Bandhan Bank IPO Details – March 2018 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Bandhan Bank IPO Review – Should You Invest or Not @ Rs. 370-375?

Post Budget 2018, Indian stock markets have turned volatile. It is not just the re-introduction of the LTCG tax, but also the global jitters which have sent our markets into a tailspin. But, as the money is still chasing a few good quality stocks and there is a dearth of investment options in other asset classes as well, the companies have resumed knocking our doors to raise money for their future expansions.

In this week alone, three companies have launched their initial public offers (IPOs) and one such company is Bandhan Bank, whose IPO opened for subscription yesterday and will get closed on Monday, 19th of March.

What’s on Offer?

This initial public offer (IPO) of Bandhan Bank comprises of a sale of approximately 11.93 crore shares to the investors. It is a mix of fresh issue of approximately 9.77 crore shares by the bank and an offer for sale of 2.16 crore shares by International Finance Corporation (IFC).

35% of the issue size is reserved for the retail individual investors (RIIs) i.e. approximately 4.17 crore shares out of 11.93 crore shares on offer, 15% is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Bandhan Bank has fixed its price band to be between Rs. 370-375 per share. There is no discount for the retail investors though. Here are other salient features of this IPO:

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 40 shares and in multiples of 40 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 15,000 at the upper end of the price band and Rs. 14,800 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 40 shares in this IPO i.e. a maximum investment of Rs. 1,95,000.

Objective of the Issue – As per the new bank licensing guidelines issued by the RBI, Bandhan Bank was required to get itself listed on the stock exchanges within 3 years from the date it commences its business operations. So, in order to comply with such guidelines, the bank has undertaken this issue. Moreover, Bandhan will raise Rs. 4,473 crore from this issue and the company plans to use the proceeds to augment its Tier-I capital base.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on 19th March. Here are the important dates after the issue gets closed:

Finalisation of Basis of Allotment – On or about March 22, 2018

Initiation of Refunds – On or about March 23, 2018

Credit of equity shares to investors’ demat accounts – On or about March 26, 2018

Commencement of Trading on the NSE/BSE – On or about March 27, 2018

Financials of Bandhan Bank

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Note: Figures are in Rs. Crore, except per share data & percentage figures.

For the financial year ended March 31, 2017, Bandhan Bank reported a total income of Rs. 4320 crore as compared to Rs. 1,731 crore it reported during financial year 2015-16, registering a growth of 149.57% in the last one year. The bank reported profit after tax (PAT) of Rs. 1,112 crore for the financial year ended March 31, 2017 as against Rs. 275 crore for the financial year ended March 31, 2016, posting a growth of 304% CAGR.

Bank’s net interest margins (NIMs) are the most impressive at 10.44% in FY 2016-17, which have fallen marginally to 9.86% during 9-months ended December 31, 2017. However, its asset quality has also deteriorated somewhat, but given the market scenario, it is still well within investors’ comfort zone.

Should you subscribe or not?

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Note: Market Caps and Market Prices are dated March 15, 2018. Book Values are of March 31, 2017. EPS have been annualised taking 9-month EPS as on December 31, 2017.

Bandhan Bank IPO Review – Should You Invest or Not @ Rs. 370-375?

ICICI Prudential Bharat 22 ETF NFO – November 2017 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Bharat 22 ETF – Allotment Status

Finance Minister in his budget speech had set Rs. 72,500 as the disinvestment target for the current fiscal year 2017-18. In order to meet this steep target, the government has decided to sell its stake in 22 of its holdings, by forming an altogether new index called “S&P BSE Bharat 22 Index”. As its name suggests, this index has been designed by the Bombay Stock Exchange (BSE) in consultation with the government. Unlike Nifty CPSE Index, which has all its constituents to be the CPSEs, Bharat 22 Index has CPSEs, PSUs and 3 private companies (L&T, ITC and Axis Bank) as its constituents.

Here is the list of all its 22 constituents and their weightage in the index:

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ICICI Prudential Bharat 22 ETF is an open-ended index scheme, to be listed on the stock exchanges in the form of an Exchange Traded Fund (ETF) tracking the S&P BSE Bharat 22 Index. This ETF has been launched by ICICI Prudential Asset Management Company and is named as Bharat 22 ETF.

Investment Objective – Bharat 22 ETF intends to generate returns that closely correspond to the total returns earned by the securities as represented by the Bharat 22 Index. However, the performance of the scheme may differ from that of Bharat 22 Index due to tracking error and also due to the scheme expenses.

NFO Opening & Closing Dates – This scheme will remain open for four days, only one day for the anchor investors i.e. November 14 and then three days for the non-anchor investors, including retail investors. For the non-anchor investors, it will open for subscription on November 15 and run for three days to close on November 17.

