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]

ICICI Lombard General Insurance IPO Details

Anchor Investment

ICICI Lombard has sold 24,580,447 shares to the anchor investors @ Rs. 661 a share, which makes their investment to be Rs. 1,625 crore as the issue gets opened for subscription today. These anchor investors include Nomura India Stock Mother Fund, Amansa Holdings Private Limited, Franklin Templeton Investment Funds, DSP Blackrock, Abu Dhabi Investment Authority, Birla Sun Life Trustee Company, SBI Mutual Fund, Kotak Mutual Fund, L&T Mutual Fund and Reliance Top 200 Fund, among others.

Peer Comparison

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

ICICI Lombard is the largest private sector non-life insurance company in India with a market share of 18% among private insurers, and 8.4% market share across all non-life insurance companies. The company issued around 1.77 crore policies in FY17 amounting to Rs. 10,725 crore in Gross Direct Premium Income (GDPI). During FY17, it settled 94.4% of its claims within 1 month of their filing, which is the fastest among all non-life insurance companies.

The company has around Rs. 150.8 billion in investment assets, out of which 14.7% is equity investments, both of which are highest among all of the non-life private insurance companies. As the “Combined Ratio” of ICICI Lombard is more than 100%, the company earns its profits by making these equity and debt investments. In a falling interest rate environment and bullish stock markets scenario, it is working well in favour of the company.

Loss Ratio – Loss ratio is the ratio of the claims incurred, net to the Net Earned Premium (NEP).

Net Expense Ratio – Net expense ratio is the ratio of the sum of operating expenses related to insurance business and commission paid (net) to the NWP. The net expense ratio is a measure of an insurance company’s operational efficiency.

Combined Ratio – Combined ratio is the sum of loss ratio and net expense ratio. The combined ratio is a measure of the profitability of an insurance company’s underwriting business. A ratio below 100% usually indicates that the insurance company generates a margin in its insurance operations, while a ratio above 100% usually indicates that insurance company is paying out more money in claims and operating expenses than it is receiving from premiums.

Financials of ICICI Lombard General Insurance Company Limited

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

ICICI Lombard reported Rs. 641.82 in profits, Rs. 14.25 a share as diluted EPS and Rs. 82.57 as book value per share during the previous financial year i.e. FY 2016-17. At Rs. 661 being the likely issue price, the company is valued at 46.38 times its 12-month trailing EPS and 8 times its book value as on March 31, 2017. I think these are stretched valuations by any standards and makes me extremely uncomfortable to put my money in this IPO.

What disturbs me more than anything else is the steep premium the company is seeking in this IPO as compared to the transaction carried out in May 2017 with the selling shareholder being the same. Fairfax sold its 12.18% stake in ICICI Lombard in May 2017 for Rs. 2,473 crore, which valued it at Rs. 450 a share. Now, in less than 4 months’ time, what fundamental changes have been carried out in the company to seek a 47% premium from the common investors?

I think it is highly unreasonable to seek such a steep premium in such a short period of time and probably the biggest reason for me to avoid this unreasonably expensive issue. Exuberance might help ICICI Lombard to have some listing gains, but then there is no way this investment could be a multibagger for its investors. I would advise my clients to avoid this issue at these valuations.

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]

ICICI Lombard General Insurance IPO Review – Should You Invest or Not @ Rs. 651-661?

ICICI Group’s general insurance arm, ICICI Lombard General Insurance Company Limited, is all set to enter the primary markets through its initial public offer (IPO) of Rs. 5,700 crore from tomorrow, September 15. The IPO is an offer for sale (OFS) by ICICI Lombard’s promoter, ICICI Bank and its existing shareholder, FAL Corporation. The company has fixed its price band in the range of Rs. 651-661 a share. Subscription to the issue will remain open for three days to close on September 19.

The offer would carry around 8.62 crore shares for subscription and constitute 19% of ICICI Lombard’s post-offer paid-up equity share capital. No discount is offered to the retail investors and employees of the company, however around 43 lakh shares will be reserved for the ICICI Bank shareholders.

Here are some of the salient features of this issue:

Price Band – ICICI Lombard has fixed its price band to be between Rs. 651-661 a share and the company has decided not to offer any discount to the retail investors and/or its employees.

