Srei Equipment Finance Limited is the leading financier in the Construction, Mining and allied Equipment ('CME') sector in India, with an approximately 32.7% market share in Fiscal 2017 as per Feedback Report. This sector primarily consists of equipment used for earthmoving and mining, concreting, road building, material handling, material processing and allied activities. The product offerings include loans, for new and used equipment, and leases. Company's partnerships with OEMs are key to the equipment-centric business model. These include various arrangements such as general associations, preferred financier associations (with or without risk-sharing arrangements) and private label associations. As of September 30, 2017, company had 191 OEM partnerships. As of September 30, 2017, company had more than 64,000 current customers. They cater to a wide range of customers, from 'First Time Users' ('FTUs') and 'First Time Buyers' ('FTBs') to fleet owners and mid-size contractors to large corporations and project owners. In Fiscals 2017, 2016 and 2015, over 60% of the total disbursements were to the repeat customers. The exclusive distribution partners, Srei Entrepreneur Partners ('SEPs'), help them in sourcing customers and ensuring regular repayment. Company's training also benefits the SEPs by helping them to diversify and broaden their business operations. As of September 30, 2017, company had 120 SEPs across India. As of September 30, 2017, they were present in 21 states through the 89 branches and four offices including the head office in Kolkata, India. They also cater to 77 additional satellite locations where their employees service customers directly using technology without a physical branch office. In addition, as of September 30, 2017, they had 77 stockyards for equipment maintenance helping them to preserve the repossessed equipment quality for potential redeployment or resale. In addition to CME, company has also diversified into financing of Tippers, IT and allied equipment, Medical and allied equipment, Farm equipment and Other assets. As of September 30, 2017, the total Gross Earning Assets were Rs 254,170.80 million comprising Rs 189,767.77 million in CME, Rs 21,013.82 million in Tippers, Rs 9,477.62 million in IT and allied equipment, Rs 3,066.10 million in Medical and allied equipment, Rs 5,574.38 million in Farm equipment and Rs 25,271.11 million in Other assets. Company has access to multiple sources of liquidity. The sources of funding comprise unsecured subordinated non convertible debentures, secured redeemable non-convertible debentures, subordinated loans, term loans (Rupee loans and foreign currency loans) from banks and financial institutions, external commercial borrowings, working capital facilities and commercial paper. As of September 30, 2017 and March 31, 2017, 2016 and 2015, the Total Borrowings were, Rs 164,840.70 million, Rs 129,318.40 million, Rs 118,537.10 million and Rs 130,645.30 million, respectively, and the Cost of Borrowings was 9.48%, 10.17%, 10.45% and 10.63% for these periods. The current long-term credit ratings include CARE AA-; Positive, CARE A+; Positive and CARE A+; Positive, from CARE, BWR AA+/Stable from Brickwork and SMERA AA+/Stable from SMERA Ratings. In relation to the short-term credit ratings, the current credit ratings include ICRA A1+ from ICRA Limited, CARE A1+ from CARE and BWR A1+ from Brickwork. As of September 30, 2017, company had over 2,000 full time employees. As per financial performance, ICFL has posted total income/net profits of Rs. 396.91 cr. / Rs. 112.13 cr. (FY14), Rs. 528.06 cr. / Rs. 149.04 cr. (FY15), Rs. 644.05 cr. / Rs. 191.64 cr. (FY16) and Rs. 719.92 cr. / Rs. 210.80 cr. (FY17). For upto Q3 of FY18, it has reported net profit of Rs. 164.08 cr. on total revenue of Rs. 585.95 cr. So company has posted consistent growth over last couple of years. ICFL has posted an average EPS of Rs. 25.53 and average RoNW of 11.62% for last three fiscals. Issue is priced at a P/BV of 2.17 as per NAV of 263.96 on 31.12.17. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of around 24. As per RHP, industry average P/E ratio is 28.66 and listed peers comparison shown in above table. So issue looks fully priced. On BRLM's front, five merchant bankers associated with this issue and have handled 58 public issues in the past three years. When we take recent 10 IPOs of each BRLM then out of those 6 issues opened below their offer price and 4 opened at par on listing dates. As per financials, company's growth is consistent and very good, RoNW is 11.62% for last three fiscals and issue is priced at P/E of around 24 as per latest earnings. Company is an NBFC with principal lines of business, namely corporate lending, SME lending, vehicle financing and housing financing. Last two business segments (Vehicle Finance & Housing Finance) are started in recent past and it may give further boost to company's growth, but increasing bond yields and FD rates may put pressure on margins. So we give "SUBSCRIBE FOR LONG TERM" rating to this IPO.
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