Many investors are asking whether unlisted, Pre IPO markets are offering value picks for portfolios in the current scenario. Pre IPO investing generally moves with a lower beta as compared to listed markets. This is difficult to answer at the moment, owing to the fact that the listed market has corrected significantly. And the share price is good.
In times of market corrections, generally, growth and tech stocks take a hit. Therefore it becomes crucial for investors to have a mix of both growth and value stocks in their portfolio at any point in time. In the last six months, stocks like Care Health, PharmEasy, and TATA Tech have all corrected by anywhere between 30-40% since their all-time highs. This is major because they had become overvalued with the massive bull run. But value stocks have not corrected more than 5-10%.
So how does an investor understand if this is now the bottom or whether he should focus on Mutual Funds / listed markets OR Pre IPO space :
1. Relative Valuation with a Listed Peer :
Let’s take this up with an example:
Hexaware’s share price is at ₹540 per share in the Pre IPO space or at ₹17000 Crores of market capitalization with the PE Ratio of 21x
Is it a good buy?
The simple method one can use to value the unlisted company is to compare its “PE Ratio” with its listed peers. In this method, we try to find the listed company which is in the same industry as that of our unlisted company. If you research carefully, you will find Infosys is the close peer in the listed market for Hexaware technologies unlisted shares. Infosys is available at Market Cap of ₹6.18 Lakh Crores. with the PE Ratio of 30. This way we can find and compare Hexaware Technologies with Infosys and find out whether Hexaware is value buy or not after checking all the required financial parameters?
Hexaware’s PE Ratio is about 21 and while its peers are Infosys’s PE Ratio is about 30.
This makes Hexaware’s current valuation attractive as when the company goes for an IPO, a re-rating would be likely. The PE ratio could up from 22 to industry standards, leading to an additional 30-50% upside for investors.
2. Strong Investors Holding a stake in the company:
Why does this matter?
- Private equity offers clear added value to a company. These are experts who constantly analyze businesses. As a result, they have a good insight into best practices, across diverse sectors.
- Exit Focused: Most private equity funds are extremely focused on timelines and this ensures that the portfolio company either goes for an IPO or a secondary buyout. In either case, the investors get a timely exit from such companies
For Example Carlyle Group, a US-based PE firm, bought Baring Private Equity Asia stake in Hexaware for reportedly close to $3 billion and right now Hexaware’s unlisted shares are available with Altius at just a valuation on $2 billion (which is 30% cheaper than the market). The change in board comes at the back of this acquisition. Prior to the acquisition, then promoter Baring de-listed Hexaware from the Indian stock exchanges in November 2020. To read more –
Depressed markets serve at good times to add quality names to your portfolio. We are tabulating some of the companies with very strong fundamentals which have had significant price corrections in the recent past:
- Pharmeasy
- Studds Accessories
- Chennai Super Kings (CSK)
- Tamilnad Mercantile Bank(TMB)
PharmEasy:
PharmEasy is an Indian healthcare app and eCommerce platform for consumers involved in selling online medicines, diagnostics, telehealth, online doctor consultation services
- Acquisition Spree – With the recent acquisitions made by API Holdings — including Thyrocare Technologies and its subsidiaries, as well as Akna Medical Private Limited and its subsidiaries — the company now offers a wide range of products and services including pharma, OTC and private label medical products, surgical and consumables, diagnostic services, and teleconsultations. The company had also acquired rival Medlife last year.
- Online Platform – Its platform had 87,194 pharmacies, 3,261 wholesalers, 4,617 doctors and 926 hospitals as on June 30, 2021.
- GMV Market Share Leader – It has a 50% share in EPharmacy Gross Merchandise Value, followed by 1MG at 16% & NetMeds at 15%.
- DRHP Approved – The company recently got its DRHP approved by SEBI for Rs 6,250-cr initial public offer.
- Pharmeasy Share price down from 110/sh to 50/sh in the last six months
Financials:
| Particulars | FY2021 | FY2020 |
| Revenue | 2,335.3 Cr. | 667.5 Cr |
| Reserves | 3319.3 Cr. | 236.7 Cr. |
| Face Value | 1/sh | 1/sh |
| Earnings/Share | (-1/sh) | (-1/sh) |
| Profit After Tax | (-641.3 Cr.) | (-335.3 Cr.) |
| Profit Before Tax | (-620.3 Cr.) | (-347 Cr.) |
STUDDS:
STUDDS Accessories was founded in 1973 and has seen its growth from manufacturing its first helmet in a garage to the manufacturing capacity of 7 million per year.