Size & Objective of the Issue – ICICI Bank and FAL Corporation are collectively selling their 19% stake in ICICI Lombard in this offer to raise Rs. 5,700 crore. ICICI Lombard will not get any proceeds from the IPO.

Retail Allocation – While retail individual investors (RIIs) will get 35% reservation in the IPO, 15% of the issue will remain reserved for the non-institutional investors (NIIs) and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Reservation for ICICI Bank Shareholders – Around 43 lakh shares have been reserved for the ICICI Bank’s existing shareholders, which is 5% of the total issue size.

No Discount for Retail Investors & Employees – The company has decided not to offer any discount to the retail investors and its employees.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 22 shares and in multiples of 22 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,542 at the upper end of the price band and Rs. 14,322 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 22 shares each @ Rs. 661 a share i.e. a maximum investment of Rs. 1,89,046. At Rs. 651 per share also, you can apply only for 13 lots of 22 shares, thus making it Rs. 1,86,186.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on September 19th. Its shares are expected to get listed on September 27th.

Anchor Investment – ICICI Lombard has sold 24,580,447 shares to the anchor investors @ Rs. 661 a share, which makes their investment to be Rs. 1,625 crore as the issue gets opened for subscription today. These anchor investors include Nomura India Stock Mother Fund, Amansa Holdings Private Limited, Franklin Templeton Investment Funds, DSP Blackrock, Abu Dhabi Investment Authority, Birla Sun Life Trustee Company, SBI Mutual Fund, Kotak Mutual Fund, L&T Mutual Fund and Reliance Top 200 Fund, among others.

Here are some other important dates as the issue gets closed on September 19:

Finalisation of Basis of Allotment – On or about September 22, 2017

Initiation of Refunds – On or about September 25, 2017

Credit of equity shares to investors’ demat accounts – On or about September 26, 2017

Commencement of Trading on the NSE/BSE – On or about September 27, 2017

Peer Comparison

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

ICICI Lombard is the largest private sector non-life insurance company in India with a market share of 18% among private insurers, and 8.4% market share across all non-life insurance companies. The company issued around 1.77 crore policies in FY17 amounting to Rs. 10,725 crore in Gross Direct Premium Income (GDPI). During FY17, it settled 94.4% of its claims within 1 month of their filing, which is the fastest among all non-life insurance companies.

The company has around Rs. 150.8 billion in investment assets, out of which 14.7% is equity investments, both of which are highest among all of the non-life private insurance companies. As the “Combined Ratio” of ICICI Lombard is more than 100%, the company earns its profits by making these equity and debt investments. In a falling interest rate environment and bullish stock markets scenario, it is working well in favour of the company.

Loss Ratio – Loss ratio is the ratio of the claims incurred, net to the Net Earned Premium (NEP).

Net Expense Ratio – Net expense ratio is the ratio of the sum of operating expenses related to insurance business and commission paid (net) to the NWP. The net expense ratio is a measure of an insurance company’s operational efficiency.

Combined Ratio – Combined ratio is the sum of loss ratio and net expense ratio. The combined ratio is a measure of the profitability of an insurance company’s underwriting business. A ratio below 100% usually indicates that the insurance company generates a margin in its insurance operations, while a ratio above 100% usually indicates that insurance company is paying out more money in claims and operating expenses than it is receiving from premiums.

Financials of ICICI Lombard General Insurance Company Limited

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

ICICI Lombard reported Rs. 641.82 in profits, Rs. 14.25 a share as diluted EPS and Rs. 82.57 as book value per share during the previous financial year i.e. FY 2016-17. At Rs. 661 being the likely issue price, the company is valued at 46.38 times its 12-month trailing EPS and 8 times its book value as on March 31, 2017. I think these are stretched valuations by any standards and makes me extremely uncomfortable to put my money in this IPO.

What disturbs me more than anything else is the steep premium the company is seeking in this IPO as compared to the transaction carried out in May 2017 with the selling shareholder being the same. Fairfax sold its 12.18% stake in ICICI Lombard in May 2017 for Rs. 2,473 crore, which valued it at Rs. 450 a share. Now, in less than 4 months’ time, what fundamental changes have been carried out in the company to seek a 47% premium from the common investors?

