Do You Know sectors to Benefit from Joe Biden’s win?

Benefit from Joe Biden's Win
by Nikita Bhoota 11/11/2020

The markets have turned volatile in advance of the United States (U.S) election and continue to remain volatile post-election. The waves were felt not only in India but across the globe in the equity markets. Joe Biden is to be the 46th President of the U.S and it would certainly lift hopes of certain sectors back in India.

Certain industries that might get affected more than others with Biden’s victory.  Biden plans to spend roughly US $3.2 trillion over the next decade. His plan includes a spending budget of US $750 billion to improve healthcare and the US $750 billion to revamp education as per the media reports. The win of Joe Biden might not make any material difference in the long run, but in the near term.

We have gathered a list of sectors that are likely to benefit from Joe Biden victory as the U.S President.

Metal Stocks and Pharma stocks:

We expect metal stocks to benefit from Biden’s infrastructural push. Metal stocks could gain on the expectation of higher steel export to the U.S for additional infrastructure spending of ~$700-800 bn in the next 10 years.

The Indian Pharma sector is expected to benefit from the Biden win on the back of increased push for generic prescriptions and push to affordable health insurance. Biden plans to protect and strengthen The Affordable Care Act, which ensures a reduction in healthcare costs and access to health insurance for the U.S citizens. This implies more reliance on generic drugs and biosimilars, that would be positive news for Indian Pharma companies. As per the media reports, the U.S imports ~$7 billion worth of formulations from India annually. An increased scope for access to affordable health insurance would also boost the demand for generic drugs.

Electric Vehicle companies:

Biden in his campaign had made it clear that his administration’s focus will be on green energy. As per the media reports, Biden has promised $400 billion in public investment to transition to clean energy, including advanced battery technology and electric vehicles. Therefore, Shares of EV companies and the battery and the solar sectors would benefit from Biden’s win. Biden could also ease concerns about the trade war with China leading to a positive impact on global trade.

Real Estate, Financial Institutions:

A Biden win would mean a larger stimulus followed by additional means to improve healthcare access and other social welfare programs. Sectors that are likely to get impacted include real estate, financial institutions, student loans, etc.

Chemicals, Cement and IT sector

The Chemical sector which competes with China might have a positive impact as the U.S can take a tough stand against China. Similarly, the infrastructure push by Biden will benefit the cement industry.

The market experts have an opinion that visa restrictions for software engineers sent by Indian IT companies could ease. Trump has tightened norms for H-1B visas, mostly used by software services providers to send engineers for on-site work. That prompted IT companies to ramp up hiring local talent in the past three years, increasing costs in the market that contributes 50-65% of the revenue for India’s five largest IT firms. A Biden presidency is, however, seen to be less hostile to immigrants.

Conclusion:

U.S elections are likely to lead to short-term market swings that will be insignificant over the longer run.  Therefore, we recommend the investors to stick to their long-term strategy and stay focused on individual stocks.

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Aditya Birla Sun Life AMC IPO Subscription Day 2

Aditya Birla Sun Life AMC IPO subscription Day 2
IPO
by 5paisa Research Team 29/01/2021

The Rs.2,768.26 crore IPO of Aditya Birla Sun Life AMC Ltd, consisting entirely of an offer for sale (OFS) of Rs.2,768.26 crore, was just about fully subscribed on Day-2. As per the combined bid details put out by the BSE, Aditya Birla Sun Life AMC Ltd IPO was subscribed 1.07X overall, with bulk of the demand coming from the retail segment. The issue closes on Friday, 01st October.

As of close of 30th September, out of the 277.99 lakh shares on offer in the IPO, Aditya Birla Sun Life AMC Ltd saw bids for 298.73 lakh shares. This implies an overall subscription of 1.07X. The granular break-up of subscriptions were tilted in favour of retail investors but HNI and QIB bids typically come in only on the last day of the IPO.

Aditya Birla Sun Life AMC Ltd IPO Subscription Day-2

 

Category

Subscription Status
Qualified Institutional (QIB) 0.06 Times
Non-Institutional (NII) 0.40 Times
Retail Individual 2.00 Times
Others 0.67 Times
Total 1.07 Times

 

QIB Portion

On 28 September, Aditya Birla Sun Life AMC Ltd did an anchor placement of 110.81 lakh shares at the upper end of the price band of Rs.712, raising Rs.789 crore. The list of QIB investors included a number of FPI names like HSBC, IMF, ADIA, Morgan Stanley, Societe Generale etc. It included domestic institutions like ICICI Pru MF, HDFC MF, SBI MF, Axis MF, SBI Life, HDFC Life, Kotak MF, IIFL Special Opportunities Fund and Abakkus Growth Fund. 