Reference Market Price/NAV – New Fund Offers, or popularly known as NFOs, normally get launched at Rs. 10 per unit as their NAV. This will not be the case with this scheme. During the NFO, each unit of this scheme will have a face value of Rs. 10 and will be issued at a premium, equal to the difference between the face value and the allotment price.

NAV of this scheme will be based on the Bharat 22 Index, and the allotment price would be approximately equal to 1/100th of Bharat 22 Index and calculated post adjusting the 3% discount offered by the government to Bharat 22 ETF for buying the underlying Bharat 22 Index shares.

3% Discount for All Investors – Investors making an investment during the offer period will be given a 3% discount on their investment. This 3% discount on the “Reference Market Price” of the underlying Bharat 22 Index shares will be offered to Bharat 22 ETF by the government of India.

Categories of Investors & Allocation Ratio

Anchor Investors – 25% of the total amount raised or 25% of Rs. 8,000 crore, whichever is higher, has been reserved for the anchor investors.

Retail Individual Investors (RIIs) – 25% of the total amount raised or 25% of Rs. 8,000 crore, whichever is higher, has been reserved for the retail individual investors also.

Qualified Institutional Buyers (QIBs) & Non-Institutional Investors (NIIs) – QIBs and NIIs too will have 25% of the issue reserved for each of their categories. In case of undersubscription in any or both of these categories of investors, unsubscribed portion will be allocated to the retail investors.

Target Amount to be Raised – The government has decided to raise Rs. 8,000 crore from this scheme. However, in case of oversubscription, the government would like to retain the whole of oversubscription in order to bridge its disinvestment target gap. So, it is highly likely that full allotment will be made to the retail individual investors.

Minimum/Maximum Investment Size – Retail individual investors can invest in the scheme with a minimum investment amount of Rs. 5,000. To remain a retail investor, the investment limit has been set at Rs. 2 lakhs.

Allotment & Listing – As per the offer document, investors will get the units allotted within 15 days from the closing date of the issue and listing on the stock exchanges will happen within 5 days from the date of allotment. However, like earlier CPSE ETF issues, I expect the allotment and listing to happen within 7-10 working days from the date the issue gets closed.

Demat Account Mandatory – As you cannot hold and trade ETFs in physical form, it is mandatory to have a demat account for you to invest in this scheme. Applications without relevant demat account details are liable to be rejected.

No Lock-In Period – As this ETF do not provide any tax benefit, there is no lock-in period for the non-anchor investors. Investors can sell their units whenever they want to do so.

Entry & Exit Load – There is no entry load to invest in this scheme and there is no exit load either as and when you decide to sell its units on the stock exchanges. You will be required to pay just your normal brokerage and other government taxes when you sell these units.

2.21% Dividend Yield – As per the BSE website, constituents of Bharat 22 Index are generating 2.21% dividend yield for its investors based on the dividends paid in the last one year. Though dividend yield is not a significant factor for me to invest in stocks or mutual funds/ETFs, I think this dividend yield of 2.21% is not too great for me to reconsider it for my portfolio.

20.28X PE Ratio – Price to earnings ratio (P/E Ratio) of Bharat 22 Index at present is ruling at around 20.28 times. If you consider Nifty to be trading at a P/E multiple of 26-27 times its trailing EPS, I think Bharat 22 Index is not too attractively valued considering most of its constituents are CPSEs or PSUs. You can only bank on their earnings recovery in order to expect a gradual rise in their share prices.

Should you invest in ICICI Prudential Bharat 22 ETF NFO?

Except 3% discount, there is nothing extraordinary in this ETF which attracts me to apply for it in this NFO. As most of its constituents are already trading close to their 52-week highs, you can consider this ETF to be trading close to its 52-week high. However, this should not be considered as anything negative for this ETF. If a stock is trading at or close to its all-time or 52-week highs, it doesn’t mean that it cannot go higher from those levels. Similarly, this ETF too has the potential to scale newer highs if its constituents continue rising as they have been in the last few months.

However, as most of these companies are CPSEs and PSUs, I think it is the government policies which are going to drive the share prices of these companies and thereby this ETF. Let us consider the decision taken by the government to recapitalise the public sector banks (PSBs) with Rs. 2.11 lakh crore worth of infusion over the next 2 years. Though it is a very positive measure announced by the government, but after all it is just an announcement and nothing concrete has taken place to actually strengthen these banks’ balance sheets and most importantly, this bank recap has done nothing to resolve the basic problems of PSBs – 1) extraordinary high levels of NPAs, and 2) poor level of accountability the managements of these public sector banks have shown over the past many years in which many of the private sector banks and NBFCs have flourished to higher levels over the opportunities lost by these PSBs.