I think it is highly unreasonable to seek such a steep premium in such a short period of time and probably the biggest reason for me to avoid this unreasonably expensive issue. Exuberance might help ICICI Lombard to have some listing gains, but then there is no way this investment could be a multibagger for its investors. I would advise my clients to avoid this issue at these valuations.

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]

Infrastructure development company, Capacite Infraprojects Limited, is launching its initial public offer (IPO) of Rs. 400 crore in the price band of Rs. 245-250 a share. Subscription to the issue is starting today and will remain open for three days to close on September 15.

Here are some of the salient features of this issue:

Price Band – Capacite Infra has fixed its price band to be between Rs. 245-250 per share and the company has decided not to offer any discount to the retail investors and/or its employees.

Size & Objective of the Issue – Capacite Infra is targeting to raise Rs. 400 crore from this IPO, out of which the company plans to use Rs. 250 crore for funding its working capital requirements, Rs. 51.95 crore for funding its purchase of capital assets and the remaining Rs. 98.05 crore 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 & Employees – The company has decided not to offer any discount to the retail investors and its employees.

Anchor Investors – The company has sold 48 lakh shares to the anchor investors @ Rs. 250 a share, which makes their investment to be Rs. 120 crore. These anchor investors include Goldman Sachs India, HSBC Global Investment Funds – Indian Equity, HDFC Trustee Company, Birla Sun Life Trustee Company, Reliance Capital Trustee Company and DSP BlackRock India T.I.G.E.R. Fund, among others.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 60 shares and in multiples of 60 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 15,000 at the upper end of the price band and Rs. 14,700 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 60 shares each @ Rs. 250 i.e. a maximum investment of Rs. 1,95,000. At Rs. 245 per share as well, you can apply only for 13 lots of 60 shares, thus making it Rs. 1,91,100.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on September 15th. Its shares are expected to get listed on September 21st.

Here are some other important dates after the issue gets closed on September 15:

Finalisation of Basis of Allotment – On or about September 21, 2017

Initiation of Refunds – On or about September 22, 2017

Credit of equity shares to investors’ demat accounts – On or about September 22, 2017

Commencement of Trading on the NSE/BSE – On or about September 25, 2017

Financials of Capacite Infraprojects Limited

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

Should you invest in Capacite Infraprojects at Rs. 245-250 a share?

Incorporated in August 2012, Capacit’e Infra has grown itself extremely fast. Revenues of the company have grown from Rs. 216.58 crore (FY14) to Rs. 1,165.97 crore (FY17), i.e. a growth of 438% in 3 years. Its profit after tax (PAT) has grown from Rs. 3.57 crore to Rs. 69.38 crore in the same period, i.e. a growth of 1,843% in 3 years.

On a YoY basis, while its revenues jumped 36% from last year’s Rs. 860 crore, EBITDA registered a growth of 37%, from Rs. 122 crore to Rs. 167 crore, and PAT jumped 43% as compared to Rs. 48.39 crore. As on May 31, 2017, the company has a very healthy order book of Rs. 4,602 crore, comprising 56 residential, commercial and institutional projects. At Rs. 1,166 crore of revenues for FY17, the current order book of Rs. 4,602 crore itself is equivalent to 4 years of revenues, which is very encouraging.

The company has a long list of reputed clients, such as Oberoi Realty, Prestige Group, Lodha Developers, Kalpataru, Wadhwa Group, Rustomjee, Godrej Properties, Saifee Burhani Upliftment Trust and Brigade Enterprises, among others. Working for such kind of big developers and earning repeat orders from them provides a great comfort as far as company’s credentials are concerned.

At Rs. 250 a share, Capacit’e Infra is valued at 18 times its trailing 12-months diluted EPS and carries a market cap of around Rs. 1,700 crore. Though nobody expects its current growth to repeat itself in the next 3-5 years, but even if the company continues to keep a similar momentum going forward, the price of Rs. 250 a share the company is seeking seems extremely attractive for listing gains, as well as for medium to long term wealth creation. I would put this one in the same basket as Dmart was and hope this one too generates similar kind of returns for its successful allottees.

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]

Matrimony.com Limited is all set to enter the primary markets with its initial public offer (IPO) of Rs. 497 crore. The IPO is a combination of fresh issue of equity shares worth Rs. 130 crore and an offer for sale (OFS) of 37.67 lakh shares in a price band of Rs. 983-985 a share. Subscription to the issue started yesterday and will remain open for two more days to close on September 13.

