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Four companies including Windlas Biotech, Devyani International, Krsnaa Diagnostics and Exxaro Tiles hit the primary market with their initial share-sale offers on August 4 to raise a little over Rs 3,000 crore cumulatively. The companies are expecting to benefit from an equity market, which is flood with liquidity and a sharp rise in the number of new retail investors.
Of late, as many as six firms including Zomato, Rolex Rings and Tatva Chintan Pharma raised more than Rs 14,500 crore through public issues in July, taking the total to over Rs 53,000 crore so far in 2021.
The three-day IPOs of Windlas Biotech, Devyani International, Krsnaa Diagnostics and Exxaro Tiles will conclude on August 6. Below are key things you should know about upcoming IPOs:
Windlas Biotech | Price band: Rs 448-460 | Grey market premium: Rs 130
The manufacturer of pharmaceutical formulations on Tuesday said it has raised over Rs 120 crore from anchor investors ahead of its IPO that opens on Wednesday. Windlas Biotech has decided to allocate 26,18,706 equity shares at Rs 460 apiece to 22 funds aggregating to Rs 120.46 crore.
Should you subscribe
Marwadi Shares and Finance: Subscribe
Considering the FY21 adjusted earnings per share (EPS) of Rs 7.14 on the post-issue basis, the company is going to list at a P/E of 64.39 with a market cap of Rs 1002.5 crore. There are no listed companies in India that engage in a business similar to that of the company. Hence, it is not possible to provide an industry comparison in relation to the company. Marwadi Shares and Finance assigns the “Subscribe” rating to this IPO as the company is one of the leading contract development and manufacturing organisation (CDMO) players with an innovative portfolio of complex generic products supported by robust research and development capabilities and has quality compliant manufacturing facilities with significant entry barriers.
Angel Broking: Subscribe
Based on FY-2021 adjusted earnings, IPO is priced at PE of 22.2x and EV/EBITDA of 15.58x at the upper band of the IPO price, which is slightly better than the peer’s companies. The company has a very healthy balance sheet with negative net debt/equity. Quality CDMO business has huge potential in India in the near future and the company having a good regulatory compliance track record. Angel Broking expects the upcoming expansion plan in Dehradun and increase in capacity utilisation will be the next growth drivers for the company. We are assigning a “Subscribe” recommendation to the issue.
Devyani International | Price band: Rs 86-90 | Grey market premium: Rs 63
The IPO consists of a fresh issue of equity shares worth Rs 440 crore and an offer-for-sale of up to 155,333,330 equity shares by the promoter and existing shareholders. Under the offer-for-sale, Dunearn Investments (Mauritius) Pte Ltd, a wholly-owned subsidiary of Temasek Holdings, will offload 6,53,33,330 shares and promoter RJ Corp will sell 9 crore shares. The offer includes a reservation of up to 5.50 lakh equity shares for the company’s employees.
Should you subscribe
Anand Rathi | Rating: Subscribe
Anand Rathi believes that the company remains well placed for long term growth considering the company’s portfolio of recognized global brands catering to a range of customer preferences, cross-brand synergies, expansion of store network and EBITDA (earnings before interest tax depreciation and amortisation) positive earnings.
The brokerage firm is of the opinion that at the upper end of the IPO price band, Devyani International is offered at 9.5x market capitalization/sales as per FY21 financial statement, compared to peers like Jubilant Foodworks Ltd. (15x), Westlife Development Ltd. (8.8x) and Burger King India Ltd. (14x).
Angel Broking | Rating: Subscribe
Devyani International the largest franchisee of Yum Brands in India has a portfolio of well recognized global brands across the spectrum. Its presence across key consumption markets with a cluster-based approach and experienced Board and senior management team augurs well for the company.
In terms of valuations, the post-issue FY2021 EV (enterprise value)/Sales works out 9.9x to (at the upper end of the issue price band), which is low compared to peers (Jubilant Foodworks-15.4x, Burger King India -14.8x, Westlife Development – 10x). Further, Devyani International has a better operating margin compared to Westlife Development & Burger King proving valuations to be at reasonable levels.
Krsnaa Diagnostics | Price band: Rs 944-954 | Grey market premium: Rs 445
The company said it has collected Rs 537 crore from anchor investors. Krsnaa Diagnostics has decided to allocate 56,28,937 equity shares to 44 anchor investors at Rs 954 apiece, aggregating to Rs 537 crore.
Should you subscribe
Choice Broking | Rating: Subscribe with caution
Krsnaa Diagnostics is loss-making on an adjusted PAT basis making P/E (price to earnings) comparison with peers irrelevant. On P/S (price to sales) basis, at the higher price band of Rs 954, the issue is valued at P/S of 7.6x. Based on Choice Broking quick estimates, the issue is valued at P/E of 72x on FY23E compared to peers’ average P/E ~55x. Thus, the issue seems aggressively priced.
The brokerage firm believes that future profitability trend is likely to remain contained due to limited scope for EBIDTA (earnings before interest depreciation tax and amortisation) expansion and prevailing high competitions within the industry players.
Marwadi Shares & Finance | Rating: Subscribe
Considering the FY-21 diluted EPS (earnings per share) of Rs.12.25, the company is going to list at a P/E (price to equity) of 77.88 with a market cap of Rs 2,994.1 crore, while its peers namely Dr Lal Path Labs and Metropolis Healthcare are trading at a P/E of 75.15 and 79.71 respectively.
Marwadi Shares & Finance has a ‘Subscribe’ rating to the IPO as the company has a unique business model with strong revenue visibility and is well-positioned to capitalize on healthcare spending across public and private sectors. Also, the issue is reasonably priced as compared to its peers.
Exxaro Tiles | Price band: Rs 118-129 | Grey market premium: Rs 15
The initial public offering of up to 1,342,4000 equity shares comprises a fresh issue of up to 1,11,86,000 equity shares and an offer-for-sale of up to 22,38,000 equity shares by Dixitkumar Patel.
Should you subscribe
Marwadi Shares and Finance: Subscribe with caution
Considering the FY21 adjusted earnings per share of Rs 3.40 on the post-issue basis, the company is going to list at a P/E of 35.27 with a market cap of Rs 536.90 crore, while its peers namely Kajaria Ceramics, Asian Granito and Somany Ceramics are trading at a P/E of 51.37, 10.55 and 43.15 respectively. Marwadi Shares and Finance assign a “Subscribe (With Caution)” rating to this IPO as the company has a wide product portfolio of tiles with a high scope of growth in this segment and is available at a reasonable valuation. However, higher working capital requirement with volatile cashflows keeps us cautious at the same time from a longer-term perspective.
Angel Broking: Subscribe
In terms of valuations, the post-issue FY2021 PE works out at 35.2x to (at the upper end of the issue price band), which is low compared to peers (Somany Ceramics 43.7x and Kajaria Ceramics 52.7x). Further, Exxaro Tiles has a better revenue growth compared to its peers (over FY18-21). Angel Broking believes this valuation is at reasonable levels. Thus, it recommends a subscribe rating on the issue.