IndoStar Capital Finance IPO Note (Apply)

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Review By Rudra Shares & Stock Brokers Ltd on May 9, 2018

IndoStar Capital Finance is a leading non-banking finance company registered with the RBI as a systemically important non-deposit taking company.

Company has a diversified funding profile that underpins strong liquidity management system, strong credit rating and brand equity.

Its Cost-effective funding is secured through a variety of sources, including banks, mutual funds, insurance companies and other financial institutions.

Taking into consideration, companies expansion primarily through the implementation of the four pillars strategy, Increase use of technology to support business growth and improve efficiency and its Continue creation of brand awareness to become the preferred NBFC for borrowers in target customer segments these efforts has helped the company to boost its performance.

Moreover, on the upper price band of Rs 572 with annualized EPS of 9M FY18, P/E works out at 20.40 xs. Therefore

We recommend to SUBSCRIBE the IPO for long-term listing benefits.

THE OFFER

Issue Open: 09 May 2018 to 11 May 2018

»» Issue Type: Book Built Issue IPO

»» Issue Size:

 › Fresh Issue of Equity Shares @ 10 aggregating up to Rs 700.00 Cr

 › Offer for Sale of 20,000,000 Equity Shares @ 10

 »» Face Value: Rs 10 per Equity Share

 »» Issue Price: Rs 570 - Rs 572 per Equity Share

 »» Market Lot: 26 Shares

 »» Minimum Order Quantity: 26 Shares

 »» Listing At: NSE, BSE

CAPITAL STRUCTURE

The share capital of Company is set forth below (Amount in Rs except share data)

Authorized Share Capital: 110,000,000 Equity Shares @10 Aggregate values 1,100,000,000

Issued, subscribed and paid-up capital before the Issue: 78,901,199 Equity Shares @10 Aggregate value 789,011,990

Present Issue:- 

Fresh Issue of Equity Shares @ 10 aggregating up to Rs 700.00 Cr 

Offer for Sale of 20,000,000 Equity Shares @ 10

OBJECT OF THE OFFER

The objects of the Offer are:

• Fresh Issue
  Company proposes to utilize the Net Proceeds from the Fresh Issue towards augmenting its capital base to meet future capital requirements.
• Offer for Sale
  The Selling Shareholders will be entitled to the respective portion of the proceeds of the Offer for Sale. Company will not receive any proceeds from the Offer for Sale.

COMPANY OVERVIEW

Indostar Capital Finance is a Mumbai-based non-banking finance company providing structured term financing solutions to companies and loans to small and medium enterprise (SME) borrowers.

It has expanded its portfolio to offer vehicle finance and housing finance products. It operates in four principal lines of business, namely corporate lending, SME lending, vehicle financing and housing financing.

• Corporate lending:- It consists of lending to mid-to-large sized corporate in manufacturing, services and infrastructure industries and to real estate developers against tangible collateral as well as security in other forms such as the charge on operating cash flows. The corporate lending business accounted for 76.8%, or Rs 3969.34 crore, of the total credit exposure end December 2017 compared with 99.8% end March 2015.
• SME lending:- Companies SME lending business, commenced in 2015 and involves extending secured loans for business purposes to small and medium-size enterprises, including businessmen, traders, manufacturers and self-employed professionals. The SME lending business accounted for 22.7% or Rs 1173.34cr of the total credit exposure end December 2017.
• The vehicle finance: - It Commenced its vehicle finance in November 2017, lends for the purchase of used or new commercial vehicles, passenger vehicles, and two-wheelers. Vehicle finance credit exposure stood at Rs 14.30cr end December 2017.
• Housing finance: - Companies housing finance business comprises two business lines of affordable housing finance which commenced in September 2017, and retail housing finance that started in March 2018 and operates through wholly owned subsidiary IndoStar Home Finance. The housing finance credit exposure stood at Rs 14.59cr end December 2017.

 ROADMAP AHEAD

Company objectives are to expand their market share and aim to accomplish this through the following strategies:

• Four Pillars strategy focused on secured lending.
•  Expand geographical footprint and sourcing platform for products across India.
• Increase use of technology and data analytics to support business growth and improve efficiency.
• Continue to create brand awareness to become the preferred NBFC for borrowers in target customer segments.

STRENGTHS

•  Well-established corporate and strong SME lending businesses. 
•  High asset quality achieved through robust credit assessment and risk management framework.
•  Proven track record of delivering results.
•  Well diversified funding profile.
• Ownership by institutional investors ensuring international corporate governance standards.

 FINANCIAL PERFORMANCE

Total Revenues stood Rs 585.94cr, Rs 719.91cr, Rs 644.05cr and Rs 528.05cr, in nine months period ended December 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PBT was Rs 249.90cr, Rs 323.04cr, Rs 293.20cr and Rs 226.04cr, in nine months period ended December 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

PAT was Rs 164.08cr, Rs 210.79cr, Rs 191.64cr and Rs 149.03cr, in nine months period ended December 31, 2017, Fiscal 2017, Fiscal 2016 and Fiscal 2015 respectively.

As of March 31, 2015, 2016 and 2017 and December 31, 2017, Company’s Gross NPAs accounted for 0.6%, 0.2%, 1.4% and 1.7% of Company’s Gross Advances, while Company’s Net NPAs accounted for 0.5%, 0.2%, 1.2% and 1.3% of Company’s Net Advances, respectively.

 Average Cost of Borrowings in fiscal 2015, 2016 and 2017 and the nine-month period ended December 31, 2017, was 11.9%, 11.1%, 10.3% and 9.1%, respectively.

OTHER HIGHLIGHTS

The corporate lending business accounted for 76.8%, or Rs 39693.97 mn, of the total credit exposure end December 2017 compared with 99.8% end March 2015.

As of March 31, 2015, 2016 and 2017 and December 31, 2017, Company’s Gross NPAs accounted for 0.6%, 0.2%, 1.4% and 1.7% of Company’s Gross Advances, while Company’s Net NPAs accounted for 0.5%, 0.2%, 1.2% and 1.3% of Company’s Net Advances, respectively.

RISK FOR THE BUSINESS

• Company is affected by volatility in interest rates for both our lending and treasury operations.
• Company utilizes the services of certain third parties for parts of operations. Any deficiency or interruption in their services could adversely affect business.
• Company’s corporate lending business, is significantly dependent on operations in the Mumbai Metropolitan Region, and any adverse changes in the conditions affecting these markets can adversely impact business.
• Company may be exposed to potential losses due to a decline in value of assets secured in favor, and due to delays in the enforcement of such security upon default by borrowers.
• Company has significant exposure to certain sectors and to certain borrowers and if these exposures become non-performing, such exposures could increase the level of non-performing assets in portfolio and affect business.