In order to attract retail participation, the company has decided to offer a really big discount of Rs. 98 a share. However, the retail investor will have access to only 10% of the issue size.

Before we analyse it further, let us first check the salient features of the issue:

Price Band – Matrimony.com has fixed its price band to be between Rs. 983-985 per share and the company has decided to offer a discount of Rs. 98 a share to the retail investors and its own employees.

Size & Objective of the Issue – As mentioned above, Matrimony.com is targeting to raise Rs. 497 crore from this IPO. Out of this Rs. 497 crore, Rs. 367 crore will go to some of its existing investors and with the remaining Rs. 130 crore, the company plans to use Rs. 42.58 crore for the purchase of land in Chennai to construct its office premises, Rs. 43.34 crore for repayment of its existing overdraft facilities, Rs. 20 crore towards advertising and business promotion activities and the remaining amount for general corporate purposes.

Retail Allocation – 10% of the issue size is reserved for the retail individual investors (RIIs), 15% is reserved for the non-institutional investors and the remaining 75% shares will be allocated to the qualified institutional buyers (QIBs).

Rs. 98 a share Discount for Retail Investors & Employees – Matrimony.com has decided to offer a discount of Rs. 98 to the retail investors and its employees, which is about 10% of the issue price.

Anchor Investors – The company has already sold approximately 22.93 lakh shares to the anchor investors @ Rs. 985 a share, which makes their investment to be Rs. 225.89 crore. These anchor investors include Smallcap World Fund, HDFC Prudence Fund, Goldman Sachs India, ICG Q Limited and HDFC Growth Fund, among others.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 15 shares and in multiples of 15 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,775 at the upper end of the price band and Rs. 14,745 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 15 lots of 15 shares each @ Rs. 887 i.e. a maximum investment of Rs. 1,99,575. At Rs. 885 per share as well, you can apply only for 15 lots of 15 shares, thus making it Rs. 1,99,125.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on September 13th. Its shares are expected to get listed on September 21st.

Here are some other important dates after the issue gets closed on September 13:

Finalisation of Basis of Allotment – On or about September 19, 2017

Initiation of Refunds – On or about September 20, 2017

Credit of equity shares to investors’ demat accounts – On or about September 20, 2017

Commencement of Trading on the NSE/BSE – On or about September 21, 2017

Financials of Matrimony.com Limited

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

Should you invest in Matrimony.com at Rs. 983-985 a share?

At Rs. 985 a share, the company is valued at 48 times its FY17 earnings and around 36 times its EV/EBITDA. Based on its quarter-ended June 2017 financial performance, the company is valued at 32 times its annualised earnings and 25 times its expected EV/EBITDA. But, fundamentally speaking, the company carries a volatile history of earnings growth despite having steady growth in revenues and we just cannot bank on its recent turnaround in financial performance to justify its steep IPO pricing. The company reported a net loss in the four out of last five financial years and still carries a negative net worth to the tune of Rs. 16 crore.

This IPO is a combination of fresh issue of shares worth Rs. 130 crores and offer for sale by its existing investors to the tune of 367 crore. The company will use its Rs. 130 crore for the repayment of its overdraft facilities (Rs. 43.34 crore), purchase of land in Chennai for constructing an office premises for its own use (Rs. 42.58 crore) and advertising and business promotion activities (Rs. 20 crore). All these factors do not fully justify the need of raising money through an IPO route and it seems that the existing investors want to book some of their profits in this existing overheated IPO market.

Moreover, it is difficult for me to understand the reasons for which the company is giving such a big discount of Rs. 98 a share to the retail investors. As long as I remember, no company in the past few years has done so and it smells fishy to me to get such a steep discount.

Although, current market sentiment might give it an extraordinary listing pop, but long term investors would do well to analyse its financial performance for at least 2-3 more quarters before taking any investment call. Personally, I would avoid this IPO at this juncture and will relook at it once its financial performance shows some kind of consistent improvement.

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.

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]

After IRB InvIT successfully raising Rs. 4,300 crore from the investors, one more InvIT fund is knocking your doors to raise Rs. 2,250 crore in the price band of Rs. 98-100. This fund is already open for subscription since Wednesday i.e. May 17th and will get closed by today evening.