The QIB subscription continued to see negligible subscription at the end of Day-2. The QIB portion (net of anchor allocation of 110.81 lakh shares as above) had a quota of 73.87 lakh shares of which it has got bids for just 4.53 lakh shares, implying a subscription of 0.06X by QIBs at the end of Day-1. QIB bids typically get bunched on the last day, although the anchor response does indicate strong interest in the issue from institutional investors.

HNI Portion

The HNI portion got subscribed 0.40X (getting applications for 22.06 lakh shares against the quota of 55.40 lakh shares). This is an OK response on Day-2 for the HNI segment and could be due to the large size of the IPO. Bulk of the funded applications and corporate applications, come in on the last day, so the actual picture should only get better. 

Retail Individuals

The retail portion was fully subscribed 2.00X at the end of Day-2, showing strong retail appetite. For retail investors; out of the 129.28 lakh shares on offer, valid bids were received for 259.04 lakh shares, which included bids for 201.60 lakh shares at the cut-off price. The IPO is priced in the band of (Rs.695-Rs712) and will close for subscription on 01st October.
 

Also Read:-

Aditya Birla Sun Life AMC IPO : 7 Things to Know About

Upcoming IPOs in 2021

List of Upcoming IPOs in October 2021

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Macrotech Developers Ltd Information Note

Macrotech Developers Ltd
IPO
by Nikita Bhoota 08/04/2021

Macrotech Developers Ltd IPO

Issue Opens: April 07, 2021
Issue Closes: April 09, 2021
Price Band: ₹483-486#
Issue Size: ₹2,500 cr#
Bid lot: 30 Equity shares
Issue Type: 100% Book building

Macrotech Developers Ltd Shareholding Pattern

% Shareholding Pre IPO
Promoter and Promoter Group 62
Public 38

Company Background
Macrotech Developers Ltd. (MDL) is one of the largest real estate developers in India, by residential sales value for the period FY14 to FY20 (Source: Anarock Report). Its core business is residential real estate developments with a focus on affordable and mid-income housing and currently has residential projects in the Mumbai Metropolitan Region (MMR) and Pune. MDL, in 2019, forayed into the development of logistics and industrial parks and entered into a JV with ESR Mumbai 3 Pte. MDL also develops commercial real estate, including as part of mixed-use developments in and around its core residential projects. MDL has strong focus on de-risking projects and improving return on investments with fast turnaround time from acquisition to launch to completion. As of December 31, 2020, MDL has 91 completed projects comprising approximately 77.22 mn sq. ft. of Developable Area, has 36 ongoing projects comprising approximately 28.78 mn sq. ft. of Developable Area and has 18 planned projects comprising approximately 45.08 mn sq. ft. of Developable Area across different segments like affordable and mid-income housing, premium and luxury housing, office space and retail space. Apart from the above, MDL as of December 31, 2020, has land reserves of approximately 3,803 acres for future development in the MMR, with the potential to develop approximately 322 mn sq. ft. of Developable Area.

Object of the Offer
The offer comprises entirely of Fresh Issue of 5.14 cr shares aggregating to ₹2,500 cr (at upper end of the price band). Proceeds from the fresh issue are proposed to be utilized towards

1. ~₹1,500 cr for reduction of the aggregate outstanding borrowings of MDL on a consolidated basis,

2. ₹375 cr for acquisition of land or land development rights and

3. Balance for general corporate purposes.


Key Financials and Operational Metrics

Particulars FY18 FY19 FY20 9MFY20 9MFY21
Sales (Value in ₹Cr) 8,130 7,163 6,570 -- 3,351
Sales (Developable Area in mn sq. ft.) 7.4 6.37 6.18 -- 3.3
Sales (number of units) 6,844 5,975 5,912 -- 3,163
Gross Collections (₹ Cr) 8,564 9,065 8,190 -- 2,893
Completed Developable Area (mn sq. ft.) 13.75 6.39 15.65 -- 0
Revenue from Operations (₹ Cr) 13,527 11,907 9,577 7,463.00 2,915.00
Adjusted EBITDA (₹Cr) 768 2,414 2,925 3,684 4,039
Adjusted EBITDAM (%) 29.9 30.9 30.5 32 26
Restated PAT (₹ Cr) 1,784 1,672 1,206 884 -264
PAT Margin (%) 13.2 14 12.6 11.8 -9.1
Return on Net Worth (%) 101.1 48.3 17.8 15 -7

Source: RHP

Description of Business
Broadly, MDL’s business can be classified into the following:

  • Residential portfolio (Affordable and mid-income housing projects; and Premium and luxury housing projects)
  • Logistics and industrial park portfolio
  • Commercial portfolio (Office projects; and Retail projects).


