Jefferies’ Take On Nine Upcoming India IPOs
Jefferies’ analysts have looked at some of these upcoming India IPOs in the context of peer / sector impact.
With markets at new highs, Jefferies expects India to see a record equity supply of $30-40 billion (Rs 2-3 lakh crore) in the ongoing financial year.
Of which, initial public offerings would likely account for around 40%, the research firm said in a report co-authored by its equity analysts Mahesh Nandurkar and Abhinav Sinha.
“The actual quantum of the corporate equity paper supply would depend on institutional flows and the market trend. There would be equity issuances in other sectors as well such as infrastructure and real estate but some of these could be subject to reopening/capex-cycle uptick getting underway,” Jefferies said.
Globally, too, IPO volumes are heading for the best quarter since at least 2009 with more than $188 billion raised so far this year, Bloomberg data showed.
Jefferies’ analysts have looked at some of these upcoming India IPOs in the context of peer/sector impact.
Zomato
Sector: E-commerce
“Fintech space (Paytm), pharma tech, edtech and e-commerce could see large IPOs starting this year; and we estimate $5-7 billion of supply in FY22,” Jefferies said in the report.
Zomato IPO would mark the first meaningful internet listing in India.
Covid-19 impacted revenue negatively but helped unit economics and sustainable level is unclear.
Clarity is needed on usage of approximately 45% of IPO proceeds for mergers and acquisitions, nutraceutical foray, etc.
Technical factors may drive investor interest, which may have boarder implications.
Life Insurance Corp. Of India
Sector: Banking, financial services and insurance
“The next big source of fundraisings could be the government disinvestment programme where a large listing by the insurer LIC is proposed. Along with few other stake sales/minority exits (for example Axis Bank Ltd. stake worth Rs 4,000 crore sold already), we expect disinvestment to contribute $4-7 billion to the equity supply,” Jefferies said in the report.
LIC has built a strong brand but has been steadily losing market share to private peers.
It is large in terms of premiums and assets under management, but shareholder profit and capital are low as profit is redistributed to policyholders and dividend payout is high.
“Our range of indicative valuations is wide, while we await clarity on embedded value and value of new business.”
Aditya Birla Sun Life AMC
Sector: Banking, financial services and insurance
“The financial sector fundraising may rise to $13-20 billion with contributions from state owned banks ($5-7 billion), large private banks ($3-4 billion) and smaller private banks/NBFCs ($3-4 billion) may be back in the market,” the research firm said. “New listings including some small finance banks, microfinance and insurance related may raise $2-4 billion as well.”
The proposed IPO of India’s fourth-largest asset management company will help expand the investible universe of AMCs.
It has posted AUM CAGR of 18% over FY14-21, with share of more profitable equities AUM rising from 14% (FY14) to 36% (FY21).
Sectorally, Indian AMCs offer structural growth with mutual fund AUM/equity AUM to GDP (2019) low at 12%/5% compared to world average of 63%/34%.
Fincare Small Finance Bank
Sector: Banking, financial services and insurance
The mid-sized small finance bank has seen assets under management grow at 57% CAGR over FY18-20 to Rs 5,500 crore.
Micro finance institutions form 79% of its loans, and its current account saving account ratio at 20% is in line with sector average.
The proposed listing will offer a peer comparison for Bandhan Bank Ltd.
Arohan Financial
Sector: Banking, financial services and insurance
Arohan is the largest NBFC-MFI in east India, with West Bengal, Assam, and Bihar forming 66% of its Rs 4,900-crore assets under management.
After reporting strong growth in FY17-19, disruptions, especially in Assam, affected growth and led to a rise in gross NPA to 2.5%, above peers, in FY20.
Collections improved from post-Covid lows to 84% in September 2020.
Arohan is broadly in line with the peer average and its prospective listing will also offer a peer comparison for Bandhan Bank.
Jana Small Finance Bank
Sector: Banking, financial services and insurance
It is the fourth-largest small finance bank with assets under management of Rs 11,300 crore, growing at 22% CAGR over FY18-20 with three states forming 50%.
Microfinance institutions and agriculture form more than 70% of loans; it is diversifying into other secured loans.
Aptus Value Housing
Sector: Banking, financial services and insurance
Aptus is a south-India focussed affordable housing financier with assets under management worth Rs 3,800 crore.
Share of housing loans at 53% is lower than peers, rest in loans against property/business loans.
Collections, at over 99%, were near pre-Covid levels in December 2020.
Proposed listing would expand the listed affordable housing market.
Sona Koyo Steering Systems
Sector: Automobile
India is seeing a gradual increase in global auto component companies with overseas businesses forming 75-90% of revenue for Sona.
Portfolio is skewed towards battery electric vehicles and hybrids for Sona, as opposed to powertrain-neutral for Motherson Sumi Systems Ltd. and tilted towards internal combustion engines for Bharat Forge Ltd. and Endurance Technologies Ltd.
Among the four companies, Sona is the smallest in revenue terms but has the highest margin.
ReNew Power
Sector: Renewable energy
This is the first Indian company to list via the special purpose acquisition vehicle route.
The company has grown exponentially to its current renewable energy base of 9.9 GW, including projects under development, since it commenced operations with a 25-MW wind project in Gujarat in 2012.
ReNew plans to raise capacity 3.4x by FY25 like Azure and its valuations imply a 32% premium to Azure’s FY20 valuation.