Month: September 2024

Electric two-wheeler maker Ather Energy has filed its draft red herring prospectus (DRHP), which proposes a fresh issue of shares worth ₹3,100 crore through its initial public offering (IPO).

The Bengaluru-based company’s IPO combines a fresh issue and an offer for sale of up to 2.2 crore equity shares with a face value of ₹1 each.

Caladium Investments, National Investment and Infrastructure Fund II, Internet Fund III, 3State Ventures and cofounders Tarun Mehta and Swapnil Jain are among the investors who will offload their shares via OFS.

The proceeds from the IPO will be used to set up the company’s electric two-wheeler factory in Chhatrapati Sambhajinagar, Maharashtra, to manufacture and assemble electric two-wheelers and batteries. The company plans to commence production in a phased manner at the facility by May 2026 with a targeted capacity of 0.5 Mn E2Ws.

Part of the IPO proceeds will also be used for research and development (R&D), marketing initiatives, infrastructure, production initiatives, and other general corporate purposes.

Ather joined the unicorn club recently after raising ₹600 crore ($71 Mn) from its existing investor, the National Investment and Infrastructure Fund (NIIF), at a post-money valuation of $1.3 billion.

Founded in 2013 by Tarun Mehta and Swapnil Jain, Ather Energy is the fourth biggest player in the Indian market, behind Ola Electric, TVS Motor, and Bajaj Auto.

As per its DRHP, Ather Energy widened its consolidated net loss to ₹1,059.7 crore in the financial year 2023-24 (FY24) from ₹864.5 crore in the preceding fiscal year, while the revenue from operations stood at ₹1,753.8 crore.

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Byju’s, the once high-flying edtech startup, is facing yet another setback as BDO (MSKA & Associates), its auditor, has resigned amid concerns over financial and governance issues.

BDO’s exit comes just more than a year after Deloitte, the company’s previous auditor, stepped down citing problems with Byju’s financial reporting.

In its resignation letter, BDO highlighted several troubling issues, including delays in financial reporting, lack of support from the management, and concerns over recovering outstanding dues from a Dubai-based entity.

Specifically, BDO raised doubts about the recovery of approximately Rs 1,400 crore from More Ideas General Trading LLC, a reseller based in Dubai. The transaction was reported to the Ministry of Corporate Affairs on September 2.

BDO also pointed to other challenges facing Byju’s, such as ongoing litigation, liquidation proceedings initiated by creditors, and allegations of mismanagement by minority shareholders.

Furthermore, BDO stated that Byju’s failed to provide crucial information, including notices for extraordinary general meetings (EGMs) and insolvency proceedings, to its audit team.

What did Byju’s say?

Following the resignation, Byju’s released an official statement, highlighting serious concerns about unethical requests made by BDO.

“Byju’s has complied with every request made by BDO, except those that would require crossing ethical and legal boundaries. The real reason for BDO’s resignation is Byju’s firm refusal to backdate its reports, while BDO went to the extent of recommending a firm that could facilitate such an illegal activity,” the edtech firm said in an official statement.

“Multiple call recordings exist, where BDO representatives explicitly suggest backdating these documents, which Byju’s refused to do. Byju’s strongly believes that this is the main reason for their resignation,” it added.

Blow to Byju’s

The development is a significant blow to Byju’s, which was once valued at $22 billion and hailed as India’s most valuable startup.

The company has faced mounting challenges in recent months, including a Supreme Court ruling to resume insolvency proceedings against it.

BDO was initially appointed as Byju’s auditor in August 2023 after Deloitte’s resignation, filling a vacancy left by the firm.

In December of the same year, BDO was re-appointed as the statutory auditor during the company’s Annual General Meeting, with its term set to run from FY23 to FY27.

Byju’s financial woes began when it delayed the submission of its FY22 financial results to regulators, leading Deloitte to flag discrepancies and eventually resign.

Following BDO’s appointment, Byju’s reported a consolidated loss of Rs 8,245 crore for the fiscal year ending March 31, 2022, against an operating revenue of Rs 5,014 crore.

Meanwhile, the company remains embroiled in multiple legal battles. The Supreme Court recently agreed to expedite a hearing on the appeal of US-based creditor Glas Trust Company LLC, which had contested a previous ruling by the National Company Law Appellate Tribunal (NCLAT).

The NCLAT had stayed insolvency proceedings against Byju’s after approving a settlement of Rs 158.9 crore with the Board of Control for Cricket in India (BCCI).

