IPO Note | Financials

May 07, 2018

IndoStar Capital Finance Ltd.

sue Open: May 09, 2018

Issue Close: May 11, 2018

IndoStar Capital Finance (ICFL) is a Mumbai-headquartered non-deposit taking

NBFC. It is the first of its kind to be promoted by global investors, Everstone Capital

and Goldman Sachs. ICFL started its business by offering corporate loans and

Issue Details

gradually expanded offering to SME, Vehicles, and Housing. It has growing loan

Face Value: `10

book at healthy rate but with pristine asset quality (GNPA -1.4%, NNPA -1.2%). On

Present Eq. Paid up Capital: `78.7cr

the profit front, it reported CAGR of 23% in PAT for the four years ended FY17.

Offer for Sale: 2cr Shares

Expanding offerings to support Loan growth: ICFL had begun its journey with clear

focus on corporate lending and FY15 onwards SME, which helped them to grow at

Fresh issue: `700cr

healthy CAGR of 30% since inception. Post induction of R.Sridhar in beginning of

Post Eq. Paid up Capital: `91.1cr

FY17 (Previously associated with Shriram group) ICFL expanded its portfolio to offer

vehicle finance and housing finance.

Issue size (amount): *`1,840cr -

**1,844 cr

Experienced management, branch network expansion to support loan book: ICFL

management team has extensive experience in the financial services and banking

Price Band: `570-572

industries in India. We expect ICFL ESOP program (9.8% of diluted shares) help to

Lot Size: 26 shares and in multiples

develop ownership mindset in top to mid level management. To gain retail lending

thereafter.

(Vehicle & Housing) business it has increased Branch network from 7 in FY17 to 43

Post-issue implied mkt. cap: *`5,195cr

- **`5,213cr

as on Q3FY18 and added another ~57 in Q4FY18.

Promoters holding Pre-Issue: 91.6%

Strong asset quality; sufficient CAR to support growth: Robust credit assessment

Promoters holding Post-Issue: 57%

process and clever understanding of targeted market has helped to keep GNPA at

1.3% as on 3QFY18. As on 3QFY18, CAR stood at 31.6% and post IPO CAR

*Calculated on lower price band

would further increase. With strong internal capital generation ability, present high

** Calculated on upper price band

CAR and IPO proceeds would not require ICFL to dilute equity for high growth in

Book Building

near future.

QIBs

50% of issue

Outlook & Valuation: At the upper end of the price band, ICFL is valued at 2.2x of

Q3FY18 book value (Pre-IPO) and on post dilution basis at 1.9x of Book value. The

Non-Institutional

15% of issue

strong sponsorship of Everstone and other shareholders, along with a well-

Retail

35% of issue

capitalised balance sheet and an experience and focused management provide an

excellent base for the next level of growth. Based on the above positive factors we

assign SUBSCRIBE rating to the issue.

Post Issue Shareholding Patter

Promoters

57%

Exhibit 1: Key Financials

Others

43%

Y/E March (` cr)

FY14

FY15

FY16

FY17

9MFY18

NII

168

207

275

332

286

YoY Growth (%)

PAT

112

149

192

211

164

YoY Growth (%)

EPS

Book Value

144

163

195

241

P/E

P/BV

4.0

3.5

2.9

2.4

Jaikishan J Parmar

ROE (%)

+022 39357600, Extn: 6810

ROA (%)

[email protected]

Source: RHP, Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band

Please refer to important disclosures at the end of this report

IndoStar Capital Finance Ltd | IPO Note

Company Background

IndoStar Capital Finance (ICFL) is a Mumbai-headquartered NBFC, incorporated

in 2009. It was incorporated by the name ‘RV Vyapaar Pvt. Ltd’ and changed the

name to the existing one in 2010. It is promoted by Singapore based Everstone

Capital Partners. The company started its operations by providing finance solution

to corporates and SMEs. Later on it added housing finance and vehicle finance to

its product portfolio in September 2017 and November 2017, respectively. Of all

the product offerings, corporate loan contributes major revenue. SME loan

constitutes least portion of the total business. The company operates through 100

branches and its corporate office situated in Mumbai. The financing activity is

primarily focused on middle and large sized customer segments. The company

aims of expanding retail lending business via mortgages, asset financing and SME

loans. It also plans to concentrate on rural areas to increase its housing loan

business.

Exhibit 1: Loan Book Trend, 30% CAGR over FY13-17

6,000

5,236

5,172

5,000

4,265

4,000

3,429

3,000

2,633

1,833

2,000

1,000

FY13

FY14

FY15

FY16

FY17

9MFY18

Source: Company

Key Management Personnel

Mr. Dhanpal Jhaveri is the Chairman & Non-executive director of ICFL. He holds a

bachelor’s degree in commerce from the University of Mumbai and a master’s

degree in business administration from Babson College. He has experience in

investing, corporate strategy, mergers and acquisitions and investment banking.

Mr. R. Sridhar is a whole-time director designated as the Executive Vice-Chairman

and Chief Executive Officer. He holds a bachelor’s degree in science from

University of Madras and is a qualified chartered accountant from the Institute of

Chartered Accountants of India. He was the managing director of Shriram

Transport Finance before joining IndoStar Capital Finance.

