CRP Risk Management Limited

Transcription

1 CRP Risk Management Limited IPO Fact Sheet CRF Risk Management Ltd. Opening Date January 18 th, 2018 Closing Date January 22 st, 2018 BRLMs Inventure Merchant Banker Issue Size Rs Crores Shares lakh shares Lot Size 2000 shares Issue price Rs.60 per share Preissue shares 1,34,84,900 Postissue shares 1,74,84,900 CRP Risk Management Counting on Digital India and Growing Emphasis on Due Diligence by Public Sector Strategic Partner for Risky Business Propositions Earlier an Employee Background Check Service Company, CRP Risk Management has evolved on to become a Risk Management and Risk Mitigation company, with the decent revenue growth of 10% in FY17 and EBDITA margins consistent between 13-16% since FY13. The company also operates in Veterinary Division which involves trading of animal feed products such as poultry feed enzymes; poultry feed toxin binders, aquaculture feeds and other products. Under its Risk Management services segment, the company primarily caters to BFSI corporates and KYP (Know Your People) checks for commercial/ residential retail segment. CRP has generated an average return on the Net worth of 14.5% over past three financial years. Fund Deployment (Rs. Crores) Working Capital Repayment of loan 1.75 Additional Infra Spending Office Equipment Marketing 2.25 General Expenses 4.82 IPO Expenses 1.79 OFS 6.82 Total Buy-side: Strong clientele with repeat and longterm association On ground workforce and huge database which can be deployed in bigger processes Fair valuations and expectations of faster growth Sell-side: Altering of business models within short time frame Relatively smaller scale of operations in risk management (All figures in INR Crores unless stated otherwise) FY16 FY17 4MFY18 Revenue from operations EBITDA EBIT PBT PAT RoNW 7.3% 17.2% 21.1% We recommend Subscribe For Long Term Investment, Strong Database Held by the Company, Unique mix of Technology, People s Contribution in Services CRP Risk management has been able to clog growth rate in revenues in FY17 at 8.6% considering its shift in business model. Also, its share of revenues from services division has increased from 26% to 33% currently. The company has been able to generate a return on the Net worth of 17.2% in FY17 and stands at 21.1% annualized for 4M FY18. In a bid to expand its operations, spend on a marketing plan, support working capital requirement, investments into employees and office infrastructure, the company is raising INR 24 crores via new public offering and INR 6.8 crores via offer for sale, diluting the ~18% stake. A diversified regional presence, a quantum leap in verification process by BSFI due to increasing number of frauds, due diligence services being adopted by Government to act as an opportunity to further revolutionize, and makes the company well poised for taking advantage of next leg of growth in the Industry. At the IPO price of Rs.60 and FY17 Net Profit of Rs.5.05 crores, the implied pre-ipo - PE ratio stands at 16x for a company with offering innovation service solutions in areas of risk management. We believe the valuations are a decent proposition for both long-term investors and for short-term IPO returns considering the impressive management profile, strong balance sheet and high growth market.

2 Advantage CRP Risk Management Government Institutions- An Adjacent Market to Seize The Administrative practices within Government offices are under the continuous scanner due to shift in the political landscape, general awareness amongst citizens and transparency methods followed. Given which it has become a prerequisite to follow a structured professional way of awarding contracts and working unlike previously followed system of nexus beneficiaries. Transparency, governance agenda of the current government will push the economy towards bigdata, analytics, risk management services This opens up a huge market for verification within the various schemes of Ministries, verification at various levels into awarding of contracts, due diligence of corporates applying for tenders. Management believes that government sector is ripe for outsourcing of verification related process for risk mitigation at initial stages given the level and degree of fraudulent practices unearthing during recent years and the company is well positioned to cater to the emerging business. Concentrated Marketing Focus on Drive Volume Growth The company has specified marketing plans to draw volume growth in coming quarters within each of its key future growth drivers i.e. BFSI, Government sector, Retail staff verification. With more than a decade of its existence, the company could easily leverage on existing network of clients or previous business clients. Management plans to engage with consultants in order to bid for government verification and risk management contracts along with positioning itself as a preferred natural partner for providing due diligence services to corporates assigned with tenders. The retail segment presents a huge, untapped market in case of employee verification KYC checks for schools, societies, commercial places, corporates and many more. CRP with its advanced technological platform CRP INDI, required infrastructure and decent industry experience, is well positioned to augment larger business volumes with minimal additional cost faring well for overall margins. Current Clientele Power ICICI Prudential Yes Bank Reliance Insurance State Bank of India Axis Bank Kotak Life Insurance Bharti Axa Life Insurance Tata AIG Union Bank of India Central Bank of India IDBI Federal Life Insurance Wockhardt Foundation Data Mark Vijaya Bank CDSL Depository S2 Infotech Pvt Ltd Uco Bank Exide Life Insurance Bank of Maharashtra Paytm Avis Rental Cars Database, on field workforce In the era of Bigdata, Analytics wherein data can be leveraged for delivery of information, product or services. CRP due to its inherent nature of services is sitting on huge data set related to population, insurance, banking and related services. The company can leverage onto this with the development of analytics, software s which can be marketed for in-house or outright sale.

