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IndoStar Capital Finance Ltd - IPO Note - Angel Broking

Posted On: 2018-05-09 08:50:00

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 gradually expanded offering to SME, Vehicles, and Housing. It has growing loan book at healthy rate but with pristine asset quality (GNPA -1.4%, NNPA -1.2%). On the profit front, it reported CAGR of 23% in PAT for the four years ended FY17.

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 healthy CAGR of 30% since inception. Post induction of R.Sridhar in beginning of FY17 (Previously associated with Shriram group) ICFL expanded its portfolio to offer vehicle finance and housing finance.

Experienced management, branch network expansion to support loan book: ICFL management team has extensive experience in the financial services and banking industries in India. We expect ICFL ESOP program (9.8% of diluted shares) help to develop ownership mindset in top to mid level management. To gain retail lending (Vehicle & Housing) business it has increased Branch network from 7 in FY17 to 43 as on Q3FY18 and added another ~57 in Q4FY18.

Strong asset quality; sufficient CAR to support growth: Robust credit assessment 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 would further increase. With strong internal capital generation ability, present high CAR and IPO proceeds would not require ICFL to dilute equity for high growth in near future.

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 wellcapitalised 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.

Source: Equity Bulls

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