India Shelter Finance IPO - Investment Rationale, Issue Details, Financials, Risks: Anand Rathi

Anand Rathi's IPO Report

India Shelter Finance Corp. is set to launch its initial public offering On December 13 and the issue will close on Dec. 15.

The retail focused affordable housing finance company aims to raise Rs 1200 crore.

The IPO will be a combination of a fresh issue of 1.62 crore shares for Rs 800 crore and offer for sale will have 0.81 crore shares for Rs 400 crore.

Objects of the Issue

Fresh issue:

1. To meet future capital requirements towards onward lending.

2. General corporate purposes.

Valuation

The company has one of the fastest growing assets under management among housing finance companies in India, high yields and granular, retail focused portfolio.

At the upper price band company is valued at price/book value of 2.4 times with a market cap of Rs 52,776 million post issue of equity shares.

We believe that issue is fairly priced and recommend 'Subscribe – Long Term' rating to the IPO.

Key risk:

• The company requires substantial capital for their business and operations and any disruption in the sources of financing could have an adverse effect on their business, results of operations and financial condition.

• The company’s inability to comply with the financial and other covenants under the debt financing arrangements could adversely affect the business, results of operations and financial condition.

• The risk of non-payment or default by their customers may adversely affect the business, results of operations and financial condition.

• Three states contributed to 62.7% and 63.4% of their assets under management for the six months ended September 30, 2023, and the financial year 2023, respectively. As such, any adverse developments in these states could have an adverse effect on their business, results of operations and financial condition.

• As of September 30, 2023, and September 30, 2022, and March 31, 2023, March 31, 2022, and March 31, 2021, their stage III assets (gross) aggregated to Rs 439.27 million and Rs 880.96 million, and Rs 418.96 million, Rs 570.39 million, and Rs 391.67 million, respectively.

• Their inability to recover the full value of collateral or amounts outstanding under defaulted loans in a timely manner, or at all, could adversely affect the business, results of operations and financial condition.

• They may not be able to identify, monitor and manage risks or effectively implement their risk management policies, which may adversely affect the business operations.

• The company depends on the accuracy and completeness of information provided by their customers and their reliance on any misleading information may affect the judgement of their creditworthiness, as well as the value of and title to the collateral.

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