Intraday Calls - IPO Analysis - Team Intraday

Kabirdass Motor to invest Rs 100 cr, files for IPO

2009-05-12T12:07:00.000+05:30

Mumbai: Kabirdass Motor Co has approached the Securities and Exchange Board of India (SEBI) with a draft prospectus for an initial public offer to partly finance its plans to invest more than Rs 100 crore in its business.

The company is planning for different options to raise Rs 81.28 crore from the sale of its shares, including Rs 61.28 crore from the IPO. Apart from that, it has tied up for a bank term loan worth Rs 20 crore, as per its draft IPO prospectus filed with the SEBI.

The total investment plan of Rs 101.28 crore includes those for land, building, plant and machinery, research and development, brand promotion and other expenses.

Chennai-based Kabirdass Motor Company Limited was incorporated in November 2006 as a private limited company. It is engaged in the manufacturing and distribution of electric bikes and scooters under the brand name 'Xite'.

Source: Asian CERC

Godrej Properties plans IPO

2009-05-12T12:00:00.003+05:30

Godrej Properties, the realty arm of Godrej, plans to come out with an IPO (initial public offering) this fiscal. This IPO is coming at a time when the realty index has given up 71% in the last year. The recent salary hike of government employees, as well as fall in property prices and cut in lending rates may give a support to the falling property prices.

Recently, Godrej Industries has announced buy back of shares of 5.70 lakh equity shares at a price not exceeding Rs275, which translates into a 9.9 per cent stake.

Source: Asian CERC

Middle East IPOs raise $83.6 m in Q1 of 2009

2009-05-12T12:00:00.001+05:30

Dubai: Middle-East companies raised $83.6 million through two IPOs in the first quarter of this year. However, this is 97.9 per cent lower as against fund raised in 2008, an Ernst & Young report has said.

$3.98 billion was raised through 13 IPOs in the first quarter of 2008, Ernst & Young's first quarter Global IPO update 2009 has said.

Saudi Arabia's Etihad Atheeb Telecommunications was the largest IPO in the Middle East during this period, which raised $80 million and listed on the Riyadh Stock Exchange. The company was ranked third in terms of capital raised among a total of 50 IPOs worldwide, all of which raised just $1.4 billion, it said.

A Syrian company, Al Adham Foreign Exchange Co, was the only other regional IPO in Q1 2009. It raised $3.62 million and listed on the Damascus Stock Exchange.

Source: Asian CERC

Rights issues were priority of FY09

2009-05-12T11:59:00.003+05:30

Most of the Indian companies were using existing investor's route for raising capital last year mainly due to economic turmoil. Awful market condition led loss of investor appetite in new share issues and also froze out overseas funding avenues.

Rights issues, the route through which companies raise funds by issuing fresh shares to existing investors emerged as the single-biggest fundraising route during the year as compared to initial public offers (IPOs) and overseas issues that dominated fundraising in the previous year.

According to Prime Database, companies raised Rs 12,622 crore through 23 rights issues in 2008-09 compared with Rs 2,023 crore through IPOs during the period. The amount raised through rights issues last year, however, more than halved compared to Rs 32,518 crore by 30 companies last year. However, the extent of decline was much less than IPOs, which tumbled 95 per cent during the same period.

Rights issues are the current flavour. Companies are looking to tap existing shareholders as valuations are too attractive to dilute to outsiders, says Ravi Sardana, senior vice-president of ICICI Securities.

Source: Asian CERC

SEBI wants legal opinion on NSDL order

2009-05-12T11:59:00.001+05:30

The Securities and Exchange Board of India (Sebi) on Monday said it will look for an external legal opinion on whether the board of Sebi has the right to scrutinize the orders of special committee passed after the quasi-judicial proceedings against NSDL. The board has decided to keep back the committee's orders till opinion. The committee was set up after CB Bhave, former NSDL chairman, took over at Sebi.

The case deals with Sebi's investigations into 21 IPOs between 2003 and 2005. Sebi's investigate revealed that the shares, which was reserved for retail investors were illegally acquired by various entities through thousands of untrue applications. The regulator want advice of legal counsel on whether the committee has acted within the framework and terms of reference established by the board resolution.

Source: Asian CERC

UBI IPO may come out by February 2010

2009-05-12T11:58:00.001+05:30

United Bank of India (UBI) is planning for its proposed maiden public offer on a February 2010. The bank received Cabinet clearance for the long-awaited capital restructuring. UBI is one of the two public sector banks that are not listed. The other one is 'The Punjab & Sind Bank'.

UBI chairman and managing director Satish C Gupta said the bank intends to file the red herring prospectus with Securities & Exchange Board of India (SEBI) after September 2009 once it comes up with its audited half yearly results.

We will go public in the third or the fourth quarter. It's now on top of our agenda, the CMD said. Although the bank is still to decide the size of the IPO, Mr Gupta indicated that it would be not less than Rs 50 crore.

Source: Asian CERC

United Bank plans to float IPO in 6 months

2009-05-12T11:53:00.001+05:30

Kolkata: United Bank of India is looking at the option of floating an initial public offer in six to nine months with an equity issue of Rs50-60 crore. The bank at a premium of Rs 100 a share would be able to mobilise around Rs 500-600 crore worth Tier I capital. The bank's paid-up equity capital will be reduced to Rs 266 crore.

The cabinet recently has approved the capital restructuring plan of the bank, which would include reduction in paid-up equity by over 80 per cent to improve its financial parameters. Moreover, the restructuring would enhance the bank's book value of shares to Rs 84-85 (up from Rs 14 at present) and it would further improve to Rs 100 after the IPO. The paid-up capital of the bank would reduce to Rs 266 crore (Rs 1,532 crore). The excess capital of Rs 1,266 crore would be infused into the bank's capital reserves.

Source: Asian CERC

MCX chief denies IPO revival plans

2009-05-12T11:52:00.002+05:30

Multi Commodity Exchange of India (MCX), has declined any plans to renew its deferred initial public offering (IPO), a top company official said on late Monday.

These are rumours... said Joseph Massey, managing director of the bourse, said in response to some media reports quoting sources about a revival in MCX IPO plans.

MCX had in August 2008, shelved its IPO, taking into consideration the market scenario and the advice of the merchant bankers.

MCX, a unit of Financial Technologies India Ltd, had filed an offer document with the market regulator in February 2008 and media reports had estimated the size of the issue at around 5-6 billion rupees.

Source: Asian CERC

MCX to revive IPO plans; may soon file fresh prospectus

2009-05-12T11:52:00.001+05:30

Multi-Commodity Exchange (MCX), is expected to be reviving the initial public offer (IPO) and may soon approach the SEBI. The MCX had put on hold its IPO plan within a year back.

The promoter of MCX, Jignesh Shah-led Financial Technologies (FTIL), is supposed to have sounded out some investment bankers and brokers in recent times about the possibility of reviving plans for the IPO, according to the market sources.

As per company policy, we do not respond to day to day market news and rumours. We also do not do selective disclosures, a company spokesperson said in an emailed statement.

At the time of achieving the milestone we report it to stock exchanges so that the information regarding development is uniformly distributed to all stakeholders, he added.

There are also speculations that the IPO revival plans could be due to pressure from some investors such as Citigroup and Fidelity, who wanted to exit after MCX's listing.

Source: Asian CERC

No sign of relief for IPO market

2009-05-12T11:51:00.001+05:30

There is no sign of relief for the IPO market. The come back of Sensex to the 10,000-level is doubtful to prompt a revitalization in the primary market in the future. The doubt is there as foreign institutional investors (FII) continue to introverted and also there are concerns for the general elections.

According to Prithvi Haldea of Prime Database, it's not the Sensex level by itself, but the stability and positive outlook for the secondary markets that's important for the primary market. He points out to the spate of successful IPOs in 2005-06, when the Sensex was between 8,000-16,000 points.

India's primary markets have been on a dried up since 2007. So far in 2009, only one initial public offer (IPO) has seen the light of the day, raising Rs 23 crore. There was a enlistment of Rs 16,927 crore in 2008, almost 63 per cent down from the Rs 45,137 crore raised in 2007 through public equity issues, comprising both IPOs and FPOs, according to Prime Database.

Source: Asian CERC

Sistema-Shyam to list in 18 months

2009-05-12T11:49:00.001+05:30

Shyam Sistema Teleservices, which is the joint venture between Kolkata based Shyam group and Russian diversified company Sistema, announced that are planning to get themselves listed in India in a year and a half. On Thursday the company committed to invest US $ 5 billion, primarily in telecom infrastructure development in India, over the next 5 years. The company made announcement while launching its CDMA mobile prepaid services only in the unified circle of Tamil Nadu, Chennai and Pondicherry under Sistema's MTS brand,

At present, the company's network in Tamil Nadu is presently supported by its own telecom electronic equipment. However, its towers are either self owned or shared with other mobile operators on a 10:90 ratio. Moving forward, we plan to change this ratio to 30:70 in the first year, as it's effective network coverage and quality of service that we are leveraging as our strength, said Sistema-Shyam president and CEO Vsevolod Rozanov.

Source: Asian CERC

Bharat Oman Refineries to go ahead with IPO plans

2008-09-23T22:34:00.001+05:30

Bharat Oman Refineries Ltd, a joint venture between Bharat Petroleum Corporation and Oman Oil Company Ltd, is all set to go ahead with its proposed IPO plan, a top company official said here.

BORL is implementing a 6-million tonnes per annum (mtpa) greenfield refinery at Bina, Madhya Pradesh.

"The company is preparing for its IPO, but it's not immediate. We are yet to get our final clearance from the Securities and Exchange Board of India (SEBI). We are meeting some queries from SEBI," Bharat Petroleum Chairman and Managing Director Ashok Sinha told reporters here.

"We are not in a hurry to float our IPO. We will take it as and when we feel comfortable," Sinha said.

BPCL's Bina refinery will be commissioned by December 2009 and will help the company meet its requirements in central and northern India, he said.

BORL has spent Rs 9,275 crore for the Bina project and has completed 75 per cent of the construction. The estimated capital outlay for the project is Rs 10,378 crore.

The project is proposed to be financed in a debt/equity mix of 1.6:1.

Both BPCL and Oman Oil Company Limited (OOCL) have contributed Rs 75.5-crore each towards the equity share capital of the company.

With OOCL having decided to limit its equity contribution to the present level of Rs 75.50 crore, BPCL has, with the approval of the government, decided to enhance its equity contribution in BORL up to 50 per cent, amounting to Rs 1,996-crore.

