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DAM Capital Advisors

• DAM Capital Advisors is coming out with a 100% book building; initial public offering (IPO) of 2,96,90,900 shares of Rs 2 each in a price band Rs 269-283 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on December 19, 2024 and will close on December 23, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 134.50 times of its face value on the lower side and 141.50 times on the higher side.
• Book running lead manager to the issue is Nuvama Wealth Management.
• Compliance Officer for the issue is Rajesh Tekadiwala.

Profile of the company

DAM Capital Advisors 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. 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. It 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.

The company focuses on the Indian capital markets, one of the most dynamic and high growth organised markets in the world. The company leverages its deep domain knowledge across sectors and products combined with vast experience of its team to provide strategic advisory and capital markets solutions to its 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 its 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. 

Proceed is being used for:

• Carrying out the Offer for Sale of Equity Shares by the Selling Shareholders
• Achieving the benefits of listing the Equity Shares on the Stock Exchanges

Industry Overview

The Indian Capital Market is one of the most dynamic and high growth organised markets in the world. It witnessed strong performance during the period Fiscal 2011-24. The market capitalization of National Stock Exchange (NSE) grew at 14.4% CAGR during Fiscal 2011 to Fiscal 2024. The NIFTY 50 index has grown at a CAGR of 10.9% over this period. BSE Sensex has followed a similar growth trajectory to Nifty 50. Indian equities continued to see strong gains in calendar year 2024. Both domestic and global factors were supportive of foreign capital inflows. At the end of March 2024, both Nifty and Sensex experienced growth substantial growth of 28.6% and 24.9% compared to March 2023. However, market capitalization at NSE and BSE saw a slight decrease of 0.1% and 0.3% compared to previous month. The P/E ratios for S&P BSE Sensex and Nifty rose to 25.0 and 22.9 respectively in March 2024 as compared to March 2023 of 22.2 and 20.3 respectively. Despite geopolitical tensions among nations, challenging interest rate scenario, the Indian stock market performed well in FY23-24. The bullish sentiment in the stock market can be attributed to India’s strong GDP growth in FY24.

Meanwhile, the Broking Industry has seen strong growth over the last three years aided by the robust performance of capital markets. The Domestic Broking Industry registered around 44% CAGR growth during Fiscal 2020 to Fiscal 2024. The Active Client Base on NSE increased at 38.1% CAGR from 8.8 million in March 2019 to 44.2 million in March 2024. Further, the industry is being driven by the flow from institutional investors. FIIs and DIIs have been looking at India as a high growth and high return market. Inflows from institutions majorly drive the capital market and therefore expand the activities in the market. In the meantime, overall mutual fund AUM increased from around Rs. 23,796 billion in fiscal 2019 to Rs 53,402 billion at end of Fiscal 2024 logging CAGR of 17.5% between the fiscal 2019 and 2024. SIP amount (monthly average) has also increased from Rs 77.2 billion in FY19 to Rs 166.0 billion in FY24. Total SIP amount has increased from Rs 926.9 billion in FY19 to Rs 1,992.2 billion in FY24 registering CAGR of 16.5%.

In fiscal 2024, quarterly average equity AUM grew by 42.2% on-year to reach Rs. 31.24 trillion. The Equity AUM to grow at 20-21% CAGR, the second fastest growth amongst all MF categories, over March 2024 to March 2029. ETFs are expected to grow the fastest, clocking a 22-23% CAGR over the next 5 years, as passive investing continues to grow in popularity. As of H1FY25, Equity AUM has reached Rs 39.76 trillion. In fiscal 2023, debt mutual fund declined drastically. There was an improvement over fiscal 2024 where debt funds grew at 42.2% to reach Rs 8.86 trillion. Over March 2024 to March 2029, the segment is expected to grow at a slower rate of 10-11% CAGR as debt mutual funds will continue to get affected due to high-interest rate scenario in the medium term. Quarterly average liquid/money market funds grew by 0.8% in fiscal 2024 due to heavy outflows. The segment is expected to grow at approximately 8-9% CAGR between March 2024 to March 2029.

Pros and strengths

Fastest-growing merchant bank in India: The company 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. It is one of the leading investment 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. In the six months ended September 30, 2024 and Fiscal 2024, it was book running lead managers to 5 and 17 IPOs and QIPs, respectively. Since the acquisition, it has consistently improved its market share from 8.2% in Fiscal 2021 to 12.1% in Fiscal 2024 in terms of the number of IPOs and QIPs undertaken as book running lead manager.

Proven execution with in-depth understanding of sectors and products: It has 40 employees in its merchant banking team, with 9 employees having over 18 years of work experience. Its understanding and expertise across sectors and products enable it to identify niche sub-sectors and product opportunities early. Early market insights enable it to pitch appropriate products to its clients. Further, its deep sector understanding allows it to identify unique stories which it is able to bring to the market. It has consummated transactions across sectors including pharmaceuticals, infrastructure, manufacturing, retail, technology, financial services and healthcare.

Institutional equities platform with comprehensive research and execution capabilities: The company’s institutional equities platform is characterized by its comprehensive research and an experienced sales and trading team, providing services to its clientele across investor categories. The key aspects of its institutional equities platform include Research, Sales and Sales trading. One of its key strengths is to facilitate investor interactions and liaise between corporates and investors through conferences, roadshows and expert calls. It has organized events and conferences in emerging sectors such as data centres, semiconductors and smart meters. The relationship with its clients is built based on services provided by it which includes research services, corporate access, conferences and execution services. Most of the clients have internal rating systems with sell-side intermediaries they work with. The ratings are compiled basis all the above services mentioned - votes are given to analysts covering specific sectors, salespersons, sales traders, and corporate access including events.

