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FII Selling Driven by US Interest Rates, Not China
Business, Equities, Expert Views, Investor Forum, IPO research, Market News, Markets, Research, Research Reports, Result Updates - December 21, 2023

Unlocking opportunities: Muthoot Microfin IPO analysis

Unlocking opportunities: Muthoot Microfin IPO analysi

Muthoot Microfin Ltd – IPO Note

Price Band: Rs. 277-291

Issue Date: 18th Dec-20th Dec

Recommendation: Apply

Company Overview: 

Muthoot Microfin Limited, a subsidiary of the Muthoot Pappachan Group, is a microfinance institution dedicated to empowering women in rural areas across India. Specializing in micro-loans, the company offers a diverse portfolio of financial products, including group loans for livelihood solutions, individual loans, and life betterment solutions such as mobile phone and solar lighting loans. Additionally, it addresses health and hygiene needs through sanitation improvement loans. Muthoot Microfin Limited also provides secured loans in the form of gold loans and its unique Muthoot Small & Growing Business (MSGB) loans, emphasizing support for small businesses. The company’s focus on social impact is evident in its commitment to fostering economic growth and improving living standards in underserved communities.

Company Profile:

  • Muthoot Microfin Limited is a leading microfinance institution in India, with a strong focus on serving women entrepreneurs in rural areas. The company is a part of the Muthoot Pappachan Group, a diversified conglomerate with a presence in various sectors.
  • Muthoot Microfin is the fourth largest NBFC-MFI in India in terms of gross loan portfolio. The company has a wide reach across 18 states and UTs, with over 1,340 branches and 3.19 million active customers. Muthoot Microfin has a robust IT infrastructure and a focus on digital collections. The company also has a strong presence in Tamil Nadu, with a market share of over 16%.
  • In recent years, Muthoot Microfin has been expanding its operations beyond South India. The company has opened over 700 branches in North, West, and East India, constituting 52.76% of its total branches. This expansion is a key part of Muthoot Microfin’s strategy to become the leading microfinance institution in India.
  • Muthoot Microfin is a well-established and respected company with a strong track record of financial performance. The company is well-positioned to continue to grow and expand in the future.

The Objects of the Issue:

  • Fund existing operations and exciting new initiatives like tech upgrades and geographic reach.
  • Boost capital to meet future needs and ensure growth.
  • Gain stock market visibility and access future capital.
  • Facilitate sale of shares by existing investors.

Outlook and Valuation:

  • Historically concentrated in South India, Muthoot Microfin has recently expanded its operations into North, West, and East India.
  • As of March 31, 2023, the company has 596 branches in North, West, and East India, representing 50.85% of total branches.
  • This expansion strategy is aimed at increasing the company’s footprint and customer base across diverse regions in India.
  • Growth Strategy: The company’s strategy of expanding across various geographies in India is expected to contribute to its ongoing growth in the coming years.
  • Competitive Landscape: According to the Red Herring Prospectus (RHP), Muthoot Microfin identifies Equitas Small Finance Bank Limited, Ujjivan Small Finance Bank Limited, CreditAccess Grameen Limited, and Suryoday Small Finance Bank Limited as some of its listed competitors.
  • Understanding the competitive landscape helps investors assess the market dynamics and positioning of the company.
  • Valuation and Peer Comparison:
    1. The company’s valuation is compared with peers in the microfinance and small finance banking sector.
    2. Peers’ average P/E (Price-to-Earnings) ratio is 18.22x, ranging from 6.33x to 26.67x.
    3. Muthoot Microfin’s P/E multiple, based on post-issue diluted FY23 EPS of Rs.11.54, is 25.23x at the higher price band.
    4. The assessment suggests that, compared to peers, the issue is considered fully priced in or fairly valued.
    5. At the higher price band, Muthoot Microfin’s listing market capitalization is projected to be approximately – Rs.4159.96 crores.
      ISSUE OFFER  
      Price band (INR) 277-291
      Bidding date DEC 18 – DEC 20, 2023
      Total IPO size (Cr) 960
      Fresh issue (Cr) 760
      Offer for sale (Cr) 200
      Market lot 51
      Face value (INR) 10
      Listing on NSE, BSE
      Retail Allocation 35%
      Rating Subscribe

Competitive Strengths:

  • Strong Brand and Market Leadership: Backed by a highly established financial services conglomerate, ensuring trust and brand recognition. Holds a significant market share in India, demonstrating experience and operational expertise.
  • Reliance on rural economies makes the company susceptible to agricultural downturns and economic fluctuations. Fosters income generation and economic activity in rural areas.
  • Focus on underpenetrated regions and product diversification indicates significant growth potential.
  • Aligns with social responsibility goals, potentially attracting ESG-conscious investors.
  • Wide geographical reach with over 1,340 branches, ensuring customer accessibility.
  • In-house technology development facilitates efficient loan disbursement and monitoring.
  • “Mahila Mitra” app promotes convenient payment methods for customers.
  • Offers various loan products, mitigating risk and catering to diverse needs.