Strengths:

  • One of India’s largest residential real estate developers with a leadership position in the attractive MMR market
    MDL’s sales from India Operations for FY20 and 9MFY21 were ₹6,570 cr and ₹3,351 cr, respectively. Its Gross Collections from India Operations for FY20 and 9MFY21 were ₹8,190 cr and ₹2,893 cr, respectively. The MMR is considered the most attractive real estate market in the Top Seven Indian Markets, having the largest share of supply and absorption, as well as the highest average base selling price, of residential units from 2016 to 2020, catering to a wide spectrum of income and demography (Source: Anarock Report). MDL believes that the MMR has significant depth of demand for real estate developments across price points and that the MMR real estate market has high barriers to entry due to limited land availability, high prices of land and knowledge of the regulatory and approval processes required for developing a project. As a result of MDL’s strong brand, existing land reserves and industry knowledge & regulatory environment know-how in the MMR, MDL has attained a leadership position in the South Central Mumbai, Thane and the Extended Eastern Suburbs micro-markets of the MMR, with the largest share of supply (by units), absorption (by value) and completion (by area) of residential developments, among the five largest developers in the respective micro-market, from 2015 to 2020 (Source: Anarock Report). As per Anarock report, MDL has a strong presence in the Extended Western Suburb micro-market of the MMR, with the 2nd largest share of absorption (by value) and the 5th largest share of supply (of units) of residential developments, among the five largest developers in the respective micro-market, from 2015 to 2020. In addition, MDL has several planned projects in the MMR, which they believe will enable them to have a robust launch pipeline over the next few years.
  • Well-established brand with ability to sell at premium pricing and throughout the construction phase
    The company believes that its strong and recognizable brand is a key attribute in the industry, since it increases customer confidence, influences buying decision and helps target premium pricing for products. MDL focuses on branded realty, with a belief in developing and marketing its real estate projects as “branded products”. MDL’s brands include “CASA by Lodha”, “Crown –Lodha Quality Homes”, and “Lodha” for affordable and mid-income housing projects, the “Lodha” and “Lodha Luxury” brands for premium and luxury housing projects and “iThink”, “Lodha Excelus” and “Lodha Supremus” for its office spaces. The company believes that the strength of its brand and its association with trust, quality and reliability is primarily driven by its track record of delivering quality products, with modern amenities and innovative design elements and landscapes, largely within committed timelines. MDL has also increased its brand recall through celebrity endorsements and by collaborating with luxury designers. MDL typically aims to sell over 80% of the Saleable Area of a project during the construction phase. MDL leverages its brand value and focuses on selling sizeable percentage of units within one year from the launch of a project as well as prior to the receipt of the occupation certificate, which assists them in generating operating cash flows during the construction phase. Such sales help reduce the need for construction finance and enable them to achieve optimal returns on their projects. The company also believes that they have been able to leverage their brand presence, customer confidence, track record of successfully delivering projects and superior construction quality to increase sales volumes and also command premium pricing for its products vis-à-vis other projects in the respective micro-markets.
  • Highly diversified portfolio across price points and micro-markets in the MMR with a focus on affordable and mid-income housing
    MDL has a diversified portfolio of residential developments, spread across price points and micro-markets in the MMR. Its developments cater to wide spectrum of economic and demographic segments, from luxury residences in South Mumbai to large, integrated townships in the extended suburbs offering affordable homes. Over the years, MDL has established a strong reputation and track record in affordable and mid-income as well as premium housing projects. In affordable and mid-income housing, MDL has introduced one or more high-quality amenities, such as a large swimming pool, a private movie theatre, a cricket ground, a football stadium and an indoor swimming pool. MDL has developed prominent projects in the premium and luxury housing category in their respective locations as well. The company believes that its ability to design a high-quality and differentiated product and positioning it to the target segment through appropriate marketing and branding strategy, has enabled MDL to deliver several prominent projects in the premium and luxury housing category. Additionally, MDL believes that significant portfolio of completed and near-complete inventory in its premium and luxury housing, coupled with limited land availability in the South Central Mumbai micro-market where their premium and luxury housing projects are located, will drive sales volumes in this segment for MDL.
  • Unique ability to develop townships and generate annuity-like cash flows from them
    MDL has the ability to identify land, acquire it at competitive cost, aggregate it from several landowners and design a master plan to develop township projects. Upon development of the townships, Government agencies develop the surrounding infrastructure such as enhancing road and railway connectivity to improve the standard of living for the residents of the townships. MDL is currently developing large townships located at Palava (Navi Mumbai, Dombivali Region) and Upper Thane under affordable and mid-income housing projects. The company believes that its ability to develop such townships, coupled with the strength of its brand and innovative sales and marketing strategies will help them drive sales volumes and generate recurring operating cash flows.  As of December 31, 2020, they also have land reserves of 3,303 acres at Palava and 500 acres at Upper Thane, and total Saleable Area of 37.6 mn sq. ft and 5.6 mn sq. ft with respect to its completed and on-going projects at Palava and Upper Thane, respectively.