IRB InvIT got listed on the stock exchanges today and had a very boring first day of listing amid an eventful day in the stock markets. Unlike expectations of some healthy listing gains, IRB InvIT quickly moved into the negative territory and touched a low of Rs. 99.75 before moving up again and finally closing at Rs. 101.80.

IndiGrid InvIT, launched by its sponsor Sterlite Power Grid Venture Limited, is the second such InvIT and here we have certain details about its Initial Public Offer (IPO).

What are InvITs and where your money will be invested?

As mentioned in my last review of IRB InvIT Fund, InvITs are investors’ pooled investments in infrastructure projects. InvITs are similar to mutual funds structurally, as they would have a trustee, a sponsor, an investment manager and a project manager. However, InvITs are practically similar to ETFs or exchange traded funds. Like ETFs, InvITs will also get listed and traded on the stock exchanges and the investors will be allotted units of the same against their investments.

To begin with, IndiGrid InvIT Fund will initially acquire 2 projects – Bhopal Dhule Transmission Company Limited (BDTCL) and Jabalpur Transmission Company Limited (JTCL), from its sponsor – Sterlite Power Grid Ventures Limited. These two projects have a total network of 8 power transmission lines of approximately 1,936 circuit kms and two substations having 6,000 MVA of transformation capacity across 4 states – Madhya Pradesh, Chhattisgarh, Gujarat and Maharashtra.

Pursuant to the “Right of First Offer” (ROFO), IndiGrid InvIT has a right of first offer in respect of eight inter-state power transmission projects, having a transmission network of 21 power transmission lines of approximately 4,831 circuit kms and five substations, with a transformation capacity of 6,630 MVA.

Issue Details of India Grid InvIT Fund

Price Band – India Grid has fixed its price band to be Rs. 98-100 per unit.

Minimum Investment – Investors are required to apply for a minimum of 10,206 units of this fund i.e. Rs. 10,20,600 or Rs. 10.206 lakh.

Trading Lot Size – These units will trade in the lots of 5,103 units.

Size & Objective of the Issue – India Grid plans to raise Rs. 2,250 crore via a fresh issue of its units in the price band of Rs. 98-100. These proceeds will be utilised to provide loans to the existing two projects of this InvIT – BDTCL and JTCL. This loan facility will carry an interest rate of 13% per annum, which could be reset on an annual basis. In turn, BDTCL and JTCL will utilize the proceeds to repay or pre-pay their debt availed from banks and other financial institutions.

Credit Rating – IndiGrid has been given a corporate credit rating ‘AAA/Stable’ by CRISIL, ‘IND AAA’/Stable by India Ratings and “IrAAA” (IR triple A) with stable outlook by ICRA.

Allocation to Individual Investors – 25% of the issue size is reserved for the non-institutional investors. Rest 75% is for the institutional investors, including FPIs, insurance companies, mutual funds etc.

Anchor Investors – IndiGrid on Tuesday finalised allocation of approximately 10.12 crore units to the anchor investors @ Rs. 100 per unit for Rs. 1,012.44 crore. Some of these anchor investors include BNP Paribas Arbitrage, Deutsche Global Infrastructure Fund, Schroders Asian Asset Income Fund, Future Fund Board of Guardians (managed by RREEF America LLC), Reliance Nippon Life Insurance, National Westminster Bank PLC, Discovery Global Opportunity (Mauritius), and Kotak Mahindra Old Mutual Life Insurance, among others.

Listing – These units will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 12 working days after the issue gets closed on 19th May.

Sources of Returns for Investors

Dividend Income – The InvIT Regulations provide that not less than 90% of net distributable cash flows of each Project SPV are required to be distributed to the Trust in proportion of its holding in each of the Project SPVs. Further, not less than 90% of net distributable cash flows of the Trust shall be distributed to the Unitholders. Such distributions are required to be declared and paid to the unitholders at least once every six months in a financial year.

Based on management communications, dividend yield from this fund are expected to be in the range of 12-15%. Such cash flows as dividend would be tax-free for the investors.

Capital Appreciation – Though you should not expect equity kind of capital appreciation or volatility in returns with this fund, it is quite possible to have capital gains/losses in case of high/low demand for these units, especially from the institutional investors.

