It’s raining IPOs. After a lull
in the market, the markets are suddenly filled with IPOs and the biggest
decision for the investor is which to pick and which to ignore. There are 2
IPOs to open this week and they will be 8th & 9th
issues this year. The companies going for IPO are
- · Thyrocare Technologies Limited;
- · Ujjivan Financial Services Limited.
Thyrocare Technologies Limited, a diagnostics company, is going
first from 27-Apr to 29-Apr with a price band of Rs. 420 to Rs. 446. The total
size of the issue is 479.21 crores at the upper end of the price band. The
company competes with Dr. Lal Path Labs, SRL Laboratories, Apollo Clinic etc.
There are no new shares being issued by the companies. All shares are being
sold by the promoters of the company. Post the issue, the promoters will hold
63.96% of the shares.
The IPO is attractively priced at
6.52 times price to book. Dr. Lal has a price to book of about 25 times and
witnessed a listing gain of 31%.
The company had a 23% CAGR
revenue growth over the last 5 years while its profit margin was over 25% in
the last 2 years. The company had a revenue of Rs. 812.07 million for the year
ending 2011 and it has grown to Rs. 1,870.46 million for the year ending 2015.
For the 9 months ending December 2015, the revenue was at Rs. 1,745.52 million.
The profit after tax for the same period has increased from Rs. 248.25 million
in 2011 to Rs. 484.50 million 2015. The profit for 9 months ending December
2015 stood at Rs. 435.88 million. There has been a slight dip in the margin in
the last 2 years even though the margins have been above 25% in each of the 5
years.
The PE ratio is in the range of
42 to 45 respectively when compared with the lower and upper band of the price.
Dr. Lal has a PE of 69 on its current price and had a PE of 48 on its issue
price. There are no other listed peers for us to compare this further. At these
levels, I think the IPO is competitively priced. There seems to be an upside in
the price in the near to medium future.
Ujjivan Financial Services Limited is the next financial services
company to go for its IPO after Equitas in 2016. Like Equitas, this also has a license
to open small finance bank by the RBI. That means that the FII holding in this
company has to be 49% or less. Ujjivan’s IPO will open on 28-Apr and close on
02-May with a price band of Rs. 207 to Rs. 210 with a total size of Rs. 875
crores to Rs. 882 crores at the upper end. The company competes with the likes
of Equitas, SKS microfinance etc. They primarily operate by providing
collateral free, small ticket loans to active poor women along with loans to
MSEs. They are also active with some non-credit offerings like insurance
product with tie-ups with a few insurance companies.
The proceeds from the issue will
be used by the company for 2 reasons:
- · Augmenting the capital base to meet the future capital requirements as a small finance bank.
- Reduce the FII holding to less than 49% to meet the banking requirements.
The income of the company has
grown at 40% CAGR in the last 5 years with an income of Rs. 1,564 million in
2011 to Rs. 6,119 million in 2015. For the 9 months ending December 2015, the
company has reported an income of Rs. 7,296 million ensuring that it is going
to be a stellar growth in 2016 as well. The profits margins are at least 16% in
the last couple of years with a CAGR growth of 45% bettering the revenues. For
the 9 month period ending December 2015, the profits were Rs. 1,223 million
confirm a stellar year.
The PE ratio of the company based
on the diluted 2015 EPS at the higher end of the band stands at 19.49 against
the industry PE of 25.16. Its peers like SKS and Sundaram Finance have PEs of
30 and 37 respectively. The company has a P/BV ratio of 2.46 which is slightly
higher than Equitas when it listed but still lower than both SKS and Sundaram
Finance which have a P/BV of 7 and 5 respectively. At these levels, this is
another good pick to invest in. A must buy.
If one doesn’t want to invest in
both IPOs and needs to pick a stock, my recommendation will be to invest in
Ujjivan Financial though it will be best to invest in both IPOs.
What do you think? Drop me a
line. Thoughts and feedback welcome.
