DAM Capital IPO review (Apply)

•    The company is the fastest growing merchant banker with highest profit margins among the peers.
•    It is also in the broking business along with client related services for security markets.
•    It posted degrowth for FY23 in line with the general trends for the industry.
•    Based on FY25 annualized earnings, the issue appears fully priced. 
•    Investors may park funds for medium to long term.

PREFACE:
Despite humble urge from the regulator for non-clubbing/bunching of more than 2 IPOs a day for opening for subscription, we are set to mark bunching of five mainboard IPOs that are opening on December 19, 2024, and here again very short time was spared for analysts to understand the pros and cons for the IPOs. Well, this is the first IPO from the set of 5 IPOs that are scheduled to mark opening on December 19, 2024, others to follow are TransRail Lighting, DAM Capital, Sanathan Textiles, Concord Enviro. We have one more set of 3 mainboard IPOs lined up for opening on December 20, 2024, and they are Ventive Hospitality, Senores Pharma, and Carraro India. No doubt, this provided an ample choice of selection for investment, it also makes it difficult to manage funding. Let us hope that the regulator is definably turns strict on this matter and brings some amicable solution.

ABOUT COMPANY:
DAM Capital Advisors Ltd. (DCAL) is the fastest growing merchant bank in India by revenue CAGR from Fiscals 2022 to 2024 with the highest profit margin in Fiscal 2024, among the peers considered (Source: CRISIL Report). It is one of the leading merchant banks in India with a market share of 12.1%, based on the number of initial public offerings and qualified institutional placements undertaken by it as the book running lead manager, in Fiscal 2024 (Source: CRISIL Report). The company provides a wide range of financial solutions in areas of (i) merchant banking comprising equity capital markets (“ECM”), mergers and acquisitions (“M&A”), private equity (“PE”), and structured finance advisory; and (ii) institutional equities comprising broking and research.

DCAL focuses on the Indian capital markets, one of the most dynamic and high growth organized markets in the world (Source: CRISIL Report). It leverages deep domain knowledge across sectors and products combined with vast experience of its team to provide strategic advisory and capital markets solutions to diverse and marquee clientele including corporates, financial sponsors, institutional investors and family offices. From the date of the Acquisition i.e., November 7, 2019 till October 31, 2024, it has successfully executed 72 ECM transactions comprising 27 initial public offerings (“IPOs”), 16 qualified institutions placements (“QIPs”), 6 offer for sale (“OFS”), 6 preferential issues, 4 rights issues (“Rights Issues”), 8 buybacks (“Buybacks”), 4 open offers (“Open Offers”) and 1 initial public offer of units by a real estate investment trust (“REIT”). It has also advised on 23 advisory transactions including M&A advisory, private equity advisory and structured finance advisory and has also executed block trades since the Acquisition i.e. from November 7, 2019 till October 31, 2024. The institutional equities business, as of October 31, 2024, comprises of 29 employees in research and 34 employees in broking team. They service 263 active clients including registered FPIs spread across geographies such as India, USA, UK, Europe, Hong Kong, Singapore, Australia, Taiwan, South Korea, Middle East and South Africa.

India is projected to almost double its nominal GDP by Fiscal 2030 (Source: CRISIL Report). In Fiscal 2024, the equity markets in India has achieved record levels in terms of market capitalization of listed companies and the benchmark index performance (Source: CRISIL Report). India’s market capitalization rose by a strong 52% year-on-year to Rs. 394 trillion as of March 31, 2024, marking it the second highest growth in a year in the last 14 years (Source: CRISIL Report). DAM Capital is strategically positioned to capitalize on India’s growth story. By leveraging its deep industry expertise, robust research capabilities, and large investor distribution network in institutional equities business, the company provides tailored solutions to clients. Its client retention demonstrates personalized, solution-oriented approach and proven execution capabilities.

Its wholly-owned Subsidiary, DAM Capital (USA) Inc. (“DAM USA”) is incorporated in New York, USA on August 3, 2009 as a broker-dealer with the Financial Industry Regulatory Authority (“FINRA”) with registration number CRD# 154945 and the Securities Investor Protection Corporation (“SIPC”) and is also regulated by the Securities and Exchange Commission (“SEC”). DAM USA is also registered with SEC vide a registration number SEC# 8-68685. It obtained the registration on September 15, 2011. Through its Chaperoning Arrangement with DAM USA, DCAL is able to broaden access to serve clients in the United States of America and offer Rule 144A issuances of Indian companies to institutional investors in the United States of America. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route secondary IPO of 29690900 equity shares (worth Rs. 840.25 cr. at the upper cap). The company has announced a price band of Rs. 269 – Rs. 283 per equity shares of Rs. 2 each. The issue opens for subscription on December 19, 2024, and will close on December 23, 2024. The minimum application to be made is for 53 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 42% of the post-IPO paid-up equity capital. This being a pure secondary issue, no funds are going to the company.

The company did a pre-IPO placement of Rs. 360 cr. (12720700 shares) at a price of Rs. 283 per share which is over and above the IPO. Thus the total issue size stands at Rs. 1200.24 cr. The company has reserved 70000 equity shares (worth Rs. 1.98 cr. at the upper cap) for its eligible employees and from the rest it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for retail investors. 

The Book Running Lead Manager (BRLM) to this issue is Nuvama Wealth Management Ltd., while Link Intime India Pvt. Ltd., is the registrar to the issue. Nuvama Wealth Management Ltd., and Sharekhan Ltd., are the syndicate members.

Having issued/converged initial equity shares at par value, the company issued further equity shares in the price range of Rs. 50 – Rs. 75 (based on Rs. 2 FV) between May 1994, and May 1996. It has also issued bonus shares in the ratio of 10 for 1 in November 2000, The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 5.39, Rs. 9.25, and Rs. 14.64 per share. 

Post-IPO, its current paid-up equity capital of Rs. 14.14 cr. will remain same as this is an OFS. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2000.41 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 94.51 cr. / Rs. 21.90 cr. (FY22), Rs. 85.04 cr. / Rs. 8.67 cr. (FY23), and Rs. 182.00 cr. / Rs. 70.52 cr. (FY24). For H1 of FY25 ended on September 30 2024, it earned a net profit of Rs. 43.78 cr. on a total income of Rs. 109.58 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 5.92 and an average RoNW of 30.29 %. The issue is priced at a P/BV of 10.15 based on its NAV of Rs. 27.87 as of September 30, 2024, as well as on its post-IPO NAV per share (at the upper cap).

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 22.84, and based on FY24 earnings, the P/E stands at 28.36. The issue appears fully priced on the basis of its recent earnings. 

According to the management, considering GDP growth projections, government’s spending on infra and other industry friendly measures, the Indian economy is poised for speedy growth and so is the case with stock markets. 
 
For the reported periods, the company has posted PAT margins of 23.17% (FY22), 10.20% (FY23), 38.75% (FY24), 39.95% (H1-FY25), and the RoE margins of 28.53%, 9.47%, 54.72%, 23.98 % for the referred periods respectively. 

DIVIDEND POLICY:
The company paid a dividend of 15% for FY22, 10% for FY23, and 25% for FY24. It has adopted a dividend policy in May 2022, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown ICICI Securities, IIFL Capital, Motilal Oswal Financial, and JM Financial, as their listed peers. They are trading at a P/E of 13.8, 15.3, 17.1, and 21.0 (as of December 18, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The BRLM associated with the offer have handled 27 pubic issues in the past three fiscals, out of which 8 issues closed below the offer price on the listing date.