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Devyani International - IPO Note

Devyani International - IPO Note
IPO
31/07/2021

Devyani International may not be known as a company but its brands are ragingly popular among Indian households, especially among the Indian youth, Devyani is the largest franchisee of Yum Brands in India and operates a massive chain of quick-service restaurants (QSR) in India. It operates under the brands of KFC (Kentucky Fried Chicken), Pizza Hut and Taco Bell. In addition, Devyani is the master franchise for Costa Coffee in India. It operates 696 outlets across 166 cities and towns in India.

Devyani International IPO is of Rs.1,838 crore consisting of Rs.440 crore by way of new issue and Rs.1,398 crore by way of offer for sale (OFS).

Key terms of the IPO issue of Devyani International

 

Key IPO Details

Particulars

Key IPO Dates

Particulars

Nature of issue

Book Building

Issue Opens on

04-Aug-2021

Face value of share

Rs.1 per share

Issue Closes on

06-Aug-2021

IPO Price Band

Rs.86 - Rs.90

Basis of Allotment date

11- Aug -2021

Market Lot

165 shares

Refund Initiation date

12- Aug -2021

Retail Investment limit

13 Lots (2,145 shares)

Credit to Demat

13- Aug -2021

Retail limit - Value

Rs.193,050

IPO Listing date

16- Aug -2021

Fresh Issue Size

Rs.440 crore

Pre issue promoter stake

75.79%

Offer for Sale Size

Rs.1,398 crore

Post issue promoters

67.99%

Total IPO Size

Rs.1,838 crore

Indicative valuation

Rs.10,823 crore

Listing on

BSE, NSE

HNI Quota

15%

QIB Quota

75%

Retail Quota

10%

Data Source: IPO Filings

The business spread of Devyani can be classified as under.
•    Core brands of KFC, Pizza Hut and Costa Coffee in India
•    Stores operated globally especially in Nepal and Nigeria
•    Miscellaneous operating brands like “Vaango” and “Food Street”.

A quick look at the financials of Devyani International 

Like in the case of many QSR restaurants, the company has been making losses, although its losses have substantially narrowed in FY21, compared to FY20. The table below captures the gist of the financials of Devyani International.

Financial Parameter

Fiscal 2020-21

Fiscal 2019-20

Fiscal 2018-19

Net Worth

Rs.113.77 cr

Rs.(189.10) cr

Rs.(70.24 cr

Revenues

Rs.1,135 cr

Rs.1,516 cr

Rs.1,311 cr

EBITDA

Rs.226.93 cr

Rs.255.48 cr

Rs.278.96 cr

Net Loss

Rs.(62.99) cr

Rs.(121.42) cr

Rs.(94.14) cr

Data Source: Company RHP


For the latest fiscal year FY21, the revenues from the core brands and the international brands accounted for 94% of total revenues. Devyani currently operates 284 KFC stores, 317 Pizza Hut stores and 44 Costa Coffee stores across India. Stores have expanded at over 13% annually with the number of stores increasing from 469 stores to 621 stores over the last 2 years.


In the FY21, the same store growth (SSG) did suffer a temporary reverse but that was largely on account of the lockdowns imposed due to COVID-19. All the 3 core brands had very strong gross margins. For example, as of FY21, KFC had a gross margin of 68%, Pizza Hut 74% and Costa Coffee 79%. For FY 21, the core brands contributed 84% of revenues compared to 74% in FY19, showing sharper brand penetration.

Investment Perspective for Devyani International

QSR is a front-ended business which is capital hungry in the early years and only recovers later as the brand penetrates deeper. The key is SSG, which took a hit in FY21 purely due to the pandemic and the consequent shutdowns. Here are some parameters that would help you take a decision on investing in the IPO of Devyani International.

a)    Over the last 3 fiscal years, KFC has had average daily sales of over Rs.100,000 per day while Pizza Hut and Costa Coffee have jointly contributed half of that. The average transaction size over the last 3 years has gone up across all the 3 core brands.

b)    All three are established global brands. For example, KFC runs 25,000 stores globally across 140 countries while Pizza Hut runs 17,650 restaurants worldwide. Even Costa Coffee runs 3,400 outlets globally.

c)    Devyani outlets have a strong presence across key consumption centers of India like Delhi, NCR, Bengaluru, Kolkata, Mumbai and Hyderabad. Cross brand synergies are huge since they target the same median segment. 

d)    For the QSR business, the delivery business is always more economical and profit-making than the dine-in business. In FY21, the share of delivery was 71% compared to 51% in FY20. That trend is expected to stabilize. 

e)    Out of the fresh funds raised, Rs.324 crore will be used to defray debt, which is normally valued accretive for QSR companies.