Via Economic Times

GSPC IPO Coming soon

2008-09-22T03:18:00.001+05:30

Gujarat State Petroleum Corp. (GSPC) plans to raise about US$1bn (about Rs45bn) from an initial public offering (IPO) of its equity shares, a senior company official said. "Our plan is to have the IPO by November but it may extend to December-January," the official, who did not want to be named, said on the sidelines of a conference in New Delhi. GSPC is planning to sell about 10-20% equity through the IPO. The company has mandated DSP Merrill Lynch, JM Financial, Kotak, SBI Caps and Citibank to manage the IPO, the company official said.

Grey Market - Chemcel Biotech, 20 Microns

2008-09-15T09:52:00.001+05:30

20 MICRONS Ltd. 50 to 55 8 to 10

Chemcel Biotech Ltd. 16 4 to 5

Grey Market - 20 Microns, Chemcel Biotech

2008-09-08T01:59:00.000+05:30

20 MICRONS Ltd. 50 to 55 7 to 9

Chemcel Biotech Ltd. 16 4 to 5

20 Microns IPO Analysis

2008-09-05T09:55:00.001+05:30

Promoted by Chandresh S Parikh and seven others, 20 Microns was incorporated in Gujarat in 1987 to manufacture white non-metallic minerals in India. The company is a leading manufacturer of micronized mineral products including micronised ground calcium carbonate, china and calcined clay, talc, dolomite, silica, mica and whiting (calcite and calcium carbonate), which finds application in the paints, plastics, rubber, ceramic, paper and other industries as functional fillers.

The mining resources and plants are strategically located in Rajasthan, Gujarat, and Tamil Nadu. With eight manufacturing facilities located in different strategic regions that are closer to its key markets, 20 Microns also has four mines of ground minerals, ensuring unhindered supply of raw materials at lower cost. The four mines comprise 72 hectors of mining area and permission has been sought for further 1,000 hectors of additional mining area.

With a turnover of 1,70,000 tonnes per annum, 20 Micron is a leader in white minerals including ultra-fine minerals ranging from 20 microns to 2 microns of particle size and is planning to introduce sub-micronized grades and nano-additives. Sub-microns and nano-additives are processed non-metallic minerals used as import substitute in various chemicals and polymers in paints, PVC pipes, paper, cement and ceramics. The company's clients include Finolex Cables, Berger Paints, Asian Paints, Goodlass Nerolac Paints, ICI India and Pidilite Industries.

Higher value added technology intensive, import substitute product like sub microns will be introduced in existing capacities at Vadadla (Gujarat), Bhuj (Gujarat) Tirunelveli (Tamil Nadu) and Udaipur (Rajasthan). Finer and pure material with size up to 0.7 microns will be produced at the expanded facilities.

Strengths

Has mining rights in four different locations leased from the Union government for 20 years, thus enabling sourcing of raw materials at lower cost.
Has a diversified product mix catering to various industries, thus providing a hedge against any downturn in any industry or product.
R&D capabilities have been used to manufacture innovative value-added products such as sub-microns and nano additives.

Weakness

Various pending legal proceedings related to Central excise, sales tax and labour could have a monetary impact of more than Rs 10.50 crore--a significant sum compared with the size of operations.
Faces extreme competition from the unorganised sector/tiny sector, which is able to supply materials at lower cost due to exemption from excise duty.

Valuation

The issue comprises fresh issue of 16,75,000 equity shares and an offer for sale of 26,75,632 equity shares by the selling shareholders (Gujarat Venture Capital Fund 1995).

20 Microns has set a price band of Rs 50-Rs 55 per equity share of Rs 10 each, translating into a PE of 15.2x at the lower price band and 16.7x at the higher price band, based on the earning per share of Rs 3.3 in the year ended March 2008 (FY 2008) on post-IPO equity. Though there are no strictly comparable companies, one can refer to the valuations of English India Clay and Ashapura Minechem for assessing the kind of P/E 20 Microns can command. Currently, English India Clay is trading at P/E of 16 and Ashapura Minechem is trading at P/E of 7.

Resurgere Mines and Minerals IPO Analysis

2008-08-11T09:37:00.000+05:30

Promoted by Subhash A Sharma and his wife, Resurgere Mines and Minerals (RMMIL) is in the business of extraction, processing and sale of mineral products and exploration and development of mining assets. The product range includes various forms of iron ore such as Lump ore, Size ore, Calibrated Lump ore (CLO) and iron ore fines etc. and bauxite. The company sells all these products domestically except iron ore fines, which the company exports to China.

The company currently operates in Nuagaon, Kendujhargarh district (Reserve - 12.37 million tonnes) and Maharajpur, Mayurbhanj district (Reserve - 42.08 million tonnes) in Orissa and is expected to commence operations at Tatiba mine in Singhbhum district of Jharkhand (Reserve - 20.37 million tonnes) in the near future. The company has entered in to long-term contracts for these mines, Nuagoan, Tatiba and Maharajpur, with the leaseholders for raising and purchasing of iron ore. All the three mines carry high quality iron ore of about 62% - 64% Fe content.

The present operations at the Nuagoan Mines and the Jharkhand Mines are being carried out under deemed renewal provisions since the respective Mining Leases have expired, prior to the expiry whereof the respective applications for renewals of the Mining Leases have been made to the State Government and are pending consideration.

The company has also made an application to the Collector of Sindhudurg district for the grant of an iron ore mining lease over an area of 108.77 hectares in village Banda, District Sindhudurg in Maharashtra, wherein company's application is under process. The company has also applied for two prospecting leases of iron ore in Banda region to the Collector of Sindhudurg district.

Furthermore the company is also engaged in merchant export of iron ore fines to China.

Through its wholly owned subsidiary M/s. Warana Minerals Private (WMPL), the company holds 60% interest in a registered partnership firm, Shri Warana Minerals which is engaged in the business of mining bauxite ore under the 30 year mining lease with respect to a bauxite mine situated in Yelwan Jugai, Maharashtra.

The mining assets of the Company, except Banda mine, have cumulative estimated reserve of 74.82 million tonnes of iron ore and 4.92 milllion tonnes of bauxite as certified by Central Mining Research Institute.

RMMIL proposes to enter the capital markets with a public issue of 4450000 Equity shares of Rs 10 each through 100% book building process. The price band has been fixed at Rs 263 to Rs 272 per Equity share of Rs 10 each.

The Company proposes to utilize the net proceeds of the Issue to part finance its plan for purchase of Plant and Machinery valued at Rs 128.56 crore for setting up of its own extraction and crushing facilities at the mines and purchase of 6 railway rakes worth Rs 116.36 crore to set up own logistics infrastructure facilities, besides meeting margin money requirement for working capital (Rs 18.25 crore), Provision for contingencies and Pre Operative expenses (Rs 8.24 crore), General corporate purpose (Rs 10 crore) and Issue expenses.

Besides the proceeds of the issue, the Company proposes to finance the cost through term loans of Rs 86 crore to be raised from banks, Rs 43 crore through Private Equity funding from Merrill Lynch International and Rs 13.75 crore through Pre-IPO allotment.

Merrill Lynch International holds 3000000 Equity shares, India Business Excellence Fund-I holds 910000 Equity shares, IL&FS Trust Co. (Trustees of Business Excellence Trust-India Business Excellence Fund) hold 402500 Equity shares, Mr Motilal Oswal hold 250000 Equity shares and Mr. Raamdeo Agarwal holds 200000 Equity Shares in the Company.

On Dec.'07, Merrill Lynch International has been allotted 3000000 shares of the Company for a total consideration of Rs 63 crore (Rs 210 per share). On Feb'08, IL&FS Trust Co. (Trustees of Business Excellence Trust-India Business Excellence Fund) and India Business Excellence Fund I subscribed to 550000 Equity Shares at Rs 250 per Equity Share for a total consideration of Rs 13.75 crore. Mr Motilal Oswal hold 250000 Equity shares and Mr. Ramdeo Agarwal holds 200000 Equity Shares in the Company at a price of Rs 210 per share

Strengths

The iron ore industry is currently in the midst of favorable conditions, on the back of robust demand scenario. However prices are already high and may be near the peak of the cycle.

Weaknesses

The company is operating on mines wherein the lease has either already expired or is about to expire in a short period of time. The mining leases of Nuagaon and Tatibha have already expired, while that of Maharajpur is due for expiry in April 2009. Even though the applications for renewal have already been made, the possibility of non-renewal in favour of existing leaseholders cannot be ruled out.

The company's selling strategy has been to sell only in the spot market and it sells most of its output to traders, hence, it currently does not enjoy any long-term relationship with any of its buyers. This also exposes the company to volatility in spot prices.

Valuation

At a price band of Rs 263 272, RMMIL's P/E works out to 11.3 11.7 times FY 2008 earning on post-IPO equity. Sesa Goa, which is a leading company within the sector, trades at P/E of 8.4 times FY 2008 earnings.

Austral Coke & Projects - IPO

2008-08-11T00:03:00.000+05:30

Investors can avoid investment in the initial public offering (IPO) of Austral Coke and Projects Ltd., considering the high execution risks and cyclical nature of the business, though prospects for volume growth are bright.

At Rs 196 (upper end of the price band), the offer is priced at 13-15 times the expected 2007-08 earnings per share, computed on the post-offer equity base. This is almost on a par with the valuation enjoyed by Gujarat NRE Coke, which has a larger scale of operations now.

The Kolkata-based Austral Coke is mainly into the manufacture of low ash metallurgical coke (LAMC) and refractories, apart from equipment rental and textile trading.

The company plans to use the IPO proceeds to finance its expansion in coke manufacturing facilities, acquisition of coal mining licences in India and abroad, prepaying debt and setting up an 8 MW captive power plant.

The expansion project is proposed to be financed almost entirely through this offer. Only about 2 per cent of the total outstanding debt is sought to be pre-paid through the proceeds of the IPO.
Financials

Austral Coke registered revenues of Rs 274 crore, with net profits of Rs 35.17 crore in the 11-months ended February 2008 (full year numbers are not disclosed).

However, only 45 per cent of these revenues (Rs 124 crore) came from manufacturing operations, the rest came from textile trading, equipment rentals and other businesses.

The company's track record in coke manufacture is relatively short and in the three years since 2004-05, the company managed revenue CAGR of 88 per cent in the manufacturing business, while net profits (before extra ordinary items) expanded from Rs 2 crore to about Rs 35.2 crore.