The Supreme Court had earlier rejected a plea to prevent Byju’s creditors from holding meetings related to the company’s insolvency proceedings. However, a ruling on August 14 reversed the NCLAT’s earlier decision, halting the insolvency process and allowing Byju’s to proceed with its settlement with the BCCI.

The ongoing legal challenges and financial difficulties have raised questions about Byju’s future, once a symbol of India’s booming edtech sector.

With the resignation of BDO, the company now faces mounting pressure to resolve its financial and governance issues to restore confidence among stakeholders.

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The Goods and Services Tax (GST) Council may consider imposing 18% GST on payment aggregators (PAs) for small digital transactions up to Rs 2,000, via debit and credit cards, according to a report by CNBC-TV18.

The proposal will be discussed at the GST Council’s upcoming meeting on September 9.

Payment aggregators, which enable businesses to accept online payments from customers, may soon face this new tax as the GST fitment committee, comprising revenue officials from both the Centre and states, believes that PAs, unlike banks, act as intermediaries for card transactions and should therefore be subject to GST.

The final decision will be made at the GST Council’s 54th meeting, chaired by Finance Minister Nirmala Sitharaman.

A source told the publication that small businesses that deal with a bulk of low-value transactions daily may be impacted negatively if the GST Council moves ahead with the decision.

This is because payment gateways are likely to pass on the burden to merchants and small business owners.

As of now, payment aggregators charge merchants a fee ranging between 0.5% and 2% per transaction. But if the GST is imposed, they are likely to shift this additional cost onto merchants.

Presently, payment aggregators are exempt from GST on transactions below Rs 2,000, as they handle various digital payments like QR codes, POS machines, and net banking.

It is worth mentioning that the service tax on transactions under Rs 2,000 was exempted in 2016 after the demonetization of Rs 500 and Rs 1,000 notes.

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Vodafone Idea’s share price plummeted by as much as 14 per cent on Friday after Goldman Sachs predicted a potential downside of over 80 per cent from the stock’s last closing level.

The share price fell to a low of Rs 12.91, down from the previous day’s close of Rs 15.09. The global brokerage firm set a target price of Rs 2.5 per share, triggering a sell-off in the telecom service provider’s stock.

According to Goldman Sachs, the telecom company’s recent capital raise is a positive step but insufficient to prevent ongoing market share erosion. Vodafone Idea recently raised Rs 20,100 crore in equity through a combination of a follow-on public offer and capital infusion from promoters. The company also plans to raise an additional Rs 25,000 crore in debt.

“Our analysis suggests a direct correlation between capex and revenue market share. Given our expectation that peers will spend at least 50 per cent more on capex compared to Vodafone Idea, we forecast a further 300 basis points loss in market share for the company over the next 3-4 years,” the report states.

India’s third-largest telecom operator, Vodafone Idea, is set to face significant AGR (adjusted gross revenue) and spectrum-related payments starting in FY26. Although the government has the option to convert some of these dues into equity, Goldman Sachs estimates that Vodafone Idea’s net debt-to-EBITDA ratio will remain high at 19 times by March 2025, even with the recent capital raise and tariff increase.

The company’s balance sheet is expected to remain stretched, despite potential government equity conversions.

The brokerage firm also projects that average revenue per user (ARPU) will need to increase by Rs. 200-270 (120 per cent-150 per cent under various scenarios) by December 2024. Despite these necessary increases, the firm forecasts that Vodafone Idea’s net debt-to-EBITDA ratio will stay elevated at 19 times by March 2025, with the company’s balance sheet likely remaining strained, even if the government converts some near-term dues into equity.

“This scenario assumes the conversion of spectrum and AGR dues payable in FY26 and FY27 into equity by the Government of India, as indicated by Vodafone Idea during its 4QFY24 earnings call. We estimate that Vodafone Idea’s total AGR and spectrum dues over this two-year period (excluding minimum payments) amount to approximately USD 8.2 billion, which is higher than the company’s potential gross cash, even assuming zero capital expenditure,” reads the report.

Goldman Sachs maintains a Sell rating on Vodafone Idea, revising its 12-month discounted cash flow (DCF)-based target price to Rs 2.5 from Rs 2.2, implying an 83 per cent downside compared to the coverage median downside of 5 per cent.

