Ajcon Global has come out with its report on Indostar Capital Finance. The research firm has recommended to "Subscribe " the IPO in its research report as on May 8, 2018.
The Company operates its housing finance business through their
wholly-owned subsidiary IndoStar Home Finance Pvt. Ltd. The
Company’s lenders included, among others, 14 public sector banks,
13 private sector banks, 21 mutual funds, 4 insurance companies and other financial institutions. The distribution network included approximately 548 personnel in their in-house sales team, and approximately 949 third-party direct sales associates (the “DSAs”) and other third-party intermediaries who are empaneled with them.
As of February 28, 2018, they conducted their retail operations
through 71 branches across India and the central support office in
Mumbai. As part of their efforts to grow retail operations, Indostar has opened their 100th branch in Vadodara, Gujarat, on April 6, 2018. In their SME lending and vehicle and housing finance businesses, their branches act as the primary point of sale and assist with the origination of loans, various collection processes and enhancing customer service, while their central support office provides support functions, such as loan processing and credit monitoring. 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.Valuation
At the upper end of the price band, the issue is valued at 2.2
times of Q3 FY18 book value (pre-IPO) and 1.9 times of book
value on a post dilution basis which is at a discount to peers in
listed space trading at a P/BV multiple of 3-5x. We believe the
the discount in the valuation is also owing to lack of presence of
the Company in retail segment. However, the Company’s recent
focus on retail segments like vehicle finance and affordable
homes is expected to support the yield and improve the asset
quality in the future. With due consideration to factors like
a) established strong corporate lending business, b) expanding
portfolio to vehicle finance, c) continue to grow in SME lending
and also entered housing finance business, d) growth in credit
exposure and PAT at CAGR of 30 percent and 27 percent
respectively, e) well diversified funding profile, f) robust risk
management and high quality assets: only 2 NPAs in corporate
lending, g) strong capital sponsorship of Everstone and other
institutional investors. h) robust profitability metrics: NIMs of 6.9 percent and Cost/income ratio of 27.6 percent, i) superior return ratios with 3.8 percent of RoAA and RoAE of 10.9 percent, we recommend “SUBSCRIBE” to the issue.
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