 

Also Check: List of Upcoming IPOs in August 2021

 

In a nutshell, most of the QSR brands in India like Westlife (McDonalds) and Burger King are also making losses while Jubilant (Domino’s) is the only listed profit making QSR entity. It is hard to apply traditional P/E parameters but considering its brand, reach and SSG driven model, this is a good way to participate in the burgeoning QSR story in India.

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Krsnaa Diagnostics - IPO Note

Krsnaa Diagnostics - IPO Note
IPO
31/07/2021

Krsnaa runs a chain of diagnostic centres offering a wide array of diagnostic services including imaging, radiology, routine clinical laboratory tests, pathology analysis and tele radiology services. These services are offered on a B2B model and is offered to the private and public hospitals, medical colleges / institutions as well as community health centres. 
On a pan-India basis, Krsnaa Diagnostics operates over 1,800 diagnostic centres and in the full calendar year 2020 alone, it had serviced a total of 53 lakh patients for various diagnostic needs. Now, Krsnaa Diagnostic is coming out with a public issue of Rs.1,213 crore consisting of fresh issue of Rs.400 crore and an offer for sale (OFS) of Rs.813 crore. 

Key terms of the IPO issue of Krsnaa Diagnostics
 

Key IPO Details

Particulars

Key IPO Dates

Particulars

Nature of issue

Book Building

Issue Opens on

04-Aug-2021

Face value of share

Rs.5 per share

Issue Closes on

06-Aug-2021

IPO Price Band

Rs.933 - Rs.954

Basis of Allotment date

11-Aug-2021

Market Lot

15 shares

Refund Initiation date

12-Aug-2021

Retail Investment limit

13 Lots (195 shares)

Credit to Demat

13-Aug-2021

Retail limit - Value

Rs.186,030

IPO Listing date

17-Aug-2021

Fresh Issue Size

Rs.400 crore

Pre issue promoter stake

74.63%

Offer for Sale Size

Rs.813.33 crore

Post issue promoters

N.A.

Total IPO Size

Rs.1,213.33 crore

Indicative valuation

Rs.3,810 crore

Listing on

BSE, NSE

HNI Quota

15%

QIB Quota

75%

Retail Quota

10%

Data Source: IPO Filings

Some of the advantages in the business model of Krsnaa can be summarized as under.
•    Comprehensive range of services offered under one roof with B2B tilt
•    Health consciousness is growing in India, especially preventive medical check-ups
•    Offers quality value proposition at reasonable pricing
•    Valuations likely to benefit from the recent COVID aftermath
•    Strong market footprint with deep links to medical service originators


A quick look at the financials of Krsnaa Diagnostics

A quick glance at the financials of Krsnaa Diagnostics would tell you that the company has managed a turnaround in financial bottom line which has also resulted in its net worth going into positive. The company has also expanded its capital base by raising more capital during the year.
 

Financial Parameter

Fiscal 2020-21

Fiscal 2019-20

Fiscal 2018-19

Net Worth

Rs.231.87 cr

Rs.(196.98) cr

Rs.(84.92) cr

Revenues

Rs.396.46 cr

Rs.258.43 cr

Rs.209.24 cr

Net Profit / loss

Rs.184.93 cr

Rs.(111.95) cr

Rs.(58.06) cr

Data Source: Company RHP

If one were to just look at the financials, the growth is apparent. Clearly, the company has benefited from the substantially higher health consciousness in the aftermath of COVID. The revenues have almost doubled in the last 2 years, so between pre-COVID to post-COVID, the sales stand at twice the original figure. This has offered economies of scale to the company which resulted in a sharp turnaround from losses to profits in the latest fiscal year.

