In the midst of the excitement surrounding Donald Trump's possible victory in the upcoming US presidential elections, the primary market this week continues to see a surge in IPOs, with three currently open and another set to launch tomorrow in the mainboard segment. The Sagility India IPO, ACME Solar Holdings IPO, and Swiggy IPO are all available for subscription; while they aren't fully subscribed yet, they are witnessing strong interest from retail investors.
Among the three, Sagility India's IPO appears to be the favourite among market experts. Analysts provide detailed insights on each option and make recommendations based on the type of investors. Focusing on the Sagility IPO, it is entirely an offer for sale (OFS) comprising 70.22 crore shares valued at ₹2,106.60 crore at the upper price point. The promoter, Sagility BV, is divesting its stake through this OFS.
In contrast, the IPO of renewable energy company ACME Solar Holdings, assessed at ₹2,900 crore, includes a mixture of a fresh issue of shares worth ₹2,395 crore alongside an OFS of shares valued at ₹505 crore from ACME Cleantech Solutions.
Swiggy is looking to raise ₹11,327 crore through its IPO, which consists of a fresh issue of shares worth ₹4,499 crore in addition to an OFS amounting to ₹6,828 crore.
The market is anticipating the anchor book for the Niva Bupa Health Insurance IPO today as it is scheduled to launch tomorrow (Thursday, November 7).
Arun Kejriwal, the founder of Kejriwal Research and Investment Services, provided a detailed analysis of each IPO, starting with Sagility India. He noted that this company operates as a healthcare service provider, primarily serving clients in the United States while conducting its operations outside of India. It functions similarly to an IT firm, where the client is located in America, and the back-office processes are managed in India, generating revenue from the American clients, which usually include Fortune 100 companies. The company engages with both payers and recipients, where the payers are insurance companies and the recipients or providers include hospitals, doctors, and medical device professionals. Thus, they cater to these two segments. The business displays steady growth of about 10-12% with consistent margins and operates in a straightforward manner.
In discussing ACME Solar Holdings, Kejriwal mentioned that the company specializes in energy development, constructing large-scale power facilities that utilize solar, wind, and hybrid energy sources. The primary focus here is solar power, with significant projects underway in Rajasthan and some in neighboring Madhya Pradesh. Wind energy is being harnessed in Gujarat and Telangana. Recently, the hybrid model has emerged, which combines solar and a limited amount of wind energy in the same area. The rationale for using a hybrid approach is that both energy sources generate power at different times throughout the day. Wind energy is typically produced from the evening until the early morning, while solar energy is generated from sunrise to sunset. The time at which power is evacuated differs for each source, yet both can utilize the same infrastructure, contributing to the growing success of the hybrid model.
Regarding the Sagility IPO, Arun mentioned that it has a pricing advantage. What I mean by a pricing advantage is that it’s priced at ₹28-30. We haven’t seen something like this in quite a while. Almost every new issue we hear about is priced in the three-digit range at a minimum. Therefore, this price point is very attractive, and on its first day, the retail portion has already been fully subscribed. From a business and P/E multiple perspective, their asking price reflects a P/E ratio of around 55-60, which isn’t cheap by any measure. However, the pricing advantage makes it appealing to retail investors, resulting in a response that’s much stronger than what would typically be expected.
When examining the ACME Solar Holdings IPO, we see that it boasts substantial gross margins or an EBITDA margin of around 85-90%. There are two crucial factors for a business of this nature: it's essential to have reliable lenders who recognize your credibility and provide financing for the long term. If you can secure such loans, you'll be able to carry out the project, and your main focus will simply be to ensure that the assets are utilized effectively.
Regarding the well-known platform Swiggy, while Kejriwal was conversing with Swiggy's CFO, he expressed dissatisfaction with a certain segment of the business that is currently experiencing losses—the dine-out service. As a member of the Swiggy app, users can enjoy a discount on their bill when they pre-book a table at a restaurant. Currently, the revenue model for this service relies on the advertisements placed by restaurant partners on the app. There is no recurring revenue from subscribers, aside from the one-time subscription fee. For this business to achieve break-even, a significant increase in the subscriber base is essential. Additionally, there needs to be a substantial rise in advertising revenue to generate funds from hotel partners. Achieving both of these goals appears to be quite challenging in the short to medium term. Therefore, it seems unlikely that this business will reach profitability as one might anticipate.
In discussing the company's competitor Zomato, Arun mentioned that the key distinction is that Zomato has achieved profitability, while Swiggy is still striving to reach that milestone; until it does, its future remains uncertain. For investors considering where to allocate funds, Sagility's IPO appears appealing given its pricing, especially for those with a medium to long-term investment horizon, as the power sector has notable potential. However, for those looking for a quick gain upon listing, the expected 10% pop is unpredictable and it’s uncertain how quickly it might decline. As for Swiggy, I believe there isn’t much profit to be gained in the near term, and in the long run, we cannot forecast how the company will operate.
Gulati emphasised that Swiggy is the modern day Facebook for old people while the competitors are the young audience focused TikToks & Instagrams.
Further, Mohit believes Swiggy to be a classic story of the “Hare and tortoise” where from being a leapfrogging hare it become complacent & is now loosing market share in its home territory.
“I think the company has lost its mojo on innovation where Zomato and Zepto have benefited. On a valuation basis it deserves to trade lower than Zomato owing to these reasons. Risk reward on this one is more in favour of subscribing to Zomato’s FPO,” added Gulati.
Going forward he sais that Sagility India appears to be the most conservatively valued, with a lower P/S ratio and established profitability. ACME Solar falls in between, operating in a high-potential sector with profitability, but at a higher valuation multiple compared to Sagility.
"The choice between these IPOs would depend on an investor's risk appetite, sector preferences, and growth expectations. Swiggy offers high growth potential but with higher risk, Sagility India provides a more stable option, and ACME Solar offers exposure to the renewable energy sector.
My order of preference would be Sagility, ACME and Swiggy," said Mohit.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.