Still, this announcement of bank recap has resulted in 36% returns in Nifty PSU Bank Index since Muhurat Trading on Diwali, from 2942.7 on October 19 to 4001.45 on November 10. What I want to say here is that if just an announcement of doing something good for the health of the public sector enterprises or overall economy can deliver such high returns in such a short period of time, then I think nobody has truly imagined the actual potential of these CPSEs and PSUs if the government honestly gets serious with its duty to run these companies professionally. If you trust the intentions and policy execution capabilities of the Modi government, then only this ETF is worth investing your money at these levels, or otherwise, go for the diversified equity mutual funds.

ICICI Prudential Bharat 22 ETF Application Form

HDFC Life IPO Review – Should You Invest or Not @ Rs. 275-290?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

HDFC Life Insurance IPO Details

Finalisation of Basis of Allotment – On or about November 14, 2017

Initiation of Refunds – On or about November 15, 2017

Credit of equity shares to investors’ demat accounts – On or about November 16, 2017

Commencement of Trading on the NSE/BSE – On or about November 17, 2017

Peer Comparison

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Financials of HDFC Standard Life Insurance Company Limited

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

As far as insurance business is concerned, HDFC has never been an aggressive player and probably that is why it is not the market leader. With HDFC Life, there are certain things which are positive and there are certain things in which it lags other players in the industry. It recorded highest growth in AUM among top five private players listed in the table above in the last 5-year period. Also, the company reported the highest claim settlement ratio among these players at 99.16%. However, as far as operating cost and persistency ratios are concerned, it lags both its listed peers, SBI Life and ICICI Prudential. The company has operating cost ratio of 12.6% as compared to SBI Life’s 8% and ICICI Pru’s 10.7%. But, Max Life has it at 15.7% and Bajaj Allianz even higher at 18%.

During FY 2016-17, HDFC Life reported total income of Rs. 30,554 crore as against Rs. 18,210.23 crore in FY 2015-16, profit after tax (PAT) of Rs. 886.92 crore vs. 816.79 crore and diluted EPS of Rs. 4.42 vs. Rs. 4.09. During the half year ended September 30, 2017, the company managed to generate total income of Rs. 14,415 crore, PAT of Rs. 554 crore and diluted EPS of Rs. 2.76. As on September 30, 2017, the company has a net worth of Rs. 4,464 crore and book value of Rs. 22.3 per share. At Rs. 290 a share, the company will be valued at a PE of 65.61 times based on its FY 2016-17 earnings, 52.54 times its annualised EPS of Rs. 5.52 for FY 2017-18 and 13 times its latest book value. To me, these are again stretched valuations by any standards.

As per the latest report issued by Milliman Advisors LLP, HDFC Life has an embedded value of Rs. 14,011 crore as on September 30, 2017. At Rs. 290 a share, the company will have a market capitalisation of Rs. 57,994 crore, and will be valued at 4.14 times its embedded value. As compared to HDFC Life, ICICI Pru and SBI Life are currently valued at 3.25 times and 3.63 times their embedded values respectively. So, as far as valuation based on embedded value is concerned, HDFC Life is seeking a premium over SBI Life and ICICI Pru.

These are not cheap valuations and therefore I think leave nothing great for the investors to make on the listing day. However, it is the HDFC brand which is going to support these high valuations and therefore I think it should list within a close price band of +/- 5%. This IPO is for the long term investors and therefore I think it should move in tandem with other HDFC group companies. Only investors with a long term view should apply and others should avoid this IPO.

HDFC Life IPO Details

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

HDFC Life IPO Review – Should You Invest or Not @ Rs. 275-290?

After tepid listings of SBI Life and GIC Re, it is now the turn of HDFC Life to get itself listed on the stock exchanges with its initial public offer (IPO) of Rs. 8,695 crore. The issue is getting opened for subscription from tuesday, November 7 and will remain open for three days to close on November 9.

Like most of the IPOs in bull markets, this IPO too involves sale of stake by its existing promoters. HDFC is selling its 9.52% stake and Standard Life (Mauritius Holdings) is selling its 5.4% stake in this IPO. Post this issue, HDFC’s stake in the company will fall from 61.21% to 51.69% and Standard Life’s stake will fall from 34.75% to 29.35%.

The company has fixed its price band in the range of Rs. 275-290 a share and no discount has been offered to the retail investors. The offer would constitute 14.92% of HDFC Life’s post-offer paid-up equity share capital.

Here are some of the salient features of this issue:

Size & Objective of the Issue – HDFC and Standard Life (Mauritius Holdings) are collectively selling their 14.92% stake in HDFC Life in this IPO to raise Rs. 8,695 crore. HDFC Life will not get any proceeds from this offering.

Price Band & Retail Discount– HDFC Life has fixed its price band to be between Rs. 275-290 a share and the company has decided not to offer any discount to the retail investors.