Key Risks:

  • MDL has substantial amount of debt (₹18,662 cr of aggregate outstanding borrowings on a consolidated basis as of December 31, 2020), which could affect its ability to obtain future financing or pursue growth strategy. The company also has contingent liabilities aggregating to ₹782 cr as of December 31, 2020.
  • COVID-19 has caused construction delays due to varying factors, caused a material decline in general business activity, impacted lease commitments for commercial developments, etc. The extent to which COVID-19 may affect MDL’s business and operations in the future is uncertain and cannot be predicted. 
  • There are material outstanding legal proceedings involving the Company, Subsidiaries, Associates, Directors, Promoters and Group Companies. These proceedings are pending at different levels of adjudication before various courts, tribunals, enquiry officers and appellate tribunals.


Lodha Developers IPO

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Shyam Metalics and Energy Ltd IPO Information Note

Shyam Metalics IPO
IPO
by Nikita Bhoota 14/06/2021

This document summarizes a few key points related to the issue and should not be treated as a comprehensive summary. Investors are requested to refer the Red Herring Prospectus for further details regarding the issue, the issuer company and the risk factors before taking any investment decision. Please note that investment in securities is subject to risks including loss of principal amount and past performance is not indicative of future performance. Nothing herein constitutes an offer of securities for sale in any jurisdiction where it is unlawful to do so. This document is not intended to be an advertisement and does not constitute an invitation or form any part of any issue for sale or solicitation of an offer to subscribe for or purchase any securities and neither this document nor anything contained herein shall form the basis for any contract or commitment whatsoever.


Shyam Metalics IPO Details

Issue Opens - June 14, 2021

Issue Closes - June 16, 2021

Price Band - ₹ 303-306#

Face Value - ₹10

#Issue Size - ₹909 cr#

Bid Lot - 45 Equity Shares

Issue Type - 100% Book building

Post money Market cap of 7,805Cr - at upper price band; #at upper price band 

Share Reservation

Net Issue (%)

Promoter and Promoter Group

100.0

Public

0.0

Source: RHP

 

Company Background

Shyam Metalics and Energy Limited is a leading integrated metal producing company based in India (Source: CRISIL Report) with a focus on long steel products and ferro alloys. The company is amongst the largest producers of ferro alloys in terms of installed capacity in India, as of February 2021 (Source: CRISIL Report). It has the ability to sell intermediate and final products across the steel value chain. As of March 31, 2020, it is one of the leading players in terms of pellet capacity and the fourth largest player in the sponge iron industry in terms of sponge iron capacity in India (Source: CRISIL Report).

 

Object of the Offer

The IPO offer comprises a fresh issue and an offer for sale. Out of fresh Issue of ₹657cr, ₹470cr is proposed to be utilized towards repayment/prepayment of certain debt availed by the company and its subsidiaries.

 

Financials 

(Cr., unless specified)

FY18

FY19

FY20

9MFY21

Revenue from Operations

3,834

4,606

4,363

3,933

EBITDA

715

957

634

717

EBITDA Margin (%)

18.9

20.6

14.5

18.2

Diluted EPS ()

18.2

25.9

14.6

19.5

ROE (%)

22.89

24.27

12.04

13.89*

Gross Debt to Total Equity (x)

0.30

0.29

0.47

0.27

Source: RHP, *not annualized 

For additional information and risk factors please refer to the Red Herring Prospectus. Please note that this document is for information purpose only

Also Read: Upcoming IPOs in 2021

Key Points

Diversified product mix with strong focus on value added products

The company products primarily comprise of (i) long steel products, which range from intermediate products, such as, iron pellets, sponge iron and billets and final products, such as, TMT, customized billets, structural products and wire rods; and (ii) ferro alloys with a specific focus on high margin products, such as, specialized ferro alloys for special steel applications. The company also undertakes conversion of hot rolled coils to pipes, chrome ore to ferro chrome and manganese ore to silico manganese for an Indian steel conglomerate. The forward and backward integration of manufacturing plants has resulted in multiple points of sale across the steel value chain and provided with flexibility to sell intermediate products as well as use them for captive consumption, depending on the demand. This has resulted in a diversified product mix, which has reduced dependency on a particular product and de-risked revenue streams.

