Largest IPO in US History

Visa Inc said on Monday its Initial Public Offering (IPO) could raise up to USD 19 billion -- making it the largest in US history -- even though the credit card processor is entering the market at a difficult time.

The San Francisco-based credit card processor expects to see high demand for its stock, despite the housing-led credit squeeze that is threatening consumers` spending and their ability to keep up with debt payments.

But Visa, like its public rival MasterCard Inc, is a card processor, not a lender, and has a strong presence in other countries where many people are just starting to use plastic instead of cash. And Visa is the largest US card company by market share -- its transactions, in number and dollar amount, in 2006 outpaced those at MasterCard and American Express Co.

Visa said in a Securities and Exchange Commission filing it will offer 406 million shares at USD 37 to USD 42 per share. There will be an option for underwriters to buy an extra 40.6 million shares to cover any excess demand.

The Visa IPO, even if it prices at the low end of the estimated range, would surpass the USD 10.6 billion AT&T Wireless raised in 2000 when it went public. And if demand is strong enough, it could be almost as big as the two largest past deals combined -- AT&T`s offering and Kraft Foods` USD 8.7 billion offer in 2001.

Visa would follow MasterCard from being a privately held interest to a publicly traded company. MasterCard raised USD 2.39 billion in its IPO nearly two years ago.

At a midpoint price, Visa could raise about USD 15.6 billion, or more than USD 17 billion if underwriters exercise their option to buy the entire lot of 40.6 million shares. Even at the low-end price of USD 37 a share, Visa would raise about USD 15 billion.

Shares of MasterCard have risen fivefold since going public and are now trading at more than USD 203 each. But Visa`s offer comes at a time of ebbing appetite for new shares. MasterCard shares have fallen more than 5.5 percent since the beginning of the month.

Visa made its initial IPO filing in June with the SEC. The shares will be listed with the New York Stock Exchange under the ticker V.

Visa will be the last of the major US card companies to go public. Discover Financial Services LLC became publicly traded last July, and since then has seen its shares tumble. But Discover, like American Express, is a true card lender. The responsibility for Visa and MasterCard cardholders` debt, in contrast, is held by the banks that issue them.

For their most recent quarters, MasterCard posted a huge increase in profit while AmEx reported a 10 percent drop in earnings and Discover posted a loss.

A successful Visa IPO would be a boon for member banks including Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co, which have suffered big credit losses and are gearing up for more as consumer credit deteriorates.

More than USD 10 billion of the IPO`s proceeds will go to the member banks. The rest will go toward Visa`s legal costs and general corporate purposes.

Visa boasts the world`s biggest retail electronic payments network. According to its filing, as of Sept 30, banks and other customers said they had issued 1.5 billion Visa cards -- which since 2006 have been advertised through the slogan, "Life Takes Visa."

The latest Nilson Report on card companies said that in 2006, Visa had 44 percent of the US market share in cards and 48 percent of the US market share in debit cards.

Visa said it intends to pay shareholders an annual dividend of 42 cents a share.

ADAG IPOs on track

Undeterred by a dismal performance of Reliance Power IPO, which it attributes to abnormalities in the equity market, Anil Ambani Group Sunday said it will go ahead with listing plans of its other firms.

The firm has lodged a complaint with market regulator Securities and Exchange Board of India, seeking investigation in "price hammering" of its shares since listing on February 11.

"The fact that seven Mauritius-based FIIs sell in a falling market has got to do something more than that meets the eye," group chairman Anil Ambani told reporters here.

"Our common complaint to SEBI is price hammering where within four minutes of listing, the stock price comes down from Rs 540 to rs 380," he said.

The scrip, after listing at Rs 547.8, slid into red within a minute and closed at Rs 372.5, a level much below the issue price. Investors in the company lost over Rs 1,700 crore on February 11, the day the scrip debuted on the stock exchanges.

On whether he would go slow on listing other group companies such as Reliance Infratel, he said: "there is no rethink on the issue. A DRHP has been filed. We will wait for the right time."

The group had raised USD 3 billion through the Reliance Power IPO - the largest in the country. It has also filed draft papers for initial public offer of Reliance Infratel, a subsidiary of Reliance Communications.

The company proposes to raise Rs 6,000 crore through the offer with an issue of 8.91 crore shares, representing about 10.05 per cent equity in Reliance Infratel. The issue proceeds are proposed to be utilised toward funding development of passive infrastructure and general corporate purposes.

Grey Market - Rural Electrification begins to rise

 Rural Electrification 90 to 105 23 to 25


GSS America InfoTech 400 to 440 Discount


IRB Infra 185 12 to 15


Manjushree Extrusion 45 5 to 7


Tulsi Extrusions 85 7 to 10


V. Guard Ind. 80 to 85 12 to 15

Grey Market Premiums

Rural Electrification 90 to 105 23 to 25


GSS America InfoTech 400 to 440 Discount


IRB Infra 185 12 to 15


Manjushree Extrusion 45 5 to 7


Tulsi Extrusions 85 7 to 10


V. Guard Ind. 80 to 85 12 to 15

Rural Electrification Allotment - Subscription Details

 Rural Electrification Corporation Limited - Bid details

Sr.No.	Category			No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)			39.3047
1(a)	Foreign Institutional Investors (FIIs)
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1(c)	Mutual Funds
1(d)	Others
2	Non Institutional Investors			27.1192
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)			7.6789
3(a)	Cut Off
3(b)	Price Bids
4	Employee Reservation			0.9411
4(a)	Cut Off
4(b)	Price Bids

Updated as on 22 Feb 2008 at 2130 hrs

Grey Market - Rural Electrification, V-Guard

 Rural Electrification 90 to 105 18 to 20


GSS America InfoTech 400 to 440 Discount


Bang Overseas 207 10 to 13


Shriram EPC 300 Discount (Listing Today!)


IRB Infra 185 12 to 15


Manjushree Extrusion 45 5 to 7


Tulsi Extrusions 85 10 to 12


V. Guard Ind. 80 to 85 10 to 12

V-Guard Industries IPO Review

Ppromoted by Kochouseph Chittilappily, V-Guard Industries manufactures and markets voltage stabilisers under the brand name, V-Guard. The product basket includes insulated electrical cables (for housing and industrial users), electric pumps, water heaters, solar water heaters, uninterrupted power suppliers (UPS) and fans. All the products are marketed und the V-Guard brand. The company has discontinued marketing water-level controllers, wall clocks, electric motor starters and water purifiers. About 42% of the revenue came from voltage stabilisers, 20% from cables, 19% from pumps, 7% from electric water heaters, 4% from solar water heaters, and 3% each from fans and UPS in the year ended March 2007 (FY 2007).

With a well-established position in south India, V-Guard Industries recently ventured into Maharashtra, Haryana, Madhya Pradesh, Orissa, Himachal Pradesh, Chhattisgarh, Uttarpradesh, Gujarat, Punjab and Rajasthan

Located at Comibatore in Tamilnadu, the facilities to build cables has a capacity to manufacture 1,38,000 coils per month of standard length of 90 meters. The remaining products are largely sourced from various suppliers and marketed under the V-guard brand. Supplies sourced include voltage stabilisers, pumps, UPS, electric water heaters and fans. These are manufactured to specifications.

To cater to rising demand, a second building-cable manufacturing plant is to be set up at Kashipur in Uttaranchal. It will have a capacity of 2,00,000 coils a month of standard length of 90 metres. Moreover, a low-tension cable manufacturing plant and an enameling plant, with a processing capacity of 100 tonnes, is to be put up at Coimbatore, where the existing building-cable unit is located. Development-cum-pilot plants are to be built at Coimbatore (for pumps) and in Himachal Pradesh (for fans and water heaters). Service and distribution centers are to be put up at strategic locations in India. All the projects are to be commissioned by December 2008. An initial public offer (IPO) will partially fund these expansion plans.