Retail Allocation – 35% of the issue has been reserved for the retail individual investors (RIIs), 15% for the non-institutional investors (NIIs) and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Reservation for HDFC Shareholders & HDFC Life Employees – HDFC Life has reserved 2.998 crore shares for the existing shareholders of its parent company HDFC, 21.45 lakh shares for the HDFC Life employees and 8.05 lakh shares for the employees of HDFC.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 50 shares and in multiples of 50 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,500 at the upper end of the price band and Rs. 13,750 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 50 shares each @ Rs. 290 a share i.e. a maximum investment of Rs. 1,88,500. At Rs. 275 per share, you can apply for 14 lots only of 50 shares, thus making it Rs. 1,92,500.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on November 9. Its shares are expected to get listed on November 17.

Here are some other important dates as the issue gets closed on November 9:

Finalisation of Basis of Allotment – On or about November 14, 2017

Initiation of Refunds – On or about November 15, 2017

Credit of equity shares to investors’ demat accounts – On or about November 16, 2017

Commencement of Trading on the NSE/BSE – On or about November 17, 2017

Peer Comparison

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Financials of HDFC Standard Life Insurance Company Limited

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The New India Assurance Company IPO Review

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

New India Assurance IPO Details

Should you invest in New India Assurance IPO or not @ Rs. 770-800?

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During the financial year 2016-17, New India Assurance reported Gross Written Premium of Rs. 23,230 crore, up 20.82% against previous year’s Rs. 19,227 crore. However, Gross Written Premium is the only area in which the company registered some kind of growth, as the company failed to perform on all other parameters. The company reported an operating loss of Rs. 901.37 crore as against Rs. 533.43 crore loss it had in FY 2015-16. Its profit after tax (PAT) was also down 9.72% at Rs. 839.86 crore as against Rs. 930.35 crore in 2015-16.

Combined Ratio stood at 119.73% (vs. 117.97% in FY 2015-16) and Solvency Ratio was at 2.22 times (vs. 2.46 times in FY 2015-16). Combined Ratio of 100 or above indicates that the company is incurring losses in its core insurance business. As far as Return on Net Worth (RoNW) is concerned, it has fallen from a high of 12.32% in FY 2014-15 to almost half at 6.81%.

Recently listed ICICI Lombard is the only listed company with which we can compare NIA’s pricing and valuations, and NIA lags ICICI Lombard in almost all the parameters except Solvency Ratio. Firstly, NIA’s market share has declined from 15.6% in FY 2014-15 to 15% in FY 2016-17, whereas ICICI Lombard has been able to increase its pie from 7.9% in FY 2014-15 to 8.4% in FY 2016-17. HDFC Ergo and IFFCO Tokio too have gained on their respective market shares. Moreover, ICICI Lombard reported far better Combined Ratio (104%), Loss Ratio (80.4%) and Expense Ratio (23.6%) as compared to NIA for which these ratios stood at 118.7%, 91.3% and 27.4% respectively during the same period.

Peer Comparison

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As far as its pricing is concerned, NIA is seeking a valuation of 74.63 times its trailing EPS of Rs. 10.72 and 4.88 times its book value of Rs. 164.04 as on June 30, 2017. The company showed a surprisingly remarkable turnaround in the first quarter of the current financial year and reported an EPS of Rs. 6.29 a share, based on which the PE ratio it is seeking has fallen to 31.8 times its annualised EPS of Rs. 25.16. However, looking at its declining or inconsistent performance in the past, I have a serious doubt over sustainability of this turnaround and that is why I don’t think the company deserves such high valuations. At these high valuations, I would personally avoid this IPO and invest my money with better managements and bankable businesses.

New India Assurance IPO Details & Review – Should You Invest or Not @ Rs. 770-800?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

After divesting its stake in GIC Re, the government has placed its stake on sale in its 99.99% subsidiary, The New India Assurance Company Limited, through its initial public offer (IPO) of Rs. 675 crore. The issue is getting opened for subscription from today, November 1 and will remain open for three days to close on November 3. The IPO is a mix of fresh issue of 2.40 crore shares by the company and an offer for sale (OFS) of 9.60 crore equity shares by the Government of India.

The company has fixed its price band in the range of Rs. 770-800 a share and a discount of Rs. 30 a share will be given to the retail investors and eligible employees of the company. The offer would constitute 14.56% of the company’s post-offer paid-up equity share capital.

Here are some of the salient features of this issue:

Size of the Issue – This IPO is a combination of an offer for sale (OFS) of 9.60 crore shares by the Government of India and a fresh issue of 2.40 crore shares, which makes it a Rs. 9,467 crore IPO at the upper end of the price band of Rs. 800.

Price Band – New India Assurance has fixed its IPO price band to be between Rs. 770-800 a share and the company has decided to offer a discount of Rs. 30 a share to the retail investors, as well as its eligible employees.