Strong financial performance and credit ratings

The company focuses on continuous efficiency improvements, improved productivity and cost rationalization has enabled it to deliver consistent and strong financial and operational performance. The company has a relatively better financial strength as compared to other companies operating in the long and intermediary steel sector. Revenue from operations increased at a CAGR of 6.56% from ₹3,843 cr in FY2018 to ₹4,363 cr in FY2020. Further, since the commencement of operations in FY 2005, the company has delivered a positive EBITDA in each of the Fiscals. As of March 31, 2020, the gearing ratio was one of the lowest amongst the competitors. In FY 2020, the interest coverage ratio was one of the highest amongst competitors (Source: CRISIL Report). The company has also obtained strong credit ratings. In particular, the company and its subsidiary, Shyam SEL and Power Limited, has received CRISIL A1+, CRISIL AA-/ Stable, and CRISIL A1+ rating from CRISIL for their short-term (bank facilities) rating, long-term (bank facilities) rating and commercial paper, respectively. In addition, the company and its subsidiary, Shyam SEL and Power Limited, has received CARE A1+, CARE AA-/ Stable, and CARE A1+ rating from CARE for their short term (bank facilities) rating, long-term (bank facilities) rating and commercial paper, respectively.

Experienced Promoters, Board and senior management team

The company is led by individual Promoters, Mahabir Prasad Agarwal, Brij Bhushan Agarwal and Sanjay Kumar Agarwal, who have several decades of experience in the steel and ferro alloys industry, and have been instrumental in the growth of the company. The company also has an experienced Board of Directors who has extensive knowledge and understanding of the metal industry and has the expertise and vision to scale up business. The chairman, Mahabir Prasad Agarwal, is responsible for strategic planning and overall administration of the company. The vice chairman and managing director, Brij Bhushan Agarwal, is responsible for implementing future growth strategies. The joint managing director, Sanjay Kumar Agarwal, is responsible for the entire production process at the manufacturing plants. The whole-time director Deepak Kumar Agarwal is responsible for the finance functions.

Key Risk

  • Loss of any of suppliers or a failure by suppliers to deliver some of primary raw materials such as iron ore, iron ore fines, coal, chrome ore and manganese ore may have an adverse impact on the company’s ability to continue its manufacturing process without interruption and its ability to manufacture and deliver the products to the customers without any delay.
  • The success of the company depends on stable and reliable logistics and transportation infrastructure. Disruption of logistics and transportation services could impair the ability of suppliers to deliver raw materials or the company’s ability to deliver products to its customers which may adversely affect operations.
  • The demand and pricing in the steel industry is volatile and are sensitive to the cyclical nature of the industries it serves. A decrease in steel prices may have a material adverse effect on the business, results of operations, prospects and financial condition.

* For complete list of risk factors kindly refer to the Shyam Metalics Red Herring Prospectus.

About 5paisa:- 5paisa is an online discount stock broker that is a member of NSE, BSE, MCX and MCX-SX. Since its inception in 2016, 5paisa has always promoted the idea of self-investment and has ensured that 100% operations are executed digitally with minimal to no human interventions. 

Our all-in-one Demat account makes investment hassle free for everyone, be it an individual newly venturing into the investment market or a pro investor. Headquartered in Mumbai, 5paisa.com - a subsidiary of IIFL Holdings Ltd (formerly India Infoline Limited), is the first Indian public listed fintech company.

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Sona Comstar (Sona BLW Precision Forgings Ltd) IPO Information Note

Sona Comstar IPO
IPO
by Nikita Bhoota 14/06/2021

Sona Comstar IPO Details

Issue Opens - June 14, 2021

Issue Closes - June 16, 2021

Price Band - ₹ 285-291

Face Value - ₹10

Issue Size - ~₹5,550 cr (at upper price band)

Bid Lot - 51 Equity Shares

Issue Type - 100% Book building

Share Reservation

Net Issue (%)

Promoter and Promoter Group

100.0

Public

0.0

Source: RHP

 

Company Background

The company is one of India’s leading automotive technology companies that is involved in designing, manufacturing and supplying highly engineered, mission critical automotive systems and components such as differential assemblies, differential gears, conventional and micro-hybrid starter motors, BSG systems, EV traction motors (BLDC and PMSM) and motor control units to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments.