Strengths

The V-Guard brand enjoys strong recall and credibility, specially in south India.

Weakness

A regional player, with over 90% of the revenue (in FY 2007) coming from southern states and Goa. Of this, around 44% is derived from the market in Kerala. As has ventured into the north Indian markets recently, there will be no benefit of the strong brand name for leverage on. Thus, has to face strong competition from established players apart from small players

Valuation

Sales clocked a CAGR of 19% to Rs 222.27 crore in FY 2007 from FY 2003. Pofit after tax posted a CAGR of 29% to Rs 13.50 crore. The reported profit was Rs 18.41 crore in FY 2007,after accounting for an EO income of Rs 4.91 crore on account of profit on sale of investment in two amusement parks at Cochin and Bangalore. The EPS on adjusted net profit excluding EO was Rs 4.5 on post-IPO equity for FY 2007. The five-month annualised EPS for the current year on post-IPO equity works out to Rs 6. On the offer price of Rs 80-Rs 85, the P/E works out 17.8 – 18.9 times FY 2007 earning and 13.3 – 14.1 times latest five-month annualised EPS. Much larger players with much more well known brands like Finolex Cables and Bajaj Electric trade around TTM P/E of 16 times. Numeric Power, leader in UPS, trades at TTM P/E of 11 times.

Reliance Power Bonus !

In an unprecedented move, Anil Ambani Group company Reliance Power will give free bonus shares to all its shareholders to compensate the losses they suffered when the company was listed a week ago.

"Reliance Power board will consider issuing free bonus shares to all shareholders excluding the promoters," a group spokesperson said.

On the day of its listing at Rs 547.8 a share, Reliance Power performed miserably at the stock exchanges and closed the day nearly 32 per cent lower.

The IPO had attracted a total demand of about Rs 7,50,000 crore and the company had issued the shares at Rs 450 while giving a discount Rs 20 a share to retail investors.

Via ET

Weekend Grey Market Premium

 Rural Electrification 90 to 105 24 to 26


GSS America InfoTech 400 to 440 Discount


KNR Construction 170 Discount


On Mobile Global 440 20 to 25


Bang Overseas 207 7 to 10


Shri Ram EPC 300 Discount


IRB Infra 185 12 to 15


Manjushree Extrusion 45 5 to 7


Tulsi Extrusions 85 10 to 15


V. Guard Ind. 80 to 85 8 to 10

Rural Electrification IPO Analysis

Investors can subscribe to the initial public offering of shares by Rural Electrification Corporation (REC) at the cut-off price. REC's business is sharply focussed and the company has a robust financial profile despite difficult clients such as State electricity boards (SEB) and other power utilities.

Importantly, at Rs 90-105, the offer is priced attractively and leaves enough on the table for investors in the medium term. Investors should not subscribe in anticipation of listing returns.
Funding electrification

REC's original mandate was to enable electrification of Rural India through financing of transmission and distribution (T&D) projects and the energisation of agricultural pumpsets.

However, the company has now evolved to finance all segments of the power sector throughout the country, including generation projects.

The company's clients are predominantly SEBs and state power utilities. Loan sanctions and disbursements have been growing at a good clip; in the last five years, they grew at a compounded annual rate of 28.37 and 13.51 per cent respectively.

The government has set an objective of 'power for all' by 2012 which will require massive investment in generation and T&D infrastructure. The company has a tremendous opportunity given its long experience in funding the sector and its position as a prime intermediary for development schemes.

REC is the nodal agency for the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) whose objective is to electrify all villages in the country. Under RGGVY, the government provides 90 per cent funding for projects in the form of grants that are channelled through REC; the latter funds the balance 10 per cent in the form of long-term loans. Such loans typically account for less than 5 per cent of REC's total sanctions and disbursements in any financial year.

REC is also the nodal agency for two "build, own and operate" transmission projects that have been allotted for tariff-based competitive bidding.

The company will be required to take all preliminary steps for these two projects and administer them till they are handed over to the winning bidders. This is similar to the role of Power Finance Corporation in the case of ultra mega power projects.
Robust financial profile

Though it services clients who are known to delay or even default on their loan obligations, REC has managed to keep its finances insulated and healthy.

The company has a well-structured model to protect itself from defaults ranging from State government guarantees to escrow accounts in addition to the normal charge on assets.

Gross non-performing assets are well under control at 2.39 per cent of outstanding loan assets but the point to note here is that the company is not subject to RBI's prudential norms for income recognition and classification of assets.

REC has devised its own prudential norms, much like its peer, Power Finance Corporation (PFC), which is also not governed by RBI norms. There is some ambiguity on the subject nevertheless with RBI asking REC (and PFC) to prepare a "road map" for compliance and the issue is still under discussion between the regulator and the government.

REC boasts of a healthy net interest margin of 3.30 per cent (2006-07) which compares with the best in banking and financial services. This is almost on a par with PFC's net interest margin of 3.52 per cent in the same period. REC has mainly the government to thank for this.

Just under half of its funding comes from cheap sources such as capital gains bonds issued under the Income Tax Act. Given the tax benefit that subscribers to these bonds enjoy, the interest payable is very low.

For instance, the average cost of such bonds issued by REC was 5.48 per cent only as of September 30, 2007.

Besides this, REC also issues taxable bonds which had a weighted average cost of 7.56 per cent as of the same date. The company has also been able to secure long-term loans from banks and financial institutions at an average rate of 7.58 per cent only.

The point is that given its character of a government company promoting rural development, REC enjoys access to cheap funds. Its average cost of funds was just 6.55 per cent in the first half of this fiscal when interest rates were on the boil.
Attractive valuation

REC's offer is attractively valued when compared to its peer PFC. The profiles of the two companies are similar with REC's business having a rural tilt given its history. REC is smaller compared to PFC in terms of the size of its business but it appears to be more profitable. Its return on net worth of 21 per cent in 2006-07 is almost double that of PFC's in the same period.

REC had outstanding loan assets of Rs 31,974 crore as of March 31, 2007 compared to PFC's Rs 43,902 crore.

At the offer price band of Rs 90-105, REC is valued 9-11 times based on its 2006-07 earnings. In comparison, PFC, at the current price of Rs 184, is valued around 19 times its 2006-07 earnings.

If the annualised first half 2007-08 earnings is considered, the picture is even more favourable for REC which is valued between 7-8 times on its price band compared to PFC's multiple of 18 times.

REC will have equity of Rs 858.66 crore, post-offer, which is significantly lower than PFC's Rs 1,147.76 crore and the public float of the former at 18.18 per cent of outstanding shares will also be higher than that of the latter at 10.22 per cent.

The higher public float will enable better price discovery of REC's shares in the market.
What to watch out for

There are three main risks to our recommendation. First, continued access to cheap funds through the tax-free capital gains bonds scheme. This is important as it enables REC to price its loan products competitively.

The government annually reviews the tax exemption on these bonds and any change in its policy will have an adverse effect on REC's cost of capital.

Besides, the high reliance on this mode of finance could lead to asset-liability mismatches; while these bonds are typically three-year instruments, REC on-lends such funds for terms of up to 20 years. The company may be forced to cover up a possible term mismatch by borrowing higher cost funds which will affect its net interest margin.

Second, REC lends to some troubled borrowers such as SEBs and rural electricity cooperatives. Though it takes adequate protection, a delay in payments can affect the company's cash flows, leading to a mismatch in funds.

Finally, the ambiguity over whether RBI's prudential norms apply to REC is a nagging risk.

Assuming that the regulator's norms become applicable, it is unclear as to how the complexion of REC's financial statements will change.

Issue details: REC is offering 15.61 crore shares in the price band of Rs 90-105, half of which is an offer for sale from the government and the balance fresh issue of equity.