In a more optimistic scenario, assuming around 65 per cent lower AGR dues, consistent tariff increases, and no near-term government repayments (upside risks), the implied value per share could be Rs 19, suggesting a 26 per cent upside from current levels compared to the 83 per cent downside projected in the base case.

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The initial public offering (IPO) of Bajaj Housing Finance (BHFL) will open for bidding on Monday, September 9, marking one of the most highly anticipated market IPOs of 2024. This offering is not just significant due to its size but also because it is the largest public offering of the year.

Through this IPO, Bajaj Housing Finance aims to raise a total of ₹6,560 crore from the public. It will offer a combination of a fresh issue of equity shares worth ₹3,560 crore and an offer for sale (OFS) amounting to ₹3,000 crore. The fresh issue will strengthen the company’s balance sheet, while the OFS will allow existing shareholders to reduce their stakes.

The company is part of the renowned Bajaj Group, one of India’s most prominent and diversified conglomerates. The Bajaj Group has a strong presence across various sectors, with marquee-listed companies such as Bajaj Finance, one of the country’s leading non-banking financial companies (NBFCs), and Bajaj Auto, a major player in the automotive industry.

With the backing of the Bajaj Group and its robust performance in the financial sector, BHFL’s public offering is expected to generate substantial interest from both institutional and retail investors. The shares in the unlisted market are already suggesting a stellar listing for the company. 

Founded in 2008, Bajaj Housing Finance is a non-deposit-taking Housing Finance Company (HFC) registered with the National Housing Bank (NHB) since 2015 and has been offering mortgage loans since the financial year 2018.

Bajaj Finance has a 100% stake in Bajaj Housing Finance, and Bajaj Finserv holds 51.34% in Bajaj Finance. Both these companies are classified as promoters for Bajaj Housing Finance.

Valuations appear higher compared to peers, but justified

The price band for the IPO is set at ₹66- ₹70 per share. At the upper band of ₹70, the stock will be valued at 3.2x its trailing June 2024 book value (post dilution and adjusting for rights share allocation), said domestic brokerage firm InCred Equities. 

“This is expensive compared to peers like LIC Housing Finance (1.2x), PNB Housing (1.7x), and Can Fin Homes (2.7x), but in line with our expectations, given BHFL’s robust yet diversified AUM growth (+30% CAGR), sturdy asset quality (NPAs less than 1%), and superior technology platform enabling it to remain relevant in a stiff competitive environment,” said the brokerage.

Bajaj Finance, with its best-in-class management pedigree, strong promoter back-up, and ability to maintain high-quality growth, has traded at a premium to peers, which the brokerage believes is applicable to BHFL as well.

SBI Securities noted that BHFL is the second-largest housing finance company (HFC) in India, with an AUM of ₹97,071 crore. It has the lowest GNPA and NNPA ratios among large HFCs, standing at 0.28 percent and 0.11 percent, respectively.

It also emphasised BHFL’s 30.9 percent AUM growth and 56.2 percent profit growth over FY22-24, citing its strong association with the ‘Bajaj’ brand and projecting 13 percent-15 percent industry growth in the next three years, positioning the company to capitalise on the housing finance sector’s expansion.

Strategic focus on prime salaried customers drives AUM growth

Being focused on prime salaried customers, competitive yields have placed the company at par with banks while enjoying an edge over smaller players, thus aiding AUM growth. However, with the cost of funds being relatively expensive to banks, the margin profile of BHFL is relatively weak, said InCred. 

However, the brokerage believes that with diversity in the AUM profile (a balanced mix of superior-yield loans against property, lease rental discounting, and developer loans), management does have room to manage yields. Also, there is enough headroom to improve operating efficiency (C/I ratio at 24 percent), which can drive RoE outperformance, it noted. 

Should you subscribe to the issue?

According to InCred, Bajaj Finance, the parent of BHFL, has been a pioneer in consumer durable financing and has remained the market leader over the years despite aggressive competition from banks and credit card companies.

There are various factors behind BAF’s success. However, the brokerage primarily attributes it mainly to the continued focus of its management on the effective use of customer data to create a vast web of cross-selling, diversifying the product profile as per the needs of the borrowers, and consistent investment in upgrading the technology to suit customer needs at every stage.

Although mortgages seem like a pure vanilla product, they have multiple dimensions, especially in an emerging market like India. The brokerage anticipates BHFL’s management has the vision and capability to explore the same over the years, which makes the company attractive over the mid-to-long-term horizon. Therefore, it recommends a ‘subscribe’ rating to the IPO.

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