Key Strategies:

  • Expand branch network and identify borrowers across India, not just South.
  • Build user-friendly platforms for smooth loan access and service.
  • Offer new loans and leverage referrals to grow customer base.
  • Diversify Funding: Tap new investors beyond traditional channels to fuel expansion.
  • Highlight social impact and invest in talent for sustainable growth.

Key Concerns:

  • Rural Vulnerability: Microfinance primarily serves rural populations, susceptible to agricultural downturns, weather fluctuations, and economic shifts. These external factors can impact borrowers’ repayment capacity and expose the company to loan defaults.
  • Regulatory Risks: The microfinance sector faces evolving regulations, some potentially affecting interest rates, loan sizes, and lending practices. Adapting to these changes without compromising profitability could be challenging.
  • Competition: The microfinance space is increasingly competitive, with established players and new entrants vying for market share. Maintaining a competitive edge in terms of interest rates, customer service, and technology could be costly.
  • High Credit Exposure: Muthoot Microfin’s loan portfolio is concentrated in a specific market segment. This concentration, while offering potential rewards, also exposes the company to higher risks if economic conditions in that segment deteriorate.
  • Customer Risk: Microfinance institutions (MFIs) often serve customers in the lower-income segments. Economic uncertainties or shocks affecting these customers may impact their ability to repay loans, leading to increased default risks.
  • Interest Rate Risk: The microfinance industry is vulnerable to interest rate fluctuations. Changes in interest rates can affect borrowing costs for both the MFI and its customers, influencing repayment dynamics.
  • Non-Performing Assets (NPA) Risk: An increase in non-performing assets or provisions can adversely affect the company’s financial health. This may result from economic downturns, borrower distress, or other factors impacting the repayment capacity of the customer base.
    Company Total income

           (ML)

    		 EPS P/E NAV Face value/Share
    Muthoot Microfin Limited 14463.44 14.19 20.5 139.15 10
    Peer group       1  
    Equitas Small Finance Bank Limited 48314.64 4.71 17.57 46.44 10
    Ujjivan Small Finance Bank Limited 47541.90 5.88 6.33 20.25 10
    CreditAccess Grameen Limited 35507.90 52.04 26.67 326.89 10
    Spandana Sphoorty Financial Limited 14770.32 1.74 381.72 436.58 10
    Bandhan Bank Limited 183732.50 13.62 17.32 121.58 10
    Suryoday Small Finance Bank Limited 128811 7.39 22.31 149.28 10
    Fusion Micro Finance Limited 17999.70 43.29 12.60 230.74 10
    PARTICULARS

    (In millions)

    		 FY23 FY22 FY21
    Equity share capital 1401.98 1333.33 1141.71
    Other equity 14856.51 12032.46 7757.19
    Net worth 16258.49 13365.79 8898.90
    Total Borrowings 51230.25 32969.85 25382.26
    Revenue from Operations 12906.45 7286.23 6227.84
    EBIDTA 7884.86 4256.60 3272.17
    PBT 2128.70 647.21 90.55
    Net profit 1638.89 473.98 70.54
    PAT 1639 474 70.4
    Total assets 85292 55915 41839

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Inox India Limited: Navigating the cryogenic frontier - IPO Insights
Business, Equities, Expert Views, Investor Forum, IPO research, Market News, Markets, Research, Research Reports, Result Updates - December 14, 2023

Inox India Limited: Navigating the cryogenic frontier - IPO Insights

Inox India Limited: Navigating the cryogenic frontier – IPO Insights
IPO note of Inox India Limited
Price Band: Rs 627-660
Issue Date: 14th Dec-18th Dec
Recommendation: Apply

Company Overview: 

Inox India Limited is a leading manufacturer and supplier of cryogenic equipment, offering a diverse portfolio that includes standard cryogenic tanks, beverage kegs, bespoke technology, equipment, and solutions, as well as large-scale turnkey projects. Their extensive product range caters to various industries such as industrial gases, liquefied natural gas (LNG), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals, and construction. From providing solutions for the storage and transportation of cryogenic fluids to contributing to the emerging fields of green hydrogen and LNG, Inox India Limited is committed to delivering innovative and customized cryogenic solutions across a broad spectrum of applications.