Demand potential for LAMC appears quite good in the light of the ongoing capacity expansion in the steel and cement sectors. The domestic demand for the product has been met significantly by imports, with Gujarat NRE Coke being the only large domestic player in this business.

However, the business is cyclical, with coke prices being highly sensitive to demand from user industries. Prices of coking coal, a key input, are also subject to sharp swings, making for a volatile earnings record for companies in this business.

According to the offer document, the company, which is now producing 1.75 lakh mtpa (metric tonnes per annum) of coke has recently added another 2 lakh mtpa in 2008. This IPO is set to fund another expansion of 1.50 lakh mtpa.

The rapid scaling up of capacities within a short period poses execution risks, as results of even the second expansion are not yet available. Austral has entered into an MoU with a group company Gremach Infrastructure Equipment & Projects Ltd for prospecting, mining and commercial activities in Mozambique.
Business risks

Apart from generic issues such as cyclicality of the met coke and steel industries and fluctuations in the international prices of inputs, there are company specific challenges such as lack of forward integration and execution risks. In the coal mining and equipment rental businesses, there are potential conflicts of interest with group companies also engaged in this line of activity.

The proposed coke project site is in red category zone of the Pollution Control Board. The offer document states that in the case of any environmental/other policy issue, the management may decide about the relocation of the project site.
Issue Details

The issue opened on August 7 and closes on August 13 and the issue size is Rs 119-142 crore. The price band is Rs 164-196.

Grey Market Premiums - Austral Coke

2008-08-03T23:11:00.001+05:30

Vishal Information Technologies 140 to 150 3 to 5

NU TEK India Ltd. 170 to 192 6 to 8

Austral Coke & Projects 164 to 196 20 to 22

Reliance Infratel IPO to be deferred

2008-08-03T23:11:00.000+05:30

Anil Ambani group firm Reliance Infratel is likely to defer its IPO plans as Sebi's go ahead for the issue is set to expire soon, making it the third major IPO deferment after that of commodity exchange MCX and mutual fund house UTI AMC.
Sebi had issued observation on the IPO of Reliance Infratel, the telecom infrastructure division of Reliance Communications, on 12 May. As per the regulations, a company is required to close the IPO within 90 days of issuance of Sebi's observation on the draft red herring prospectus (DRHP)the period which ends on 11 August .
When contacted Reliance Infratel officials declined to comment.
Meanwhile, Reliance ADAG chairman Anil Ambani on 31 July had said, "We have received the approvals on the red herring prospectus... The volatility in global and Indian capital markets is what we are watching. A decision would be taken at an appropriate time."
"When we find an appropriate time, I am sure that we will proceed both with Globalcom and Reliance Infratel," Ambani added.
Reliance Infratel builds, owns and operates telecom towers and related assets at designated sites. It also offers these passive telecom infrastructure assets on a shared basis to wireless service providers and other communications service providers under long-term contracts.
Earlier, the IPO of MCX and that of UTI Asset Management, were deferred due to volatile market conditions.
MCX is believed to be reviving the process of its initial public offer and may file a new draft prospectus with the market regulator Sebi by the middle of this month.

Grey Market - Nu Tek India, Vishal Information Technolgoies

2008-07-31T09:53:00.000+05:30

Vishal Information Technologies 140 to 150 4 to 6

NU TEK India Ltd. 170 to 192 14 to 16

Vishal Information Technologies IPO Analysis

2008-07-21T01:04:00.001+05:30

Investors can avoid the initial public offering of Vishal Information Technologies, a company delivering digitisation and E-Publishing services, considering the high valuation that the offer demands and the inherent business risks, given the rough macro-environment.

At Rs 150 (upper end of price band), the offer is priced 14 times the company's 2007-08 per share earnings on post-offer equity base.

This is at a premium to most BPO/KPO players in the mid and small tier space, which have more diversified service offerings than Vishal Information.

Heavy competition in all segments of its operations, a long receivables cycle, lack of diversification in its service portfolio and client concentration are key risks to the business.

Vishal Information delivers digitisation, e-publishing and digital library services to publishers.

The company has also been able to create digital library formatting for visually challenged people to access books by downloading text from the Internet.

In addition, Vishal has a subsidiary that handles back-end accounting and administrative services for financial services clients.

Vishal Information's revenues over the last five years have grown at a compounded annual rate of 24.1 per cent to Rs 40.9 crore for 2007-08, while revenues have grown at a rate of 24 per cent to Rs 12.4 crore during the same period.
Business Risks

The absence of diversification from the core business makes the company vulnerable to vagaries of publishing houses' outsourcing schedules. Competition exists for the company from three sets of players. Large companies that have a diversified KPO services basket in addition to publication services such as RR Donnelley (Office Tiger), Hexaware Technologies and TCS; independent KPO players such as Scientific Publishing and Ninestar Information Technologies that specialise in digitisation; and captive units of publication houses.

In this light, pressure may be on billing rates with clients, and with a rough macro environment, it may only get tougher to stay competitive and maintain margins.

Cushion from diversification in the form of voice and other transaction based services that BPOs/KPOs provide across several verticals is not available to Vishal Information. Technology upgrade may not be as easily possible for a smaller player such as Vishal when compared to well-entrenched players with deeper pockets.

Scalability has also been a problem, a fact supported by the sedate growth rates even during the outsourcing boom phase of 2003-07. Now, in a tough environment with companies cutting on outsourcing budget, the company may feel the pinch even more.

The company also has high concentration risks with its top three clients accounting for 56 per cent of revenues. In the absence of many long-term contracts or continuously large orders, the company may be subject to fluctuation in results.

Vishal receives its payments for projects only over a six-eight month period, after its clients successfully upload the completed publications on their Web sites.

This large timeline in receivables would significantly increase working capital requirements.

In a rising interest rate scenario, bank borrowings for such purposes would significantly increase expenses on this count.

Considering these aspects, investors may avoid this initial public offering

Grey Market - Vishal Information Technologies

2008-07-21T01:02:00.000+05:30

Somi Conveyor Belting 35 3 to 5

Birla Cotsyn (India) 12 to 14 Discount

Vishal Information Technologies 140 to 150 7 to 10

Grey Market Discounts - Premiums

2008-07-14T09:57:00.001+05:30

KSK Energy Ventures 240 Discount

Somi Conveyor Belting 35 4 to 5

Birla Cotsyn (India) 12 to 14 Discount

Grey Market - Sejal Architectural Glass, Archid Ply Industries

2008-06-16T03:20:00.001+05:30

Bafna Pharmaceutical 40 7 to 10

Avon Weighing 10 5 to 6

Sejal Architectural Glass Ltd. 105 to 115 18 to 20

First Winners Ind. Ltd. 115 to 125 3 to 5

Archid Ply Ind. 70 to 80 6 to 8

Lotus Eye Care Hospital 38 to 42 3 to 4

Lotus Eye Care Hospital IPO review

2008-06-16T03:19:00.001+05:30

Investors can consider investing in the initial public offering of Lotus Eye Care Hospital (Lotus) with a two-three year perspective. The business of running eye-care hospitals is resource intensive and highly skill-dependent but there is potential given the rise in diseases related to eyes.

At present, Lotus has its super-specialty hospital at Peelamedu (Coimbatore) and three other network hospitals at Tirupur, Salem and R S Puram (Coimbatore). This gives it nine operation theatres and three LASIK equipment along with total bed strength of 120, excluding eye-camp beds.
Growth

Given the superior operational as well as profitability metrics displayed by Lotus in the last three years and experienced management, the company could be expected to leverage the strong demand for quality eye-care, albeit within its region-specific limitations.

Earnings could be ramped up when Lotus sets up two primary eye care (preliminary) units in Bangalore and one in Chennai, secondary eye care units each at Coimbatore (R S Puram), Tirupur and Karur, and a tertiary care ( for handling complicated eye diseases) unit at Salem.
Valuation

Lotus' Rs 55 crore capex plan is expected to be funded with IPO proceeds (Rs 42 crore), internal accruals (Rs 3 crore) and debt (sanctioned term loans aggregating to Rs 10 crore).

The fruits of a significant portion of the project are expected to show up only from September 2009.

At the price band of Rs 38-42 per share, the issue is priced at about 19-21 times the likely FY10 per share (post-issue) earnings.

While the comparatively small size and limited scale of Lotus may seem as a concern when seen in light of its listed peers such as Kovai Medical Centre and Hospital, and Dr Agarwal's Eye Hospital Lotus' focus on eye care (operations are mostly day-care) is expected to help it maintain higher margins, as well as profitability.
Business

Lotus earns 60-65 per cent of its revenues from surgeries and is expected to gain from the demand for private medical care providers in the ophthalmology space. Industry-wise, cataract surgery, refractive surgery and glaucoma procedures account for 90 per cent of the surgical operations in the eye-care space.

With the use of superior technologies such as LASIK (Laser-Assisted In Situ Keratomileusis) and Zyoptix, companies such as Lotus have been able to enjoy better margins and high rates of success.

The network of primary and secondary eye-care units are expected to ramp up revenues through own primary care referrals and individual practitioners, while the two tertiary care hospitals would ideally deal with more complicated cases.
Threats

Risks to the offer include the expected competition from local speciality hospitals operating in the eye-care space, longer time-periods to complete capex, higher than anticipated depletion of margins, appointment as well as retention of qualified personnel at new and old units. Any adverse developments to the image of the business may also present risks to our recommendation.

The offer, managed by Keynote Corporate Services, closes on June 17.

via BL

Archidply Industries IPO Review

2008-06-16T03:18:00.001+05:30

Investors with a high risk appetite can consider investing in the initial public offer of Archidply Industries. This wood panel and decorative surfacing products manufacturer operates in an industry that is highly unorganised and fraught with regulatory issues. Archidply, however, inspires confidence through its presence in relatively high-end and more customised interior products and its environment-friendly measures to procure sustained sources of raw materials as well as make eco-friendly products that are within the regulator's permissible ambit.

The offer price band of Rs 70-80 discounts the per share earnings for FY2008 (on the pre-issue equity base) by 7-8 times. While its larger peer Greenply trades at similar valuations, Archidply's expansion plans through the offer are likely to be earnings accretive over the next two years. The pricing also appears justified given the superior profit margins and return on equity enjoyed by the company.
On the business and offer

Archidply manufactures engineered interior products used in commercial and residential buildings. The company started its manufacturing activities after the merger of a promoter group company Mysore Chipboard with itself.