The total issue size is Rs 1,405-1,639 crore and the company will have a market cap of Rs 9,015 crore at the upper end of the price band. The issue is lead-managed by ILFS Investsmart and ICICI Securities.

Reliance Power...load shedding on listing

All the hype and hoopla surrounding the launch of Reliance Power vanished in a flash, as the stock got hammered right from the moment it listed, on Feb. 11. It just could not cope with the immense selling pressure after it managed to open at Rs525 on NSE. The stock constantly lost ground and hit a low of Rs355. Finally, the stock managed to recoup towards the end to close at Rs372, translating into a discount of 17% on its debut. The stock managed to regain some lost ground by the end of the week and closed at Rs385.70, in line with the improvement in the market sentiment.

Reliance Power was expected to list around Rs500-550 as per the unofficial rates in the grey market. This itself was substantially down from the initial premium of around Rs900 when the company launched the IPO. The premium shrunk gradually due to weak market sentiment and after Wockhardt Hospitals and Emaar MGF withdrew their public issues. Still, nobody would have imagined that Reliance Power would get pounded so badly on debut.

A lot of investors suffered big losses by betting on the Ambani/Reliance goodwill and brand equity. Even such big names as Centurion Bank of Punjab, Allahabad Bank and ABN Amro booked losses on the second day of the listing after getting substantial number of shares. The worst hit were those who applied by borrowing at an interest rate of 18-20%. Most of them are likely to have lost money.

The invincible reputation of the Reliance group has taken a severe beating post the dismal listing of Reliance Power and it would take some doing on the part of Anil Ambani to win back investors' confidence.

Another ripple effect of the disappointing Reliance Power listing will be felt in the primary market. The IPO market is likely to remain subdued for a while as scary investors will view every issue with a lot of apprehensions now. However, the management of public sector Rural Electrification Corp. and Oil India remain confident that their issues will manage to clear the litmus test despite the Reliance Power fiasco.

Grey Market - Shriram EPC, KNR Constructions

 Rural Electrification 90 to 105 18 to 20


GSS America InfoTech 400 to 440 Discount


KNR Construction 170 Discount


On Mobile Global 440 7 to 10


Bang Overseas 207 5 to 7


Shriram EPC 300 Discount


IRB Infra 185 10 to 12


Manjushree Extrusion 45 Discount


Tulsi Extrusions 85 5 to 7


V. Guard Ind. 80 to 85 7 to 10

GSS America Infotech - Current Subscription

GSS AMERICA INFOTECH LIMITED - Bid details

Sr.No.	Category			No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)			0.1361
1(a)	Foreign Institutional Investors (FIIs)
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1(c)	Mutual Funds
1(d)	Others
2	Non Institutional Investors			0.0000
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)			0.0007
3(a)	Cut Off
3(b)	Price Bids
4	Employee Reservation			0.0000
4(a)	Cut Off
4(b)	Price Bids

3 More days to Go for this one, can it set a record for the least subscribed issue ? we don't even remember which one was it ?

Acme Tele Power gets highest IPO grading

Proposed public issue of 17,283,580 equity shares of face value Rs 2 targeted at an issue price in the range of Rs 800 to Rs 950 per share

CRISIL has assigned a CRISIL IPO Grade "5/5" (pronounced "five on five") to the proposed initial public offer of Acme Tele Power Ltd. (ATPL). This grade indicates that the fundamentals of the issue are strong relative to other listed equity securities in India.

CRISIL expects ATPL to report strong future growth while maintaining its track record of exceptional operating and financial performance. This reflects the company's solid market position, and its customers' focus on rapid expansion: ATPL's unique products are used by mobile operators to manage power consumption at cell sites in areas where the supply and quality of power is unreliable. With a market share of around 25 per cent across all cell site installations, ATPL enjoys leadership position in its segment. The company is thus well placed to benefit from the large investments planned by mobile operators in India, who propose to add almost half a million cell sites over the next five years.

ATPL has grown at remarkable pace over its relatively short history. CRISIL expects the company to continue its impressive growth in revenues and profits over the medium term, given its strong market position and the expected growth in mobile networks.

ATPL will also continue to benefit from the ongoing involvement of its promoter, Mr. Manoj Upadhyay, in new product research and development. The company's strong product development capability is a significant plus in a market that is highly competitive. To maintain its growth momentum, however, ATPL will also need to ensure that it retains its key employees: it has faced a fair amount of employee turnover in the past.

About the company
ATPL, incorporated in January 2003, was promoted by Mr. Manoj Upadhyay. The proposed IPO is in the form of an offer for sale of 17.3 million shares by the promoters. Subsequent to the IPO, the promoters' stake in the company will reduce to 84.6 per cent from 94.7 per cent.

ATPL manufactures shelters, power regulation equipment, and air conditioners, which are used at mobile operators' cell sites. It has manufacturing facilities at Pantnagar in Uttaranchal and Parawanoo in Himachal Pradesh. Until March 2005, the company had an exclusive agreement with Bharti Airtel, the market leader in mobile telephony, under which it could not sell its products to other operators until it had satisfied Bharti Airtel's requirements; the business relationship between the two companies continues to be strong, long after the agreement has expired.

At the core of ATPL's offering to customers is a packaged solution, 'Green Shelter', consisting of:
- A fibreglass reinforced plastic or a nano-cooled enclosure that houses the BTS and other electronic equipment at cell sites
- A power management system called the power interface unit
- A thermal management system with phase change material, and
- Two air conditioners.
The utility of each of these products is distinct, and therefore the company also sells them individually.

ATPL also plans to launch a new gas-free compressor-less AC, and fuel cells, which produce energy more efficiently compared to diesel. Besides, the company intends to undertake geographical expansion into international markets.

For the year ended March 31, 2007, ATPL reported a net profit of Rs.2.30 billion on a turnover of Rs.6.43 billion, as compared with a net profit of Rs.1.16 billion and revenues of Rs.3.85 billion in the previous year.

About CRISIL IPO Grading
CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security.

IPO Grading - Rural Electrification

CRISIL has assigned a CRISIL IPO Grade "3/5" (pronounced "three on five") to the proposed initial public offer of Rural Electrification Corporation Limited (REC). This grade indicates that the fundamentals of the issue are average in relation to the other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy / sell or hold the graded instrument, the graded instrument's future market price or its suitability for a particular investor.

The grading reflects the Indian government's majority stake in REC and its developmental role in the government's plans for the power sector in India, especially the non-urban centres. REC's continuing role as an instrument of government policy and the consequent government support translates into significant advantages for REC as a borrower of funds viz the ability to raise bonds with tax benefits to the investors. CRISIL believes that REC will continue to discharge its developmental role over the medium term and shall display moderately strong business performance.

Notwithstanding the advantages on the liability side, REC's mandate requires it be one of the key lenders to state government power utilities, which have had a troubled credit history. Though REC is planning to increase its lending to the private sector, CRISIL believes that lending to state government utilities would continue to constitute a majority of REC's asset book over the medium term.

The company's profitability could come under pressure in the future as the share of market borrowings in REC's funding mix increases and the company begins to follow the RBI's prudential norms for NPA provisioning. REC will also need to considerably strengthen its internal control systems and loan pricing mechanisms to support the significant increase in business planned by the company. REC's business operations are susceptible to the effects of frequent top management changes as is the case with many other government run entities. REC's shareholders remain vulnerable to the possibility of REC's business operations being used by the government more as a tool for public policy than an engine for profit maximization.

About the company and the issue
REC is a public sector non-banking finance company (NBFC). REC operates under the administrative control of the Ministry of Power (MoP) and is wholly-owned by the Government of India (GoI). Established in 1969 with the sole objective of financing rural electrification schemes in the country, it services its clients -through a network of 17 project offices spread across India.

