IndoStar Capital Finance Ltd.

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IPO Note: IndoStar Capital Finance Ltd. Industry: NBFC Date: May 09, 2018 Issue Snapshot Company Name IndoStar Capital Finance Ltd. Issue Opens May 09, 2018 to May 11, 2018 Price Band Rs. 570 to Rs. 572 Bid Lot The Offer Issue Size IPO Process Face Value Rs. 10.00 Exchanges BRLM Registrar 26 Equity Shares and in multiples thereof. Public issue of 32,237,762 Equity shares of Face value Rs. 10 each, (Comprising of fresh issue of 12,237,762 Equity Shares* (Rs. 700 cr) and Offer for Sale of 20,000,000 Equity Shares (Rs. 1144 cr*) by Selling Shareholder). Rs. 1840.0 1844.0 Crore 100% Book Building NSE & BSE Objects of the Offer JM Financial Ltd., Kotak Mahindra Capital Company Ltd., Motilal Oswal Investment Advisors Ltd. and Nomura Financial Advisory and Securities (India) Private Ltd. Link Intime India Private Ltd. Issue Break up Issue Size Allocation Equity Shares* QIB ex Anchor 20% 6,447,552 Anchor Investor 30% 9,671,329 HNI 15% 4,835,664 RII 35% 11,283,217 Total Public 100% 32,237,762 Equity Share Pre Issue (Nos. Cr.) 7.9 Fresh Share (Nos. Cr.)* 1.2 OFS Share (Nos. Cr.) 2.0 Equity Share Post Issue (Nos. Cr.)* 9.1 Market Cap (Rs. Cr.)* 5,213.1 Dilution* 35.4% Fresh 13.4% OFS 21.9% * Based on Higher Price Band @ 572 Offer for Sale The Company will not receive any proceeds from the Offer for Sale by the Selling Shareholder. (up to 18,508,407 equity shares by Indostar Capital and up to 1,491,593 equity shares by Other Selling Shareholders (Vimal Bhandari, Shailesh Shirali, Jayant S. Gunjal, Vivek Agarwall and Sandeep Baid)). Fresh Issue The company proposes to utilise the Net Proceeds from the Fresh Issue towards augmenting its capital base to meet future capital requirements. Company Highlights Indostar Capital Finance Ltd. (ICFL) is a leading non-banking finance company ( NBFC ) registered with the Reserve Bank of India as a systemically important non-deposit taking company. It is a professionally managed and institutionally owned organization which is primarily engaged in providing bespoke Indian Rupee denominated structured term financing solutions to corporate and loans to small and medium enterprise ( SME ) borrowers in India. ICFL recently expanded its portfolio to offer vehicle finance and housing finance products. Although, company operated in a challenging credit environment in the initial years of our business operations business has experienced growth since the commencement of operations in 2011. Between fiscal 2013 and 2017, its total credit exposure, total revenue and net profits grew at a CAGR of 30.0%, 31.4% and 23.7% respectively. Its corporate lending business which was at 99.8% in FY 2015 declined to 76.8% for the period ended 31.12.17 and for the said periods, its SME lending business grew from 0.2% to 22.7%. Vehicle financing operations started from November 2017 and housing finance operations started from March 2018. As of 28th February 2018 it conducted its operations through 71 branches across India with central office support at Mumbai. As on the said date its distribution network included 548 personnel and approx. 949 third party direct sales associates. Promoters are part of the Everstone Group. Company s gross NPAs accounted for 0.6%, 0.2%, 1.4% and 1.7% of Gross Advances, while net NPAs accounted for 0.5%, 0.2%, 1.2% and 1.3% of Net Advances, respectively. Its average Cost of Borrowings in the fiscal 2015, 2016 and 2017 and the nine month period ended December 31, 2017 was 11.9%, 11.1%, 10.3% and 9.1%, respectively. Currently ICFL has around 100 branch network. 1

View Indostar Capital Finance Ltd. is a non banking financial institution registered with RBI as a non public deposit taking company. Company s business is mainly comprises of corporate lending, SME lending, Vehicle financing and Housing finance. Corporate lending accounts 77% of its total credit exposure, while SME lending holds 23% of the exposure. Vehicle and Housing Finance are new business verticals of the company which it started in 2017. In corporate business segment company advances secured loans to companies in the manufacturing, services and infrastructure sector by way of structured financing, promoter financing and special situation funding. Indostar capital also provides loans to leading real estate