Company Profile:

Inox India Limited is a leading manufacturer and supplier of cryogenic equipment, offering a diverse portfolio that includes standard cryogenic tanks, beverage kegs, bespoke technology, equipment, and solutions, as well as large-scale turnkey projects. Their extensive product range caters to various industries such as industrial gases, liquefied natural gas (LNG), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals, and construction. From providing solutions for the storage and transportation of cryogenic fluids to contributing to the emerging fields of green hydrogen and LNG, Inox India Limited is committed to delivering innovative and customized cryogenic solutions across a broad spectrum of applications.

The Objects of the Issue:

  • Total Issue Size: Rs. 1459.32 Crore (at the upper price band of Rs. 660 per share)
  • Offer Type: Entirely Offer for Sale (OFS)
  • Number of Shares Offered: 2.21 crore shares
  • Face Value per Share: Rs. 2

Outlook and Valuation:

  • Inox India is the leading manufacturer of cryogenic storage tanks in India, holding a significant market share.
  • The company has a robust order book worth over Rs. 1000 crore, indicating healthy demand for its products.
  • Inox India is debt-free, which strengthens its financial position and provides room for future growth.
  • The Indian gas industry is expected to grow at a CAGR of 10% in the coming years, which could benefit Inox India as a key supplier of storage tanks.
  • Inox India Limited boasts superior EBITDA margins, exceeding 21%, a significant achievement compared to the average among listed capital goods players.
  • The company has consistently delivered a Return on Capital Employed (ROCE) of over 30% in recent years, attributed to strong asset turns ranging from 1.4 to 1.8 times historically.
  • The growing importance of green fuels, specifically liquid hydrogen, and a preference for liquefied natural gas (LNG) over diesel have contributed to robust top-line growth for Inox.
  • The company has witnessed a commendable 14% Compound Annual Growth Rate (CAGR) in revenue over the period FY20-23 and a noteworthy 16% growth in the first half of FY24.
  • Inox’s financial performance aligns closely with listed capital goods players, reflecting its competitive standing in the industry.

    ISSUE OFFER  
    Price band (INR) 627-660
    Bidding date 14th Dec-18th Dec
    Total IPO size (Cr) 1,459.32
    Fresh issue (Cr) NIL
    Offer for sale (Cr) 1,459.32
    Market lot 22
    Face value (INR) 2
    Listing on NSE, BSE
    Retail Allocation 35%

Competitive Strengths:

  • Inox India boasts a commanding market share in the Indian cryogenic storage tank market, exceeding 70%. This translates to strong brand recognition and customer loyalty.
  • They offer a diverse portfolio of tanks catering to various capacities and applications, ranging from small units for medical labs to large facilities for industrial gas storage.
  • Inox India serves a diverse clientele, including leading gas companies, government agencies, and pharmaceutical firms. This diversification mitigates risks associated with relying on a limited number of customers.
  • Inox India Limited attains operational excellence through vertical integration, advanced technological expertise, and an experienced workforce, ensuring superior quality and efficiency in cryogenic equipment manufacturing.
  • Inox India Limited demonstrates financial stability with a history of profitability, consistent revenue growth, a debt-free status enhancing financial flexibility, and a healthy order book reflecting sustained demand and growth potential.

Key Strategies:

Inox India Limited aims to capitalize on opportunities in the LNG and hydrogen sectors within the global clean energy transition, strategically capturing the full value chain across its product lines. The company plans to expand its standard cryogenic and non-cryogenic equipment business into international markets, further broadening its reach. Additionally, Inox aims to grow its large turnkey project business and remains committed to ongoing efforts to enhance operational efficiency and productivity.