The company's schemes are primarily aimed at extending and improving the supply of electricity by providing adequate funds for transmission and distribution projects, especially in rural areas. However, over a period of time REC's mandate evolved, permitting it to finance all segments of the power sector in the country. In line with its overall objective of assisting the government's rural electrification strategy, REC also acts as the nodal agency for disbursing grants provided under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). The company enters into a Memorandum of Understanding with MoP, which outlines its yearly performance targets and the commitments from the government.

For 2006-07, the company's fund-based income and net profits were Rs 28.3 billion and Rs 7.7 billion, respectively. The operating income of the company has grown at a CAGR of 11.4 per cent over the past 5 years, while PAT has grown at a CAGR of 14.5 per cent in the same period.

REC aims to raise Rs 14 billion to Rs 16 billion by this proposed public issue of 156,120,000 equity shares.

About CRISIL IPO Grading
CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security.

Reliance Power - Grand Listing on Monday

Billionaire businessman Anil Ambani will be the centre of attention on Monday morning, not just for India but perhaps for the stock markets worldwide, when he rings the opening bell here to mark the listing of his group company Reliance Power at BSE and NSE.

The company created many records with its initial public offer just last month. With the market conditions having changed dramatically since then, its listing is being keenly awaited -- not only as a test of the investors' confidence in Ambani but also to help decide the future course of action in a highly volatile market.

This is the first IPO by the Anil Ambani group after the family settlement between him and elder brother Mukesh Ambani in June 2005. His another firm Reliance Communication which got listed at Rs 290 is currently quoted at Rs 646.10 on BSE.

As far as the IPO is considered, Anil Ambani is the last man standing in the stock market arena, with Reliance Power being the last successful major public issue across the world.

Having raised about three billion dollars though its public issue, the company has helped India become the biggest IPO market so far in 2008, with a total tally of $3.3 billion.

This account for nearly half of the total global IPO proceeds since the beginning of 2008, which has seen close to 25 IPOs being shelved globally, including two in India last week. Since January this year, about a dozen of IPOs have been shelved in America.

Besides, turbulent market conditions have already seen India Inc lose over 100 billion dollars in terms of market value in 2008 and the bulls are now betting on a premium listing of Reliance Power to restore investors' sentiments.

The first sixty seconds would again be crucial for the company as Ambani gives the opening bell and sees his company's share list on bourses on Monday.

But the challenge would be to sustain the share price above the offer price of Rs 450 and offer a reasonable profit to people who have invested in the IPO. Considering that the landscape of Indian financial market has changed dramatically since his IPO, it could be a tough call, said a broker.

"Every strength of the group will be tested on Monday, considering that the sentiments are down, markets are volatile, grey markets premiums are practically absent and there are enough forces that will make every effort to push the issue price down," said another broker.

It would be interesting to note the strategy of bears in the market who would want to cash in on the downward trend and hammer the stock on the first day.

Reliance Power IPO had witnessed a grey market premium of Rs 450 at the time of launch with market speculating that the issue would open around Rs 900-950 and close around Rs 750-800.

However, with markets correcting sharply, these premiums now eroded to Rs 50-100 with practically no trades. There are even guesses, though remote, that the issue may go below the offer price.

"Its time to test Anil Ambani's stamina, not on his jogging track, but on bourses. He has been a master of this game and lately practising hard, lets see the outcome" said an investor.

Via Economic Times

Grey Market - Rural Electrification and more..

 Rural Electrification 90 to 105 25 to 28


J. Kumar Infraprojects 10 Discount


Cords Cable Ind. 135 3 to 5


KNR Construction 170 Discount


On Mobile Global 440 10 to 15


Bang Overseas 207 7 to 10


Shriram EPC 300 Discount

IRB Infra 185 15 to 20


Manjushree Extrusion 45 Discount


Tulsi Extrusions 85 12 to 15


SVEC Construction 80 to 90 Discount


Globus Spirit 135 to 148 --


GSS America InfoTech 400 to 440 45 to 50

Reliance Power - Latest Grey Market Premium

One day to go

And

the Grey Market Premium is between 110 to 120

GSS America Infotech IPO Analysis

Investors can avoid the initial public offering of GSS America Infotech, considering the risks associated with its US-centric business model and general negative perception in the markets about the prospects of IT services companies.

At the upper end of the price band — Rs 440 — the offer values the stock at 10 times its estimated current year earnings on a fully diluted equity base. This is close to the valuation commanded by Tier-2 IT players. GSS operates on a smaller scale than most Tier-2 players; but the valuation is not at any serious discount to its larger sized peers. The company has grown its revenues manifold over the last three- four years, from a smaller base. This period coincided with the fastest phase of growth for Tier-1 and Tier-2 IT companies.

However, together with fears of a slowdown in the US and concerns over the sub-prime crisis and lowered consumer spending, the IT services sector is experiencing greater business uncertainty. Weathering the slowdown may require wherewithal that, at this point, only Tier-1 and select Tier-2 players, possess. GSS with its limited track record and complete dependence on US-based clientele may find it challenging to face a double whammy of an appreciating rupee vis-À-vis the dollar and an uncertain macro scenario.

The current volatile market scenario where even better known names are facing challenges in garnering investor interest is another reason for investors to adopt a wait-and-watch approach to this IPO.
Heavy US dependence

The company derives all its revenues from the US, making for a concentrated geographic mix. This subjects GSS to all the vagaries of macro scenario in the US — the possibility of lowered IT spend by clientele, loss of business in the BFSI segment and a possible slowdown in consumer spends.

Geographical diversification may be the key for any company in the IT services space to mitigate these risks. A wider spread may also have aided an expanding footprint and client mining in other geographies.
Vertical Mix

Although the company's vertical mix has not been disclosed, the list of clients indicates a good number from the retailing segment. This is a segment that is quite vulnerable to a US slowdown, with recent data on consumer spending suggesting moderating consumer spends. The top ten client list, which has many retail, financial services and insurance players, may again be a cause of concern for the company in the context of tightened/ postponed IT budgets.
Less Focus

The company operates in as many as nine verticals, indicating that there may be no specific niche or focus in operations for GSS.

Tier-2 IT services companies usually operate in a limited number of verticals (3-4) and gradually broaden their scope of operations. In a competitive environment where larger players are looking aggressively at client wins, the lack of a niche area as a differentiator, may work against the company.

The revenue concentration creates another problem for GSS, that of a possible appreciation in the rupee against the dollar. Realisations could be under pressure if the extent of appreciation continues to be pronounced. In the event of tightening IT budgets, some vendors may be forced to lower billing rates. With a relatively small scale of operations, the company may not be best placed to work with lowered realisations.

Overall, the company's fundamentals are reasonable, as indicated by a 21.4 per cent net profit margin over a Rs 204.6 crore revenue base for nine months of this year, but at this point in time, the macro environmental risks may blunt the possibility of gains.
Issue details

The company plans to issue 3.5-million shares in the price band of Rs 400-440. The proceeds are to be used for building a global delivery centre, building offices overseas and working capital requirements. Religare Securities is the book running lead manager to the issue. The issue is open from February 11-15, 2008.

Rules of IPOs

How swiftly the mood of the markets can swing from sunny optimism to extreme scepticism! The withdrawal of two big-ticket initial public offers (IPOs) by Wockhardt Hospitals and Emaar MGF this week underline how fragile the all-important factor called 'investor sentiment' really is. Barely three weeks ago, IPOs from Reliance Power and Future Capital Holdings sported record subscription figures, having garnered runaway response from every class of investor. The n, those rushing to hop on to the IPO bandwagon were hardly deterred by the stiff asking price or 'execution' challenges that faced these companies, both of whom rolled out their IPO at a rather nascent stage of their business. Yet, it is precisely these reasons that are now being cited for the unenthusiastic response to the Wockhardt and Emaar offerings.
Institutional appetite waning

It is not merely individual investors, bruised by the recent blows to their net worth, who seem to have lost their appetite for IPOs in three short weeks.

