, International Finance Corporation (IFC), Ourea Holdings Limited, Kedaara Capital Alternate Investment Fund, Labh Investments and MYS Holdings. These shareholders will sell around 5.34 crore shares in this issue at Rs. 358 a share to raise Rs. 1,913 crore from the investors.

Retail Allocation – The company has reserved 10 lakhs shares for its employees. Post that allocation, 35% of the net issue size is reserved for the retail individual investors (RIIs), 15% is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

No Discount for Retail Investors – The company has decided not to offer any discount to the retail investors.

Anchor Investors – The company today finalised allocation of approximately 1.57 crore shares to the anchor investors @ Rs. 358 per share for Rs. 563 crore. Some of these anchor investors include Nomura Singapore, Merrill Lynch Markets Singapore, Government of Singapore, Kuwait Investment Authority Fund 225, Nomura Funds Ireland India Equity Fund, HSBC Global Investment Fund – Indian Equity, Jupiter South Asia Investment Company – South Asia Access Fund, Amansa Holdings, Pacific Horizon Investment Trust, DB International (Asia), Eastbridge Capital Master Fund, Indus India Fund (Mauritius) and Steadview Capital Mauritius.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 41 shares and in multiples of 41 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,678 at the upper end of the price band and Rs. 14,555 at the lower end of the price band.

Maximum Investment – Rs. Individual investors investing up to Rs. 2 lakh are categorised as Retail Individual Investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 41 shares @ Rs. 358 i.e. a maximum investment of Rs. 1,90,814. At Rs. 355 a share, your maximum investment would fall to Rs. 1,89,215.

Listing – The shares of the company will get listed on both the stock exchanges, National Stock Exchange (NSE), as well as Bombay Stock Exchange (BSE). The listing will happen within 6 working days after the issue gets closed on June 30. July 10th is the tentative date for its listing.

Here are some other important dates after the issue gets closed:

Finalisation of Basis of Allotment – On or about July 5, 2017

Initiation of Refunds – On or about July 6, 2017

Credit of equity shares to investors’ demat accounts – On or about July 7, 2017

Commencement of Trading on the NSE/BSE – On or about July 10, 2017

Financials of AU Small Finance Bank

Note: Figures are in Rs. Crore, except per share data & percentage figures

Peer Comparison

Should you invest in this IPO at Rs. 355-358?

At Rs. 358 a share, it seems that AU Small Finance Bank IPO is steeply priced. The company reported an EPS of Rs. 11.74 in FY 2016-17, excluding an exceptional gain of Rs. 18.62 a share on account of its sale of housing finance portfolio. The company has a book value of Rs. 70.34 a share as on March 31, 2017. At Rs. 358, the stock would be valued at 30.49 times its reported EPS for the previous financial year and 5.09 times its book value as on March 31, 2017. Companies with exceptional managements and proven track record warrant such valuations.

Equitas and Ujjivan are the other small finance banks which are currently listed on the stock exchanges. Valuations-wise, both these companies are reasonably priced as compared to AU. While Equitas is currently trading at 2.29 times its FY 2016-17 book value of Rs. 66.03 a share and 32.19 times its reported EPS of Rs. 4.69, Ujjivan trades at 2.03 times its book value and 17.48 times its reported EPS in the same period. Though there are certain significant factors which favour AU over Equitas, Ujjivan and some other banking and non-banking organisations, I still feel the company should have priced its IPO at least 15-20% lower than its current price band.   

Moreover, 53.78% of the company’s gross AUM belongs to the state of Rajasthan. Any significant social, political or economic disruption, or a natural calamity or civil disruption, or changes in the policies of the state or local governments of this region or the Government of India, could disrupt its business operations and require it to incur significant expenditure and/or change its business strategies. High concentration of its loan portfolio is a big risk to its prospective investors.

Apart from valuations, I think it is the market sentiment towards these small finance banks, other NBFCs and public sector banks (PSBs) at the time of its listing on or about July 10th which is going to play a major role as if the company lists at a premium to its offer price or at a discount. Some of the recent developments, like farm loan waiver in big states like Uttar Pradesh, Maharashtra, Punjab and Madhya Pradesh, have resulted in a sentimental setback for these small finance banks as well as PSBs.