The public issue is intended for two main purposes. The fresh issue component will be used to finance the establishment of diagnostic centres in the states of Punjab, Himachal Pradesh, Maharashtra and Karnataka. In addition, part of the fresh funds will also be used to repay loans in the books so as to make the company less levered and improving solvency metrics.

Investment Perspective for Krsnaa Diagnostics

The company has just turned around in the current quarter, so the financial bottom line sustenance needs to give more positive indications. Meanwhile, there are some merits that the company brings to the table..

a)    The business model is scalable and in the current context where health consciousness is at a high post-COVID, this business is only likely to boom in the coming years. That holds a vast market for the company and a huge opportunity.

b)    The company plans to reduce the debt via the proceeds of the issue and that normally values accretive for such service intensive businesses. Also, the network expansion planned by the company is likely to be revenue accretive.

c)    The Krsnaa Diagnostics IPO price discounts the latest year earnings at around 21X, which is lower than the peer group. However, the company must show evidence of sustaining profits in the coming years. That could hold the key.

 

Also Check: List of Upcoming IPOs in August 2021

 

Investors can look at the company as a play on the fast growing diagnostics space, although it does not have a sustained profit track record to justify valuations. Investors with a slightly higher risk appetite can consider investing in this issue.

Next Article

Windlas Biotech - IPO Note

IPO
31/07/2021

Windlas Biotech is a key player in the CDMO (contract development & manufacturing organization), is a specialized activity wherein a pharma company offers the niche service of additional manufacturing capacity or even specialized research services to pharma companies in India and across the globe. To avoid the costs of additional capacity, most pharma companies are now increasingly looking at such specialized CDMO companies to which they can outsource such manufacturing activities on a contract basis. It is in this space that Windlas operates in India.

CDMO is a new business where sales have been growing rapidly and it also enjoys high operating margins. Some of the major players in the CDMO space include Divi’s Laboratories, Laurus Labs, PI Industries, Jubilant Life, Neuland Labs and Suven Pharma. In terms of market cap, however, only Hikal and Neuland would be comparable with Windlas as the others have much higher levels of market cap.

Key terms of the IPO issue of Windlas Biotech
 

Key IPO Details

Particulars

Key IPO Dates

Particulars

Nature of issue

Book Building

Issue Opens on

14-Aug-2021

Face value of share

Rs.5 per share

Issue Closes on

16-Aug-2021

IPO Price Band

Rs.448 - Rs.460

Basis of Allotment date

11-Aug-2021

Market Lot

30 shares

Refund Initiation date

12-Aug-2021

Retail Investment limit

14 Lots (420 shares)

Credit to Demat

13-Aug-2021

Retail limit - Value

Rs.193,200

IPO Listing date

17-Aug-2021

Fresh Issue Size

Rs.165 crore

Pre issue promoter stake

78.00%

Offer for Sale Size

Rs.236.54 crore

Post issue promoters

65.16%

Total IPO Size

Rs.401.54 crore

Indicative valuation

Rs.1,240 crore

Listing on

BSE, NSE

HNI Quota

15%

QIB Quota

50%

Retail Quota

35%

Data Source: IPO Filings

Here is what you need to know about the Windlas Biotech IPO

•    Operating margins in this business range from 20% to 45% but this business has been hit by a spike in material costs of late in line with supply chain constraints.

•    Most CDMO companies have expanded their capacity by 5-6 times in the last 5 years and CDMO companies have a high ratio of Capex to cash flows from operations.

•    Being capital intensive in nature, CDMO needs a high asset turnover ratio to maintain ROCE buoyant. Windlas has maintained asset turnover consistently at above 1.

A quick look at the Financials of Windlas Biotech

The company has been consistently profit making over the last 3 years with an asset turnover ratio in excess of 1. However, the ROE has been consistently below 10%, which is much lower than the median ROE of CDMO businesses in India. Hopefully, once the debt is repaid partially through the IPO, the ROE should improve.
 