Mr. Alok Oberoi is serving ICFL as the Non-Executive Director since April, 2011.

He holds a bachelor’s degree in science and a master’s degree in business

administration from Cornell University. He has several years of experience in the

field of investments and structuring international joint venture and transactions

May 07, 2018

IndoStar Capital Finance Ltd | IPO Note

Issue details

This IPO is a mix of OFS and issue of fresh shares. The issue would constitute fresh

issue worth of `700cr and OFS worth of `1,144cr. OFS largely would offer exit to

early investors namely Everstone (PE), Sandeep Baid, Vimal Bhandari, Shailesh

Shirali and few others.

Exhibit 2: Exhibit 2: Pre and Post-IPO shareholding pattern

No of shares (Pre-issue)

No of shares (Post-issue)

Promoter

7,22,37,635

5,22,37,635

Investor/Public

66,63,564

3,89,01,326

7,89,01,199

100

9,11,38,961

100

Source: RHP Note: Calculated on upper price band

Objects of the offer

 The Company would utilise the proceeds from the Fresh Issue towards

augmenting its capital base to meet future capital requirements.

 To achieve the benefits of listing the Equity Shares on the Exchanges and to

carry out offer for sale of equity shares.

May 07, 2018

IndoStar Capital Finance Ltd | IPO Note

Outlook & Valuation: At the upper end of the price band, ICFL is valued at 2.2x of

Q3FY18 book value (Pre-IPO) and on post dilution basis at 1.9x of Book value.

The strong sponsorship of Everstone and other shareholders, along with a well-

capitalised balance sheet and an experienced and focused management provide

an excellent base for the next level of growth. Based on the above positive factors

we assign SUBSCRIBE rating to the issue.

Exhibit 3: Relative comparison

Adv Growth

Company

GNPA

NPA

RoE

RoA

P/B

FY13-18

Indo star

31.0

1.7

1.3

10.1

3.2

1.7

24.8

Capital First

29.0

1.6

1.0

13.8

1.8

2.4

18.8

Shriram City Union Finance

15.0

9.0

3.4

12.3

2.8

2.7

23.5

STFC

Source: Company, Angel Research, Valuation are based on FY18 numbers

Risk

 The ICFL has expanded into new lines of business (Vehicle & Housing) and if it

is unable to successfully grow loan book and profitably, it would adversely

impact financials of the company.

 Any downgrade in credit ratings could increase borrowing costs and adversely

affect ICFL’s access to capital and lending markets and could also affect

interest margins.

May 07, 2018

IndoStar Capital Finance Ltd | IPO Note

Income Statement

Y/E March (` cr)

FY14

FY15

FY16

FY17

9MFY18

NII

168

207

275

332

286

- YoY Growth (%)

Other Income

- YoY Growth (%)

-5

Operating Income

205

270

355

408

357

- YoY Growth (%)

Operating Expenses

- YoY Growth (%)

Pre - Provision Profit

171

229

297

335

259

- YoY Growth (%)

Prov. & Cont.

- YoY Growth (%)

121

262

Profit Before Tax

169

226

293

323

250

- YoY Growth (%)

Prov. for Taxation

102

112

- as a % of PBT

PAT

112

149

192

211

164

- YoY Growth (%)

Balance Sheet

Y/E March (` cr)

FY14

FY15

FY16

FY17

9MFY18

Share Capital

Reserve & Surplus

1,067

1,217

1,468

1,824

1,998

Net Worth

1,136

1,285

1,542

1,903

2,077

Total Borrowings

1,404

1,979

2,258

2,697

2,854

- Growth (%)

Total provisions

Other Liabilities

608

709

872

841

1,068

Total Liabilities

3,161

3,992

4,693

5,489

6,045

Cash and Cash equivalents

468

486

360

Investments

187

712

Total Loans & Advances

2,586

3,392

4,284

5,161

5,168

- Growth (%)

Fixed Assets

Other Assets

Total Assets

3,161

3,992

4,693

5,489

6,045

May 07, 2018

IndoStar Capital Finance Ltd | IPO Note

Key Ratio

Y/E March

FY15

FY16

FY17

Profitability ratios (%)

NIMs

RoA

RoE

C/I

Asset Quality (%)

Gross NPAs (cr)

Net NPAs (cr)

Gross NPAs %

0.6

0.2

1.4

Net NPAs %

0.5

0.2

1.2

Credit Cost

0.1

0.3

Per Share Data (`)

EPS

BVPS

163

195

241

Adj BV

161

194

234

Valuation Ratios

PER (x)

P/BVPS (x)

3.5

2.9

2.4

P/ABVPS (x)

3.6

2.9

2.4

DuPont Analysis

Interest Income

13.0

12.6

Interest Expenses

5.4

5.9

5.7

NII

Provision

0.1

0.2

Adj NII

Other Inc.

Total Income

Opex

PBT

Taxes

RoA

Leverage

RoE

Note- Valuation ratios based on pre-issue outstanding shares and at upper end of the price band

May 07, 2018

IndoStar Capital Finance Ltd | IPO Note

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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May 07, 2018