Archidply's products include a wide range of specialised plywood such as marine and fire retardant plywood, particle boards, decorative laminates and veneers. The company plans to raise about Rs 50 crore for setting up a new manufacturing facility in Karnataka and to set up a medium density fibreboard facility in its existing unit in Uttarakhand.
Sustainable business

The business of plywood has high uncertainties due to the large number of unorganised players; there are also regulatory curbs in production of environmentally less-friendly products and in sourcing of raw materials. Archidply appears well placed to tackle these issues.

For one, the company does not restrict its products to retail customers alone. Its clients include corporates, architects as well as modular furniture makers such as Godrej and Featherlite. Its products are also slightly premium given the sophisticated combination of waterproof, fire resistant as well as low gas emission plywood. We believe that the above products would address a more brand and quality conscious market that is different from the segment that unorganised plywood players cater to.

The company also plans to move to value-add products such as ready-to-assemble furniture components and designer doors. These products appear to be aimed at tapping the huge real estate activity in the commercial space. With tight deadlines for construction and a need to optimally utilise space, these products could well be in demand.

On the raw materials front, the company procures renewable plantation timber grown in coffee estates and farm grown plantation timber, thus preventing any environmental curb on its raw material source.
Safeguarding capacities

While the company's capacity addition may appear uncalled for, given that it is yet to fully utilise its existing capacities, the move appears to be a safeguard measure.

The Supreme Court has placed restrictions on issue of new licences for manufacture of plywood and other wood-based products.

This appears to be the reason for Archidply's move to ramp up capacities before its licence expires. The restriction also poses a higher entry barrier for even organised players wanting to expand in new places.

The present scenario is, therefore, likely to ensure less competition for organised players such as Archidply. On the flip side, the company may suffer if the increased capacities do not find demand.
Superior margins

Archidply's revenue grew at a compounded annual rate of 89 per cent over the last two years to Rs 147 crore in FY 2008. This places the company next to top players such as Greenply Industries and Century Plyboard. The company's operating and net profit margins at 18.5 per cent and 10.3 per cent respectively, are however far superior to those of peers.

Archidply could be incurring lesser transportation costs compared to its peers as it has an integrated facility in the North and the South (catering to respective markets) as against most other players who have facilities in the North and eastern India.

Further, Archidply appears to have had an early start in the high-potential particleboard market. This product uses plywood by-product and agri fibre as raw material and is more cost effective and environment friendly. Equipped with capacities (for this product) higher than even Greenply's, the company could have scored higher margins on this front as well.

Archidply's market share at 8 per cent still remains low, despite being the third largest organised player in terms of revenue. Market penetration clearly poses a challenge. The company is yet to get licence for starting the medium density fibre plant for which a part of the offer proceeds would be utilised. Given that it qualifies under the norms for the same, the risks may not be high.

The small market cap of Rs 155-175 crore (at the offer price) could subject the stock to high volatility under the present market conditions. Investors can consider exiting their holdings if their target return is met shortly after listing. The offer closes on June 17.

via BL

All Grey Market Premiums

2008-06-11T09:50:00.001+05:30

Niraj Cement 190 Discount

Bafna Pharmaceutical 40 5 to 7

Avon Weighing 10 4 to 4.50

Sejal Architectural Glass Ltd. 105 to 115 20 to 22

First Winners Ind. Ltd. 120 to 130 7 to 9

Archid Ply Ind. 70 to 80 6 to 8

Lotus Eye Care Hospital 38 to 42 3 to 5

Archidply Industries IPO Analysis

2008-06-11T09:48:00.001+05:30

Promoted by Deen Dayal Daga, Shyam D. Daga, Rajiv D. Daga and Assam Timber Products, Archidply Industries was incorporated in 1995. It has modern manufacturing facilities for wood panel products and decorative surfacing products in Rudrapur (Uttarakhand) and Mysore (Karnataka).

The combined production capacity of plywood and block boards (4mm) is 1,28,00,000 square meters (sq mt), plain particleboards (4mm) 1,12,50,000 sq mt, pre-laminated particleboard (4mm), 99,00,000 sq mt, decorative veneers (4mm) 37,50,000 sq. mt, and decorative laminates of 12,00,000 sheets.

The range of comprehensive engineered interior products include plywoods such as marine plywood; fire retardant plywood; shuttering plywood; densified film faced plywood; BWR and MR plywood; lamyply and lamyboard; block boards and flush doors of BWR and MR grade; particle boards such as plain, veneered and pre-laminated both in interior and exterior grades; decorative laminates; and decorative veneers such as teak, natural exotic veneers, reconstituted veneers and dyed veneers.

The brand, Archidply, has been positioned in the premium segment of the wood panel and decorative surfacing products. Brands for the middle segment (Sec B) are Silvi and premium plywood products Pureply.

The marketing network includes 16 marketing offices, 61 distributors and stockiest and 586 authorised dealers.

A new manufacturing facility of plain particle boards, pre laminated board and decorative plywood, to be set up at a cost of Rs 37.67 crore at Chintamani in Karnataka, is to be commissioned by October 2008. A new manufacturing capacity for medium density fibreboard (MDF), to be set up at a cost of Rs 26.18 crore at Rudrapur, will be commissioned by August 2009. The total capital requirement is Rs 83.04 crore inclusive of future operating and working capital requirement. As such, Rs 46.31 crore to Rs 52.92 crore is to be raised in the price band of Rs 70 to Rs 80 per share through an initial public offering (IPO). Term loan will constitute Rs 28 crore.

Strengths

Enjoys various tax benefits. The Rudrapur unit has received approval for thermal energy generation from renewable biomass, making eligible for 24,659 certified emission reductions (CER) annually.

Weaknesses

Faces intense competition from unbranded products from the unorganised sector of the wood-based industry. There are many strong local brands,too. Moreover some organised players are much larger than Archidply.

Yet to receive licence to manufacture MDF at Rudrapur.

Valuation

Archidply has set a price band of Rs 70 to Rs 80 per equity share of Rs 10 face value. At the lower price band, the P/E would be 10.3 times and at the upper price band, the P/E would be 11.8 times the EPS for financial year ended March 2008 (FY 2008) on post-issue equity of Rs 22 crore. In the decorative wood-based/ laminates segment, comparable companies such as Greenply industries, Uniply Industries and Novopan Industries have TTM P/E of around 8, 6.6 and 8.1, respectively.

Grey Market - Lotus Eye Care, Sejal Architectural

2008-06-10T09:52:00.001+05:30

Niraj Cement 190 Discount

Bafna Pharmaceutical 40 7 to 8

Avon Weighing 10 3 to 4

Sejal Architectural Glass Ltd. 105 to 115 18 to 20

First Winners Ind. Ltd. 120 to 130 12 to 14

Archid Ply Ind. 70 to 80 8 to 10

Lotus Eye Care Hospital 38 to 42 4 to 6

Grey Market - Bafna, Anus, Niraj Cement, Gokul Refoils

2008-06-02T07:37:00.001+05:30

Gokul Refoils 195 8 to 10

Anus Laboratories 210 40 to 45

Niraj Cement 175 to 190 5 to 7

Bafna Pharmaceutical 40 10 to 12

Grey Market - Bafna, Niraj Cement, Anus Labs

2008-05-28T09:37:00.001+05:30

Gokul Refoils 195 10 to 12

Anus Laboratories 210 32 to 35

Niraj Cement 175 to 190 12 to 15

Bafna Pharmaceutical 40 10 to 12

Niraj Cement Structurals

2008-05-27T00:49:00.001+05:30

Niraj Cement Structurals (NCSL) is a small-sizes construction company focusing on the road segment. It also makes pre-cast paver blocks. Sales of paver-blocks account less than 0.5% of total sales.

The construction contracts business model involves acting as main contractor, contracts through joint venture (JV) and subcontractor. Currently, the order portfolio is spread across Orissa, Madhya Pradesh and Rajasthan.

The proceeds of the issue will be used to fund acquisition of capital equipment worth Rs 20.95 crore and working capital requirement amounting Rs 18.17 crore.

Strengths

The current order book is about Rs 660.29 crore. Out of this, its share of work totals Rs 477.48 crore, which translates to 5 times its FY 2008 revenue. The projects are to be executed over nine to 24 months.

Despite focusing only on the road sector, the operating profit margin was a strong 17.7% in the year ending March 2008 (FY 2008). OPM were 16.7% in FY 2007 and 16.3% in FY 2006. This is way above the normal 8-10% of margin available for players focused on road projects.

Weaknesses

As the focus is solely on road development, lacks diversification in other areas of construction.

In the past, defaulted on payment of interest and repayment of loan to various banks / financial institutions.

Sundry debtors stood at 103.45 crore in FY 2008. This represents about 111.4% of its sales for FY 2008. To fund this, secured and unsecured loans of Rs 18.92 crore and Rs 19.98 crore were raised by March 2007 and Rs 30.86 crore and Rs 58.49 crore by March 2008. The high debts are attributed to delay in receipts from government and also from principal contractors. As a result, interest cost has been racing ahead from 3% of sales in FY 2006 to about 5.5% of sales in FY 2008.

Valuation

Sales grew by 16% in FY 2008. Net profit, however, stood higher by only 2%, limited by higher interest cost and tax incidence. EPS on post-IPO equity stands at Rs 6.3. On the asking price of Rs 175-Rs 190, the PE ratio works out to about 27.8 times FY 2008 earning at the lower price band and 30.2 times at the upper price band. In contrast, peer players such as C & C Construction, Roman Tarmat, PBA Infrastructure, Valecha Engineering trade at 9 to 12 times their trailing 12-month (TTM) EPS.

Niraj Cement Structurals IPO Analysis

2008-05-26T00:51:00.001+05:30

Investors can avoid the Initial Public Offering of road building contractor, Niraj Cement Structurals. The asking price of Rs 175-190 appears stiff, given the small scale and limited scope of the company's business, fluctuation in profit growth and high risks specific to the company.

At the offer band, the price-earnings multiple works out to 19-21 times its FY-2008 earnings on the pre-IPO equity base.

The asking price also discounts its estimated FY-2009 per share earnings (post equity expansion) by at least 18 times. Peers of similar size trade at a considerable discount.
On the company and offer

Niraj is a road construction company with most of the projects in the form of sub-contracts from principal contractors. While the company also manufactures cement structurals, this business forms a negligible portion of the total revenue.

The company plans to raise about Rs 60 crore through this IPO and seeks to list the stock at the Bombay Stock Exchange. This would expand the current equity capital by 45 per cent.