3 Industry Avenues of Expansion Projecting Banking Industry Prospects NPAs, frauds and fraudulent practices have been rising unprecedentedly in size and number in public sector banks primarily and in the financial service sector as a whole. Hence the risk management measure, control initiatives and costs involved thereon have been at the forefront for banks and financial institutions. The risk of frauds emanating from forged documents, identity theft, Internet banking frauds, external vendor induced fraud, inflated valuations, concealing liabilities, mobile banking related risks etc. The evident approach has been outsourcing or partnering to specialised service providers with a required skill set, on the ground workforce, a technological platform to carry volumes of data. Various government initiatives towards financial inclusion as an opening of bank accounts, accident insurance scheme, life insurance scheme, pension scheme, housing for all scheme etc., to open new avenues of products and services for banks and financial companies and therefore providing opportunities to verticals as risk management companies. We believe some of the emerging trends in Banking as an increasingly deepening regulatory environment, technological innovation making it more customer centric, a shift in business model, vulnerability to a global financial system; will add to new emerging risks. Certain areas of risk avoidance, mitigation and management as verification services will witness greater acceptability and be integral to the protocol. Widening Horizon of Risk Management Services in Retail Segment Although the company has positioned itself more as a B2B service provider for more complex risk management related services, the retail segment as houses/ offices are increasingly becoming prone to crimes and frauds by the domestic or support staff which makes it prudent to adopt risk avoidance by conducting KYC or KYP checks. Urbanization, increasing commercial infrastructure and growing workforce population in India are some of the factors indicating the immense size of the market. Although the comparative margins would be lower in this segment the sheer breadth of the segment could influence the structure of an industry. Digitization to Open up Gray Areas Evident for Risk Avoidance Availment of services online, connected via our biometrics, financial details opens up areas where fraud or risk enters into the overall structure. Digitization is inevitable in order to serve huge population seamlessly and at a quick pace. However, addressing the risk and concerns allows firms like CRP to take a leading position, pitch for services to avoid such risks and plug in the loopholes. GoI is also looking upto firms in risk management services in order to make sure its services across the ministries is not impacted due to hatch, leaks or other such concerns related to data, finances.

4 Core Areas of Operation Banking and Insurance Segment Services: Majority of CRP s clientele base is formed with corporates in this segment, engaged in verification services at multiple levels of banking and insurance services. It conducts KYC checks involving profile, medical, neighbourhood, identity checks using digital reports, field monitoring for banking and insurance purposes. The delivery processes managed through CRP INDI platform Standardized ISO and ISO/IEC-27001: 2013 certified processes Partnering with leading insurance companies, it offers end-to-end claim investigation and processing services to clients, also involving into special projects and processes outsourcing solutions. Engages in verification process at multiple levels for home, mortgage or any other type of loan disbursement services for banks. Another major part of the role played is into NPA investigation which requires tremendous fieldwork as part of recovery efforts. Commercial and Residential Support Staff Verification Services which is termed as KYP (know your people), screening which is done before hiring for the safety purposes. Veterinary Division: Involves trading into diverse animal food and feed segments. It is an extension to leverage the family business experience and to provide manufacturing partners with the platform to market their products across new dimensions and optimize capacities. Technological Platform: The success of the verification or screening companies in today s structure hinges on the technology platform on which they are operating and a process they follow. CRP developed CRP INDI which is a hand-held platform with all the data points and live reporting of investigation with features as Geo-tagging, Digital signature, Audio recordings, video recordings, QR code verification, instrumental in driving large volumes of data, controlling the quality of output and real-time access.

