After a lull in April, India’s IPO street is buzzing again with action as IndoStar Capital Finance IPO is set to open on 9 May. The company has set the price band of INR570 – 572 per share which means the IPO is expected to mobilize anywhere between INR1,840 crore (INR18.4 billion) and INR1,844 crore by issuing new shares while existing shareholders also plan to sell their shares. Financial services stocks are flying high on the street and thus, IndoStar Capital Finance IPO will be closely tracked. Here are five things IPO investors should know bout the Mumbai-based company:
IndoStar Capital Finance IPO: Fresh + IPO
The IPO will be a mix of fresh shares and a sale by existing shareholders. In total, the company plans to raise INR700 crore (INR7 billion) by issuing new shares. These funds are proposed to be used towards augmenting capital base to meet future capital requirements.
In addition, 20 million shares will be sold through an Offer For Sale (OFS) by existing shareholders. The company counts private equity giant Everstone among its biggest shareholders. Out of the 20 million shares under the OFS, 18,508,407 shares will be sold by Everstone. Other selling shareholders include Vimal Bhandari, Shailesh Shirali, Jayant S. Gunjal, Vivek Agarwall and Sandeep Baid.
IndoStar Capital Finance IPO: Focus on corporate and SME lending
The company started its operations with a clear focus on corporate lending – a business which is largely concentrated among mid-to-large sized companies in manufacturing, services and infrastructure industries. This includes lending to real estate developers, mainly for financing project level construction of residential and commercial building projects and take-out of early-stage equity investors. The business accounted for 99.8% of Total Credit Exposure in FY2015 but has come down 76.8% in the nine months of FY2018 as the company has ventured into other business lines.
An example is SME lending which started in 2015. This includes loans to businessmen, traders, manufacturers and self-employed professionals against completed and self-occupied residential and commercial properties. This business operates from 10 branches and accounted for 22.7% of its Total Credit Exposure in the latest period.
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IndoStar Capital Finance also ventured into vehicle and housing finance last year but these businesses are still nascent and don’t contribute much to Total Credit Exposure. Nevertheless, the company has plans to grow these business lines multifold in the coming years.
As at 31 December 2017, nearly 41.6% of the company’s loans are linked to the real estate industry while financial services (10.8%), poultry products (6.9%), digital cable (3.5%) and energy sectors (2.3%) are other important avenues where the company lends.
IndoStar Capital Finance IPO: Soaring revenues and profits
The company has done well in the recent years and this reflects in its financial performance. Its annual revenues jumped from INR396.9 crore in FY0214 to INR719.9 crore in FY2017 and the company is on track to post higher revenues in FY2018. In line with this growth in top line, the company has nearly doubled its earnings in this time frame to INR210.8 crore in FY2017 and has already earned INR164.1 crore in the nine months of FY2018. Given the high profit margins in the lending business, it is not surprising to see the company reporting better earnings. However, it is quite an achievement that IndoStar Capital Finance has managed to keep its margins intact.
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IndoStar Capital Finance’s financial performance (in INR crore) |
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| FY2014 | FY2015 | FY2016 | FY2017 | 9M FY2018 | ||
| Total revenues | 396.9 | 528.1 | 644.1 | 719.9 | 585.9 | |
| Total expenses | 227.7 | 302.0 | 350.8 | 396.9 | 336.0 | |
| Profit after tax | 112.1 | 149.0 | 191.6 | 210.8 | 164.1 | |
| Net margin (%) | 28.2 | 28.2 | 29.7 | 29.3 | 28.0 | |
IndoStar Capital Finance IPO: Falling cost of borrowing
The impressive financial performance has been made possible by a control on non performing assets (NPAs) and reducing cost of borrowings. Gross NPAs of the company accounted for 0.6%, 0.2%, 1.4% and 1.7% of its Gross Advances in FY2015, 2016 and 2017 and nine months of FY2018, while Net NPAs have also followed an upward trajectory and accounted for 0.5%, 0.2%, 1.2% and 1.3% of its Net Advances, respectively.
Another shot in the arm for the company has been the reducing cost of borrowing which stood at 11.9% in FY2015 but came down to 9.1% in the latest nine months. Apart from a falling interest regime, diversification in sources of funding has allowed these savings.
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IndoStar Capital Finance IPO: Everstone on board
Incorporated in 2009 as R V Vyapaar Private Limited, the company received investment from Everstone-controlled Indostar Capital in 2011. Indostar Capital holds 90.12% equity stake in the lender. Indostar Capital in turn counts a fully-owned Everstone subsidiary Indostar Everstone (42.54%), ACP Libra Limited (16.35%), Beacon India Private Equity Fund (10.79%), Everstar Holdings Pte Ltd (8.70%), among its shareholders. Through its investment in Indostar Capital, Everstone controls 38.33% in IndoStar Capital Finance. In addition, the private equity major directly owns 1.44% equity stake.
IndoStar Capital Finance IPO: No dividend policy
The company has not paid any dividend since incorporation and does not have a formal dividend policy. Despite being highly profitable, lack of a dividend policy means that all its earnings are being ploughed back into the business. While it may not be great news for dividend seeking investors; it is, nevertheless, a prudent step by the management as the business is currently in the growth phase.
IndoStar Capital Finance IPO: Price band and valuations
The company has announced the price band of INR570 – 572 per share. IndoStar earned INR26.31 per share in the year ended 31 March 2017, which means the P/E ratio is in the range of 21.66 – 21.74.
The company had a Return on Net Worth (RONW) of 11.08% for the latest year. IndoStar Capital Finance had a Net Asset Value (NAV) of INR263.96 per share as of 31 March 2017. This translates into a Price/Book Value (P/B) ratio of 2.16 at the upper price band. Since the company generally sees better demand in the second-half of a financial year, comparative figures for FY2018 are expected to be even better but we’ll leave extrapolating the figures for now.
Head to our discussion page for IndoStar Capital Finance IPO to check what fellow investors think about the offer.
