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Should You Invest in Eris Life-science IPO?

Business Model-

The Eris Life Science Ltd was incorporated in the year 2007. They develop, manufacture pharmaceutical products in select therapeutic areas within chronic (diseases that are prolonged in duration) and acute categories (disease of short duration and recent onset) of the Indian Pharmaceutical Market (IPM), such as- cardiovascular, anti-diabetics, vitamins, gastroenterology and anti-infectives. During Fiscal 2017, the company’s chronic category in the IPM contributed 65.6% of the total revenue whereas acute category contributed 34.4% of the total revenue of the company. The growth in revenue, at a CAGR of 21.7%, between Fiscals 2013 and 2017 has outperformed overall IPM growth, at a CAGR of 11.8%, during the same period. The revenue growth in chronic category of Eris was 28.9% CAGR which has outperformed the IPM with only 14.3% CAGR during Fiscal 2013-2017 whereas revenue growth for acute category was 12% for Fiscal 2013-2017. Eris is the fastest growing company in chronic therapy amongst the top 25 companies and the 2nd fastest growing company in Cardiovascular and Anti-Diabetics therapeutic segment amongst the top 25 companies.

 

Objective of Issue-

The IPO is an Offer for Sale i.e., the funds will not be received by the company and the objects of the Offer are-

  • To achieve the benefits of listing the Equity Shares on the Stock Exchanges
  • For the sale of up to 2,88,75,000 Equity Shares (21% of total paid-up Capital) by the Selling Shareholders.

 

Eris Lifescience Ltd has shown good performance in terms of revenue and PAT growth i.e., CARG of 14.03% and 38.57% respectively. And has outperformed the IPM growth rate of 11.8% CARG, during same period.

 

 

Valuation and Ratios-

 Considering the financial statement as on March 31, 2017 and Offer Price at the upper band –

 

Conclusion-

The valuation of Eris Lifescience Ltd seems to be slightly at a premium due to strong balance sheet, debt free company, growth rate of the company, good prospect of the segment selected by the company (products linked to lifestyle related disorders which is increasing due to poor lifestyles).

We recommend subscribe rating for Eris Lifescience Ltd for long term investors.

A Research Report on Can Fin Homes

Research as on 19 May 2017

Business Model-

Can Fin Homes Ltd, set up under the sponsorship of Canara Bank, was incorporated in the year 1987. The Company is a housing finance and also deposit taking institution approved by National Housing Bank (NHB), the apex authority of housing in the country.  It is the first housing company to be promoted by a nationalized bank in India. The company, as on date, is having 124 branches and 46 satellite offices spread across various locations of the country. The company has strong domination in southern India as 75% of its business arrives from southern India and the remaining from Northern India. The company mainly focuses on providing housing loans to individuals. The loan book grew at 25% on YOY basis of which 88% of the loan books are housing loans whereas 12% are non-housing loans.

Company’s Financials – 

The company has given high performance in terms of revenue, net profit and loan books growth. In the last five years, revenues and net profits grew at 36% and 44% compounded annually whereas loan books grew at a CAGR of 32% in last 4 years. The company’s vision is to build loan books of Rs. 35000 Cr. till FY 20 which means expected growth of 43% compounded annually for the next three years.

3- Years Returns of Sensex V/S Can Fin Homes –

In last 3 years (dated till May 19, 2017), the Sensex has given returns of 24.76% while Can Fin Homes has outperformed the Sensex returns to 984.59%.

 

 

 

Key Ratios and Valuation-

Housing Finance Industry-

In the last 5 years, the housing finance industry (including bank’s share and housing finance company’s share) has grown at 19% compounded annually, but if we exclude the bank’s share and consider only housing finance company’s share in home loans market it has outperformed by giving a growth rate of 22% compounded annually and it would continue to outperform the bank’s share in home loans market.

Conclusion-

The macro-economic factors are favoring the entire Housing Finance Industry and will continue longer, considering the company’s strong management and future prospect, we recommend investors to make investments for long term.

How long would it take to double or triple your money?

The question in everyone’s mind “I want to double or triple my money, how long it would take”? The answer to this question lies in the simple mathematical rules called “Rule of 72” and “Rule of 105”. The Rule of 72 simply means how long it takes for your money to double whereas Rule of 105 means how long it takes for your money to triple. In order to use the formula, you need to know the interest rate earnings per year from your investments and then divide it by 72 or 105. Let’s say for example, Sensex generally gives 12% returns on an average every year. So if you invest your money in sensex index funds, it will take 6 years estimated time to double your money and 9 years estimated time to triple your money.

 

Rule of 72, time for investment to double = 72/ rate of return

Rule of 105, time for investment to triple = 105/rate of return

 

Let’s take another example, you create a portfolio of selected equity stocks with sound management, good future prospect of the company as well as the industry and also macro economic factors are favoring and the estimated return on your investment is 36% per annum. Then it would take two years estimated time to double your money and three years to triple your money.