Financial Parameter

Fiscal 2020-21

Fiscal 2019-20

Fiscal 2018-19

Net Worth

Rs.199.12 cr

Rs.209.66 cr

Rs.193.59 cr

Revenues

Rs.427.60 cr

Rs.328.85 cr

Rs.307.27 cr

Net Profit

Rs.15.83 cr

Rs.16.21 cr

Rs.63.82 cr

Net Margins

3.70%

4.93%

20.77%

Data Source: RHP

The company will be using the proceeds of the fresh issue for expansion of its Dehradun plan and also to repay debt in its books. The high profits in FY 19 contain an exceptional gain of Rs50cr from booking gains on the loss of control of the subsidiary company. Hence the profits of the last 2 years are more of sustainable nature.

Also read: 5 Things to know before applying for an Windlas Biotech IPO

Investment Perspective for Windlas Biotech

The company does bring some advantages to the table. Firstly, it is a consistently profit making company and has been in business for 20 years now. It operates in the Chronic therapeutic segment, which is a high growth space. It also has a major exposure to complex generics, apart from its traditional CDMO operations. Here are some key factors to note.

a)    Windlas is already contract manufacturing for some of the leading names like Pfizer, Sanofi India, Cadila Healthcare and Emcure. It already has an installed capacity to manufacture 707 crore tablets/capsules, 5.5 core pouches and 6.1 crore liquid bottles.

b)    Being a capital intensive business, the company will be using part of the fresh funds to expand its capacity in Dehradun-IV. This is a business which requires a consistently high ratio of capex to operating cash flows year after year, which compress net margins.

c)    The company is in a space which is extremely competitive with companies with larger balance sheets already in the fray. However, CDMO is about established relationships that normally tend to last over time. 

The risk for Windlas is the aggressive nature of competition in the CDMO business. Here it is all about relationships and about execution. With a likely post-issue market cap of Rs.1,240 crore, Windlass is much smaller than other players in the CDMO business. Valuations are steep in the range of 65-70 times. Investors will have to take a long term approach to make macro gains in the business.

Next Article

Exxaro Tiles - IPO Note

Exxaro Tiles - IPO Note
IPO
31/07/2021

Exxaro is into the manufacture and marketing of vitrified tiles, which are extensively used as an alternative to marble flooring in homes and also in offices. They are easier to maintain. Exxaro is into the manufacture of double-charged vitrified tiles and glazed vitrified tiles made from clay, quartz, and feldspar. The company currently offers over 1000 designs across 6 standard sizes. 

Domestically, Exxaro supplies its tiles to residential, commercial and educational institutions while globally, Exxaro tiles are exported to Poland, Bosnia, the US and other countries. Currently, Exxaro has 2 manufacturing facilities located at Padra and Talod in the state of Gujarat with a total installed capacity to manufacture 1.32 crore square metres annually. 

Key terms of the IPO issue of Exxaro Tiles
 

Key IPO Details

Particulars

Key IPO Dates

Particulars

Nature of issue

Book Building

Issue Opens on

04-Aug-2021

Face value of share

Rs.10 per share

Issue Closes on

06-Aug-2021

IPO Price Band

Rs.118 - Rs.120

Basis of Allotment date

11-Aug-2021

Market Lot

125 shares

Refund Initiation date

12-Aug-2021

Retail Investment limit

13 Lots (1,625 shares)

Credit to Demat

13-Aug-2021

Retail limit - Value

Rs.195,000

IPO Listing date

17-Aug-2021

Fresh Issue Size

Rs.134.23 crore

Pre issue promoter stake

56.09%

Offer for Sale Size

Rs.26.86 crore

Post issue promoters

42.50%

Total IPO Size

Rs.161.09 crore

Indicative valuation

Rs.564 crore

Listing on

BSE, NSE

HNI Quota

15%

QIB Quota

50%

Retail Quota

35%

Data Source: IPO Filings

The fresh funds raised will be used for the following purposes.
•    Repayment of borrowings. Currently, Exxaro has debt to the tune Rs.75 crore of long-term debt and equivalent amount of short-term debt. The reduction of debt will be useful in reducing the interest cost of servicing and the solvency risk of business.

•    To meet the working capital needs of the business, which are quite substantial in the business where payments tend to get back-ended especially in large contracts or where the realty industry is going through a slowdown, as was evident till recently.

A quick look at the Financials of Exxaro Tiles

Here is a quick look at the financials of Exxaro Tiles, and we have only captured key financial parameters of relevance to the Exxaro Tiles IPO for the last 3 fiscal years.
 