developers for financing project level construction of residential properties. As of December 2017, company s Corporate Lending Credit Exposure that was attributable to loans to companies amounted Rs 3,969 crore and its corporate lending credit exposure that was attributable to loans to real estate developers amounted to Rs 2,152 crore. Gross NPA of its corporate lending business as of 31st December 2017, was 1.5% with yield on corporate lending credit exposure at 14%. However, as the business has grown its bad asset has started to rise and gross NPA increased from 0.6% in FY15 to 1.5% reported in December 2017. Indostar capital has started its SME lending business in 2015 and primarily involves in extending secured loans to SME and MSME segments including businessmen, traders, manufacturers and self-employed professionals. Presently, company operates its SME lending business in Mumbai, Delhi, Chennai, Bengaluru, Hyderabad, Jaipur, Surat, Ahmedabad, Pune and Indore. Company s in depth product knowledge, relevant financial services domain knowledge, ability to structure loans according to customers financial needs and short turn around time for processing loan applications have positioned Indostar Capital as one of the preferred beneficiary of large and growing SME segment in India. Further, in past 3 years company has increased its focus in SME lending which in total credit exposure increased from 0.2% in FY15 to 23% in December 2017. In effort to reap the benefits of growing automobile sector in India, company has entered into vehicle financing business where it finances used or new commercial vehicles, passenger vehicles and two-wheelers. NDA government s strong commitment of providing housing to all citizen by 2022, makes affordable and retail housing finance sector attractive for investment perspective. Thus, Indostar Capital has recently commenced its business in affordable and retail housing finance, though this segment is currently at nascent stage and need strong business commitment to grow in future. The issue comprises of both fresh issue of equity shares and offer for sale. Indostar Capital would utilize the proceed to boost its capital base in order to expand its business. During FY14-FY17, it Net Interest Income (NII) grew at a CAGR of 26.2%, while operating profit and net profit grew at CAGR of 22.7% and 23.4% respectively. Net NPA (%) has however increased from 0.7% in FY14 to 1.3% in 9MFY18, due to increase in loan exposure. However, company generates commendable NIMs of 6.8% as of FY17, with strong RoA and RoE of 4.1% and 12.2% respectively. Company s business has experienced growth since the commencement of operations in 2011 and they have a proven track record of delivering results. Between FY13 and FY17, the Total Credit Exposure and Total Revenue grew at a CAGR of 30% and 33.9%, respectively. Indostar Capital is promoted by Institutional investor, which is part of the Everstone Group, is an India and Southeast Asia focused investor, thus ensuring International corporate governance standard. Corporate lending including real estate loan accounts for 77% of total credit exposure, which could increase its delinquency ratio and could put further pressure on its asset quality and profitability. Moreover, post demonetization and GST implementation, the SME sector had been badly hurt and is still to come out from the throes. At upper price band the issue is valued at post issue P/BV of 1.9x which is comparatively lower than industry average. With good monsoon predicted by IMD in 2018, increasing rural income and government s focus on development of rural areas ahead of 2019 general election, the NBFC sector would be in focus in coming year. However, Indostar Capital s business size is small in respect to other NBFCs and is in early stage of lending business and real value for the investors can be created when the commercial vehicle business scales up which is at its nascent phase at present. 2