Key Concerns:

  • Inox India Limited, despite not owning the name “INOX,” utilizes it as part of its corporate identity under a name license agreement with the Jain family, entailing an annual royalty of 0.25% of consolidated revenues, with potential ad-hoc increases impacting the company’s financials.
  • The company faces vulnerability to cyclical downturns in the global capital expenditure cycle, given its products’ long lifespan of 20-30 years, as a sharp decline in global capex demand could result in diminished demand, particularly in energy, steel, chemicals, fertilizers, aviation, and construction industries.
  • Inox India Limited relies heavily on a limited number of private and public customers and projects for its major revenue streams, making its financial performance susceptible to fluctuations in these key areas.
  • The company’s significant dependence on export sales exposes it to potential challenges in international markets, including geopolitical and economic uncertainties.
  • Adverse shifts in component, raw material, or other input costs may negatively impact the pricing and supply of Inox’s products, potentially affecting its profitability.
  • Given the inherent risks associated with cryogenic gases stored at very low temperatures, any leakage poses health hazards, adding a crucial safety dimension to the company’s operations.
  • Inox India Limited’s exposure to performance guarantees introduces a potential negative impact on its business, emphasizing the importance of managing contractual obligations effectively.

    PARTICULARS FY23 FY22 FY21
    EBIDTA 204 168 135
    EBIDTA Margin (%) 21.2% 21.4% 22.7%
    PBT 205 174 131
    Adjusted PAT 153 130 96
    EPS 16.8 14.4 10.6
    ROCE 38% 32.4% 31.9%
    EV/Sales 6.1 7.6 10
    EV/EBIDTA 29 35.4 44.1
    P/E 39.5 44.3 64.4

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LG ‘s IPO Launch in India to help reach its $75 Billion goal
Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - December 14, 2023

DOMS Industries IPO Note: A deep dive into the leading stationery player

DOMS Industries IPO Note: A deep dive into the leading stationery player
DOMS Industries Ltd – IPO Note
Price Band: Rs. 750-790
Issue Date: 13th Dec-15th Dec
Recommendation: Apply

Overview: 

Established in 2006, DOMS Industries Ltd is a prominent player in the stationery and art products market. With a strong focus on research, development, and backward integrated manufacturing, DOMS has gained significant market presence both domestically and internationally, spanning over 45 countries. The company holds the second-largest market share (by value) in India’s branded stationery and art products market, boasting around 12% as of FY23. DOMS Industries Limited specializes in the design, development, and sale of stationery and art products, categorized into seven segments, including scholastic stationery, scholastic art material, paper stationery, kits and Combos, office equipment, hobbyist and craft items, and artistic supplies are all available.

Company Profile:

  • DOMS Industries has established itself as one of the globally recognized entities with such a comprehensive product portfolio in the ‘stationery and art material’ sector.
  • Under its flagship brand ‘DOMS’ and other associated brands like ‘C3,’ ‘Amariz,’ and ‘Fixyfix,’ the company effectively markets its diverse range of products. Manufacturing operations are conducted at facilities situated in Umbergaon, Gujarat, and Bari Brahma in Jammu and Kashmir.
  • With an expansive multi-channel distribution network, DOMS Industries has secured a robust pan-India presence and a global footprint, serving over 45 countries across the Americas, Africa, Asia Pacific, Europe, and the Middle East.

The Objective of the Issue:

  • Total issue amount: Rs 1,200 Crores, comprising a fresh issue of Rs 350 Crores and an offer for sale of Rs 850 Crores by promoters.
  • Utilization of fresh issue proceeds:
  1. Financing the construction of a new manufacturing facility.
  2. Expanding DOMS’ production capabilities for writing instruments, watercolor pens, markers, and highlighters.
  3. Allocation for general corporate purposes.
  • A proposal to partially finance the cost of establishing the new manufacturing facility.

Outlook and Valuation:

  • DOMS Industries exhibits robust revenue growth, healthy profit margins, and superior return ratios when compared to industry peers.
  • The company stands to benefit from increasing literacy rates, a growing student population, and rising disposable income in India, creating a favorable market environment.
  • DOMS is a trusted and reputable name in the Indian market, offering a combination of quality products and affordability, which enhances its position among consumers.
  • DOMS maintains a strong commitment to research and development, staying ahead of industry trends by regularly introducing new and innovative products to the market.
  • The upcoming new manufacturing facility is expected to significantly boost production capacity. This strategic move positions the company well to meet the growing demand for its products, aligning with market trends and customer needs.
  • The company has demonstrated strong financial performance, with a Compound Annual Growth Rate (CAGR) of 23% for revenue and 42% for Profit After Tax (PAT) between FY20 and FY23.
  • The issue is valued at 46 times the FY23 Earnings Per Share (EPS) and 33 times the annualized H1FY24 EPS, suggesting what is perceived as fair valuation.
  • The company’s valuation metrics reveal a substantial market assessment, with an EV/EBITDA ratio of 38.6. Additionally, the Price-to-Earnings (P/E) ratio stands at 32.9.