The offer proceeds are to be utilised towards purchase of capital equipment and for meeting working-capital requirements.
High volume on the cards

Niraj currently boasts of a massive order-book of Rs 660 crore, amounting to seven times its 2007-08 revenue of Rs 92 crore. This is likely to provide impetus to the revenue growth witnessed by the company.

However, the limited time-frame available for completion of the projects poses a challenge to its execution capabilities. Most of the orders need to be completed within a 12-20 month period. Agreed that the company's plan (through the IPO proceeds) to increase capacities of its Ready Mix Concrete (RMC) batching plant would hasten the input availability, at least in the projects sites where they are installed. Transporting the RMC units between project sites may pose logistics problems.

In addition, the RMC batching plant planned would have a capacity of 1,44,000 cu. m. of RMC per year as against 20,000 cu.m consumed by it in FY-2008. This essentially implies that despite high orders in hand, the company may have excess capacities after captive consumption.

The sale or lease of the same may not be easy given that the market size for RMC remains limited in India, apart from transportation costs involved. The capital expenditure to be incurred hence holds risk of high costs.
Burdened by interest and taxes

The company's profit margins have remained in line with other road builders such as C&C Constructions and Roman Tarmat. However, net profits have witnessed a decline since 2005-2006.

Despite surge in revenues, mounting interest costs and taxes have dented the bottomline.

The mounting borrowing cost is reflected in the shrinking interest coverage ratio. While profits (before interest and taxes) covered the borrowing costs by fives times in 2006, the same ratio shrunk to 2.8 in the latest fiscal.

The company has further disclosed its default in payment of interest and repayment of loans to some of its lenders. Taxes have also seen an increase; this apart, the company has stated that it has been claiming deduction under Section 80-IA of the Income Tax Act, a benefit that is no longer available for contractors such as Niraj.

The offer document states that the company has not made any provisions for the additional tax burden either for the current year or for retrospective years from 2000. The provisioning and higher tax burden in future would hurt net profits.

Further, Niraj's sub-contract status has heightened its risks of non-payment from the principal contractor. Sundry debtors of Rs 103 crore, is higher than full year revenues for 2007-08, indicating legacy receivables and delay in collection.

This could lead to increased crunch in cash flows for the company. The offer is open from May 26-30.

Bafna Pharmaceuticals IPO Analysis

2008-05-26T00:50:00.000+05:30

Scalability concerns, low profitability and presence in the highly competitive formulations business without a specific niche, peg up the risks associated with the Initial Public Offering of Bafna Pharmaceuticals.

The 27-year-old company is proposing to offer 40.05 per cent stake to the public and use the net issue proceeds (of Rs 23.55 crore) to mainly undertake brand-building in domestic and international markets, partly repay loans and procure R&D equipment.

The fixed offer price at Rs 40 per share, also does not leave much on the table for investors, as it discounts the 2007-08 (annualised) earnings per share of the company at 37 times, on the post-issue equity base.

The pricing appears stiff compared to similar sized players in the formulations business, as well as other entrenched players engaged in Contract Research and Manufacturing Services (CRAMS) an area Bafna is targeting through its new facility at Grantlayon, near Chennai.

Though CRAMS is an exciting opportunity for Indian companies, Bafna's size does not instil the necessary confidence in its ability to quickly occupy a position of strength and profitability in this area.

Bafna has long experience catering to less-regulated countries such as Sri Lanka but only limited experience in carrying out CRAMS in regulated markets.

Though these factors argue against an investment in the IPO, the stock may be worth reviewing, post-listing, with a longer financial record.
Business profile

Bafna Pharmaceuticals' profits have grown by 12 per cent on the back of 23 per cent growth in net sales on a compounded basis across five years.

The company now draws all of its revenues from its manufacturing facility at Madhavaram, near Chennai; a scale-up in revenues and margins could be expected once the Grantlayon unit gets MHRA accreditation, allowing it to enter the regulated markets of the UK and other European countries.

The company has signed a five-year agreement to supply Simvastatin a drug to lower cholesterol levels to a UK company.

However, it will be a little unreasonable to expect Bafna's Grantlayon unit to make considerable contribution to both topline and bottomline over the next 12-15 months because the business may take time to scale up its client base.

This could put pressure on existing financials as planned brand-building exercises, consisting of significant deployment of human resources in marketing, would see a bulge in expenditure from hereon, thereby shrinking already low operating margins (7 per cent).

Bafna displays high client concentration (top five contribute 80 per cent) and product dependence (top five contribute 65 per cent of sales) typical of smaller entities.

Bafna plans to further scale up domestic business (exports contributed 30 per cent in last nine months ended December 2007) and launch its own brands as well as cater to new therapeutic areas (life-style diseases).

Challenges to these will arise from the substantial presence of large established players and Bafna's small scale of operations.

Stunner ! - IPO Rating - MCX India

2008-05-23T09:37:00.001+05:30

CRISIL has assigned a CRISIL IPO Grade "5/5" (pronounced "five on five") to the proposed initial public offer of Multi-Commodity Exchange of India Ltd. (MCX). This grade indicates that the fundamentals of the issue are strong relative to 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, or a comment on the graded instrument's future market price or its suitability for a particular investor.

CRISIL expects MCX to maintain its dominant market position in the commodities market, backed by product innovation and strong technological capabilities. Currently, MCX enjoys market leadership, with a share of 77 per cent in volumes traded on commodities exchanges in India. The company has consciously focused on commodities such as bullion, energy and metals, which are benchmarked to international prices. The high liquidity in these commodities and the low impact costs (comparable to other leading exchanges), along with MCX's strong technological capability - aided by its association with the promoter, FTIL, a leader in exchange related technology - are expected to help the company maintain its competitive advantage.

MCX's profitability and return indicators have been strong in the past 4 years. Growth is likely to moderate in the short term due to the impact of the commodity transaction tax (CTT). However, in the medium term, MCX's strong market position and continuous focus on product innovation would act as growth drivers. In the long term, growth could be spurred by the introduction of new instruments (like options) and participation by institutional players, once the necessary regulatory changes are in place.

Mr Jignesh Shah, the founder and Non-Executive Vice Chairman and Mr Joseph Massey, the MD & CEO of MCX, have been the driving force behind the company's business growth and product innovation. MCX also benefits from a strong and experienced senior management team as well as a highly capable product innovation and development team.

About the company and the issue
Multi-Commodity Exchange of India Pvt Ltd was incorporated on April 19, 2002. The proposed IPO is in the form of an offer for sale of 4 million shares by the promoters and a fresh issue of 6 million shares. Subsequent to the IPO, the promoters' stake in the company will reduce to 26.1 per cent.

On September 26, 2003, MCX received permanent recognition from the Government of India for facilitating online trading, clearing and settlement operations for commodity futures markets across the country. MCX offers trading in 56 different commodities categorised into various market segments such as bullion, energy, ferrous and non-ferrous metals, oil and oil seeds, cereals, pulses, plantations, spices, fibre and others. The company has leadership position in bullion, energy and metals trading in India.

Of the company's total turnover, bullion accounts for 53 per cent, metals for 28 per cent, energy for 16 per cent and agricultural commodities account for the rest. Globally, MCX is the largest silver exchange, second-largest natural gas exchange, third-largest gold, crude oil and copper exchange in terms of number of contracts traded in each of these commodities. MCX was the first exchange to launch futures trading in steel, crude oil and plastics in India. The company has launched weather indices such as RAINDEX - to track the progress of monsoon rains in locations such as Mumbai, Indore and Jaipur - and also trading in carbon credits on the exchange. MCX was also the first exchange to initiate evening trading sessions to coincide with trading on international exchanges such as London, New York and other international markets. The company's initiative to constantly innovate and develop new products is expected to help increase volumes.

For the year ended March 31, 2007, MCX reported a net profit of Rs 930 million on a turnover of Rs 2.0 billion, as compared with a net profit of Rs 375 million and revenues of Rs 1.0 billion in the previous year.

Grey Market - Bafna, Gokul, Anus

2008-05-23T01:06:00.000+05:30

Gokul Refoils 175 to 195 14 to 15

Anus Laboratories 200 to 210 35 to 38

Bafna Pharmaceutical 40 6 to 8

Grey Market - Anu's Laboratories, Gokul Refoils

2008-05-15T11:32:00.000+05:30

Gokul Refoils 175 to 195 20 to 25

Anus Laboratories 200 to 210 21 to 23

Good news for IPO investors !

2008-05-14T09:51:00.001+05:30

Investors no longer have to wait for weeks for refund of their IPO application money.

The application money earmarked for an IPO will now remain in the applicant's bank account till the allotment is finalised, thus eliminating the refund process, SEBI said on Tuesday, addressing a long-standing grouse among investors, particularly in the retail segment.

"The modalities in this regard would be worked out separately," said a news release from SEBI, issued after its Board met on Tuesday.

"The Board approved, in principle, the concept of making lien on bank account as an alternative mode of payment in public/rights issues."

This means that the money marked for the IPO will not be used for any other payment obligation during that period.

At the same time, the applicant will enjoy the interest payable on the amount.

This would also reduce the burden on registrars and merchant bankers. But bankers to the issue can no longer enjoy the floating interest, said officials associated with the IPO process.

Most important of all, investors would not have to wait for their refund money. It also ensures that a liquidity crisis such as that of January 2008 does not occur again.

At that time, many investors were unable to buy scrips which were at attractive lows, as their money was locked up in the Reliance Power and the Future Capital IPOs. Nor could they meet their margin money requirements.

PMs NO POOLING

The SEBI Board also decided to disallow the pooling of investors' money by portfolio managers.

"Portfolio managers should not float a scheme or pool the resources of the client in a way which is akin to mutual fund activity," said SEBI.

They have been allowed six months' time to convert their operations managed on pooled basis to individual basis.

The Board also decided to enhance the minimum net worth requirement for registration of portfolio managers from the existing Rs 50 lakh to Rs 2 crore in a phased manner.

via BL

Gokul Refoils and Solvent IPO Analysis

2008-05-06T08:51:00.001+05:30

Promoted by Balvantsinh Rajput, Kanubhai Thakkar, Mrs. Bhikiben Rajput and Mrs. Manjulaben Thakkar in 1982, Gokul Refoils and Solvent extracts solvents; refines edible oils, castor oils and their derivatives; and manufactures vanaspati.

Besides 680-tonne-per-day (tpd) seed-processing capacity, Gokul Refoil and Solvent has 600- tpd of solvent-extraction, 1,200-tpd of refining, and 200-tpd of vanaspati manufacturing facility. The company gets captive power from four windmills of 1.25 MW each in Kutch, Gujarat. It has also set up a co-generation power plant of 500 KWH at its Gandhidham unit in Gujarat.