Tax Treatment of InvIT Investments

Dividend Income distributed by the Trust is exempt in the hands of the unitholders.

Long Term Capital Gains (LTCG) would be applicable if the units are held for more than 3 years and it would be exempt from tax provided STT has been paid on sale of such units.   

Short Term Capital Gains (STCG) would be applicable if the units are sold before completion of 3 years and it would be calculated at 15% provided STT has been paid on sale of such units.

Interest Income paid, if any, would be taxable in the hands of the unitholders.

Financials of IndiGrid InvIT Projects – BDTCL & JTCL

(Note: All figures are in Rs. Crore)

Should you invest in IndiGrid InvIT IPO at Rs. 98-100?

IRB’s InvIT fund got listed on the stock exchanges today. As against an expected listing gain of Rs. 5-8 a unit, it received a muted response from the institutional investors as well as high net worth individual investors and got listed at its issue price of Rs. 102. It touched a high of Rs. 105 and a low of Rs. 99.75 before finally closing at a price of Rs. 101.80 a unit i.e. a very minor discount to the issue price of Rs. 102.

These InvITs are new products in the markets and unlike equities, carry limited scope of high returns in the long run. At the same time, these funds are not as safe as fixed deposits (FDs) or debt mutual funds and carry several kind of risks in the long term. As these funds are expected to generate 10-13% annual returns for their investors, I think individual investors should not go overboard with these InvITs as of now and wait for their quarterly/half yearly performance and payout first before committing their hard earned money.

As compared to IRB’s InvIT fund, projects under IndiGrid InvIT fund carry a longer tenure of 35 years and has more secured income stream due to its long term transmission service agreements (TSAs). As mentioned above, IndiGrid InvIT Fund is expected to acquire 8 more projects out of the remaining 9 projects from its sponsor Sterlite Power Grid over the next few years, which is expected to result in higher cash flows over the next few years.

However, it is not for the short term investors. Patience is key here and only long term investors with an investment horizon of more than 3-5 years should invest in this fund for a risk-reward matrix falling somewhere between debt funds and equity funds.

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]

HUDCO IPO is opening today for subscription. I covered the details of this IPO on Friday. Here is the link for some of its general details – HUDCO IPO – May 2017 Issue

So, now comes the turn of the most important aspect of this IPO and that is, whether one should invest in it or not? Let’s begin to analyse it by checking its financials and other aspects.

HUDCO operates in two broad segments – housing finance and urban infrastructure finance. It has a loan portfolio of Rs. 36,385.82 crore as on December 31, 2016, of which 30.86% are housing finance loans and 69.14% are urban infrastructure finance loans. Housing finance loans, which is branded as HUDCO Niwas, is further categorised into social housing – EWS and LIG borrowers being the ultimate beneficiaries, residential real estate – middle-income and high-income group of society being the ultimate beneficiaries, and retail finance.

Under Urban Infrastructure Finance, HUDCO provides loans for projects relating to water supply, roads and transport (including railways and ports), power, emerging sectors including SEZs, industrial infrastructure, gas pipelines, oil terminals and telecom sector projects, and other commercial and social infrastructure.

Financials of HUDCO

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

Should you invest in HUDCO IPO @ Rs. 58 a share?

Personally, I have many reasons to avoid this issue and the most important of them are – size of the issue, growth of the company in the past few years, and an irrational exuberance around this issue. I mean why people want to invest only in the HUDCO IPO today? Even if somebody can convince me about the company’s future growth and the size of the issue being not too small, that’s ok, but I am still very confident that it would get oversubscribed to the tune of at least 15-20 times in the retail investors’ category, which makes allotment highly unpredictable for me. And, even if I get lucky in the lottery system of allotment, I would not get more than 200 shares allotted. And, even if it gets listed at Rs. 90 a share (which I think is highly unjustified), I would make only Rs. 6,000-7,000 on listing. So, I don’t want to get indulged in such kind of mad rush for such a tiny gain. I think it is time to find out some hidden gems, which are not in the market spotlight as of now, but have a good potential to carry higher growth and provide higher returns.  