    ISSUE OFFER  
    Price band (INR) 750-790
    Bidding date 13th Dec-15th Dec
    Sector Stationary
    Total IPO size (Cr) 1200
    Fresh issue (Cr) 350
    Offer for sale (Cr) 850
    Market lot 18
    Face value (INR) 10
    Listing on NSE, BSE
    Retail Allocation 10%

Competitive Strengths:

  • Strong brand recognition in India, especially in smaller towns and rural areas.
  • Extensive portfolio caters to various needs, from basic school supplies to professional art materials.
  • Robust distribution network present in over 45 countries.
  • Regular introduction of new and improved products to stay ahead of trends.
  • Vertical Integration: 13 manufacturing facilities across India for cost control and quality assurance.
  • Optimized logistics and inventory management for faster delivery and reduced waste.
  • Experienced personnel ensure high-quality production.
  • Sustainable Practices: Commitment to environmental responsibility enhances brand image.

Key Strategies:

  • Doms has a strong brand recognition, Leveraging trust in “DOMS” across India.
  • Expanding portfolio: From school supplies to professional art materials.
  • It has a Wide distribution network, reaching consumers and retailers in India and 45+ countries.
  • Continuous innovation: Introducing new products to stay ahead of trends.
  • Vertical integration: 13 manufacturing facilities for cost control and quality assurance.
  • Faster deliveries, reduced waste, and improved costs.
  • Skilled workforce: High-quality production and sustained success.
  • Enhancing brand image and resonating with eco-conscious consumers.

Key Concerns:

  • DOMS Industries has a notable dependency on FILA Group, particularly for export sales, with FY23 export sales to FILA amounting to Rs. 159 Cr. This constitutes 12.9% of total sales and a significant 61.6% of export sales.
  • The company faces a potential risk due to the substantial concentration of its major product category, Wooden Pencils, which accounts for approximately 32% of total sales. Any decline in the sales of wooden pencils could adversely impact the company’s overall revenue.
  • In the competitive industry landscape, effective competition is crucial for DOMS. Inability to compete effectively may lead to adverse effects on business performance, operations, and profitability.
  • The company’s strategic approach involves acquisitions, posing a potential risk. Inability to manage the expansions resulting from these acquisitions may have a material adverse effect on DOMS’ business operations, impacting financial results negatively.
  • DOMS relies significantly on key products, particularly wooden pencils, for a substantial portion of its Gross Product Sales.
  • The ‘general trade’ distribution network plays a vital role for DOMS, accounting for more than 70.00% of its Gross Product Sales.
  • FILA, a promoter of DOMS, is crucial for the company’s business operations and research and development (R&D) capabilities.
  • Operating in a competitive business environment, DOMS faces competition from both organized and unorganized players.
  • The company’s dependence on natural resources for raw materials and potential pricing pressure from suppliers are additional factors influencing its operational landscape.

Comparison with Listed Industry Peers: 

FY23 FIGURES DOMS KOKUYO CAMLIN LTD LINC LTD FLAIR WRITING INSTRUMENTS
Revenue 1212 775 487 943
CAGR (20-23) 22.8% 6.9% 7.4% 18.0%
EBIDTA Margin 15.4% 7.0% 12.6% 19.5%
ROCE % 33.1% 12.0% 31% 33.4%
ROE % 28.9% 9.3% 21.1% 31.4%
Debt/equity 0.3 0.2 0 2.5
EV/EBIDTA 26.4 27.0 20.1 22.9
P/E 46.6 57.4 33.2 34.3

 

PARTICULARS FY23 FY22 FY21
Equity share capital 3.73 3.73 3.73
Other equity 3370.59 2468.74 2332.38
Net worth 3553.45 2580.94 2416.79
Total Borrowings 151.55 28.52 28.99
Revenue from Operations 12118.90 6836.01 4028.17
EBIDTA 1866.60 697.13 300.25
PBT 1387.63 240.24 (75.78)
Net profit 1028.71 171.40 (60.26)

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