Financial Statement (In Rs. Cr) FY14 FY15 FY16 FY17 9MFY18 Share Capital 68.3 68.4 73.4 78.4 78.7 Net Worth 1135.6 1285.2 1541.8 1902.8 2076.8 Long Term Borrowings 1191.6 1613.8 1758.9 1910.6 1541.8 Other Long Term Liabilities 68.7 25.9 24.9 34.2 38.1 Short-term borrowings 166.8 343.9 499.4 786.6 1312.0 Other Current Liabilities 598.0 722.8 868.3 854.7 1076.3 Fixed Assets 1.1 0.9 3.8 8.8 25.9 Long-term loans and advances 2136.8 2433.8 3099.2 3933.1 3924.0 Other Non Current Assets 79.4 68.5 10.3 79.4 157.2 Short-term loans and advances 449.6 958.3 1184.7 1227.5 1244.0 Other Current Assets 494.0 530.2 395.3 239.9 694.1 Total Assets 3160.8 3991.6 4693.3 5488.8 6045.1 Revenue from operations 394.6 528.1 644.0 719.3 580.2 Revenue Growth (%) 33.8 22.0 11.7 Finance costs 191.9 257.9 289.3 311.8 229.1 Net Interset Income 202.7 270.1 354.7 407.5 351.1 Provisions and Loan Losses 1.4 3.0 3.4 12.3 8.6 Net Profit 112.1 149.0 191.6 210.8 164.1 Net Profit Margin (%) 28.4 28.2 29.8 29.3 28.3 Earnings Per Share (Rs.) 16.3 21.7 26.8 28.7 20.9 Return on Networth (%) 9.9 11.6 12.4 11.1 Net Asset Value per Share (Rs.) 146.2 165.5 210.2 242.8 264.0 Source: RHP, Ashika Research Cash Flow Statement (In Rs. Cr) FY14 FY15 FY16 FY17 9MFY18 Cash flow from Operations Activities (382.8) (587.6) (542.7) (689.6) 387.7 Cash flow from Investing Activities 31.8 (226.3) 316.7 (193.9) (536.0) Cash flow from Financing Activities 515.5 599.3 365.5 589.0 166.7 Net increase/(decrease) in cash and cash equivalents 164.6 (214.5) 139.5 (294.5) 18.3 Cash and cash equivalents at the beginning of the year 262.1 426.7 212.1 351.6 57.1 Cash and cash equivalents at the end of the year 426.7 212.1 351.6 57.1 75.4 Source: RHP Comparison with listed industry peers Co Name EPS (Rs.) RONW (%) P/E (x) P/BV (x) NAV (Rs.) Market Cap (Rs. Cr.) Indostar Capital Finance* 24.0 7.9 23.8 1.9 304.7 5213 L&T Finance Holdings 5.3 14.0 23.5 2.7 62.9 34256 Piramal Enterprises 72.6 7.8 30.7 2.7 954.8 45681 Aditya Birla Capital 5.6 14.8 50.5 4.1 38.6 34876 Capital First 24.5 12.6 20.4 2.6 241.3 6190 Shriram Transport Finance Co. 55.8 11.8 22.9 2.8 554.8 35724 Sundaram Finance 61.5 15.0 29.0 4.1 433.3 19809 Cholamandalam Inv. & Fin. Co. 46.0 18.0 26.7 5.0 330.4 26037 Repco Home Finance 30.0 17.3 19.6 3.2 183.7 3677 Source: RHP, Capitaline, Ashika Research Note: ICFL fig. are calculated based on post issue diluted, higher price band. All Fig. are on TTM basis except EPS, RoNW are on FY17. 3

Financial Ratios (In Rs. Mn except percentages and numbers) FY13 FY14 FY15 FY16 FY17 9MFY18 Net Interest Income Interest income on: Loan portfolio 1,859.6 3,220.3 4,230.5 5,341.2 6,320.1 4,865.6 Deposits with banks 124.0 268.2 337.4 236.8 113.5 12.1 Investments in PTCs - - - - 2.2 40.0 Debt instruments 18.7 106.0 85.6 62.1-230.6 2,002.3 3,594.5 4,653.6 5,640.1 6,435.8 5,148.5 Less : Finance costs -758.7-1,918.9-2,579.3-2,892.6-3,118.5-2,290.5 Net Interest Income 1,243.7 1,675.7 2,074.3 2,747.5 3,317.3 2,858.0 Average Portfolio yield Corporate lending 14.1% 14.6% 14.3% 14.6% 14.1% 14.0% SME lending - - - 11.3% 11.1% 10.4% Housing finance - - - - - 0.0% Aggregate portfolio yield 14.1% 14.6% 14.3% 14.5% 13.8% 13.3% Interest spread 2.3% 2.5% 2.5% 3.3% 3.5% 4.2% Net Interest Margin 8.2% 6.6% 6.0% 6.5% 6.8% 6.9% Total Income 1,657.1 2,050.2 2,701.3 3,547.9 4,080.7 3,569.0 Cost to Income 20.1% 16.8% 15.2% 16.4% 17.8% 27.6% Average Equity 9,797.8 10,803.0 12,104.4 14,135.2 17,222.8 19,897.9 Return on Average Equity 9.2% 10.4% 12.3% 13.6% 12.2% 10.9% Average Assets 16,307.2 26,839.4 35,762.2 43,424.8 50,910.4 57,669.2 Return on Average Assets 5.5% 4.2% 4.2% 4.4% 4.1% 3.8% Asset Quality Gross NPA - 193.9 193.9 100.0 727.3 890.0 Gross NPA (%) - 0.8% 0.6% 0.2% 1.4% 1.7% Net NPA - 174.5 174.5 80.0 619.5 707.1 Net NPA (%) - 0.7% 0.5% 0.2% 1.2% 1.3% Capital Adequacy CRAR 50.2% 41.5% 32.6% 34.2% 33.8% 31.6% Tier I Capital 49.6% 41.1% 32.3% 33.8% 33.4% 31.3% Risk weighted assets 20,571 27,462 39,042 44,889 56,127 65,698 Leverage 1.7x 2.5x 3.0x 3.1x 3.0x 2.9x Debt / Equity 1.08 1.67 2 1.95 1.77 1.78 Total Credit Exposure Corporate lending 18,329 26,329 34,218 40,419 45,858 39,694 SME lending - - 74 2,232 6,501 11,734 Housing finance - - - - - 146 Vehicle Finance - - - - - 143 Total 18,329 26,329 34,292 42,651 52,359 51,717 Percentage of total credit exposure that is secured 100.0% 96.2% 86.7% 89.5% 82.8% 88.8% with fixed interest rates 80.2% 75.4% 64.3% 62.7% 66.8% 62.5% subject to monthly interest payments 71.7% 78.5% 62.4% 73.1% 65.7% 71.2% subject to monthly principal repayments - - - 62.1% 61.1% 71.2% 4