Retail Allocation – 35% of the issue has been reserved for the retail individual investors (RIIs), 15% for the non-institutional investors (NIIs) and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Rs. 30 a share discount for Retail Investors & Employees – The company has decided to offer a discount of Rs. 30 a share to the retail individual investors and its eligible employees.

Reservation for Employees – The company has decided to keep 36 lakh shares worth Rs. 277.20 crore reserved exclusively for its employees.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 18 shares in this offer and in multiples of 18 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 13,860 at the upper end of the price band and Rs. 13,320 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 14 lots of 18 shares each @ Rs. 770 a share i.e. a maximum investment of Rs. 1,94,040. At Rs. 740 a share, you can apply for a maximum of 15 lots of 18 shares, thus making it Rs. 1,99,800.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on November 3rd. Its shares are expected to get listed on November 13th.

Here are some other important dates as the issue gets closed on November 3:

Finalisation of Basis of Allotment – On or about November 8, 2017

Initiation of Refunds – On or about November 9, 2017

Credit of equity shares to investors’ demat accounts – On or about November 10, 2017

Commencement of Trading on the NSE/BSE – On or about November 13, 2017

Financials of The New India Assurance Company Limited

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Should you invest in New India Assurance IPO or not @ Rs. 770-800?

During the financial year 2016-17, New India Assurance reported Gross Written Premium of Rs. 23,230 crore, up 20.82% against previous year’s Rs. 19,227 crore. However, Gross Written Premium is the only area in which the company registered some kind of growth, as the company failed to perform on all other parameters. The company reported an operating loss of Rs. 901.37 crore as against Rs. 533.43 crore loss it had in FY 2015-16. Its profit after tax (PAT) was also down 9.72% at Rs. 839.86 crore as against Rs. 930.35 crore in 2015-16.

Combined Ratio stood at 119.73% (vs. 117.97% in FY 2015-16) and Solvency Ratio was at 2.22 times (vs. 2.46 times in FY 2015-16). Combined Ratio of 100 or above indicates that the company is incurring losses in its core insurance business. As far as Return on Net Worth (RoNW) is concerned, it has fallen from a high of 12.32% in FY 2014-15 to almost half at 6.81%.

Recently listed ICICI Lombard is the only listed company with which we can compare NIA’s pricing and valuations, and NIA lags ICICI Lombard in almost all the parameters except Solvency Ratio. Firstly, NIA’s market share has declined from 15.6% in FY 2014-15 to 15% in FY 2016-17, whereas ICICI Lombard has been able to increase its pie from 7.9% in FY 2014-15 to 8.4% in FY 2016-17. HDFC Ergo and IFFCO Tokio too have gained on their respective market shares. Moreover, ICICI Lombard reported far better Combined Ratio (104%), Loss Ratio (80.4%) and Expense Ratio (23.6%) as compared to NIA for which these ratios stood at 118.7%, 91.3% and 27.4% respectively during the same period.

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As far as its pricing is concerned, NIA is seeking a valuation of 74.63 times its trailing EPS of Rs. 10.72 and 4.88 times its book value of Rs. 164.04 as on June 30, 2017. The company showed a surprisingly remarkable turnaround in the first quarter of the current financial year and reported an EPS of Rs. 6.29 a share, based on which the PE ratio it is seeking has fallen to 31.8 times its annualised EPS of Rs. 25.16. However, looking at its declining or inconsistent performance in the past, I have a serious doubt over sustainability of this turnaround and that is why I don’t think the company deserves such high valuations. At these high valuations, I would personally avoid this IPO and invest my money with better managements and bankable businesses.

Mahindra Logistics IPO Details & Review – Should You Invest or Not @ Rs. 425-429?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Mahindra Logistics is entering the primary markets with its initial public offer (IPO) of Rs. 675 crore. The issue is getting opened for subscription from today, October 31 and will remain open for three days to close on November 2. This IPO is a 100% offer for sale (OFS) and hence, the company will not get any money out of this IPO for its further expansion.

The company has fixed its price band in the range of Rs. 425-429 a share and no discount has been offered to the retail investors. The offer would constitute 27.17% of the company’s post-offer paid-up equity share capital.

Here are some of the salient features of this issue:

Size of the Issue – As mentioned above as well, this IPO is in the form of an offer for sale (OFS) of 1.93 crore shares, out of which 96.66 lakh shares have been offered by the promoter Mahindra & Mahindra Limited (M&M), 92.71 lakh shares by its shareholders Normandy Holdings Limited and 3.95 shares by Kedaara Capital AIF 1. This makes it a Rs. 675 crore IPO at the upper end of the price band i.e. Rs. 429.

Price Band – Mahindra Logistics has fixed its IPO price band to be between Rs. 425-429 a share and the company has decided not to offer any discount to the retail investors.