- Studds Accessories is the leading manufacturer company of the two-wheeler helmets industry in the world in terms of sales volume with a presence in 39 countries.
- Brands – It has two major brands in the name of Studds (budget for the customers at large) and SMK (Premium customized) and two classifications of Helmet and Bike Accessories.
- Manufacturing Prowess – It has two backward integrated manufacturing facilities in Faridabad, India and one under construction. The testing laboratory is also approved by VCA England. It has the benefit of in-house testing lab to have cost effective business model. It has all the safety certifications like IS: 4151; IS: 2925; ECE 22.05; SLSI which makes it the go to brand in the international market.
- Product Portfolio – Overall portfolio comprises of more than 47 products with a total production capacity of 1.5 million per year.
- Tie-ups with Giants – The company has joint branding agreements for supply of helmets and two-wheeler lifestyle accessories with two-wheeler OEMs such as Honda Motor India Private Limited, Hero Motocorp Limited, Suzuki Motorcycle India Private Limited and UM Lohia Two Wheelers Private Limited.
- Studds Share price down from Rs.1900/sh to Rs.1245/sh in the last six months
Financials:
| Particulars | FY2021 | FY2020 |
| Revenue | 479.62 Cr. | 414.52 Cr |
| Reserves | 280.05 Cr. | 206.19 Cr. |
| Face Value | 5/sh | 5/sh |
| Earnings/Share | 37.61/sh | 37.89/sh |
| Profit After Tax | 74 Cr. | 74.54 Cr. |
| Profit Before Tax | 98.30 Cr. | 95.42 Cr. |
CSK:
Chennai Super Kings is one of the most prestigious Indian Premier League (IPL) cricket team.
- It was founded in 2008 when the IPL tournament started in India. It’s one of the most successful franchisee in IPL with 4 IPL Trophies.
- Most Consistent Franchisee – They have qualified to eight finals out of the ten leagues they took part in, which made them one of the most flourishing franchises in the IPL.
- IPL Media Rights Revenue – The IPL Media Rights is a major source of revenue which is Rs 920 Cr (2018-2022) and was Rs 410 Cr (2008-2012). Even with conservative estimates we expect its Revenue from IPL Media Rights will be touching Rs 1450 Cr for the period of 2023-2027.
- CSK Share price down from Rs.230/sh to Rs.165/sh in the last six months
Financials:
| Particulars | FY2021 | FY2020 |
| Revenue | 247.83 Cr. | 350.27 Cr |
| Reserves | 213.03 Cr. | 172.77 Cr. |
| Face Value | 0.1/sh | 0.1/sh |
| Earnings/Share | 1.16/sh | 1.43/sh |
| Profit After Tax | 40.26 Cr. | 50.34 Cr. |
| Profit Before Tax | 59.20 Cr. | 67.25 Cr. |
TMB:
- Tamilnad Mercantile Bank Limited (TMB) is a private sector bank. It is a scheduled commercial bank and authorized dealers in foreign exchange. The company offers personal banking, NRI and international banking, and business and corporate banking services.
- TMB was the fastest-growing private sector bank. The first private sector bank in India to introduce computerization for branch-level operations
- the TMB adopted modernizations in 1983. Today, all the 509 branches of the bank are networked through the Infosys FINACLE Software and have 100% connectivity.
- The bank has been continuously increasing its branch network and is also able to generate a
high quantum of deposits. It has been a leader in various technological advancements in the industry which is providing an edge to them over competitors and has benefitted the Tamilnad mercantile bank share value. - TMB Share price down from Rs.725/sh to Rs.550/sh in the last six months
Financials:
| Particulars | FY2021 | FY2020 |
| Revenue | 3833.86 Cr. | 3609.05 Cr |
| Reserves | 5193.19 Cr. | 4437.47 Cr. |
| Face Value | 10/sh | 10/sh |
| Earnings/Share | 42.34/sh | 28.61/sh |
| Profit After Tax | 821.92 Cr. | 603.33 Cr. |
| Profit Before Tax | 821.92 Cr. | 603.33 Cr. |