Retail investors, in any case, tend to take their cues from the larger institutions; which is why IPO subscriptions tend to bunch up on the last days of the offer period.

The larger worry for Indian investors, and the markets in general, should be the extremely tepid response from QIBs (qualified institutional bidders).

That institutional investors cold-shouldered a globally recognised name such as Emaar in the hot real-estate sector, after lavishing their attention on a slew of lesser-known names in 2007, is disturbing.

This suggests a genuine waning of liquidity and appetite for risk, at the global level. A recent report from Thomson Financial states that globally a total of 21 IPOs, worth $6.3 billion, were withdrawn in January. India, until recently, was an exception to this trend; but no longer.

'Superior' growth prospects or not, liquidity remains the engine that powers stock markets. When it comes to liquidity, India's primary market, much like its secondary market, depends heavily on the favour of global investors.

A good number of retail investors, in any case, were in the game mainly for listing gains. With present secondary market conditions making huge listings difficult, those on the speculative fringe may remain on the sidelines until the frenzy starts all over again.
Structural shift

This being the case, the failed IPOs may flag off two key trends for the stock markets in the months ahead. One, the flow in the IPO pipeline may dwindle as those with a limited track record rethink IPO plans.

Two, with global investors in a risk-averse mood, markets may no longer be willing to pay any price for a new business idea. Valuations, whether for new offers or already listed companies, may moderate. In the buoyant markets of the past few months, businesses and stocks that captured the imagination were able to justify sky-high values, on the strength of fancy "valuations" assigned to nascent businesses that were still on the drawing board.

These developments may also require retail investors in IPOs to make some changes in their investment strategy for the months ahead. The key takeaways for them from the turbulence of the last week are:

Listing gains are no longer a certainty. This means that investors cannot bank on flipping a stock on listing to recoup high funding costs incurred to bid for the IPO. Investors may be better off avoiding leveraged bets on IPOs, no matter how attractive the business or the "grey market" buzz on the stock is.

Investors should go back to evaluating every IPO much as they would a stock in the secondary market. Businesses that have alternatives in the listed space may no longer be able to command huge valuation premia, just because they are garnering funds through an IPO. Newly listed stocks may no longer remain islands of high valuation, with large trading volumes, in current market conditions.

Finally, while making their decision, investors should factor in the opportunity loss involved in taking the IPO route. Quite a few retail applicants to the Reliance Power IPO probably sacrificed attractive opportunities to buy into blue-chips of their choice when they were available at rock-bottom prices in the recent market correction.

A significant part of their funds was locked into the offer. Allocating only a portion of your overall equity portfolio to IPOs and participating only in high conviction ones may be the best way forward.

Via Businlessline

GSS America Infotech IPO Review

Incorporated in 2003 and promoted by first generation entrepreneurs and technocrats Bhargav Marepally and Ramesh Yerramsetti, GSS America Infotech (GSI) is a total IT solution provider spanning consulting, enterprise application integration and infrastructure management/managed services. Its web-based business service management product Control-M gives administrators and users an intuitive and easy way to control and manage the business environment. Almost 100% of the revenue are housed under its 100% subsidiary GSS America Inc. Currently, all the revenue is derived from the US market.

Enterprise Application Integration (EAI) contributed 39% of the revenues; infrastructure management services (IMS) 42%, and products 10% in the nine months ended December 2007. The Top 5 clients contributed 14.89% and top 10 clients 21.90% of the total revenue.

GSI has four delivery centres: two offshore centres in Hyderabad, with capacity of 270 employees; and two nearshore centres in Chicago, US, with capacity of 150 employees. The employee strength is 717. Of this, 400 are onsite. The average offshore experience is about six years. The onsite/offshore mix by revenue stands at 75:25 and by efforts 50:50.

Since incorporation, GSI has made three acquisitions. US-based consulting company Infospectrum Consulting Inc. was taken over from 1 April 2006. Infospectrum Consulting reported revenue of Rs 75.95 crore with net profit of Rs 12.45 crore in the nine months ended December 2007. All the shares of US-based System Dynamix Corporation was acquired through 100% subsidiary GSS America Inc. in December 2007 for US$ 6 million in cash and US$ 6 million in net current assets along with an earn-out of maximum US$ 6 million over three years. System Dynamix clocked revenues of US$ 23 million with net income of US$ 2.75 million in calendar year 2007.

The net proceeds of the initial public offering (IPO) would be utilised to set up Global Delivery Centre (GDC), with a capacity of 1,000 employees, at a cost of Rs 66.10 crore in Hyderabad by March 2009; to set uo overseas offices in Europe, Middle East and Far East at a cost of Rs 9.81 crore; to meet working capital requirement (Rs 25 crore); and the balance for acquisitions and issue expenses.

Strengths

• Margin has been continuously increasing despite the pressures of rupee appreciation, proving operational efficiencies and high billing rates. Operating profit margin went up from 17.7% in the year ending March 2006 (FY 2006) to 25.8% in the nine months ended December 2007.

Weaknesses

• All the revenue accrues from the US. Thus, prone to the fallout of US recession and dollar depreciation.

• Operations are project based and are mainly time and material contracts, increasing the risk of termination of contracts. This could impact revenue and profit.

Valuation

At the price band of Rs 400-Rs 440, P/E works out to 9.1-10 times on annualised nine-month EPS of Rs 43.9. The IT sector has been suffering severely from adverse market sentiments. Most IT stocks including majors have been beaten down substantially. Comparable IT companies with high onsite contribution are Zylog Systems (trading at 6.4 times its trailing 12-month EPS of Rs 45.7) and Prithvi Information Solutions (trading at 5.9 times its TTM EPS of Rs 55.5).

Wockhardt Hospitals, Emaar MGF withdraw IPOs

Wockhardt Hospitals Ltd. decided not to proceed with its proposed initial public offering (IPO) due to lack of interest from all category of investors amid weak market sentiment. The decision not to proceed with the IPO was made in light of continued global and domestic market volatility and poor market sentiment and the resultant effect on the subscription levels in the primary market, Wockhardt Hospitals said. All refunds will be completed within 15 days of the issue closing Date, Feb 7. Wockhardt Hospitals also received a lukewarm response due to concerns on its high valuations vis-a-vis its listed peers like Apollo Hospitals and Fortis Healthcare. The issue appeared be doomed right from the start as the company slashed its price band on the eve of the IPO. Then, the IPO got delayed by one day due to lack of adequate regulatory approvals. Wockhardt Hospitals later extended the issue by to days, hoping to attract some subscriptions. But, despite all efforts on the part of the company's promoters, there were just no takers for the shares given its expensive pricing and tough market conditions.

A couple of other IPOs - Emaar MGF and SVEC Constructions - were also facing much difficulty in getting subscriptions. Emaar MGF cut its price band twice. First, from Rs610-690 per share to Rs540-630 a share, and then by trimmed the lower end of the price band by another Rs10, to Rs530 a share. The real estate firm also extended the time period of the public issue by five days to Feb. 11. It was initially slated to close on Feb. 7. Emaar MGF did receive better response, but eventually withdrew the issue on Friday, saying it will consider an IPO once the market stabilises. The company also said it will consider other funding options and that the failure of the IPO won't affect its proposed and current projects. Meanwhile, SVEC Constructions extended the time period for its public issue, till Feb. 13.

The events of the past couple of weeks in the primary market raises some serious questions. One, about the efficacy, transparency and fairness of the entire regulatory IPO process, especially for retail investors. Secondly, about the involvement of merchant bankers and promoters, some of who tend to demand valuations that are out of sync with market realities and pragmatism. Having said that, public memory is short, and a rising market all excesses are brushed under the carpet and people just go with the current trend. So, when the markets recover and start rallying again, we will once again have greedy promoters and their partners in crime - the i-bankers - to sell juicy stories to gullible investors.