Retail Allocation – 35% of the issue has been reserved for the retail individual investors (RIIs), 15% for the non-institutional investors (NIIs) and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

No discount for Retail Investors – The company has decided not to offer any discount to the retail investors. But, a discount of Rs. 42 a share will be offered to the employees of the company.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 34 shares in this offer and in multiples of 34 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,586 at the upper end of the price band and Rs. 14,450 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 34 shares each @ Rs. 429 a share i.e. a maximum investment of Rs. 1,89,618. At Rs. 425 per share, you can apply for a maximum of 13 lots of 34 shares, thus making it Rs. 1,87,850.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on November 2nd. Its shares are expected to get listed on November 10th.

Here are some other important dates as the issue gets closed on November 2:

Finalisation of Basis of Allotment – On or about November 8, 2017

Initiation of Refunds – On or about November 9, 2017

Credit of equity shares to investors’ demat accounts – On or about November 9, 2017

Commencement of Trading on the NSE/BSE – On or about November 10, 2017

Financials of Mahindra Logistics

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Should you invest in Mahindra Logistics IPO or Not @ Rs. 429?

During the financial year 2016-17, Mahindra Logistics reported total revenues of Rs. 2,676.25 crore and profit after tax (PAT) of Rs. 46.07 crore as against Rs. 2,077.13 crore and Rs. 35.97 crore in the previous financial year, thereby generating a net profit margin of 1.72% in 2016-17 vs. 1.73% in the previous year. At Rs. 429 a share, the company is valued at 64.80 times its reported diluted EPS of Rs. 6.62 for the financial year 2016-17 and 50.12 times its annualised diluted EPS of Rs. 8.56.

The company is running its business with some wafer thin profit margins and they have been on a declining trend since FY 2013-14. During FY 2013-14, it reported profit margins of 2.08%, which have fallen to 1.72% in FY 2016-17. The company reported 29.45% as return on net worth (RoNW) during FY 2013-14, which has fallen to 13.11% in the previous year. Despite operating in such low margins business, I think seeking a multiple of 50+ times is not justified. I think it is the market euphoria which is making these companies price their issues on a higher valuations than what they deserve.

The valuations Mahindra Logistics is seeking are on a higher side for me to invest in this IPO. But, given its unique business model, there is a huge scope for the company to improve on its profitability and margins. I’ll wait for the company to report healthier financials going forward before investing my money for it to grow further. Till then, I’ll just wait and watch.

Reliance AMC IPO Review – Should You Invest or Not @ Rs. 247-252?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Reliance Nippon Life Asset Management Limited (Reliance AMC) is all set to enter the primary markets with its initial public offer (IPO) of Rs. 1,542 crore. The issue is getting opened for subscription from Wednesday, October 25 and will remain open for three days to close on October 27. This IPO is a mix of fresh issue of about 2.45 crore equity shares by the company and an offer for sale (OFS) of around 3.67 crore equity shares by the promoters.

The company has fixed its price band in the range of Rs. 247-252 a share and no discount has been offered to the retail investors. The offer would constitute 10% of the company’s post-offer paid-up equity share capital.

Here are some of the salient features of this issue:

Size of the Issue – This IPO is a combination of an offer for sale (OFS) of 3.67 crore shares by the promoters, Reliance ADAG and Nippon Life Asset Management Limited and a fresh issue of 2.45 crore shares by the company. This makes it a Rs. 1,542 crore IPO at the upper end of the price band i.e. Rs. 252.

Price Band – Reliance AMC has fixed its IPO price band to be between Rs. 247-252 a share and the company has decided not to offer any discount to the retail investors.

Retail Allocation – 35% of the issue has been reserved for the retail individual investors (RIIs), 15% for the non-institutional investors (NIIs) and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

No discount for Retail Investors or Employees – The company has decided not to offer any discount to any of its investors or to its employees either.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 59 shares in this offer and in multiples of 59 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,868 at the upper end of the price band and Rs. 14,573 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 59 shares each @ Rs. 252 a share i.e. a maximum investment of Rs. 1,93,284. At Rs. 247 per share, you can apply for a maximum of 13 lots of 59 shares, thus making it Rs. 1,89,449.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on October 27th. Its shares are expected to get listed on November 6th.

Here are some other important dates as the issue gets closed on October 27:

Finalisation of Basis of Allotment – On or about November 1, 2017

Initiation of Refunds – On or about November 3, 2017

Credit of equity shares to investors’ demat accounts – On or about November 3, 2017

Commencement of Trading on the NSE/BSE – On or about November 6, 2017

Financials of Reliance Nippon Life AMC

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Should you invest in Reliance AMC IPO or Not @ Rs. 252?

Like most of the IPOs that have hit the streets in the last six months or so, this IPO too seems to seek a high premium for its shares on offer. At Rs. 252 a share, the company is valued at 36.79 times its FY17 earnings and 8.97 times based on its book value as on June 30, 2017. For a company which is facing a tough competition from the existing as well as new entrants in the asset management business and seeing a consistent decline in its financial health, these valuations are not attractive for either listing gains, or for long term wealth creation.