Financial Parameter

Fiscal 2020-21

Fiscal 2019-20

Fiscal 2018-19

Net Worth

Rs.136.04 cr

Rs.120.74 cr

Rs.109.46 cr

Revenues

Rs.255.15 cr

Rs.240.74 cr

Rs.242.25 cr

Net Profit

Rs.15.22 cr

Rs.11.26 cr

Rs.8.92 cr

EPS

4.54

3.36

2.66

Data Source: RHP

Investment Perspective for Exxaro Tiles IPO

Exxaro does offer a wide choice of vitrified tiles for customers and markets its products through more than 2,000 registered dealers. It is also one of the key manufacturers in the niche glazed tiles manufacturing segment.
a)    The tiles segment is highly competitive with established listed names in the market as well as a huge unorganized segment that is active in manufacturing tiles. Exxaro is likely to face competition from both sides.

b)    The impact of the pandemic has been limited on the stock and typically it operates in the non-cyclical business which has a strong OEM market and also a replacement market. Normally, these needs can be postponed but cannot be done away with.

c)    Valuation may be slightly on the higher side. In post-IPO terms, the issue is priced at around 37X earnings of FY21. This is almost at par with the listed names and does not leave too much room for listing gains or short-run gains on the stock.

Also Check: List of Upcoming IPOs in August 2021


While the valuations do look fully priced at the current earnings levels of FY21, the earnings have been growing at 25% compounded on an annual basis. Hence, if the steady growth is maintained, the stock may offer a good proposition in the medium to long term. Investors need to be patient with the IPO.
 

Next Article

CarTrade Tech Ltd - IPO Note

CarTrade Tech - IPO Note
IPO
31/07/2021

CarTrade, founded in 2009, is a platform for potential buyers and sellers to register and buy and sell used cars as well as new cars. The founder Vinay Sanghi, is a veteran of the secondary car market, having spent a long time with Mahindra First Choice. In India, the used car market is estimated at $27 billion (or over Rs.200,000 crore) and growing 15% annually.

The CarTrade platform runs 2 sub-portals. CarTrade.com caters to the consumers in buying and selling used and new cars. The B2B CarTradeExchange.com helps car dealers source leads and fulfil client requirements using the ecommerce channel more effectively. 

Key terms of the IPO issue of CarTrade Tech
 

Key IPO Details

Particulars

Key IPO Dates

Particulars

Nature of issue

Book Building

Issue Opens on

09-Aug-2021

Face value of share

Rs.10 per share

Issue Closes on

11-Aug-2021

IPO Price Band

To be Finalised

Anchor Placement

06 Aug-2021

Fresh Issue Size

Nil

QIB Quota

75%

Offer for Sale Size

185.32 lakh shares

HNI Quota

15%

Total IPO Size

185.32 lakh shares

Retail Quota

10%

Listing on

BSE, NSE

 

 

Data Source: IPO Filings

CarTrade has a B2C component and a B2B portion component. The company is funding-backed by marquee PE names like Warburg Pincus, Temasek of Singapore, JP Morgan and March Capital. Its sub-platforms like CarWale.com and BikeWale.com are ranked on top in relative search popularity.

In the digital world, profits are a rarity and CarTrade is one of the rare instances of profit making digital business model. Between its 3 B2C platforms; CarTrade, CarWale and BikeWale, it has around 29.9 million unique visitors in a month with more than 87% organic visitors. That has the potential for high ROI penetration per customer.

CarTrade offers information, comparison, execution and fulfilment. The portals offer used car information, on-road dealer prices, certified used cars, expert reviews as well as a wide choice for buyers and sellers to make a most judicious choice. This is still a highly fragmented business and subject to stiff competition from the unorganized sector.

In the Indian market, major competitors for CarTrade include Cars24, Quickr, OLX, Droom and Mahindra First Choice. CarTrade has made inorganic acquisitions of CarWale, Axel Springer and Vehicle auctioning platform, Shriram Automall.

A quick look at the CarTrade Tech Financials

Here is a quick look at the financials of CarTrade, and we have only captured key financial parameters of relevance to the CarTrade IPO for the last 4 fiscal years. The profits in the latest year include a deferred tax credit of Rs.63 crore and hence may not be strictly comparable. 