EMAAR MGF - All over, money in 15 days!

 Money to be refunded to investors in 10 to 15 days

Emaar MGF Land became the second victim in the last two days of depressed secondary market conditions as it today withdraw its initial pubic offer (IPO) following poor response to the issue. The company will now look at private placement and private equity deals at the special purpose vehicle (SPV) level.

Wockhardt Hospitals, late on Thursday, 7 February 2008 withdrew its initial public offer (IPO) due to poor investor response.

Emaar MGF Land would refund the money to investors in 10 to 15 days. The Emaar MGF Land IPO was subscribed 0.83 times as at 16:00 IST on its fourth day of issue on 7 February 2008. However, most investors might have pulled-out their bids today, 8 February 2008, as indicated by the fall in subscription figures. As a result the issue was subscribed just 0.43 times as of 15:00 IST today, 8 February 2008.

The company had cut the price band of its initial public offer for the second time on Wednesday, 6 February 2008 and also extended the date of closing of the issue to Monday, 11 February 2008, due to poor response to the issue. The price band was revised from Rs.540 to Rs 630 per share to Rs 530 to Rs.630 per share.

The price band for the issue was initially pegged at Rs 610 to 690 per equity share. The IPO had opened for subscription on 4 February 2008.

Real estate major Emaar MGF Land is a joint venture between Emaar Properties PJSC of Dubai and MGF of India. Emaar group holds 41.9% stake in the JV while MGF holds 53.3% stake.

The proceeds of the IPO were to be used for part payment towards the acquisition of land and land development rights and related approvals for its ongoing and planned projects; development and construction costs for project Palm Drive in Gurgaon; and repayment of loans; and general corporate purposes (GCP).

Grey Market - OnMobile Global, EMAAR MGF and more..

 Reliance Power 450 160 to 170


Emaar MGF 540 to 630 25 to 30


J. Kumar Infraprojects 110 Discount


Cords Cable Ind. 135 4 to 5


KNR Construction 170 Discount


Onmobile Global 440 15 to 18


Bang Overseas 207 12 to 15


Shriram EPC 290 to 330 Discount


IRB Infrastructure Developers 185 to 220 25 to 30

Wockhardt Hospital 225 to 260 4 to 5


Manjushree Extrusion 45 Discount


Tulsi Extrusions 80 to 85 8 to 10


SVEC Construction 85 to 95 5 to 8

 

Grey Market - OnMobile Global, EMAAR MGF and more..

Reliance Power 450 160 to 170


Emaar MGF 540 to 630 25 to 30


J. Kumar Infraprojects 110 Discount


Cords Cable Ind. 135 4 to 5


KNR Construction 170 Discount


Onmobile Global 440 15 to 18


Bang Overseas 207 12 to 15


Shriram EPC 290 to 330 Discount


IRB Infrastructure Developers 185 to 220 25 to 30

Discounts at Grey Market

Reliance Power 450 150 to 160


Emaar MGF 540 to 630 45 to 50


J. Kumar Infraprojects 110 Discount


Cords Cable Ind. 135 5 to 8


KNR Construction 170 Discount


Onmobile Global 440 20 to 25


Bang Overseas 207 20 to 25


Shriram EPC 290 to 330 Discount


IRB Infra 185 to 220 70 to 75


Wockhardt Hospital 225 to 260 Discount


Manjushree Extrusion 45 2 to 3


Tulsi Extrusions 80 to 85 9 to 11


SVEC Construction 85 to 95 8 to 10

Reliance Tower IPO - will RCOM move up like REL ?

Anil Ambani's appetite for raising funds from the primary market seems to be insatiable. Barely a fortnight after his Reliance Power completed the country's biggest public issue, another company from the group Reliance Telecom Infrastructure (RTIL) is gearing up to raise nearly Rs 5,000-6,000 crore through an initial public offering.

The company has decided to file the draft red herring prospectus with the market regulator Sebi this week, it is learnt. The list of merchant bankers appointed for the IPO includes J P Morgan, Enam, UBS and ABN Amro.

Bankers close to the development said RTIL will sell nearly 10% of its post-issue share capital through the IPO which will put its valuation more than double of what it achieved in July when it privately placed 5% stake to a group of institutional investors. RTIL, a 95% subsidiary of Reliance Communications (RCOM), sold the stake for Rs 1,400 crore to a host of investors including George Soros, HSBC, Fortress Capital, New Silk, Galleon, DA Capital and GLG Capital in a deal which had put its valuation at Rs 27,000 crore.

Going by the IPO size, the equity valuation of RTIL, a company engaged in the business of building, owning and operating communications towers, will be around Rs 50,000-60,000 crore. This will translate into nearly Rs 250-300 per RCOM share. The RCOM stock closed at Rs 612.15 on Friday on the BSE. When contacted, a spokesperson for the group declined to comment.

RCOM demerged its tower assets in RTIL last year in a move which was followed by most telecom companies in India. RTIL has a presence in all 23 telecom circles in the country. It has a 10-year master services agreement to provide passive telecom infrastructure to RCOM. Additional tenants in the form of external wireless operators on RTIL's towers will provide incremental growth for it.

Bankers found the increase in number of towers responsible for the possible increase in valuation. "RTIL had 14,000 towers across the country when the first stake sale happened in July. Now, it will end up this financial year with 40,000 towers. Also, it plans to add another 20,000 towers next year. With new players getting into the 2G and 3G spaces, the tenancy ratio for every tower is expected to go up to four. In short, the business proposition of the company looks more bright than what it was in July," said a person related to the developments.

RTIL is putting in an investment of Rs 16,000 crore this year and is expected to pump in Rs 8,000 crore more next year. It has a minimum of four tenancy slots and it is in the process of upgrading this to host seven tenants by 2009. It expects to reach the one lakh tenancy figure this week.

Reliance Power, another R-ADAG group company, last week completed the allotment of shares of its Rs 11,560-crore IPO. The issue helped Reliance Power to became India's biggest company in terms of the number of shareholders (42 lakh). RNRL had close to 22.3 lakh shareholders at the end of December 2007, followed by the Mukesh Ambani-led Reliance Industries with close to 20.6 lakh shareholders. Reliance Communications is the fourth-largest in this list with around 19.8 lakh shareholders. Reliance Petroleum has close to 16.9 lakh shareholders.

Via Economic Times

Latest Grey Market - Reliance Power

 Grey Market Premium of Reliance Power is around Rs 130-150

Expect it to drop if the market conditions remain volatile

Emaar MGF, Onmobile Global, IRB Infrastructure, Shriram EPC

 Reliance Power 450 150 to 160


Emaar MGF 540 to 630 45 to 50


J. Kumar Infraprojects 110 Discount


Cords Cable Ind. 135 5 to 8


KNR Construction 170 Discount


Onmobile Global 440 20 to 25


Bang Overseas 207 20 to 25


Shriram EPC 290 to 330 Discount


IRB Infra 185 to 220 70 to 75


Wockhardt Hospital 225 to 260 Discount


Manjushree Extrusion 45 2 to 3


Tulsi Extrusions 80 to 85 9 to 11


SVEC Construction 85 to 95 8 to 10

Wockhardt Hospitals IPO Review

Investors can refrain from subscribing to the initial public offer of Wockhardt Hospitals being made at a price band of Rs 220-260 per share (revised).

Even at the revised offer price, the offer appears expensively valued vis-À-vis sector leader, Apollo Hospitals.

Wockhardt Hospitals is the fourth largest player in the Indian healthcare sector with a presence in western, southern and eastern India.

It plans to scale up its operations to 3,500 beds by 2010, from around 1,400 currently.

Wockhardt Hospitals focusses on tertiary care clinical areas such as cardiology and cardiac surgery, orthopaedics, neurology, urology, nephrology, critical care and minimally invasive surgery.