 

Object of the Offer

The offer comprises a fresh issue and an offer for sale. Out of fresh Issue of Rs300cr, Rs241cr is proposed to be utilized towards repayment and prepayment of identified borrowings availed by the company.

 

Financials 

Particulars (Rs Cr)

FY19

FY20

FY21

Revenue from Operations

1,427.70

1,220.10

1,566.30

EBITDA

412.2

325.4

441

EBITDA Margin (%)

29.9

26.70

28.20

ROCE(%)

40.3

29

34.8

ROE (%)

35.6

35.2

36.4

Net Debt to Equity (x)

0.84

0.17

0.26

Source: RHP, 5paisa Research

For additional information and risk factors please refer to the Red Herring Prospectus. Please note that this document is for information purpose only

Key Points

One of the leading manufacturers and suppliers to global EV markets

For calendar year 2020, Battery Electric Vehicle (BEV) sales as a percentage of total global vehicle sales stood at 3.3%, according to the Ricardo Report. The company derived 13.8% (Rs205.7cr) of the company’s total income from the BEV market for FY21. As a percentage of the total sale of goods, income from sale of goods to the BEV market has grown from 1.3% in FY19 to 13.8% in FY21. For FY21, Rs1,115.8cr representing approximately 74.9% of total income from sale of goods was derived from sale of goods to BEV, hybrid/ micro-hybrid and power source neutral products. The company has been supplying differential gears in the global EV market since April 2016 and differential assemblies since 2018, and according to the Ricardo Report, their global market share of BEV differential assemblies in calendar year 2020 was 8.7%. They also design and manufacture traction motors and motor control units for electric vehicles, with PMSM motors for EV and hybrid PVs and BLDC motors for electric two-wheelers and electric three-wheelers. 

Strong financial and development and technological capabilities in both hardware and software development.

 The company has developed strong in-house capabilities to deliver evolving green technologies for future mobility, with an aggregate expenditure on R&D of Rs156.4cr during FY2019-21. Company’s R&D expenditure amounted to Rs24.4cr, Rs40.5cr and Rs91.5cr during FY2019, FY2020 and FY2021, respectively and constituted 1.7%, 3.3% and 5.8% as a percentage of revenue from operations, respectively. In comparison, average spend of the top ten listed auto component players was 0.9% over FY2018-20, according to CRISIL Report. As at March 31, 2021, the company had 186 on-roll employees engaged in R&D activities, representing approximately 15.4% of their total on-roll manpower, with 16 software engineers focused on R&D. Moreover, R&D capabilities are further strengthened by their digital simulations, testing and validation facilities located at their three R&D centers in India (Gurugram, Chennai and MM Nagar), which are approved by the GoI’s Department of Scientific and Industrial Research. They are equipped with modern facilities including, design software and an electric & endurance testing laboratory. The company’s R&D capabilities are further supported by the intellectual property rights that they have in connection with their business. The company holds assignment of license rights in relation to eight patents in USA. It has been granted one patent in USA, one patent in China and one patent in the United Kingdom and await 21 patent approvals in India.

Strong business development with customer centric approach:

As at March 31, 2021, the company has been awarded 58 programs from 27 customers across the product portfolio, from customers in India and overseas, where the start of production was either during FY21 or a period subsequent to FY21. The company has long-standing relationships of 15 years and more with 13 of their top 20 customers. Some of their key OEM customers include a Global OEM of EVs, a North American OEM of PVs and CVs, Ampere Vehicles, an Indian OEM of PVs, CVs and EVs, Ashok Leyland, CNH, Daimler, Escorts, Escorts Kubota, Geely, Jaguar Land Rover, John Deere, Mahindra and Mahindra, Mahindra Electric, Maruti Suzuki, Renault Nissan, Revolt Intellicorp, TAFE, Volvo Cars and Volvo Eicher. They also serve selected leading Tier 1 automotive system suppliers such as Carraro, Dana, Jing-Jin Electric, Linamar and Maschio. The company participates in a lengthy and rigorous vendor selection process with their customers, which can take up to two to three years from the date of issue of a request for quote, to qualify and secure business for development of a program.

