IndoStar Capital Finance issue opens today: Should you subscribe?


IndoStar Capital Finance, a leading non-banking finance company, initial public offering is opening for subscription today. The issue will close on May 11, 2018.

The price band of the issue is Rs 570-572 per equity share of face value of Rs 10 each. The IPO lot size has been set at 26 shares, which at the upper end of the price band accrues to Rs 14,872. The company plans to raise Rs 1,800-2,000 crore including fresh capital worth Rs 700 crore.

The company’s equity shares are proposed to be listed on the National Stock Exchange and BSE.

JM Financial, Kotak Mahindra Capital Company, Morgan Stanley India Company, Motilal Oswal Investment Advisors, Nomura Financial Advisory & Securities are book running lead manager for the issue. Link Intime India is registrar to the issue.

The company has raised a little over Rs 553 crore from anchor investors.

Brokerage: Mehta Equities | Rating: Subscribe

In a very short time span of 6 years, Indostar has built healthy corporate lending business & strong relationships with leading corporates to grow better than industry growth. It has also forayed into the SME segment in 10 major cities of India which accounts for more than 20% of credit book.

Considering parameters like institutional investors ensuring corporate governance standards, better CV business cycle, decent asset quality through robust credit assessment, strong credit rating and reasonable valuation makes this offer a rewarding investment on long term horizon. Hence we recommend investors to subscribe on the issue.

Brokerage: KRChoksey Research | Rating: Subscribe

The company started out primarily catering to the corporate. However since last 2-3 years, it has diversified into retail lending as well. As of today, the corporate book forms about 77% of the total exposure while SME forms another 22% and rest being housing and vehicle finance combined.

The company is backed by an experienced and professional team. Favorable macros should help Indostar pursue growth in both corporate and vehicle finance segment.

At the upper price band of INR 572 per share, the company is valued at Rs 52.1 bn which translates into P/B (x) of 1.9x on a trailing basis. We recommend to subscribe.

Brokerage: HDFC Securities

IndoStar Capital Finance is a leading non-banking finance company registered with the RBI as a systemically important non-deposit taking company. It recently expanded its portfolio to offer vehicle finance and housing finance products.

Its housing finance business comprises two business lines, affordable housing finance and retail housing finance. It operates its housing finance business through wholly-owned subsidiary IndoStar Home Finance.

The company’s vehicle finance business primarily involves providing financing for purchases of used or new commercial vehicles, passenger vehicles and two-wheelers.

Brokerage: Aditya Birla Capital Securities | Rating: Subscribe

The valuations are reasonable with PE of 23x on FY18E EPS and P/ABV of 1.9x for the company having strong RoA, adequate capital, strong management pedigree and is expected to deliver steady earnings growth performance.

The company has a well-diversified funding profile, having relations with 14 PSU banks, 13 Pvt sector banks, 21 mutual funds and 4 insurance companies and other financial institutions.

It has managed to maintain its stable asset quality despite exposure to corporate sector which has been under stress in recent years.

The risks include high corporate credit exposure, rising bond yields and depreciation in currency.

Brokerage: ICICIdirect | Rating: Avoid

At the IPO price band of Rs 570-572, the stock is available at a multiple of 1.8x FY18E annualised BV (post issue) and 23.6x PAT at the upper end of the price band. Post issue market capitalisation is priced at Rs 5200 crore. Factoring in major proportion of wholesale portfolio with high real estate exposure, we recommend avoid on the issue.

The company has achieved a long-term debt rating of AA- and short-term rating of A1+ within its very first year of inception of business. Currently, the long-term debt rating is at CARE AA-; Stable and IND AA-/Stable, respectively, from CARE and India Ratings & Research.

Brokerage: SMC Research | Rating: 2.5/5

The company provides lending to 4 lines of business, i.e., corporate lending, SME lending, vehicle financing and housing financing.

Between the fiscal year 2013 and 2017, total credit exposure and total revenue of the company grew at a CAGR of 30.0% and 31.4%, respectively. Since fiscal year 2013, profit after tax of the company has grown every year, registering a CAGR of 23.7%.

The Company intends to continue to expand its scale of operations primarily through the implementation of the four pillars strategy wherein they operate each business line as an independent profit centre with its dedicated management team.

Brokerage: Ajcon Global | Rating: Subscribe

Indostar maintains clear segregation between their sourcing and credit approval teams so as to ensure independence and effectively manage operational risks. The enterprise-wide loan management system integrates all activities and functions within their organization under a single technology and data platform, bringing efficiencies to their back-end processes.

As of March 31, 2017 and December 31, 2017, the Gross NPAs accounted for 1.4% and 1.7% of the company‘s Gross Advances, while the Net NPAs accounted for 1.2% and 1.3% of the company‘s Net Advances, respectively.

Brokerage: Arihant Capital | Rating: 4/5

The issue has been offered at a price band of Rs 570-572 per equity share. At the upper price band of Rs 572, the stock is available at price-to-book value multiple of 2.74(x) its BVPS post listing of Rs 208.8 as at Mar 2017. Considering the business model, we have “4 star” rating for the issue.

The competitive strengths includes, high asset quality achieved through robust credit assessment and risk management framework, highly motivated, professional and experienced management team and ownership by institutional investors ensuring international corporate governance standards.



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