Wockhardt's current earnings rely significantly on three out of its total of 15 facilities (one hospital in Mumbai and two in Bangalore contributed 69 per cent of income in nine months of FY-07).

Overall, the occupancy rates are at about 57 per cent; with occupancy at some of the facilities set up over the last couple of years yet to pick up to healthy levels.

With the company in a heavy investment phase, investors should expect lower profit realisations and relatively low return on capital in the initial years (7.5 per cent in nine months ended December 2007).

With the reduction in the size of this offer (from Rs 778 crore to Rs 652 crore at the higher end of price band) and aggressive plans to ramp up capacities over the next few years, further debt or equity offerings to raise more capital cannot be ruled out.

At end of December 2007, the company's internal accruals stood at Rs 10 crore, which cannot make up for the shortfall.

Wockhardt Hospitals' current earnings are relatively small; translating into per share earnings of Rs 0.9 (on post-offer equity base) for the nine months of FY2008 ended December 31, 2007.

It currently owns/operates 15 hospitals (1,400 beds), having invested Rs 370 crore in capex in recent years. Plans are afoot to add another 2,127 beds through six brownfield hospitals (operated/managed by company or group companies on long-term agreements with original infrastructure owners) by end-2008 and four greenfield (to be entirely built by company) by end-2009.

Two-thirds of the net IPO proceeds, after deducting issue expenses and corporate purposes, will be used to construct and expand these 10 hospitals.

The remaining sum may be used to prepay short-term loans. Such prepayment, if it materialises, could significantly reduce the high leverage in the balance-sheet (debt-equity ratio, including short-term debt, may be significantly reduced from 3.8 currently).
Performance

Wockhardt Hospitals' network spans ten super-specialty and five regional specialty intensive care unit (ICU) hospitals with an 18 year track record and expertise in minimally invasive surgery (up to 10 per cent of surgical operations performed in FY07).

Wockhardt plans to leverage on these to reduce average length of stay (the turnaround time, which is crucial to realisations) and maintain revenues per bed of Rs 24 lakh per year.

Wockhardt's strategy revolves around garnering in-patient revenues by focussing on areas such as secondary care and advanced tertiary care; both of which have strong growth prospects and potential for high margins. Personnel being critical to hospital business, attrition is a key risk.

However, Wockhardt Hospitals claims a 99 per cent retention rate (last 12 months) for its workforce of 160 full-time specialists. The attrition rate was 20 per cent for resident doctors.

With operating margins of 20.8 per cent in the last nine months, the company's margins are among the highest in the listed hospital space.

The company's ability to ramp up occupancy would be crucial to prospects, as it has greater dependence on its core in-patient business (75 per cent of revenues) for revenue than peers such as Apollo, which has a pharmacy and medical BPO business as well.)

Going forward, a higher reliance on brownfield expansion may provide some relief as brownfield hospitals are typically asset-light and allow a quicker payback period, provided occupancy rates are healthy. Litigation risks to seven of the present and proposed facilities also exist.
Valuation

The company's valuation at an enterprise value (EV) multiple of about 44 times its estimated FY-08 EBITDA (earnings before interest, tax, depreciation and amortisation) appears expensive. Apollo Hospitals, with 7,000 beds under operation and a more diversified profile, commands an EV/EBITDA multiple of around 20 times on FY-08 earnings while Fortis Healthcare enjoys around 42 times.

While Apollo enjoys strong brand equity, Wockhardt Hospitals also enjoys reasonable recognition in regions where it has been in operation for more than 8-10 years.

Given that the company is foraying into Tier-II cities (Madgaon, Nasik, Ludhiana, Jabalpur, Bhavnagar) packaging and pricing may be more important than the brand.

Taking into account the long gestation period in the hospital business and prospects for steady, rather than spectacular growth in earnings, the asking price for the offer appears stiff. It also does not offer any comfort on execution-related risks.

All IPO Reviews Via Businessline

Emaar MGF Land IPO Review

Investors can consider applying to the initial public offer of real-estate company, Emaar MGF Land (EMGF), but should retain at least a three-year perspective. The company's shares are on offer from February 1-8 at a price band of Rs 540-630 (revised).

Backed by a strong promoter with a global presence, EMGF has swiftly accumulated a solid land bank in India and has demonstrated its marketing abilities through strong demand for its recently launched residential projects. In its targeted pan-India presence and ambitious plans across segments, the company could well be compared to large players such as DLF and Unitech. The drawback would be its lack of track record in the Indian market. Successful execution of its plans would, therefore, hinge on the support from its international parent, Emaar, and domestic partner, MGF. The company now appears to have built a strong base — sufficient land bank, tie-ups with international construction players for project execution and a diversified portfolio with joint ventures in hospitality and infrastructure.

On the company and offer

EMGF is a real estate company incorporated in 2005, co-promoted by Emaar Properties of UAE and MGF Developments. The company is into residential, commercial and retail projects and has plans to foray into hospitality and airport projects. At the higher end of the price band, the offer would raise about Rs 6,400 crore to be utilised towards land acquisition, construction cost and loan repayment. Post-listing, the market capitalisation would be Rs 53,000-62,000 crore.
Strong promoter background

EMGF's promoter, Emaar Public Joint Stock Company (Emaar), is an international real estate player with a presence spanning Saudi Arabia, UAE, Egypt and the US. Emaar PJSC is building the world's largest tower and Mall in Dubai and is also involved in the prestigious King Abdullah Economic City in Saudi Arabia.

Apart from skill sets and cash infusion of over Rs 3,000 crore into EMGF, Emaar brings to the table an ability to forge business and funding ties. This lends confidence on two key success factors — execution capability and meeting fund requirements. Emaar's interest in this venture is also evident from the agreement to route all its Indian projects only through EMGF.

MGF Developments, the other promoter, specialises in retail space and has an established presence in North India, with local knowledge to handle issues such as land identification, procurement and dealing with local procedures. That the company has managed to add 13,024 acres to its land reserves in a short span of time — a high proportion of it also being fully paid — suggests that the local partner's knowledge has played a pivotal role.
Comfort from land holding

As much as 89 per cent of EMGF's land reserve is fully paid, thus locking in to prices; reducing risks of escalation in prices at a later date. This proportion is higher than Emaar's peers in the listed space. Though the land bank is spread across regions, the north accounts for 75 per cent. This probably arises from the MGF's strength in the region and suggests caution in testing new waters.
Buoyant take-off

EMRF has already made available for sale about 80 per cent of the 17.3 million square feet of residential projects under development. This provides comfort on the company's execution capabilities, given that it otherwise lacks a track record in the country.

Of the total developable area of 566 million sq ft., residential segment accounts for over 75 per cent with about 15 per cent in commercial and the rest planned for retail and hospitality.

The focus on residential appears appropriate for two reasons. The demand for residential area is expected to be higher than the other segments over the long term. This would also enable the company to cash-in on projects, replenish the land bank and move ahead to other projects. This build-sell model prevents locking-in of capital. However, projects coming up over 2008 and 2009 are tilted towards the commercial and retail space, with plans to adopt a lease model.

This strategy appears to be targeted at building a high-grade asset basket, targeting Real Estate Investment Trusts (REIT). Even if EMGF is able to complete 50 per cent of the targeted 89 million sq ft of commercial space, it could garner a sizeable share of the REIT market.

In the residential segment, the company has chosen a strategy of 'integrated master planned communities' (similar to the integrated township concept) in many Tier-II and Tier-III cities.

This provides flexibility to the company to sell plotted land or full fledged housing, depending on the response in these areas. The sale of plotted land would also aid regular infusion of cash to meet working-capital requirement.