Key Risk

  • The business is dependent on the performance of the automotive sector globally, including the key markets such as US, Europe, India and China. Any adverse changes in the conditions affecting these markets can adversely impact their business, results of operations and financial condition. 
  • Inability to protect any of their intellectual property, including misappropriation, infringement or passing off of their intellectual property rights or failure to obtain their patents or failure to keep their technical knowledge confidential could have impact on their business and in turn on results of operation or financial condition and cash flows. 
  • The business largely depends upon top ten customers and the loss of such customers or a significant reduction in purchases by such customers will have a significantly adverse impact on their business. The discontinuation or loss of business with respect to, or a lack of commercial success of, a particular vehicle model for which they are a significant supplier could adversely affect their business and results of operations.

* For complete list of risk factors kindly refer to the Sona Comstar Red Herring Prospectus.

About 5paisa:- 5paisa is an online discount stock broker that is a member of NSE, BSE, MCX and MCX-SX. Since its inception in 2016, 5paisa has always promoted the idea of self-investment and has ensured that 100% operations are executed digitally with minimal to no human interventions. 

Our all-in-one Demat account makes investment hassle free for everyone, be it an individual newly venturing into the investment market or a pro investor. Headquartered in Mumbai, 5paisa.com - a subsidiary of IIFL Holdings Ltd (formerly India Infoline Limited), is the first Indian public listed fintech company.

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Dodla Dairy Limited IPO information note

Dodla Dairy IPO note
IPO
by Nikita Bhoota 15/06/2021

Dodla Dairy IPO Details

Issue Opens - June 16, 2021

Issue Closes - June 18, 2021

Price Band - ₹ 421-428

Face Value - ₹10

Issue Size - ~₹520 cr (at upper price band)

Bid Lot - 35 Equity Shares

Issue Type - 100% Book building

 

Company Background

Dodla Dairy Limited was incorporated in 1995 and is an integrated dairy company in entire South India. Company is engaged in the procurement, processing, distribution, and marketing of milk and other dairy products. Company processes, sells milk (including standardized, toned, and double toned milk), and produces dairy products such as curd, butter, ghee, ice cream, flavored milk etc. Operations of DDL in India are primarily across the five Indian states of Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Maharashtra and overseas operations are based in Uganda and Kenya. Its Indian operations are undertaken under the brands “Dodla Dairy”, “Dodla” and “KC+”. Its overseas operations are undertaken under its brands “Dodla Dairy”, “Dairy Top” and “Dodla +”. Amongst private dairy players with a significant presence in the southern region of India, the company is the third highest in terms of milk procurement per day (Source: CRISIL Report) with an average procurement of 1.02 million litres of raw milk per day (MLPD) as of December 31, 2020 and second highest in terms of market presence across all of India amongst private dairy players with a significant presence in the southern region of India (Source: CRISIL Report)

 

Object of the Offer

The Offer for Sale(~Rs470cr)

The proceeds of the Offer for Sale shall be received by the Selling Shareholders after deducting their proportion of Offer expenses and relevant taxes thereon. The Company will not receive any proceeds from the Offer for Sale and the proceeds received from the Offer for Sale will not form part of the Net Proceeds.

The Fresh Issue (~Rs50 crore)

  • Repayment and/ or pre-payment, in full or part, of certain borrowings availed by our Company: Rs32.2cr
  • Funding capital expenditure requirements of our Company: Rs7.1cr; and
  • General corporate purposes.

Also Read: Upcoming IPOs in 2021

Financials of Dodla Dairy

Particulars (Rs Cr)

FY18

FY19

FY20

9MFY21

Revenue from Operations

1,590

1,692

2,139

1,413

EBITDA

119

142

147

210

PAT

57

63

50

116

    Source: RHP

 

Competitive Strengths

Consumer focused dairy company with a diverse range of products under the “Dodla Dairy” and “Dodla” brands:

DDL has developed one of the leading brands in the dairy products industry in south India with strong consumer recognition, particularly in the States of Andhra Pradesh, Karnataka, Tamil Nadu and Telangana. Its Indian operations are undertaken under its brands “Dodla Dairy” (for milk and perishable products such as curd, flavoured milk) and “Dodla” (for VAPs such as ghee, butter, paneer, butter milk and ice creams). It primarily derived all its revenue in Fiscal 2020 and nine months period ended December 31, 2020, from sale of milk and dairy based VAPs in the branded consumer market. It is the third largest private milk company in south India in terms of procurement and second highest in terms of market presence across all of India amongst private dairy players with a significant presence in the southern region of India. It offers a diverse portfolio of dairy based VAPs targeted at various consumer segments and this enables it to cater to the changing preferences of its retail customers. It sells fresh milk, ghee, butter, curd, paneer, gulab jamun, doodh peda, basundhi and junnu, which is targeted at consumption at home and UHT milk, flavoured milk, ice - cream and beverages such as buttermilk under its brand, primarily for direct consumption. The strength of its brands helps in many aspects of its business, including expanding to new markets, entering into agreements with distributors and retailers and building relationships with its customers, investors and lenders.