Parameter

Fiscal 2020-21 *

Fiscal 2019-20

Fiscal 2018-19

Fiscal 2017-18

Total Assets

Rs.1,882 cr

Rs.1,470 cr

Rs.1,427 cr

Rs.1,357 cr

Revenues

Rs.223.43 cr

Rs.298.28 cr

Rs.243.28 cr

Rs.123.55 cr

Net Profit / Loss

Rs.77.92 cr

Rs.21.88 cr

Rs.16.69 cr

Rs.(9.10) cr

Data Source: RHP (* Revenues for FY21 is 9-months annualized)

Who will sell in the OFS of CarTrade

A valuation view would be possible only once the price is known but that will be announced in the coming week. Here are some of the key shareholders who will be selling in the OFS. The entire issue of shares by CarTrade will be by way of OFS and no fresh funding will come into the company from the ipo.

The key selling shareholders in the OFS include CMDB, Highdell, MacRitchie and Springfield. They are likely to account for a chunk of the holdings with the promoter group selling shares and other connected persons also participating in the OFS.

Next Article

Aptus Value Housing Finance Ltd - IPO Update

Aptus Value Housing Finance - IPO Update
IPO
01/08/2021

Aptus value Housing caters to the fast growing low-to-mid end customers with a predominant focus on the self-employed segment. Despite this focus on the volatile self-employed segment, Aptus has managed to keep the gross NPAs under check. Here is a quick background of the company, Aptus Value Housing IPO

What you need to know about Aptus Value Housing

Aptus Value Housing commenced business in the year 2010 and has been in the entry level segment catering to self-employed professionals and also to salaried individuals. The company is still quite small in terms of size because its assets under management or AUM stands at just about Rs.3,791 crore. Out of this AUM, nearly 73% of the AUM represent loans given to self-employed professionals and businessmen with the balance 27% being extended to salaried individuals.

Some of the financial metrics of the company as of Dec-20 are fairly impressive. For example, Aptus Value Housing had net NPA (non-performing assets) levels of just 0.57%, indicating that loan losses, if any, are substantially provided for in the financial statements. The company had a comfortable capital adequacy of 75.03%, which is well above the statutory requirement for HFCs or housing finance companies. This also means that the company can comfortably enhance its lending book without worrying too much about capital buffers. 

The company has repeatedly pointed out that this self-employed entry level segment is normally very cautious about credit records since they cannot afford to be black listed in the credit market in any form. Hence, they ensure to make their EMI payments on time, even in the midst of tough financial conditions. This is evident from the fact that Aptus Value Housing enjoys collection efficiency of 99.20%.

Details of the proposed issue of shares to public

Aptus Value Housing has already filed the draft red herring prospectus (DRHP) with SEBI and the issue is slated somewhere around late August 2021. The issue will consist of a fresh issue component and an offer for sale. The fresh issue component will be for Rs.500 crore while the existing shareholders of the company will offer a total of 6,45,90,695 shares (645.91 lakh shares) by way of offer for sale. The OFS will not alter the capital base nor lead to any fresh fund infusion into the company as it represents only a transfer of ownership. Only the fresh issue component of Rs.500 crore will enhance the capital base of Aptus.

The total size of the issue will be around Rs.2,600 crore to Rs.3,000 crore. At the upper end of the issue size, assuming that Rs.500 crore will be fresh issue, the pricing will be around Rs.465 per share. While the company has already go the approval from SEBI for the DRHP, it still needs to file the RHP with the Registrar of Companies (ROC) before the issue price can be decided. But based on DRHP filing data, one can expect a pricing of the issue with an approximate upper band of around Rs.465 per share.

The company has a marquee list of investors on its roster which includes names like Westbridge Capital, Malabar Investments, Sequoia Capital, Steadview Capital, Madison Group; among others. Some of these investors will be also looking to offload some of their holdings as part of the OFS.

Applications of the IPO proceeds

Out of the total IPO size of Rs.2,600 crore to Rs.3,000 crore, only Rs.500 crore will be by way of fresh issue. These funds will be used for enhancing the capital buffer of the company to fund future growth.