Brief India: Metropolis IPO: Priced to Leave Limited Upside and more

In this briefing:

1. Metropolis IPO: Priced to Leave Limited Upside
2. Havells India
3. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!
4. Metropolis Healthcare IPO – Fairly Valued, at Best
5. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

1. Metropolis IPO: Priced to Leave Limited Upside

We like Metropolis Health Services Limited (MHL IN) ’ track record of growing revenue/patient despite competition, premium pricing and strong margin defence. Margins have however, come under some pressure in 9MFY19. Its patient growth lags that of Dr Lal Pathlabs (DLPL IN)’s despite rapid network expansion. It is also at the highest risk from any government instituted pricing cap on pathology tests owing to (1) high share of institutional business and (2) premium pricing. Also, 51.6% of promoter stake will be pledged with lenders after the IPO. At the upper end of its price band, Metropolis is valued at 20.9x FY20F EV/EBITDA and 33.3x FY20F PE- at ~15% discount to Dr Lal. We see EPS compounding at 12% Cagr over FY18-21, lower than the 16% EPS Cagr of Dr Lal’s. We feel valuation leaves limited upside.

2. Havells India

As the summer sets in, we visit distributor and retailers of air conditioners in our home town Vadodara, Gujarat where temperatures soar really high in summer and air conditioning is becoming a necessity.  Our checks are focused on Havells India (HAVL IN) and its’ consumer brand Llyod. Our takeaways from visits suggest celebrity endorsements unlikely to work, competition intensifying with the entry of Daikin in the mass premium segment, Ifb Industries (IFBI IN) joins the price war with its ACs, the season is off to a muted start due to prolonged winters.  At current price of INR 776, risk-reward offered is not in favour for Havells investors with a medium-term horizon. Using consensus estimates and average 3 year forward PE of 41x, target price works out to be INR 807. Investors will be better off waiting for an attractive entry point.

3. India Bulls Housing Finance- Can It Become Another HDFC? Signs Are Encouraging!!

This is the concluding part of our Housing Finance Companies (HFC) series where we elaborated the outlook of the mortgage industry in India along with initiating coverage on the best HFCs who we believe may continue to be the key beneficiaries of a long term secular growth in the Indian mortgage industry. (please click here, here and here ).

In this report we cover  Indiabulls Housing Finance (IHFL IN) , the third largest HFC in the country. The company is among the fastest growing HFCs whose loan portfolio has grown at a CAGR of 29% in the last 5 years ending FY18. And in spite of robust growth, the asset quality has remained steady.

Due to a strong track record of high capital adequacy, high liquidity coverage, high asset quality, improving operational efficiency and high return ratios, the company was recently awarded AAA rating by ICRA and CRISIL, the top 2 credit rating agencies in India.

From the parameters that are analyzed in detail in this report, we believe that the company in the long term has the potential to be in the league of HDFC Ltd., a benchmark in terms of corporate governance, robust asset management and wealth creation for shareholders.

4. Metropolis Healthcare IPO – Fairly Valued, at Best

Metropolis Health Services Limited (MHL IN) (MHL) plans to raise around US$175m in its Indian IPO via a sell down of shares by the promoter and private equity owners. MHL is one of the largest diagnostic chains in the country.

In my previous insight, Metropolis Healthcare Pre-IPO Quick Take – Steady Performance but Growth Lagged Network Expansion, I analyzed MHL’s recent financial performance and compared it with its listed peers, Dr Lal Pathlabs (DLPL IN) and Thyrocare Technologies (THYROCAR IN).

In this insight, I’ll run the deal through our IPO framework and comment on valuation.

5. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

• The dollar IS the story
• EUR punished for negative yields
• Chasing Brexit down a rabbit hole
• Gold confounds
• Bitcoin at an interesting juncture

The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.