Focused engagement and long term relationship with dairy farmers:

DDL’s farmer-friendly policies and continuous engagement with them with welfare programs have strengthened its relationships with farmers which in turn have strengthened its raw milk procurement process. It offers a variety of initiatives for the farmers from whom it procures raw milk. As part of its diversified procurement network, it relies on third party suppliers and farmers. In order to ensure transparency, it tests the quality and quantity of the raw milk collected from the farmers with electronic milk analyzers. The Company pays the farmers once every 10 to 15 days with the money being sent directly to the bank accounts of 77.00% of its farmers as of March 31, 2021 and pay the remaining 23.00% of its farmers by way of direct cash payments, which motivates them to engage with it more frequently. It has consistently improved its direct procurement from farmers from 2018 from 0.50 MLPD to 1.03 MLPD as of March 31, 2021. It has also diversified into an ingredient input providing company by supplying upfront cattle feed under the “Orga “ brand, manufactured by its Subsidiary Orgafeed Private Limited, directly to its farmers through its procurement network which is adjusted against the value of the raw milk supplied to it by such farmers. DDL’s continuous engagement with farmers and its knowledge in the dairy industry combined with welfare programs for the farmers have enabled it to have a strong procurement network in the regions in which it operates and thus helped to contain the cost of raw milk and ensure supply of quality raw milk.

Financial Growth and operational efficiencies:

DDL has delivered consistent growth over the last three financial years both in terms of financial and operational metrics. Its revenue from operations increased at a CAGR of 15.98% over Fiscal 2018 to Fiscal 2020 and amounted to Rs. 21,393.73 million in Fiscal 2020. Additionally, its sales (sale of goods) increased from Rs. 15,891.60 million in Fiscal 2018 to Rs.21,361.64 million in Fiscal 2020. Despite cumulative capital expenditure of Rs.2,644.86 million over the past three years, towards inter alia, commissioning a new processing plant at Rajahmundry in Andhra Pradesh, acquisition of the processing plants at Batlagundu and Vedasandur in Tamil Nadu from KC Dairy Products Private Limited, acquisition of the cattle feed and mixing plant by Orgafeed Private Limited at Kadapa in Andhra Pradesh and establishment of new VLCCs, Its return on equity and return on capital employed for Fiscal 2020 were at 11.50% and 17.01%, respectively which is due to the successful integration of the acquisitions with its operations. Further, its receivable days were 1.23 days and 0.66 days as on March 31, 2020 and December 31, 2020 respectively with its trade receivables amounting to Rs.72.03 million and Rs.33.92 million as on March 31, 2020 and December 31, 2020 respectively.

Experienced Board and senior management team:

DDL is led by an experienced Board of Directors, who have extensive knowledge and understanding of the dairy business and has the expertise and vision to organically and inorganically scale up its business. Its Board, led by its Chairman Dodla Sesha Reddy, has led Company through sustained period of growth and has also taken initiatives to improve processes and efficiencies, implementation of enterprise resource planning system in the year 2000 and replication of India business model in Uganda and Kenya which led to its overseas operations turning profitable. The knowledge and experience of its senior and middle-level management team in the dairy business provides it with a significant competitive advantage as it seeks to grow its business. Its core managerial team has an average dairy industry experience of more than 20 years and most of them have been associated with the Company since its formative years.

For complete list of competitive Strengths kindly refer to the Red Herring Prospectus.

Key Risk Factors:

  • Operations are dependent on the supply of large amounts of raw milk, and inability to procure adequate amounts of raw milk from farmers and third party suppliers, at competitive prices, may have an adverse effect on the business, results of operations and financial condition.
  • The coronavirus disease (COVID-19) has had an adverse effect on DDL’s business and operations and the extent to which it may continue to do so in the future, is uncertain and cannot be predicted.
  • The supply of raw milk is subject to seasonal factors, and does not necessarily match the seasonal change in demand for its products. Consequently, inability to accurately forecast demand for products, may have an adverse effect on its business, results of operations and financial condition.

For complete list of risk factors kindly refer to the Red Herring Prospectus.

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