Pricing in this issue, if not expensive, is not cheap either. At Rs. 60 a share and a discount of Rs. 2 for the retail investors, I think the issue is fairly valued at 17-18 times PE ratio and 1.3 times its book value, and not greatly attractive as the market participants are claiming it to be. As you can check from the table above, the company reported a PAT of Rs. 699.69 crore for FY 2012-13, and that has grown to just Rs. 809.61 crore during FY 2015-16. With a PAT of Rs. 496.86 crore in the nine-month period ending December 31, 2016, it seems the company would report a degrowth in its profits for the previous financial year.

HUDCO has reported a profit growth of 12.57%, 4.90%, 4.68% and 5.37% from FY 2012-13 to FY 2015-16, but it is still seeking a PE ratio of 17-18 times, which is on a higher side from PEG (Price Earnings over Growth) perspective.

HUDCO’s net interest margins (NIMs) are also seeing a decline in the past few years, from 4.59% in FY 2013-14 and 5.18% in FY 2014-15, it has fallen to 4.11% in FY 2015-16 and 4.26% in the nine-month period post that. Moreover, despite of the fact that the company stopped sanctioning new social housing and residential real estate loans to entities in the private sector in March 2013, its gross NPAs and Net NPAs are still elevated at 6.80% and 1.51% respectively.

There are many public sector companies which offer better growth opportunities and are priced even more attractively as compared to HUDCO. I think there is an unnecessary euphoria around it as it is an IPO. IPOs in such euphoric times have been given such kind of hype in the past as well. But, the investors would do well to keep their heads steady and invest in some of the already listed, professionally managed, reasonably priced companies as compared to HUDCO.

This issue could still earn you some decent listing gain, but that would happen only due to a change in the investors’ sentiment post BJP’s UP poll win and big jump in the indices in the last 3-4 months. But, I want to ask, why do you need to participate in a lottery system in which the probability of getting allotment is too low and the fundamentals of the company are yet to show any signs of improvement?

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]

HUDCO IPO Review

 

HUDCO, a wholly-owned Miniratna of the Government of India, is all set to enter the primary markets and will launch its initial public offer (IPO) from the coming Monday i.e. 8th of May. It will be the first divestment candidate of the government for the current fiscal year. The government has fixed its price band to be Rs. 56-60 and it will be able to raise around Rs. 1,210 crore from this issue.

As there is a bank holiday on 10th May, no bidding will happen on this day and the issue will close on Thursday, 11th May.

Here are some of the salient features of this IPO:

Price Band – HUDCO has fixed its price band to be Rs. 56-60 a share and there is a discount of Rs. 2 a share for the retail investors.

Size & Objective of the Issue – This issue is an Offer for Sale (OFS) by the government of India and thus no fresh issue of shares is involved. The government is selling its 10.2% stake in this IPO, post which it will have 89.8% stake.

Retail Allocation – 35% of the issue size is reserved for the retail individual investors (RIIs) i.e.  approximately 7 crore shares out of 20.02 crore shares. 15% of the issue size is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs). Employees will also have the option to apply for its shares during this offer period and around 38.69 lakh shares have been separately reserved for them.

Rs. 2 Discount for Retail Investors & Employees – The government has decided to offer a discount of Rs. 2 per share for the retail investors, as well as the employees of HUDCO in this IPO.

Bid Lot Size & Minimum Investment – Investors in this offer need to bid for a minimum of 200 shares and in multiples of 200 shares thereafter. So, you as a retail investor would be required to invest a minimum of Rs. 11,600 at the upper end of the price band and Rs. 10,800 at the lower end of the price band.

Maximum Investment for Retail Investors – 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 17 lots of 200 shares @ Rs. 58 i.e. a maximum investment of Rs. 1,97,200. So, investors opting for the “Cut-Off Price” option should apply for a maximum of 17 lots of 200 shares @ Rs. 58 per share.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on 11th May. May 19th is the tentative date for its listing.

Here are some of the important dates for this IPO:

Issue Opens – On May 8, 2017

Issue Closes – On May 11, 2017

Finalisation of Basis of Allotment – On or about May 17, 2017

Initiation of Refunds – On or about May 18, 2017

Credit of equity shares to investors’ demat accounts – On or about May 18, 2017

Commencement of Trading on the NSE/BSE – On or about May 19, 2017

Financials of HUDCO

Here is the link to the HUDCO IPO Review