To expand the scale of operations and have a global presence, Gokul Refoils and Solvent has set up two wholly owned subsidiaries in Mauritius and Singapore: Maurigo International Ltd and Maurigo Pte Ltd. The Mauritius subsidiary, Maurigo International, is involved in commodity trade on the Chicago Board of Trade and the Malaysia Derivatives Exchange (MDEX),Kula Lumpur, Malaysia. The Singapore subsidiary, Maurigo Pte, procures raw material and trades in commodity. Its strategic presence in Singapore enables it to locally negotiate and deal with the small and fragmented oil suppliers of Malaysia and Indonesia, which will enable the company to procure raw materials at reasonable terms.

Products are marketed under the brand name, Gokul, in Gujarat, Maharashtra, Rajasthan, Madhya Pradesh and Punjab.

Gokul Overseas is a partnership firm manufacturing and processing castor seeds and oil and their derivatives with plant at the Kandla Special Economic Zone (KASEZ). This partnership firm has reported sales of Rs 205 crore and net earning of Rs 8.59 crore in the financial year ending March 2007 (FY 2007).

Consolidated net sales stood at Rs 1323.20 crore and Rs 1563.46 crore in the eight months ended November 2007 and FY 2007. Operating profit margin (OPM) was 6.5% and 3.8%, and net profit Rs 41.83 crore and Rs 25.73 crore.

Standalone net sales stood at Rs 1309.28 crore and Rs 1562.49 crore in the eight months ended November 2007 and FY 2007. OPM was 6.3% and 3.9%, and net profit Rs 37.82 crore and Rs 26.94 crore.

A soya processing plant, with installed capacity of 1500 tpd and capital investment of Rs 51 crore, is proposed at Gandhidham, Gujarat. The existing edible oil refinery at Surat is being expanded to 400 tpd from 100 tpd, with an estimated outlay of Rs 12.31 crore. About Rs 15 crore is to be invested in brand building, Rs 10 crore to increase the warehousing capacity and meet other capital expenditure at existing units, and Rs 60.69 crore to fund part of long-term working capital. Rs 139.59 crore is to be raised at the cap price of the price band, and Rs 38.25 crore will be taken on loan from banks.

Strengths

Versatile manufacturing capabilities, giving extreme flexibility to manufacture all type of oils depending on the market requirement and availability of raw materials at competitive rates.

Weakness

Earnings are vulnerable to changes in the duty differential between crude and refined oil.

The business is characterised by inherently low margin.

Has negative cash flow fof Rs 5.39 crore from operating activity in FY 2007, Rs 21.18 crore in FY 2006 and Rs 18.91 crore in FY 2004.

Primarily present in the bulk market, where there are strong competitive pressures from the unorganised segment.

Valuation

Gokul Refoils and Solvent has set a price band of Rs 175 to Rs 195 per equity share of Rs 10 face value. At the lower band of Rs 175 per share, the P/E would be 7.4x times annualised EPS of Rs 23.8 for the November 2007 ended period and 17.9x times the EPS of Rs 9.8 for FY 2007 on post-issue equity of Rs 26.38 crore. At the upper band of Rs 195 per share, the P/E would be 8.2x times and 19.9x times respectively. In the edible oil industry, the comparable companies such as Ruchi Soya Industries, Gujarat Ambuja Exports, and K S oils have TTM P/E of around 12.6, 9.3 and 21.3, respectively.

via CM

Grey Market - Gokul Refoils, Aishwarya Telecom

2008-05-05T09:39:00.001+05:30

Aishwarya Telecom 35 10 to 12

Gokul Refoils 175 to 195 15 to 17

Grey Market Premiums

2008-04-04T09:49:00.001+05:30

Sita Shree Food Products 0 8 to 12

Titagarh Wagons Ltd. 540 12 to 15

Kiri Dyes & Chemicals 150 12 to 15

No fun subscribing to IPOs this season..

2008-03-31T00:25:00.001+05:30

Investors have lost around quarter of the amount raised by 18 IPOs this calendar year as 13 of them are trading below their issue prices, a top Finance Ministry official said on Saturday.

"Out of the 18 IPOs launched in 2008, 13 were trading at a discount last week implying losses to investors of about a quarter of the total IPO amount. I think, it must be larger today," Finance Secretary D Subbarao said at a seminar on Securities Contracts (Regulation) Rules here.

If the situation continues, it would be increasingly difficult for corporates to raise money from the capital market, he said.

The Finance Secretary attributed weak sentiment in the market to increasing risk-aversion among investors. "The stock market provided 15 billion dollars in 2007 to support investments of firms. But, as global risk aversion has risen in the past few months, this has dented investors sentiments in India too," he added.

Of the total IPOs listed on stock exchanges this year, 11 companies had an issue price above Rs 100. The aggressive pricing of the IPOs have led the companies to lose substantially being unable to sustain the prices in long-term.

In fact, reliance power launched with much fanfare, closed at Rs 372.50 on the opening day, much below its offer price of Rs 450 a share, forcing the company to issue three bonus shares for every five held by non-promoters.

However, state-run rural electrification corporation was trading higher at Rs 109.05 against its issue price of Rs 105 and GSS America at Rs 640.85 against an issue price of Rs 400.

The bearish sentiments in the market has led to 13 firms witnessing red in the market. The Sensex, which opened above 20,300 points in January, has dipped 4,000 points to about 16,400 points since then till yesterday.

IPOs go bust

2008-03-31T00:21:00.001+05:30

The recent crash and subsequent volatility in the stock market has adversely affected IPO plans of India Inc. As many as 20 companies, which were planning to collectively raise Rs37.18bn have already deferred their IPOs. These companies are already holding approval from capital market regulator SEBI and are now waiting for better times to enter the market. This is as per the study done jointly by ASSOCHAM and Prime Database. These 20 companies include among others Acme Tele Power, Pride Hotels, Prince Foundations, Vascon Engineers and Xenitis Infotech.

"Plans of another 44 IPOs, collectively planning to raise Rs310bn, which are presently awaiting SEBI approval, may also be hit until the markets recover. These include the IPOs of Ashoka Buildcon, DB Corp, Future Ventures, Jaiprakash Power Ventures, JSW Energy, Mahindra Holidays, NHPC, Oil India and Reliance Infratel," says Prithvi Haldea, Co-Chairman of the Capital Markets Committee of ASSOCHAM. Haldea, however, adds that some of these 64 pending IPOs might still go ahead with their plans, though at reduced valuations, even in the present market conditions.

It may be mentioned here that at the beginning of the year, ASSOCHAM and Prime Database had estimated that, subject to stable secondary market conditions, the calendar 2008 would have seen mobilization of nearly Rs600bn through IPOs. The first three months of the year have seen 17 IPOs, totaling Rs149bn, and this amount may have been larger but for the crash in the secondary market in later part of January.

Gammon Infrastructure, Titagarh Wagons Grey Market

2008-03-25T09:53:00.001+05:30

Gammon Infra 167 5 to 8

Sita Shree Food Pro 30 4 to 7

Titagarh Wagons Ltd. 540 to 610 20 to 25

Kiri Dyes & Chemicals 125 to 150 10 to 12

Titagarh Wagons IPO review

2008-03-23T23:09:00.001+05:30

Titagarh Wagons is well positioned to benefit from the demand in the logistics space.

Kolkata-based Titagarh Wagons, a private sector manufacturer of railway wagons, is setting up a manufacturing centre to make electric multiple units (EMUs) and expanding its existing facilities at a cost of Rs 70 crore.

To fund its expansion as well as meet corporate expenses the company aims to raise Rs 111- Rs 126 crore through the IPO route, with each share priced between Rs 540 (lower band) and Rs 610 (higher band).

While the company has wagons, special projects and heavy earth moving and mining equipment divisions, over 80 per cent of its revenues accrue from the wagons division.

Rising freight demand
The opening up of India's container movement to private players (in 2006) as well as the move to allow corporates to invest in wagons (in 2005) has opened up the erstwhile Indian Railways monopolies.

With a large number of logistics service providers and manufacturers jumping into the fray, this nascent segment is expected to take off.

In 2004-05, freight handled was pegged at 6,000 lakh tones, while that for FY08 is estimated at 7,850 lakh tonnes. This is expected to move up further to 11,000 lakh tonne by the end of the 11th five-year plan in 2012.

Indian Railways plans to double its wagon purchase order from the estimated 10,200 wagons for the current fiscal to 20,000 wagons for FY09. This translates into a steady demand for players such as Titagarh Wagons, which along with nine other public, private and joint sector companies are eyeing the Rs 15,000 crore wagons market.

While the company is planning to expand its share in wagons, it is also targeting niche applications. It has tied up with US-based FreightCar America to manufacture aluminium coal hopper wagons and other wagon products.

Passenger segment
The company is also planning to expand its EMU production to cater to the passenger car and metro rail requirements of the railways. The unit to be set up at the Uttarpara facility in West Bengal will manufacture 24 rakes per annum with each rake consisting of nine EMU coaches.

The company has received an order for supply of 9-car rake from Indian Railways and hopes to expand its presence in the sector once its Uttarpara facility is completed by December 2008.

In addition to the EMU facility, the company wants to set up an axle machining and wheelset assembly unit with an annual capacity of 10,000-12,000 wheelsets.

The expansion will allow Titagarh Wagons to integrate backwards and reduce dependency on Indian and foreign suppliers.

With only two Indian manufacturers of wheelsets, which constitute 35 per cent of a wagon's selling price, and continued increase in prices over the last two fiscals due to global shortage, Titagarh's move to backward integrate makes sense.

Special projects/euipment segment
The special projects business, which contributes 11 per cent to total revenues, makes modular bridges, equipment for nuclear power plants and special purpose wagons for the defence sector.

Defence equipment sales to Defence Research and Development Organisation (DRDO) have increased from 1.6 per cent in FY07 to 4.4 per cent in the first half of FY08.

The heavy earth moving and mining equipment division manufactures hydraulic excavators, cranes and forklifts and accounts for 5 per cent of revenues. To ramp up its facilities and improve cost efficiencies in the equipment division, the company plans to invest Rs 4 crore.

Healthy order book
The company's order book as on January 31, 2008 stands at Rs 753 crore, which is over 2.5 times its FY07 revenues. Of this, 90 per cent is accounted for by wagons and EMU sales.