5 Increasing Revenue Share of Services as IPO proceeds support WC, Expansion, Marketing Attractive Margins, Low Debt, Strong Cash Flow CRP Risk Management has been increasing the share of risk management services since FY17 against its veterinary division share. For the 4M of FY18, the services revenue share stood at 33% in total revenue which has higher EBITDA margins in the range of 25-27% and PAT margin at 7-10%. We expect this share to increase by 80% of total revenues in following year. The company has been consistently reducing its long term debt burden which is INR 3.6 crores as on July 2017 from INR 80.5 crores in FY15, clearly providing it with the edge in maintaining profitability margins. The interest cost thereon reduced by more than 15% in FY17 compared to FY16. With the strong balance sheet and diversified line of business, we expect a remarkable volume and profit delivery in quarters subsequent to IPO. The leverage, total debt to net worth ratio, is expected to go down below 0.4x by the end of FY18 and allow improvement in credit ratings and hence lower cost of debt.

6 Valuations CRP Risk Management is garnering above 25% operating margins in its risk division. The company is expected to increase the contribution of its risk business to more than 70% by FY18 and above 80% by FY19. The company is having a unique mix of a strong on ground workforce to eliminate risk propositions first hand, technology and processes to implement ideas, risk mitigation processes at the earliest. On a pre - IPO basis, the company is valued at Rs.81 crores and Rs.105 crores post IPO basis. Based on the FY17 numbers, the IPO is coming at a price to earnings ratio of 16x and 16.5x based on 4MFY18 numbers (annualized) reflecting fair valuations amid growth expectations from the industry. We are recommending subscribe for returns left on the table as well as expected long-term wealth generation.

7 CRP Risk Management Financials Income Statement (All figures in INR Crores unless stated otherwise) FY13 FY14 FY15 FY16 FY17 Revenue from operations Other Income (Increase)/Decrease in Inventories Total Revenues Operating Expenses Employee benefit expenses Operating and Administrative Expenses [-] Total Operating Expenses EBITDA [-] Depreciation EBIT [-] Interest PBT and exceptional, prior period items Prior period item PBT [-] Taxes [-] Deferred Tax PAT Shares in issue

8 Balance Sheet (All figures in INR Crores unless stated otherwise) FY13 FY14 FY15 FY16 FY17 Liabilities & Equity Current Liabilities & Provisions Short Term Borrowings [+] Trades payable [+] Other Current Liabilities [+] Short Term Provisions Total Current Liab. & Prov Non Current Liabilities Long term borrowings Long term provisions Deferred tax liabilities Other liabilities and Long term provisions [+] Total Non Current Liabilities Networth Share Capital Reserves and surplus Minority Interest [+] Total Networth Total Liabilities & Equity Assets Current Assets Cash & Cash Equivalent [+] Current Investments [+] Inventory [+] Trade Receivables [+] Loans & Advances [+] Other Current Assets Total Current Assets [+] Net Fixed Assets [+] Intangible assets [+] Non-current investments [+] Deferred tax assets (net) [+] Long term loans and advances [+] Other non-current assets Total Assets

9 Disclaimer: Research Disclaimer and Disclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, Ravi Kataria and its associates are engaged in the business of investment banking, institutional research and strategic advisory services. We hereby declare that our activities were neither suspended nor we have defaulted with any Stock Exchange, SEBI, or any other Statutory or Regulatory Authorities. Answers to the Best of the knowledge and belief of Research Analyst who prepared this report; Research Analyst, his Relative have any financial interest in the subject company? No Analyst, his Relative have any other material conflict of interest at the time of publication of the research report or at the time of public appearance? No Analyst his Relative have actual/beneficial ownership of one per cent or more Securities of the subject company? No Research Analyst, his Relative have managed or co-managed public offering of Securities for the subject company in the past twelve months? No Research Analyst, his Relative have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months? No Research Analyst, his Relative have served as an officer, director or employee of the subject company? No Research Analyst, his Relative have been engaged in market making activity for the subject company? No General Disclaimer: This Research Report ( Report ) is meant solely for use by the recipient and is not for circulation. This Report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of purchase or sale of any Security, derivatives or any other Security through Dynamic nor any solicitation or offering of any investment /trading opportunity on behalf of the issuer(s) of the respective Security (ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by Dynamic to be reliable. Dynamic or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are fair and reasonable, the analyst shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including loss profits arising in any way whatsoever from the information / opinions / views contained in this Report. The price and value of the investments referred to in this Report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance.

10 For investor communication: Imperative Institutional Research Team Institutional Research Analyst Investment Imperative Group Imperative Associates Pvt. Ltd. Investment Imperative Century Towers, S. G. Highway, Ahmedabad, India Ravi Kataria Managing Director Investment Imperative Group Imperative Associates Pvt. Ltd