The company reported profit after tax (PAT) of Rs. 402.76 crore during FY17, as against Rs. 396.43 crore in FY16 and Rs. 354.46 crore in FY15. This translates into a growth of just 1.6% in the last year’s profits and 6.6% CAGR in the last two years’ profits. This growth is not upto the mark if you consider this 2-year period to be a bumper one for the growth in the AUMs of the mutual fund industry as a whole.

Despite of the fact that Reliance AMC is one of the better companies in the ADAG group of companies, I think the company is seeking valuations way higher than what it deserves for the kind of growth it has been able to deliver. Personally I would avoid this IPO at these valuations and wait for it to correct to reasonably attractive valuations before making an entry into it.

GIC IPO Review – Should You Invest or Not @ Rs. 855-912?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

 General Insurance Corporation of India (GIC Re) IPO Details

Financials of GIC Re

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Combined Ratio – This is the measure of profitability which is used to indicate how well underwriting operations are performing. The combined ratio is calculated by taking a percentage of claims incurred (net) divided by premiums earned (net) plus percentage of expenses of management and net commission and then dividing the quotient by net premium. A ratio below 100% indicates that the company is making underwriting income/profits, while a ratio above 100% means that the company is paying out more money than it is receiving from premiums.

Solvency Ratio – This is a regulatory measure of capital adequacy, calculated by dividing available solvency margin by required solvency margin, each as calculated in accordance with the guidelines of the IRDAI on a standalone restated basis. The IRDAI has set a minimum solvency ratio of 1.50.

Should You Invest or Not in GIC IPO?

During financial year 2016-17, GIC reported an operating income of Rs. 2,142 crore, investment income of Rs. 1,638 crore and profit after tax (PAT) of Rs. 3,141 crore, as against Rs. 1,590 crore, Rs. 1,436 crore and 2,823 crore respectively in the previous financial year, registering a growth of 34.72%, 14.07% and 11.26% respectively. The company could manage to deliver such a big jump of 34.72% in its operating income last year, all thanks to an unusually high jump in its gross premium last year, which in turn was the result of the launch of Pradhan Mantri Crop Insurance Scheme.

Is such a high growth sustainable? It doesn’t seem so, as the company has reported a muted set of numbers in the first quarter of the current financial year and the recent slowdown in the Indian economy would make it even tougher for the company to avoid a degrowth in its operating revenues and profitability in the current financial year.

The company reported an EPS of Rs. 36.52 a share as on March 31, 2017 and a net worth of Rs. 234.22 a share as on June 30, 2017, which gives it a multiple of 24.97 times its EPS and 3.89 times its book value. These multiples seem reasonably fair to me as per the current market sentiment. Moreover, recently listed insurance companies, SBI Life, ICICI Lombard and ICICI Prudential, all are trading at multiples higher than that of GIC, but then they are growing at a faster pace as compared to GIC and their growth is relatively consistent as well. So, the premium with which other listed insurance companies are trading relative to GIC seem justified to me.

There are other financials parameters also, which again make it difficult to take a final call to invest in it or not. The company has shown a consistent improvement in its combined ratio, from 108.86% in FY 2014-15 to 98.43% in Q1 of FY 2017-18. However, Solvency Ratio and Return on Net Worth (RoNW) have been on a declining trend during this period, from a high of 3.32 times to 1.83 times as far as Solvency Ratio is concerned, and from 18.97% during FY 2014-15 to 16.09% in FY 2016-17 and 3.12% in Q1 of FY 2017-18.

Finally, investing in this IPO depends on two things – one, what kind of investor you are and two, what is your investment objective with this IPO. I mean if you usually invest in IPOs for making quick listing gains and exit out immediately post listing, then I think this IPO is not for you. I think even in a buoyant market sentiment as it is there in the markets these days, I don’t think GIC should have listing gains of more than 8-10% in this IPO. I think GIC is fairly valued in this price band of Rs. 855-912 and it should consolidate here in the price range of Rs. 800-1000 in the short-term, and should break out of this range only when the company shows some real improvement in its core operating income and profitability.

I think Rs. 45 a share discount is key here and provides a much required margin of safety for the retail investors. Probably in its absence, I would have definitely avoided this IPO. But, its presence has put me in two minds. Still I would skip this IPO and wait for better opportunities to invest in GIC post listing, or pick better companies relatively.

General Insurance Corporation of India (GIC Re) IPO Details

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

GIC IPO Review – Should You Invest or Not @ Rs. 855-912?

General Insurance Corporation of India (GIC Re), 99.99% subsidiary of the Government of India and India’s largest re-insurance company, is all set to enter the primary markets with its initial public offer (IPO) of Rs. 11,176 crore. The issue is getting opened for subscription today and will remain open for three days to close on October 13. This IPO is a mix of fresh issue of 1.72 crore equity shares by the company and an offer for sale (OFS) of 10.75 crore equity shares by the Government of India.