Extensive coverage of corporates, financial sponsors and institutional investors, with repeat business: The company has long-standing relationships with institutional investors, financial sponsors, corporates and family offices as a result of its experienced team and consistent coverage of clients, many of whom have provided it with repeat business. It develops and maintains long-term relationships with its clients and are dedicated to providing them with a comprehensive range of products and services. This helps it successfully navigate through periods of market volatility. Its industry expertise and deep relationships across the ecosystem enable it to provide a range of offerings across the merchant banking spectrum. Its ability to operate across product segments results in client retention as it can offer tailored solutions to fulfil the client’s requirements across their lifecycle.

Risks and concerns

Operate in a highly regulated environment: The company is registered with the Securities and Exchange Board of India (SEBI). To undertake its business activities, the company may need to obtain and renew registrations and approvals under regulations issued by regulatory authorities. Additionally, its business is subject to compliance with the rules, regulations, bye-laws and circulars prescribed by SEBI, clearing corporations, and Stock Exchanges, and other regulatory authorities, and the terms and conditions of the approvals, licenses, registrations and permissions obtained for operating its business. There is no assurance that such approvals and licenses will be granted or renewed in a timely manner or at all by the relevant regulatory authorities. Failure to obtain or renew such approvals and licenses in a timely manner would make its operations non-compliant with applicable laws and may result in imposition of penalties by relevant authorities, and may also prevent it from carrying out its business.

Significant portion of revenue comes from advisory fee income and brokerage: The primary sources of its revenue are its advisory fee income and brokerage. Its total fees and commission income in six months ended September 30, 2024 and Fiscals 2024, 2023 and 2022 were Rs 1,024.96 million, Rs 1,738.35 million, Rs 814.38 million and Rs 913.54 million respectively. Its business is highly dependent upon the levels of activity in the securities markets in India and in particular, upon the volume of financial assets traded, the number of listed securities, the number of new listings and subsequent issuances, liquidity and changes in investor sentiment. Any adverse changes in such factors, as a result of general economic or market conditions or otherwise, could materially adversely affect its business, financial condition, cash flows and results of operations.

Merchant banking and institutional equities business is highly dependent on market and economic conditions: As a merchant banking and securities firm, the company’s business is materially affected by conditions in the economy and financial markets both India and globally. The Indian capital markets witnessed strong performance during the period Fiscal 2011-24. This favourable growth and economic environment may not continue indefinitely, and its business may be affected by times of economic slowdowns and market volatility. In the event of a market downturn, its businesses could be adversely affected. With a decline in Indian markets, its revenues are likely to decline as well, and consequently its profits could be affected.

Institutional equities business relies on the NSE, BSE and clearing corporations for a significant portion of its business: The company’s institutional equities business relies on NSE, BSE and the clearing corporations to execute and settle all its clients’ transactions. Its broking terminals are connected to such exchanges. Any disruption in the functioning of the exchanges or a disruption to its connection with the exchanges could have a material adverse effect on its institutional equities business. Further, its international profile exposes it to a variety of regulatory and business challenges and risks. This also increases the complexity of its risks in a number of areas including currency risk, regulatory risk, reputational risk and operational risk. Its businesses are subject to changes in legal and regulatory requirements, and it may not be possible to predict the timing or nature of such changes. Business opportunities in these jurisdictions will also determine the growth in its operations.

Outlook

DAM Capital Advisors is an investment bank in India. The company offers a wide range of financial solutions in the areas of (i) Investment 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. As of October 31, 2024, the company had a team of 121 employees across all businesses. The company's wholly-owned Subsidiary, DAM Capital (USA) Inc. is incorporated in New York, USA and is registered as a Broker-Dealer with the Securities and Exchange Commission. On the concern side, the company operates in a highly regulated environment which is subject to changes in laws and, regulations and government policies. Further, it is required to maintain various licences and permits for its business from time to time. Any failure or delay in obtaining or renewing licences or permits or non-compliance to the changing laws may adversely affect its business, financial condition and results of operations. Moreover, a significant portion of its revenue is from only two income streams, namely, advisory fee income and brokerage, which are highly dependent on general macro-economic conditions, and their continued success is necessary for its business prospects.

The company is coming out with a maiden IPO of 2,96,90,900 equity shares of Rs 2 each. The issue has been offered in a price band of Rs 269-283 per equity share. The aggregate size of the offer is around Rs 798.69 crore to Rs 840.25 crore based on lower and upper price band respectively. On performance front, total revenue from operations increased by 112.00% from Rs 849.26 million for Fiscal 2023 to Rs 1,800.42 million for Fiscal 2024. Moreover, the company’s profit for the year was Rs 705.23 million for Fiscal 2024 compared to Rs 86.74 million for Fiscal 2023.

The company intends to broaden its coverage through a focused, relationship-driven approach that deepens its connections with key industry players and financial sponsors. Additionally, it plans to expand the breadth of its industry expertise by continuously enhancing its knowledge across various sectors. This will allow it to better serve its clients by offering specialized insights and solutions that align with their unique needs. To further strengthen its market position, it will add new products to its existing portfolio such as InvITs, offshore listings, venture capital fundraising, cross-border M&A and debt capital markets, ensuring that it remains at the forefront of industry trends.