All in all, I would personally avoid this IPO at these valuations and wait for a healthy correction in its price post-listing before making any significant investment in it. Investors would do well to consider some other reasonably priced small finance bank to put their money as compared to AU Small Finance Bank.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Central Depository Services (India) Limited (or CDSL), a 50.05% subsidiary of the Bombay Stock Exchange (BSE), has launched its initial public offer (IPO) from June 19 in the price band of Rs. 145-149 a share. The company is expected to raise Rs. 524 crore in this issue and the same will remain open for the next two days only to close on June 21.

This IPO is actually an offer for sale by some of CDSL’s existing shareholders, BSE, State Bank of India (SBI), Bank of Baroda and The Calcutta Stock Exchange, and that is why, the company is not going to get any money for any of its expansion plans or to retire any of its debt. Its other shareholders, HDFC Bank, Standard Chartered Bank, Canara Bank, Bank of India and Union Bank of India, are not selling any stake in this IPO.

CDSL derives its revenues from a multiple sources – issuer charges, transaction charges, IPO/corporate action charges, ECAS charges, e-voting charges, user facility charges, and many other services. It also earns a large part of its revenues from its investments in tax-free bonds and debt mutual funds.  

Before we take a decision to invest in this issue or not, let us first check out the salient features of this IPO:

Price Band – The company has fixed its price band to be between Rs. 145-149 per share and no discount is getting offered to the retail investors.

Size & Objective of the Issue – CDSL will issue around 3.52 crore shares in this issue at Rs. 149  a share to raise Rs. 524 crore from the investors. Out of this amount, the company plans to use crore for repayment/prepayment of some of its loans and redemption/early redemption of its NCDs, crore for the construction and purchase of fit outs for its new stores and the remaining proceeds for general corporate purposes.

Retail Allocation – 35% of the issue size is reserved for the retail individual investors (RIIs), 15% is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

No Discount for Retail Investors – As mentioned above also, the company has decided not to offer any discount to the retail investors.

Anchor Investors – CDSL on Friday finalised allocation of approximately  crore shares to the anchor investors @ Rs. 149 per share for Rs.  crore. Some of these anchor investors include Abu Dhabi Investment Authority, FIL Investments (Mauritius) Limited, Goldman Sachs India Limited, SBI Magnum Tax Gain, ICICI Prudential Dividend Yield Equity Fund and ICICI Prudential Value Fund – Series 6.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 100 shares and in multiples of 100 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,900 at the upper end of the price band and Rs. 14,500 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 100 shares @ Rs. 149 i.e. a maximum investment of Rs. 1,93,700. At Rs. 145 a share also, you can apply for 13 lots only, thus making it Rs. 1,88,500.

Listing – The shares of the company will get listed only on the National Stock Exchange (NSE), as the Bombay Stock Exchange (BSE) holds a majority shareholding in the company pre-IPO and as per the SEBI regulations, a stock exchange and its subsidiaries cannot get listed on its own exchange. The listing will happen within 6 working days after the issue gets closed on 21st June. June 30th is the tentative date for its listing.

Here are some other important dates after the issue gets closed:

Finalisation of Basis of Allotment – On or about June 29, 2017

Initiation of Refunds – On or about June 29, 2017

Credit of equity shares to investors’ demat accounts – On or about June 29, 2017

Commencement of Trading on the NSE/BSE – On or about June 30, 2017

Financials of CDSL

(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Comparison of CDSL & NSDL

Should you invest in CDSL IPO @ Rs. 149?

Last year on October 14, BSE sold approximately 43.36 lakh shares in CDSL to LIC at Rs. 78.93 a share, at a price to earnings multiple of less than 10 times. I fail to understand what dramatically has changed in the company to seek a 89% premium to its last transaction price in just 8 months from then. Whether the last transaction was cheaply executed, or the current valuations are expensive, it is something we, the investors, need to evaluate.

At Rs. 149 a share, CDSL IPO is priced at 18 times its FY 2016-17 earnings and 2.92 times its net worth as on March 31, 2017, which seems fairly valued to me. In terms of market share, CDSL has been an outperformer, despite NSDL being a dominant player as far as use of technology is concerned. But, that is something CDSL has been doing at the cost of operating revenues and/or margins. It has grown at a steady pace all these years, but I would call it a dull show as the company has not been able to grow its revenues, profits and margins in line with its growth in market share.

Going forward, the business is expected to grow rapidly as the market sentiment has changed dramatically in the last 5-6 months and is expected to remain buoyant going forward as well. But, as the SEBI regulations limits extraordinary price changes by these depositories, I expect CDSL to grow at a relatively moderate pace only. No fireworks are expected in its operating revenues going forward and thus, I would advise investing in it just for the listing gains only and not for medium to long-term wealth creation.