Though Indian Railways continues to be Titagarh's single largest customer, its share of revenues and wagon sales is declining. While Indian Railways' share in Titagarh Wagons' total revenues has come down from 61 per cent in 2005 to 11 per cent in FY2007, its share of wagon sales has also declined from 75 per cent to 49 per cent in the same period.

Strategic moves
Over the last nine months, two strategic investors--GE Capital International and JP Morgan have bought 15.5 per cent (August, 2007) and 5 per cent stakes (January 2008) in the company at Rs 509 per share and Rs 610 share, respectively.

The vendor financing agreement with GE Equipment Services on May 2007 will help Titagarh's customers finance their wagon purchases. JP Morgan, on the other hand, is helping Titagarh Wagons acquire a majority stake in Cimmco Birla. JP Morgan owns a significant portion of Cimmco Birla's debt.

As part of the restructuring programme, Titagarh will be investing Rs 35 crore in Cimmco for a 51 per cent stake. This acquisition is expected to double Titagarh Wagons' current manufacturing capacity of 5,000 wagons per year.

nvestment rationale
With rising demand from corporates such as Adani Ports, Hind Terminals and logistics service providers, replacement and new wagon requirement of Indian Railways and the cost advantage for rail transport over road, the macroeconomic outlook for the logistics sector manufacturers and service providers looks bright.

While there are 10 players in the wagon manufacturing space, competition for Titagarh Wagons comes from Texmaco. Going by Titagarh's half-year FY08 numbers, with revenues at Rs 211 crore and a bulging order book, revenues should top Rs 350 crore in FY08.

If the company is able to maintain its 20 per cent operating margins and 12 per cent net profit margins in future, the stock is available at 17 times FY09 earnings of Rs 36.93 at the higher end of the band and 15 times at the lower end.

While Texmaco trades at a premium of 20 times its FY09 earnings of Rs 85 due to its leadership position, Titagarh could bridge the gap thanks to its growth prospects and higher operating margins, and at this price can fetch good returns over the short- to medium-term.

Issue opens: March 24
Issue closes: March 27

Titagarh Wagons IPO Analysis

2008-03-23T23:04:00.001+05:30

Investments with a two-three year perspective can be considered in the initial public offering of Titagarh Wagons (TWL). Our optimism stems from the opening up of business opportunities in the rail sector by way of setting up of dedicated freight corridors, participation of private players in rail logistics and the introduction of the wagon leasing scheme.

Titagarh Wagons appears well placed to ride this growing demand for wagons, given its established relationship with the Indian Railways (IR). At the price band of Rs 540-610, the stock is valued at about 15-17 times its likely FY-09 per share earnings on a diluted equity base. This is at a marginal discount to Texmaco, which trades at about 17 times its likely FY-09 per share earnings. This discount is justified as Texmaco commands a higher share in wagon supplies and has a more diversified business mix. Growth prospects notwithstanding, we would be more comfortable if the offer were priced at the lower end of the price band.
Railways, demand booster

The demand for wagons is set to increase given the Railways' renewed focus on increasing its share of freight traffic. This is reflected in the latest Rail Budget, which aims to procure an all-time high of about 20,000 wagons for the coming year. While railway orders are generally procured only through an open tendering process, TWL's already established relationship with the Railways and the expansion and de-bottlenecking of present capacities may lend it greater credence. Besides, TWL's proposed entry into EMU (electric multiple unit) may also expand its potential market. It plans to invest about Rs 19 crore to set up the EMU unit, which will have the capacity to manufacture two rakes (nine EMU coaches) per month.

Revenue contribution from the Railways, one of TWL's largest customers, has reduced over the years, despite an increase in the supply of wagons. This is because the Railways typically provides a bulk of raw materials as 'free supply' items to wagon manufacturers.

While this may dwarf the Railways' contribution to wagon manufacturers' revenue pie, Railway orders yield higher margin and provide greater flexibility in working-capital management. With a likely ramp up in Railway orders in TWL's books, the latter may enjoy greater operational freedom.
Private participation

Entry of 14 new private players in container rail logistics is also likely to keep the demand for wagons strong. Since these players are required to invest in their own wagons, the introduction of wagon leasing policy and investment scheme offers support.

The wagon investment scheme provides a 10 per cent rebate on normal freight charges to wagon owners and a guaranteed supply of rakes every month. The wagon-leasing scheme, on the contrary, allows third-parties to invest in wagons and lease them. These schemes, introduced to attract more private participation, may help keep the order books of domestic wagon manufacturers buoyant.
Strategic sourcing of components

TWL's proposal to set up an axle machining and wheel set assembling plant appears strategic, given the supply constraints of domestic railways-approved wheel set manufacturers. With an investment of about Rs 13 crore, TWL plans to set up a unit to assemble wheel sets through procurement of loose machined-wheels and axles from global suppliers. This unit, which will have the capacity to assemble over 10,000-12,000 wheel sets annually, will give TWL better control over its cost and greater operational continuity.
Financials

TWL witnessed a compounded earnings growth of about 74 per cent during the last four years on the back of 57 per cent growth in revenues. Operating margins have also expanded from over 10 per cent in FY-03 to the current levels of about 17 per cent. Its order-book of about Rs 750 crore, with Rs 670 crore for the rolling stock division, also reflects the strengthening demand scenario.

However, since IR fixes the price of wagons on the basis of the lowest bid (L1) it receives, there is little scope for a drastic improvement in TWL's realisations. This may be compensated by way of expansion in margins, considering the likely ramp up in IR orders and its backward integration initiatives.

Going forward, we expect the bulk of revenue growth to come from TWL's wagon manufacturing division only. While its casting division may help on the margin front, the HEMM (heavy earth moving and mining equipment) division may take a couple of years to make significant earnings contribution.
Offer details

The offer is open from March 24-27. Kotak Investment Banking is the book running lead manager. The company plans to raise about Rs 126 crore through a combination of fresh issue of shares and offer for sale by the promoters.

Titagarh Wagons IPO Analysis

2008-03-23T23:03:00.001+05:30

IPOs - not profitable always

2008-03-23T23:01:00.001+05:30

Investors who subscribed to the initial public offer, in the first quarter of 2006, of shares by Sadbhav Engineering are a fortunate lot. Against an investment of Rs 185, the stock closed at Rs 1,080 on Wednesday, an appreciation of more than five-fold in the space of just two years.

So, is investing in initial public offerings (IPO) a safe bet? The answer is no, if we go by the performance of the IPOs of the last two years. Actually there is one in two chance that you wouldn't have made any money at all. According to data available on NSE Web site, around 181 companies had come out with IPOs to raise money since the commencement of the bull-run that began in early 2006. Of these, about 50 per cent 92 stocks to be precise are quoting below the issue price. Seventy companies approached the market for funds in 2006. The number increased to 89 in 2007 and it is 13 in the year to date.

IPOs have been punished across sectors and irrespective of the subscription levels. For instance, shares of companies as diverse as Reliance Power, Future Capital, MindTree Consulting and Sobha Developers which had evoked strong response from investors at the time of initial placement are currently ruling below their issue prices. Even ICICI Bank which came out with a follow-on public issue at Rs 940 is currently quoting well below that price.

A Mumbai-based broker said: "When a stock first starts trading, its price moves up to higher level on pent-up demand. Investor demand is often unusually heavy due to the hype surrounding an IPO, particularly for high-profile companies."

But even among those that did not evoke a frenzy in the run-up to the IPO on the scale of Reliance Power, there have been significant losers. Uttam Sugar Mills (81 per cent), Broadcast Initiatives (80 per cent) and Raj Rayon (79 per cent) are some of the companies that registered major losses.

For investors, the sentiment had turned so adverse in recent times towards any fresh commitment that many companies were forced to withdraw their IPO plans. Among the few that postponed their plans for mobilisation of capital from the public included such high-profile issues as Emaar MGF and Wockhardt Hospitals.

But there have been a few notable exceptions among the IPO stocks besides Sadbhav Engineering that have emerged unscathed despite the Sensex losing 6,000 points in just two months. Though they have declined from their peaks, are still quoting higher than the offer price even while the market has been under a strong bear hug. MIC Electronics is one such. As against the issue price of Rs 150, the share closed at Rs 703.7 on Wednesday, a return of 369 per cent over cost.

According to analysts, investing in IPOs is also as risky as investing in secondary markets. Investors must go beyond the allure and hype of IPOs and educate themselves about the company's fundamentals, they said.

Via Businessline

Gammon Infrastructure, Sita Shree Food Products, Titagarh Wagons, Kiri Dyes and Chemicals

2008-03-23T22:59:00.001+05:30

Gammon Infra 167 10 to 12

Sita Shree Food Pro. 30 6 to 8

Titagarh Wagons Ltd. 540 to 610 50 to 60

Kiri Dyes & Chemicals 125 to 150 12 to 15

Kiri Dyes and Chemicals IPO Analysis

2008-03-23T22:58:00.002+05:30

Kiri Dyes and Chemicals manufactures reactive dyes and dye intermediates. Promoted by Pravin A. Kiri and incorporated on 14 May 1998, the company's production plant is located in Gujarat: three units in Ahmedabad and one unit in Vadodara.

The product range comprises more than 120 dyestuffs used by textiles, leather, paints and printing-ink industries. Production capacity totals10,800 tonnes per annum. Integrating backward, Kiri Dyes and Chemicals commenced manufacturing vinyl sulphone (VS) in April 2006, with a capacity of 3,600 tonnes, and H-acid from March 2007, with capacity of 3,600 tonnes, giving it a presence in the dye intermediate business.

With plans for further backward integration, the IPO is to fund capital expenditure to set up a plant to manufacture sulphuric acid, oleum and chloro sulphonic acid, with a combined capacity of 1,80,000 tonnes, and a dyes and intermediates unit. A 2.9-MW power plant that can run from the steam generated by the sulphuric acid plant is also on the anvil. The electricity generated will be sufficient not only to run the sulphuric acid plant but also the intermediate plants of VS and H-Acid.

Following the expansion, the capacity to manufacture sulphuric acid will be 1, 00,000 tonnes, oleum 43,200 tonnes and chlorosulphonoic acid 36,000. The plant to manufacture sulphuric acid and its sub-products is to be completed by December 2008. Around 25% of the capacity of sulphuric acid, oleum and chlorosulphonic acid will be used to produce dye-intermediates: H-Acid and V.S. The remaining produce will be marketed directly to bulk end-users in the detergent and chemical industry and other large consumers.