The strategy appears well thought out, as it may result in regular cash infusions, while building a portfolio of income-yielding assets.
Sound joint ventures

EMGF has used international joint ventures to access technology, and make up for lack of experience in dealing with local contractors. Exclusive tie-ups with Australia-based companies, Leighton International and Multiplex, and the US-based Turner Construction are cases in point.

The company has also formed a consortium with Dubai Aerospace Enterprise to venture into opportunities in port privatisation, modernisation and management in India. Given that this segment in the infrastructure space has just taken off in India, the move to focus on it appears well-timed.

The company's foray into hospitality is supported by tie-ups with the Hyatt, Accor, Marriot and Four Seasons.

While the JV is desirable, we are cautious about prospects for up-market and luxury hotels in places such as Kolkata, where attractive pricing may remain a key.
No cheap valuations but..

EMGF has managed to break even within two years of incorporation; profits for the half year-ended September 2007 fully offset the earlier losses. Consolidated revenue for the half year stood at Rs 473 crore, while net profits were Rs 130 crore.

We conservatively estimate revenues crossing Rs 3,000 crore by FY-09 with per share earnings close to Rs 10.

This estimate does not factor in earnings from the hospitality segment and the leased commercial and retail spaces. The latter, especially, could provide significant upside to the earnings estimate.

EMGF's operating and net profit margins for the half-year ended September 2007 stood at 39 per cent and 27 per cent respectively. This compares well with the industry average but is slightly lower than the leading players.

A recently accumulated land bank may explain the lower margins. This factor may see more steady margins on the company's projects compared to peers, as the latter may witness contraction as they move over to recently replenished land reserves.
Risks

We are concerned about a chunk of EMGF's present projects being concentrated in Mohali. While purchasing power in this location no doubt remains high, the market is yet to be tested for projects of such huge scale. Risks of excess supply also remain high.

As is the case with most other big players, Emaar's targets for development appear aggressive given that no player has so far proven such capabilities.

While Emaar has a good track record, the size of total projects executed so far is only about 50 million sq ft (although huge developments are under way) across the world.

IRB Infrastructure Developers IPO Review

Investors with a long-term outlook can subscribe to the initial public offer of IRB Infrastructure Developers. A good track record in the build-operate-transfer (BOT) space, early-mover advantage in running toll roads and in-house capabilities in construction, road maintenance and toll collection suggest strong growth potential for this infrastructure company.

The offer price of Rs 180-220 appears stiff and the current market correction has provided an opportunity to enter a number of blue chips at reasonable valuations. We would, therefore, be comfortable recommending an 'invest' at the lower end of the price band. Our conservative estimate of the consolidated per share earnings for FY 2009 on the post offer equity base works out to Rs 3.1.

This is, however, without factoring in any increase in toll charges and traffic for the toll roads operated by the company, or revenues likely to flow from the company's real-estate venture.
Background

IRB Infrastructure Developers is primarily a holding company with wholly-owned subsidiaries, which are engaged in road and highway construction and maintenance. The group is at present involved in 12 BOT projects out of which 11 are in the operational phase (with maintenance and toll collection being done by the group). The company also plans to foray into real-estate . IRB plans to raise about Rs 100 crore to invest in one of the subsidiaries and also repay its own loans and that of its subsidiaries. Post-listing, the market capitalisation of the stock would be Rs 6,000-7,000 crore.
Early bird

The toll model is normally considered risky, although the revenue potential is high if the project attracts high traffic. Being one of the early private players in the space, IRB has managed to negotiate lucrative business terms that have compensated for risks associated with the toll model.

For one, IRB's existing BOT projects do not have any toll-sharing arrangement with the Government. With high-traffic segments such as the Mumbai-Pune Expressway, part of NH-4 and Pune-Nashik road in its portfolio, IRB is likely to enjoy a high internal rate of return on its projects compared to peers who have more recently entered the segment and have thus settled for less attractive terms.

While the current basket of 12 BOT projects would enjoy superior profitability, new bids may see relatively muted returns with the Government now actively looking at toll-sharing models. .

Two, the company has non-compete clauses in some projects, which would restrict the Government from building or operating any competing BOT projects that could possibly reduce the toll inflows for the company. Similarly, control over projects such as the Mumbai-Pune Expressway as well as the Mumbai-Pune portion of the NH-4 corridor (both under IRB's purview) ensures that the company does not face any competition from adjoining corridors.

Three, the company may benefit from periodic hikes in toll rates, some of which may be significant if traffic numbers are encouraging. For instance, the Mumbai-Pune Expressway is likely to command 18 per cent increase in toll rates the coming year.

The above factors suggest that the timing and locational advantages of the existing portfolio may endow IRB with a clear edge in the toll road segment.
Pre-qualification and integration

While IRB's operations have been concentrated in Maharashtra and Gujarat, its experience in BOT has earned it pre-qualification by NHAI in NHDP Phase V projects in other States such as Tamil Nadu, New Delhi and Uttar Pradesh. Additionally, IRB's operations appear well integrated, with capability to build and maintain roads as well as manage toll collection. This integration reduces the need to outsource work, which, in turn, results in higher profit margins.

IRB's order book as of October 2007 stood at Rs 2,325 crore. While this would convert to revenues over 2008-2010, we expect toll revenues (not included in the order book) to be the most significant revenue driver. Income from BOT projects (predominantly toll revenues) accounted for the largest chunk of the recent consolidated revenues of the company .

IRB posted consolidated sales of Rs 262 crore for the five months ended August 2007 and net profits after minority interest of Rs 24 crore. The reported numbers may not be indicative of the company's future revenues for two reasons. Revenues of fully controlled subsidiaries have been only partly captured in the August 2007 financials, because of recent consolidation.

Two, a few other subsidiaries have also been consolidated post August 2007; and these have not been accounted. The recent consolidation is positive because earnings that would have otherwise accrued to special purpose vehicles (SPVs) will now directly accrue to the fully-owned subsidiaries.

As most of the projects under the subsidiaries are operational, risk of funding also appears minimal.

IRB and its subsidiaries carry high levels of debt. While repayment from the offer proceeds would reduce the debt, newer projects and a foray into real-estate could require further raising of funds.

IRB plans to venture into real-estate and has acquired 925 acres of land for building a township in Pune district. With its hands full in the infrastructure space, we are cautious about its capability as a real-estate developer. The offer closes on February 5.

Reliance Power has most number of shareholders

Anil Ambani Group's Reliance Power has become the country's biggest company in terms of number of shareholders following the allotment of shares in its recently completed Rs 11,560 crore initial public offering.

Reliance Power, whose IPO ended on January 18 with a huge demand worth over Rs 7,50,000 crore and over-subscription of 73 times, has close to 42 lakh shareholders, the company said today after allotment of shares under the public issue.

This shareholder base is bigger than any other company currently listed on Indian stock exchanges, according to the shareholding data filed with the bourses.

Reliance Power has taken over another group company, Reliance Natural Resources Ltd (RNRL), in terms of number of shareholders.

According to the latest information available with stock exchanges, RNRL had close to 22.3 lakh shareholders at the end of December 2007 quarter, followed by Mukesh Ambani-led Reliance Industries with close to 20.6 lakh shareholders.

Interestingly, seven top companies in terms of the number of shareholders belong to either of the groups led by two Ambani brothers.

While the top two companies -- Reliance Power and RNRL belong to Anil Ambani Group; the third largest, RIL, and fifth largest, Reliance Petroleum (RPL) belong to the Mukesh Ambani group.

Anil Ambani Group's Reliance Communications is the fourth largest with a shareholder base of about 19.8 lakh. RPL had close to 16.9 lakh shareholders as on December 31, 2007.

Besides, Anil Ambani Group's Reliance Energy and Reliance Capital are sixth and seventh largest with 15.4 lakh and 12.5 lakh shareholders respectively.


Reliance POWER IPO Allotment can be checked here (Its delayed, Expected today )