The year has seen a lot of high profile IPOs which were complete offer for sale. In 2017, at least nine high profile IPOs had seen promoters completely sell out their positions via offer for sale. The IPO of Future Supply Chain Solutions to raise upto Rs 650 crore which opens for subscription today, is also a complete offer for sale. There are a total of 97,84,570 equity shares on offer, with an offer for sale of up to 78,27,656 equity shares by Griffin Partners and up to 19,56,914 shares by the promoter, Future Enterprises. Since, it’s a complete offer for sale, Future Supply Chain Solutions will not receive any proceeds from the issue. Notably, top names such as Rs 8,400 crore SBI Life, Rs 5,700 crore ICICI Lombard General Insurance, Rs 1,240 crore BSE Ltd were complete offers for sale.
The public offering of the logistics arm of Kishore Biyani-led Future Group has set a price band of Rs 660-664 per share and will close on 8 December. Bids can be made for a minimum lot of 22 equity shares and in multiples of 22 equity shares thereafter. Many brokerages have in fact pointed out that the valuation is not cheap, and there’s limited upside to the issue. We take a look at what a few brokerages have to say.
The brokerage firm says that even though the valuation is lower than peers such as Mahindra Logistics, the issue does not provide significant upside to the investors. “In terms of valuations, the pre-issue P/E works out to 39.9x its 1HFY2018 annualized earnings (at the upper end of the issue price band), which is lower compared to its peers like Mahindra Logistics. However, Mahindra Logistics has lower promoter group business (internal business), which is ~54% v/s. ~70% of FSCSL. Further, Mahindra Logistics had reported non-promoter revenue CAGR of ~46% v/s. de-growth of FSCSL over FY15-17. Despite the above favorable factors and lower valuations compared to Mahindra Logistics, we however, believe that all the positives are fully factored in the company’s current valuations, which does not provide any further upside for investors. Hence, we recommend Neutral rating on the issue,” noted the firm in its report.
The broking firm noted that the issue is “aggressively priced,” and has given a “Subscribe with caution,” rating on the issue. “The company is demanding valuation compared to its peer Mahindra Logistics, which is trading at P/E multiple of 59.4(x) and 54(x) on the basis of FY17 and FY18E (annualized) EPS), looks cheap, however its one fifth of peer business size. Thus, considering the above observations, we are of the view that at P/E(x) of 58.2, the issue is aggressively priced leaving limited room for further upside. Thus, we assign ‘Subscribe with Caution’ rating to the issue,” the firm said in its report.
As the primary markets have been booming, many companies have timed their IPOs to get higher valuations, say analysts. “There is a lot of liquidity in the markets, as retail investors are pumping in amounts which is even offsetting the huge FII selloffs. Every company coming out with an IPO is getting a very good valuation,” Harshil Sethia of BP Wealth told FE Online last month.
Top fund manager Sunil Singhania of Reliance Capital suggests that investors look at companies in the same sector as the IPO company to find value buys, as IPOs may be over-priced. “A smart investor can look at companies in the same sector as the IPO and find companies which have a much more reasonable valuation,” he said explaining that when Godrej Agrovet Ltd got listed at a whopping 34% premium, other animal feed companies too got re-rated by brokerages,” Sunil Singhania told BTVi in October this year.