Eris, CDSL & AU Finance IPOs
And the IPO bonanza continues with 3 IPOs being launched in June!
Eris Lifesciences
Think of lifestyle disorders and the two most common things that affect Indians are – diabetes and heart related ailments. Here is an Ahmedabad based company which is capitalizing on this trend by making medicines for people affected with these ailments. Below are some investment arguments:
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Given the young demographics and increasing lifestyle disorders, the target market for Eris is growing a fast rate.
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Eris has a strong presence in the chronic segment, where treatment lasts for several years. This gives a huge visibility of repeat sales.
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Given the above factors, Eris has posted 17% revenue CAGR, 43% earnings CAGR and RoEs of 45% over FY13-17 and can continue its strong growth trajectory.
Valuation & GreenEdge View
The IPO is priced at 34x trailing earnings and probably 19x FY19 earnings. While the valuations are surely not cheap, long term investors can expect decent returns. Please note that stock markets are quiet buoyant and IPOs are being priced to perfection. So expecting magic on listing day isn’t a good expectation to start with.
Issue Details
| Issue Open Date | 16th June, Fri |
| Issue Close Date | 20th June, Tue |
| Issue Price (Rs.) | 600 to 603 |
| Market Lot | 24 (Retail investors should apply for 1 lot i.e. 24 shares only) |
| Minimum Application Size for Retail (Rs.) | 14,472 |
CDSL
Just like a bank account which is used to store and transact with money, a demat account is a digital warehouse that can be used to store your stocks and bonds. CDSL is one of the only two companies in India, which is permitted to offer demat account facility and is coming out with an IPO. It’s a very interesting story and is available at a reasonable valuation too. Below are the investment arguments:
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The failure of real estate, gold and fixed deposits to generate decent returns have pushed a lot of people to investing in equities. Demat account opening pace has picked up since 2014. CDSL owns has 43% of demat accounts in India and has an incremental market share of 67%.
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The business model involves high fixed costs – employees and technology costs are the largest cost components. Now that the investments in these things are done, any incremental revenue will flow to its bottom line!
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Going ahead, the utility of demat accounts will increase – you can store your digital documents, your academic marksheets, mutual funds, property deeds, etc in your demat accounts. CDSL’s revenue and profitability will significantly improve with time.
Valuation & GreenEdge View
The IPO is priced at 21x trailing earnings. Given the steady growth potential and the asset light model, these valuations are very attractive. Investors can expect some listing day magic and more in the years to come.
Issue Details
| Issue Open Date | 19th June, Mon |
| Issue Close Date | 21st June, Wed |
| Issue Price (Rs.) | 145 to 149 |
| Market Lot | 100 (Retail investors should apply for 1 lot i.e. 100 shares only) |
| Minimum Application Size for Retail (Rs.) | 14,900 |
AU Financiers
AU Finance is one of the 10 small finance bank license winners (Equitas and Ujjivan have already got listed last year) and the only one which who doesn’t have a microfinance business. Over the last twelve years, AU has built a strong lending book in the vehicle & SME space, which is secured in nature. Below are some pointers:
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Over the last 12 years, AU has transformed from being HDFC Bank’s channel partner to a diversified NBFC to a small finance bank. Its growth and profitability profile has improved with each of these transformations, indicating the presence of a capable management
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Given the strong profitability profile, the migration to small bank will be least disruptive for AU Finance. While peers like Equitas and Ujjivan are battling with single digit RoEs, AU Finance will report 15%+ RoEs even during the transition years
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After establishing its base in Rajasthan, it ventured out only into familiar geographies like Gujarat, Maharashtra and Madhya Pradesh. As a result, its asset quality is better than the best of the players like Cholamandalam or Shriram Transport.
Valuation & GreenEdge View
AU Finance is priced at 4.5x trailing book. Such a premium business can command premium valuations and this can be a good story for the long term.
Issue Details
| Issue Open Date | 28th June, Wed |
| Issue Close Date | 30th June, Fri |
| Issue Price (Rs.) | 335 to 337 |
| Market Lot | 44 (Retail investors should apply for 1 lot i.e. 44 shares only) |
| Minimum Application Size for Retail (Rs.) | 14,828 |