The company has fixed its price band in the range of Rs. 855-912 a share and in order to attract the retail investors, Rs. 45 a share discount has been offered by the company. The offer would constitute 14.22% of the company’s post-offer paid-up equity share capital.

Here are some of the salient features of this issue:

Size of the Issue – This IPO is a combination of an offer for sale (OFS) of 10.75 crore shares by the Government of India and a fresh issue of 1.72 crore shares. This makes it a Rs. 11,176 crore IPO at the upper end of the price band of Rs. 912.

Price Band – GIC Re has fixed its IPO price band to be between Rs. 855-912 a share and the company has decided to offer a discount of Rs. 45 a share to the retail investors and its eligible employees.

Retail Allocation – 35% of the issue has been reserved for the retail individual investors (RIIs), 15% for the non-institutional investors (NIIs) and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Rs. 45 a share discount for Retail Investors & Employees – The company has decided to offer a discount of Rs. 45 a share to the retail individual investors and its eligible employees.

Reservation for Employees – The company has decided to keep its shares worth Rs. 11.68 crore reserved exclusively for its employees.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 16 shares in this offer and in multiples of 16 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 13,872 at the upper end of the price band and Rs. 12,960 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 14 lots of 16 shares each @ Rs. 867 a share i.e. a maximum investment of Rs. 1,94,208. At Rs. 810 per share, you can apply for a maximum of 15 lots of 16 shares, thus making it Rs. 1,94,400.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on October 13th. Its shares are expected to get listed on October 25th.

Here are some other important dates as the issue gets closed on October 13:

Finalisation of Basis of Allotment – On or about October 18, 2017

Initiation of Refunds – On or about October 23, 2017

Credit of equity shares to investors’ demat accounts – On or about October 24, 2017

Commencement of Trading on the NSE/BSE – On or about October 25, 2017

Financials of GIC Re

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

During financial year 2016-17, GIC reported an operating income of Rs. 2,142 crore, investment income of Rs. 1,638 crore and profit after tax (PAT) of Rs. 3,141 crore, as against Rs. 1,590 crore, Rs. 1,436 crore and 2,823 crore respectively in the previous financial year, registering a growth of 34.72%, 14.07% and 11.26% respectively. The company could manage to deliver such a big jump of 34.72% in its operating income last year, all thanks to an unusually high jump in its gross premium last year, which in turn was the result of the launch of Pradhan Mantri Crop Insurance Scheme.

Is such a high growth sustainable? It doesn’t seem so, as the company has reported a muted set of numbers in the first quarter of the current financial year and the recent slowdown in the Indian economy would make it even tougher for the company to avoid a degrowth in its operating revenues and profitability in the current financial year.

The company reported an EPS of Rs. 36.52 a share as on March 31, 2017 and a net worth of Rs. 234.22 a share as on June 30, 2017, which gives it a multiple of 24.97 times its EPS and 3.89 times its book value. These multiples seem reasonably fair to me as per the current market sentiment. Moreover, recently listed insurance companies, SBI Life, ICICI Lombard and ICICI Prudential, all are trading at multiples higher than that of GIC, but then they are growing at a faster pace as compared to GIC and their growth is relatively consistent as well. So, the premium with which other listed insurance companies are trading relative to GIC seem justified to me.

There are other financials parameters also, which again make it difficult to take a final call to invest in it or not. The company has shown a consistent improvement in its combined ratio, from 108.86% in FY 2014-15 to 98.43% in Q1 of FY 2017-18. However, Solvency Ratio and Return on Net Worth (RoNW) have been on a declining trend during this period, from a high of 3.32 times to 1.83 times as far as Solvency Ratio is concerned, and from 18.97% during FY 2014-15 to 16.09% in FY 2016-17 and 3.12% in Q1 of FY 2017-18.

Finally, investing in this IPO depends on two things – one, what kind of investor you are and two, what is your investment objective with this IPO. I mean if you usually invest in IPOs for making quick listing gains and exit out immediately post listing, then I think this IPO is not for you. I think even in a buoyant market sentiment as it is there in the markets these days, I don’t think GIC should have listing gains of more than 8-10% in this IPO. I think GIC is fairly valued in this price band of Rs. 855-912 and it should consolidate here in the price range of Rs. 800-1000 in the short-term, and should break out of this range only when the company shows some real improvement in its core operating income and profitability.

I think Rs. 45 a share discount is key here and provides a much required margin of safety for the retail investors. Probably in its absence, I would have definitely avoided this IPO. But, its presence has put me in two minds. Still I would skip this IPO and wait for better opportunities to invest in GIC post listing, or pick better companies relatively.