PARAS BOTHRA Digitally signed by PARAS BOTHRA Date: 2018.05.09 10:17:25 +05'30' Research Team Name Designation Email ID Contact No. Paras Bothra President Equity Research paras@ashikagroup.com +91 22 6611 1704 Krishna Kumar Agarwal krishna.a@ashikagroup.com +91 33 4036 0646 Partha Mazumder partha.m@ashikagroup.com +91 33 4036 0647 Arijit Malakar amalakar@ashikagroup.com +91 33 4036 0644 Tirthankar Das Technical & Derivative Analyst tirthankar.d@ashikagroup.com +91 33 4036 0645 ( ASBL ) or Research Entity has started its journey in the year 1994 and is engaged in the business of broking services, depository services, distributor of financial products (Mutual fund, IPO & Bonds). This research report has been prepared and distributed by ASBL in the sole capacity of a Research Analyst (Reg No. INZ000169130) of SEBI (Research Analyst) Regulations 2014. ASBL is a wholly owned subsidiary of Ashika Global Securities (P) Ltd., a RBI registered non-deposit taking NBFC Company. Ashika group (details is enumerated on our website www.ashikagroup.com) is an integrated financial service provider inter alia engaged in the business of Investment Banking, Corporate Lending, Commodity Broking, Debt Syndication & Other Advisory Services. There were no significant and material disciplinary actions against ASBL taken by any regulatory authority during last three years. Disclosure ASBL or its associates, its Research Analysts (including their relatives) may have financial interest in the subject company(ies). However, the said financial interest is not limited to having an open stock market position in /acting as advisor to /having a loan transaction with the subject company(ies) apart from registration as clients. 1) ASBL or its Research Analysts (including their relatives) do not have any actual / beneficial ownership of 1% or more of securities of the subject company(ies) at the end of the month immediately preceding the date of publication of this report or date of the public appearance. However ASBL's associates may have actual / beneficial ownership of 1% or more of securities of the subject company(ies). 2) ASBL or their Research Analysts (including their relatives) do not have any other material conflict of interest at the time of publication of this research report or date of the public appearance. However ASBL's associates might have an actual / potential conflict of interest (other than ownership). 3) ASBL or its associates may have received compensation for investment banking, merchant banking, and brokerage services and for other products and services from the subject companies during the preceding 12 months. However, ASBL or its associates or its Research analysts (forming part of Research Desk) have not received any compensation or other benefits from the subject companies or third parties in connection with the research report. Moreover, Research Analysts have not received any compensation from the companies mentioned herein in the past twelve months. 4) ASBL or their Research Analysts have not managed or co managed public offering of securities for the subject company(ies) in the past twelve months. However ASBL's associates may have managed or co managed public offering of securities for the subject company(ies) in the past twelve months. 5) Research Analysts have not served as an officer, director or employee of the companies mentioned in the report. 6) Neither ASBL nor its Research Analysts have been engaged in market making activity for the companies mentioned in the report. Disclaimer The research recommendation and information herein are solely for the personal information of the authorized recipient and does not construe to be an offer documents or any investment, legal or taxation advice or solicitation of any action based upon it. This report is not for public distribution or use by any person or entity, where such distribution, publication, availability or use would be contrary to law, regulation or subject to any registration or licensing requirement. We will not treat recipients as customer by virtue of their receiving this report. The report is based upon the information obtained from public sources that we consider reliable, but we do not guarantee its accuracy or completeness. ASBL shall not be in anyways responsible for any loss or damage that may arise to any such person from any inadvertent error in the information contained in this report. The recipients of this report should rely on their own investigations. 5