Prabhat Dairy Ltd. - IPO Note

Incorporated in 1998 and promoted by Nirmal family, Prabhat Dairy Ltd. is an integrated milk and dairy product company in India catering to both institutional as well as retail customers. It produces variety of fresh, dry, frozen, cultured and fermented dairy products like flavoured milk, sweetened condensed milk, ghee, yoghurt, chaas, lassi, etc. The company has recently setup new facility for commercial production of cheese, paneer and shrikhand and currently has aggregate milk processing capacity of 1.5 million litres per day.

Key Investment Arguments

• Focus on increasing retail consumer product share to improve profitability
• New products and increasing capacities to drive growth
• Niche institutional clientele

Key Risks

• Risk of procuring milk of required quality at competitive price
• High regulatory risk
• Concentration risk

Valuation

At the offer price bands, the issue is available at P/E of 47.5x – 49.8x its FY15 EPS of ~`2.95, valuing the stock at 1.3x Market Cap to Sales. We believe there are great opportunities for dairy products in the FMCG industry with increasing premium products in the market. The company’s focus on retail consumer products, introduction of new high margin product like cheese and expanding capacities as well as capabilities, coupled with strong relationship with existing institutional clients; we believe the company fully equipped to benefit the growth opportunities in future. Hence, I recommend SUBSCRIBE to this issue.

Syngene International Ltd. - IPO Note

Syngene International Ltd. is one the leading Contract Research Organisations (CROs) in India. Incorporated in 1993, Syngene is a subsidiary of Biocon Ltd., a global biopharmaceutical company. The company offers suite of integrated, end to end discovery and development services for novel molecular entities across sectors. The company has US FDA approved state-of-the-art manufacturing and research facility at Bengaluru; with 2,122 scientists. 

Key Investment Arguments

• Increasing clientele
• Forward integration to commercial-scale manufacturing
• Planned capex, building blocks for the future
• Strong balance sheet and consistent earnings track record

Key Risks

• Client concentration risk
• High regulatory risk
• Foreign currency volatility risk

Valuation

At the offer price bands, the issue is available at P/E of 27.3x – 28.4x its FY15 EPS of ~`8.8. We believe there are great opportunities for CROs from the outsourcing markets and thus increasing their share towards global R&D expenditures. The company’s increasing clientele, expanding capacities as well as capabilities, along with plans for forward integration into commercial manufacturing will enable the company to drive growth by benefiting from the opportunities in future. Hence, I recommend SUBSCRIBE to this issue.

VRL Logistics - IPO Note

VRL Logistics Ltd. is one of the leading surface logistics and parcel delivery service provider in India with its presence spread across 28 states and 4 union territories with branch network of approximately 624 branches in India. Apart from its logistics business, its other business segments include bus travel operation, wind power generation and air charting service.

Key Investment Arguments

• Large fleet of owned vehicles
• Hub-and-spoke operating model
• Cost benefit due to tie-ups and in-house maintenance facilities

Key Concerns

• Fluctuations in the prices of fuel and the ability to pass on the cost
• Risk of sufficient freight volumes and passenger occupancy

Valuations

At the offer price bands, the issue is available at P/E of 17.4x –18.3x its 9M-FY15 EPS (annualized) of `11.2. We believe the growth prospects for India’s road transport to improve as the government takes steps to increase investment in national highways. The company’s internal strengths such as large fleet of owned vehicles, wide distribution network & diversified customer base will enable the company to ride this wave of opportunity successfully. Hence, I recommend SUBSCRIBE to this issue.