The month of August is famous for various national holidays and festivals but availability of 8 IPOs for subscription and that too in the first half only has shifted the spotlight. Yum! brands franchisee holder Devyani Intenational, Krsnaa Diagnostics, Windlas Biotech and Exxaro Tiles; 4 IPOs have listed on a single day and history has been created. The trend of decent listing seems intact as out of four, three IPOs have listed on premium while Windlas Biotech is listed on discount. This has put investors in dilemma whether to stay invested or liquidate positions.
Earlier, all IPOs opened on August 04 and received a decent response in the primary market. Pizza Hut, KFC and Costa Coffee operator Devyani International received a stellar response from the investors. The QSR operator was subscribed 116.70 times while the other IPOs Krsnaa Diagnostics, Windlas Biotech and Exxaro Tiles were subscribed 64.38x, 22.44x and 22.65x respectively.
Devyani International
Leading QSR operator of India managing finger-licking chicken, crispy crust pizza and delicious coffee has debuted on the Indian bourses with 51% listing gains. QSR operating stocks have been provided decent premiums by the investors due to higher operating margins and under-penetration. The firm operates 655 stores across 155 cities, as of March 31, 2021. Their business is broadly classified into three verticals that include stores of KFC, Pizza Hut and Costa Coffee operated in India referred to as ‘Core Brands’ while brands such as Vaango and Food Street referred as their ‘Other Business’. Out of the ‘Core Brands’, KFC generates 66% of the total revenues.
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Prior to the listing, Devyani International was cheaper in comparison with Jubilant Foodworks, Burger King and Westlife Development. With an Enterprise value of Rs. 15,068 cr., the stock has reached at an EV/Sales parameter of 12.56x higher than Westlife Development and Barbeque Nation but lower than Jubilant Foodworks and Burger King India. While, EV/EBITDA multiple is shoot to 62x in line with Jubilant Foodworks but lower than Burger King and Westlife Development. It seems that there is a little room for valuations of Devyani Int. to grow further. At this juncture, investors should be careful and book partial profits while rest of the stocks should be hold to reap more gains.
Krsnaa Diagnostics
A diagnostics chain that works on Government-led (PPP model) involves diagnostic players entering into a public-private-partnership agreement with the government to provide specific diagnostic services (pathology, radiology or both) for a specific concession period at predefined rates. Public healthcare expenditure in India is aiming to grow steadily from 1% to 2.5% – 3% of the GDP. India’s current healthcare expenditure is skewed more towards private as against public expenditure but budget for the Ministry of Health and Family Welfare is expected to keep the growth intact. The Indian diagnostic industry has grown consistently over the past three fiscals and is projected to grow at a CAGR of approximately 15% between fiscals 2021 and 2023.
The diagnostics chain is listed at a marginal premium of 5.3%. The stock price of the firm has reached at a P/E of 79x, is lower than the Industry P/E. Diagnostics chains trade at higher premiums led by high operating margins, promising industry and higher cash flows. However, the involvement of administration in Krsnaa Diagnostic’s operations will restrict their margins going forward. Therefore, investors should book profits at this juncture.
Exxaro Tiles
The rising trend in construction of lavish properties has spurred the demand of associated sectors also. General public is very much cautionary for high quality ceramics, paint and home décor in order to maintain status symbol. Exxaro Tiles is engaged in manufacturing and marketing of vitrified tiles used majorly for flooring solutions. Their business operations are divided into two product categories. 1) Double Charged Vitrified Tiles 2) Glazed Vitrified Tiles. The product basket of the company has 1000+ designs which are marketed under the brand ‘Exxaro’
The stock has debuted at the Indian bourses with 5% gain but ended the day with gains of 10%. Considering the financials of the company, Exxaro Tiles has reached a P/E multiple of 30x post listing but still commands lower valuations than the industry. EBITDA margins of the company are a little higher than 20% and company has very few competitors. The growth of industry is intact as more than 50% of the ceramic demand relies on unorganized channels. Investors should book partial profits and continue to remain invested with the residuals.
Windlas Biotech
Windlas Biotech is amongst the top five players in the domestic pharmaceutical formulations contract development and manufacturing organization industry in India in terms of revenue. The company has over two decades of experience in manufacturing both solid and liquid pharmaceutical dosage forms and significant experience in providing specialized capabilities, including, high potency, controlled substances and low solubility. The firm claims to be the only listed CDMO player in the Indian market.
The stock is listed at a discount of 5% and extended its losses to 12%. Weakness in the Windlas Biotech is largely attributed to recent correction in the pharma sector. On the financials front, the company is debt-free now and CDMO business claims a promising story due to high entry barriers. Moreover, the clientage list of the CDMO player is strong. Therefore, investors should use the dips and continue to hold it for long term.
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