The upcoming Initial Public Offering (IPO) of DAM Capital Advisors has sparked notable interest among investors, particularly those keen on the dynamic merchant banking sector. With its IPO scheduled from 19 December 2024 to 23 December 2024 and a listing date expected on 27 December 2024, DAM Capital Advisors is positioning itself as a key player in a growing market. Here’s an in-depth analysis of the IPO details, financial performance, and expert opinions.
IPO Details: DAM Capital Advisors’ Key Highlights
The DAM Capital Advisors IPO aims to raise INR 840 crore entirely through an Offer for Sale (OFS). The OFS breakdown is as follows:
- 90% Stake by Financial Investors:
- Multiples: Reducing stake from 19% to 7%.
- Narotam Seksaria: Reducing stake from 15% to 5.5%.
- RBL Bank: Reducing stake from 10% to 1.5%.
- Chennai-based NBFC Easyaccess: Reducing stake from 10% to 2.5%.
- 10% Stake by Promoter Dharmesh Mehta:
- Reducing his stake from 46% to 41.5%.
The IPO price band is set between INR 269 – 283 per share, translating to a market capitalization of INR 2,000 crore and reflecting a significant 42% dilution.
Financial Performance
Formerly known as IDFC Securities, DAM Capital Advisors has demonstrated robust financial resilience and growth:
- Revenue: INR 108 crore in H1 FY25, compared to INR 71 crore in FY24.
- Net Profit: INR 44 crore in H1 FY25, significantly up from FY24 figures.
- Earnings Per Share (EPS):
- INR 6.2 for H1 FY25.
- INR 10 for FY24.
- Return on Equity (RoE): An impressive 48% as of 30 September 2024, supported by its asset-light business model and net worth of INR 202 crore.
DAM Capital Advisors IPO Analyst Views
Ms. Anubhuti Mishra from Swastika Investmart shared her views on the DAM Capital Advisors IPO, highlighting both its strengths and potential concerns. She noted that the IPO offers an opportunity in the fast-growing merchant banking sector, with the company demonstrating a robust revenue CAGR from FY22 to FY24. Despite a temporary dip in FY23, DAM Capital has rebounded with impressive growth in both revenue and profit. However, she cautioned that this sharp rise in performance might raise some concerns and should be approached with care by potential investors.
Additionally, Ms. Mishra pointed out that the IPO is a complete offer for sale, meaning the company will not directly benefit from the funds raised. She also observed that the valuation appears fully priced, which could limit the upside potential for investors. Based on these factors, she recommended the IPO primarily for high-risk investors.
Geetanjali Kedia of SPTulsian Investment Advisors shared her detailed analysis of the DAM Capital Advisors IPO, shedding light on various aspects of the company and the offer. She described DAM Capital as a pure-play investment bank, formerly known as IDFC Securities, with a significant portion of its revenue coming from investment banking (two-thirds of INR 180 crore in FY24) and the rest from institutional broking. She noted that the company’s business is more cyclical compared to other capital-market-linked operations like retail broking or asset management.
In terms of financial performance, Ms. Kedia highlighted that DAM Capital’s H1FY25 revenue surged to INR 108 crore, with a net profit of INR 44 crore, compared to INR 71 crore for the entire FY24. With an equity base of INR 14 crore, the EPS for H1FY25 and FY24 stood at INR 6.2 and INR 10, respectively. She emphasized the company’s asset-light model, achieving a remarkable 48% RoE on a net worth of INR 202 crore as of 30 September 2024, with INR 178 crore in cash and equivalents primarily used for stock exchange margins.
However, Ms. Kedia expressed concerns over the IPO’s valuation. She estimated a bullish FY25E EPS of around INR 15, translating to an IPO price discounted at a PE multiple of 18.8x. This compares to larger, diversified peers like JM Financial and IIFL Capital, which have market caps exceeding INR 11,000 crore and trade at lower PE multiples of 15x. Similarly, Angel One, a growing broker with a bottom line of INR 1,300 crore, also trades at a 15x PE.
She observed that as an investment banker, the company seems to have priced the IPO favouring the selling shareholders, leaving limited value for incoming investors. The heavy dilution of 42% in this complete offer for sale raises questions, particularly as selling investors are set to achieve an impressive 93% IRR on their 4.5-year-old investment. Ms. Kedia concluded that while the selling investors appear to benefit significantly, such returns seem unlikely for prospective IPO investors given the pricing and market conditions.
These analyst insights shed light on the common trends observed in brokerage house recommendations for the upcoming IPO. Below is a comprehensive list of broker suggestions:
- BP Wealth – Subscribe
- Canara Bank Securities – Subscribe
- Choice Broking – Subscribe for long-term
- Elite Wealth – Apply
- Jainam Broking – Subscribe for listing gain
- Systematix Shares – Not rated
- Mehta Equities – Subscribe for listing gain
- Nirmal Bang – Subscribe
- Samco Securities – Subscribe for listing gain
- SBI Securities – Subscribe for long term
- SMC Global – 2/5
Market Context: IPO Buzz Amid Bullish Sentiment
The IPO comes during a period of heightened enthusiasm for public offerings. While the bull market may provide short-term opportunities, analysts caution that long-term success hinges on DAM Capital Advisors’ post-listing performance and broader market conditions.
Conclusion: Balancing Risks and Opportunities
DAM Capital Advisors presents an intriguing investment case in the merchant banking sector. Its strong financials and asset-light model are promising, but investors should carefully evaluate the risks posed by its pricing strategy and the lack of direct benefit to the company from the IPO proceeds. As always, potential investors should align their decisions with their risk tolerance and investment goals.
