Subscribe to S Chand IPO but with caution, suggest analysts


As S Chand IPO opens tomorrow for subscription, the company has allotted 3,262,194 equity shares to anchor investors at INR 670 per share. In total, the company has raised INR219 crore by issuing shares to 15 anchor investors include leading international and domestic investors such as Nomura Trust and Banking Company, HDFC Company Trustee, HSBC Global Investment Fund, BNP Paribas Arbitrage and SBI Life Insurance Company.

The IPO has also managed to get subscribe ratings from analysts at brokerage houses, although some reports have highlighted issues such as steep pricing, declining margins and CBSE’s recent advisories among reasons to exercise caution. Here is a snapshot of what brokerage houses have to say regarding S Chand IPO recommendations.

Read Also: S Chand IPO review: Judging the book by cover?

Choice Broking has advised clients to “Subscribe with Caution” to S Chand IPO owing to high valuations. “Based on our the quick estimate, we anticipate that the company would post a EPS of Rs. 16.1 in FY17, while the same is expected to increase to Rs. 24.3 in FY18. At higher band price, the company is valued at a P/E of 27.5x to its FY18 EPS, which is at a premium to the Navneet (P/E of 21.5x to its FY18 EPS). One of the positive aspects of the issue is that the private equity investor Everstone Capital Partners II LLC will continue to hold 13.9% stake in the company post issue (from 32.3% pre-issue). Considering the above observations and concerns on valuation demanded by the company, we recommend a “Subscribe with Caution” rating for the public issue,” said analysts in their report.

Ajcon Global has Subscribe recommendation on S Chand IPO. “At the upper end of the price band of Rs. 670, the IPO is valued at 50x at FY16 post issue EPS which appears quite high. However, post merger with Chhaya growth prospects would improve and debt to be repaid post IPO. On accounting earnings growth, debt repayment, S Chand would trade at ~35x P/E which is quite reasonable,” noted the company’s IPO note.

Subscribe is also the call from Hem Securities which noted the company’s high growth prospects. “At higher end of price band of Rs 660-670 ,co is bringing the issue p/e multiple of around 31 . However looking after fundamentals like high growth prospects, strong brand name & leading position of co , we recommend “Subscribe” on issue for long term,” said analysts at Hem Securities, bolstering positive S Chand IPO recommendations.

ICICIDirect is also among the brokerage houses having positive recommendations on S Chand IPO. “The standalone multiple on FY16 basis looks expensive at 50x. However, accounting for the Chhaya merger, adjusted P/E appears at 34x FY16. Completion of Chhaya acquisition would further strengthen S Chand’s leadership position in the K-12 segment, which would enable it to post 15% revenue CAGR in the near term. We have a SUBSCRIBE recommendation on the issue on the back of growth prospects,” noted the company’s research note.

GEPL Capital also has a Subscribe rating on the upcoming IPO while noting that S Chand operates in a highly-competitive and fragmented industry. “For the past two years, CBSE has issued an advisory circular advising CBSE schools to use only NCERT print content for all classes and may issue similar advisory circulars in the future. These circulars may reduce demand for its educational content amongst the CBSE affiliated schools and, accordingly, may adversely affect its business, results of operations, cash flows and financial condition,” observed the research note, highlighting caution in otherwise positive S Chand IPO recommendations .

LKP Research has also advised clients to invest in the offer adding to the positive S Chand IPO recommendations. “We believe that its 7 decade legacy, leadership in K-12 education content market, strong margin & growth prospects have been captured well at the valuations of ₹ 660-670 per share where the scrip would trade at 39XFY16 earnings. We recommend a SUBSCRIBE on the S Chand IPO for listing gains,” said the firm in its research note.


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