Sensex hitting all-time high…Is it overvalued ?

Sensex and Nifty are the two indices which represents are movement of the entire market. Today the two indices have hit the all time high of 30,248 and 9,407 respectively. Now the question arises “whether the market is overvalued”? Before we answer to this question lets discuss on “How to value the investment tool?” There are various methods to value but the most important valuation measure is P/E Ratio (Price to Earnings Ratio). P/E Ratio in simple terms means how much extra you pay to earn Re. 1.

For Example, let’s take the share price of SBI as Rs.295 (as on 10 May 2017), everyone knows the market price of this stock but not everyone knows its actual value. The market price of any share is determined by multiplying Earning per Share (EPS) with Price to Earnings Ratio (P/E Ratio). Earnings per Share are total earnings made by the company divided by no. of shares outstanding whereas P/E ratio is current market price of the share divided by earnings per share. Market price of SBI is 11.2(tailing 12 months EPS) X 26.3(P/E Ratio) = 295.

From the above example of SBI, tailing EPS is Rs. 11.2 that means P/E ratio (295/11.2) is 26.3 times that means an investor is paying 26.3 times extra to earn Rs. 11.20, this is how to get the value of an investment.

The same goes with the valuation of Sensex, presently the EPS of Sensex (the combined EPS of all the 30 companies which forms the Sensex index) is Rs. 1324.48 so by this we get the P/E Ratio of Sensex as 22.60X. If we look at the P/E ratio of Sensex which is 22.6 X it seems to be overvalued because the long term average P/E ratio is 19.25X. But as past analysis shows that during 2007 the Sensex P/E has even gone up to 29X and also in 2000 it has gone up to 30X and also  in 1992 and 1994 it has also gone up to 50X. Therefore, it clearly shows that no one can say when the markets will correct itself.

                                                                                                                                              Source- Economic Times

Conclusion – We find the markets to be overvalued at this range we recommend the value investors to not infuse new money into the equity market but should reduce the equity allocation and increase the allocation to debt markets and wait for the next market correct in order to buy equities at undervalued prices.

IPO: Housing & Urban Development Corporation Limited (HUDCO)

Should you subscribe or not?

IPO: Housing & Urban Development Corporation Limited (HUDCO)

Business Model-

HUDCO, a PSU miniratna firm, is a wholly-owned Government company with more than 46 years experience in providing loans for housing and urban infrastructure projects in India. It plays a key role in various Government’s schemes to develop the Indian housing and urban infrastructure sectors. HUDCO’s total loan portfolio as on 31st December 2017 was Rs. 36386 crores. As on 31st December 2016, HUDCO’s Housing Finance Loans comprises of 31% of total outstanding loan portfolio, whereas Urban Infrastructure Finance loans and project linked bonds comprises of 69%. Housing finance loans are classified into Social housing, Residential real estate, and Retail finance (branded as HUDCO Niwas). With respect to urban infrastructure finance, HUDCO gives loans for projects relating to water supply, roads and transport, power, among others. As on 31st December 2017, 89.93% of total loan portfolio were to State Governments and their agencies.

 

Objective of Issue-

The issue comprises sale of 10.2% stake by the central government through an offer for sale (OFS), post which it will have 89.8% stake and thus no fresh issue of shares is involved.

 

Financials-                                  

(INR in crores)

Particulars FY12 FY 13 FY14 FY15 FY16 9M 2017
Revenue 2778.63 2923.24 2993.85 3427.77 3350.08 2677.99
Net Earnings 621.6 699.7 734 768.3 810.7 496.3

HUDCO has given total revenue growth of 5% compounded annually whereas the net earnings grew at 7% compounded annually between FY-12 and FY-16. By  looking at the statement of 9 months FY17, the main concern is with NPAs (Non-Performing Assets) which stands at 6.80% (Gross) which is due to private sector entities comprising of 5.80% of total Gross NPAs whereas total Net NPAs stands at 1.51%.

 

Issue Details –

   
Issue Period May 8, 2017 to May 11, 2017
Price Band INR 56 – INR 60
Bid Lot 200 Equity Shares and in multiple of thereafter
Discount INR 2 per share for Retail Investors and eligible employees
Issue Size 204058747 Equity Shares (INR 1224.35 Crores)
Face Value INR 10/- per share
Listing at NSE and BSE

 

Valuation-

At the upper band, the price is valued at 1.3 times its book value as on 9 months FY2017 which seems to attractive. Whereas P/E ratio of 15.4 times also seems to be fairly valued if compared with its peers.

 

Conclusion-

The IPO looks attractive and we recommend subscribe rating for long term investors.