The capacity to produce dyestuff will be increased 3,000 tonnes to 15,000 tonnes by the fiscal ending March 2010 (FY 2010). The capacity to manufacture dyes intermediates VS will become 4,200 tonnes in FY 2009 and then further increase to 4,800 tonnes in FY 2010. The capacity to produce H-acid will increase to 4,200 tonnes in FY 2010.

Kiri Dyes and Chemicals entered into a memorandum of understanding with the Zhejiang Lonsen Group on 1 November 2007 to establish a manufacturing facility in India to produce reactive dyes. Both the parties have agreed to start with a production capacity of 20,000 tonnes of reactive dyes and to increase it further to 50,000 tonnes when the opportunity arises after successfully implementation and operations of the initial production capacity. The new plant is to be set up by end 2008. The initial capital investment would be US $ 10 million. Of this, Lonsen is to invest US $ 6 million and Kiri Dyes and Chemicals US $ 4 million to establish a new manufacturing plant in India.

Strengths:

Stringent environmental laws in the western countries have led to discontinuance of production of certain dyes for textiles and leather. This has led to shift in manufacturing capacity from the US and the European Union to South East Asia. Climatic conditions in India are favourable for the manufacture of such products. Also, the new usage of dyestuffs in electronic, high-tech printing, and bio medical applications augurs well for the high-valued dyestuff products.
Backward integration and JV with global giants will help to save cost and strengthen research and development facility.

Weaknesses:

Operates in a highly competitive and unorganised business environment with many big and small players exporting and manufacturing dye and dyestuff. The increased competitive pressure may adversely affect margin.
Had negative cash flows of Rs. 4.88 crore and Rs.9.42 crore from operating income in FY 2007 and FY 2006.
Currently paying MAT (minimum alternate tax) on account of benefits of exemption received under Section 10 B of the Income-Tax Act, 1961, as it is a 100% export-oriented unit (EOU). This status will expire in March 2010. The withdrawal of tax incentives would increase the tax liability and adversely impact profitability.

Valuation

At a price band of Rs 125-Rs 150, the P/E works out to 10.5-12.6 times on half-yearly annualised EPS of Rs 11.9 on post-issue equity of Rs 15 crore, The average TTM P/E for dyes and pigment industry is around 6.

Titagarh Wagons IPO Analysis

2008-03-23T22:58:00.001+05:30

Promoted by J P Chowdhary and his family, Titagarh Wagons (TWL) is one of the leading manufacturers of railway wagons. The company also manufactures bailey bridges, heavy earth moving and mining equipment (HEMM). It is an approved and registered supplier with the Ministry of Defence, supplying bailey bridges and wagons.

Incorporated in 1997, TWL purchased land and machinery from Titagarh Steels (now Titagarh Industries, a listed promoter group company) in 1998 to set up a wagon manufacturing unit at Titagarh. In 2005, it acquired the loss-making Heavy Earth Moving equipment division of Hyderabad Industries at Uttarpara, West Bengal.

The wagon manufacturing business of the company primarily caters to Indian Railways. Its clients also include Container Corporation of India (Concor), National Thermal Power Corporation (NTPC), Wagon Investment Scheme (WIS) customers and private container transport players. The current wagon-manufacturing capacity at both Titagarh and Uttarpara aggregates 5,000 numbers of railway wagons. Product range of railway wagons consists of wagons meant for carrying and discharge of coal and ballasts, wagons for transport of cement, food grains, coal, iron ore, stone and containers, and specialised wagons such as merry go round (MGR). On 22 January 2008, the company entered into a joint venture (JV) agreement with FreightCar America Inc to jointly promote and incorporate a private limited company to develop, design, manufacture, service and distribute railcars and other wagon products. The wagon division accounted for a lion's share of 78.9% and 83.7% of the total income of the company for the fiscal ended March 20'07 (FY 2007) and six month ended September 2007.

Acquisition of the Uttarpara unit from Hyderabad Industries in 2005, apart from augmenting its wagon capacity, and addition of earth-moving and mining equipment into the product portfolio has also facilitated backward integration into steel forgings required to manufacture wagon. The Uttarpara unit consists of a 5,000-tonne steel foundry, and a machine and a fabrication shop. TWL has the capability to manufacture various types of hydraulic excavators ranging from one cubic meter to 14 cubic meters and crawler cranes with capacity varying from 75 tonnes to 92 tonnes. With an installed capacity to manufacture 50 equipments per annum, the HEMM division contributed about 4.8% and 5% of the total income in FY 2007 and six months ended September 2007.

In 2007, TWL entered into a tie-up with JP Morgan Mauritius Holdings to propose a scheme to revive and rehabilitate Cimmco Birla to the Board of Industrial and Financial Reconstruction (BIFR). Cimmco Birla has a wagon-manufacturing unit in Rajasthan.

The proceeds from issue of new shares to fund the capex to set up an electric multiple units (EMU)-manufacturing unit, expand and modernise existing units, establish axle and wheel-set unit at Uttarpara, and build a new corporate office and for strategic acquisition. The setting up of the EMU unit and modernisation of the existing units are expected to be completed by FY 2009.

Strength

Order book stood at Rs 753. 11 crore end Janaury 2008. Current order book translates into 2.7 times FY 2007 revenue, lending revenue visibility. Order book also consists of order for manufacture and supply of nine car rakes of EMU from Indian Railway, depicting the successful foray into passenger EMU vehicles.

Though Indian Railways continues to be a significant customer, the business of wagons to non-railway clients is growing with the entry of private players in container movement through railway, ending Concor's monopoly along with schemes such as wagon investment scheme. Moreover, economic growth provides strong support. Sales of wagons to nonrailway clients and their share in total revenue by value increased to 68.26% in FY 2007 compared with nil in FY 20'04. This results in better utilisation of capacity and insulation to a large extent from the risk of delay in placement of orders or delivery of free items by Indian Railways.

Orders placed by Indian Railways usually include free supply of materials of high value such as steel, bogies and wheel sets. There is a price-escalation clause linked to the wholesale price index (WPI) for labour, thus insulating margin. Similarly, orders from public sector undertakings (PSUs) such as Concor and NTPC also have price- escalation clause for iron and steel and labour linked to the WPI.

Weakness

Has to source Dispatch Memo (DM) components from Research and Development Standard Organisation (RDSO)- approved vendors. There are global supply constraints for wheel sets. Thus, operation/ production of wagons depends on supply of critical components. Penalty has to be paid for missed delivery schedule.

In addition to the bogies and couplers manufactured at the Uttarpara foundry unit, not running to its full capacity, these components are procured from Titagarh Industries, a group company, resulting in clash of interest.

Titagarh Industries (formerly Titagarh Steel (TSL)), one of the promoter-group company, along with its directors was declared a willful defaulter by the Reserve Bank of India.. Subsequent to a one-time settlement, it was removed from the list in 2007.

Propose to invest Rs 35 crore in Cimmco Birla, a company under BIFR scheme of revival and rehabilitation, subject to necessary approvals from BIFR. Signed an agreement with JP Morgan to propose a joint revival scheme. Though the takeover of Cimmco Birla brings additional wagon-manufacturing capacity, specially at a different geographical location in Rajasthan, the ability to successfully turn around it has to be seen as quite a few promoter group companies are in the red.

The share of Indian Railways by value in total revenue has come down to about 10%. But in terms of volume it is significant. Any delay in placement of orders may hit operations and margin.

Valuation

The first-half (ended September 2007) annualised EPS works out to Rs 28.2. On the offer-price band of Rs 540-Rs 610, the PE works out to 19.1 times at the lower price band and 21.6 times at the upper price band. In comparison, peer player Texmaco quotes at a PE of 27.6 times its first-half annualised standalone earning.

Via CM

FIIs sell IPOs on listing

2008-03-09T23:15:00.001+05:30

If you have tracked book-built initial public offers on the stock exchange Web sites, you would have noticed that retail investors typically rush in at the last hour.

This is because most lay investors are looking out for the subscription numbers for the QIB (Qualified Institutional Bidders) portion of the IPO, especially of FIIs, before they decide to take the leap.

Retail investors often rely on the extent of over-subscription in the QIB portion when deciding to invest or refrain from IPOs. This is built on the premise that FIIs have a much better understanding of new businesses or untested business models when it comes to evaluating IPOs.

Now for the detour. What if the big guys you were tracking were in the issue for the short term? What if they flipped on listing day itself, after securing the much-sought-after allotment?

Business Line looked up large transactions (bulk and block deals) that occurred on both the BSE and the NSE platforms for the 35 IPOs listed from mid-October. The evidence of institutional investors making a short-term profit on the day of listing (known commonly as 'flipping') was strong.

Of the 62 transactions (both buy and sell) that occurred on the listing days, 34 were "sell" trades. Of these, institutional investors exited the stock with substantial profits on 25 occasions.

The numbers may be small but the trend reveals that FIIs too have not been averse to taking a short-term view with their IPO investments.
Cashing in

Mauritius-based investment firms or arms of well-known investment banks feature prominently on the list of investors that made a killing on listing.

Right from BSMA (affiliate of Bear Stearns), Mavi Investment Fund (sub-account of Switzerland-based M.M. Warburg Bank) to less known entities such as Prime India Investment Fund, ITF Mauritius, Amas India Investments; all have been regular investors in IPOs, who have taken profits on listing.

Could it be the overall market mood that caused FIIs to rush in on the day of listing and cash in on their profits? Maybe not. True, the Sensex lost around 22 per cent in value since the first week of January, with many volatile ups and downs in between. However, even through this period, FIIs did keep up steady buying in shares of companies such as Maytas Infrastructure, Edelweiss Capital, Consolidated Construction Consortium (CCCL) and BGR Energy Systems, on Day One.

When it comes to a fancy for newly listed stocks, FIIs do not seem to be very different from the small investor.

Just as a small investor would try to buy shares in the secondary market for a company in whose IPO he/she did not get allotment, foreign investors too seem to follow this practice. This may partly explain the bulk deals in Maytas, Edelweiss, CCCL and BGR, whose issues were oversubscribed over 50 times during their IPOs!
Taking chances

What about other constituents of the QIB group who are allocated around 50-60 per cent of a company's net issue? Apart from FIIs, mutual funds and financial institutions, insurance companies also are included in this list.

An analysis of the reported transactions shows that domestic mutual funds have not engaged in 'flipping', as much as the foreign investors. They feature prominently in the buyers list on the day of listing, with funds such as JM Financial, Franklin Templeton MF, ICICI Prudential and HDFC MF actively engaged in buying shares.

India's largest bank, the State Bank of India, also seems to be a participant in the IPO segment, making quick gains with investments in IPOs of Barak Valley Cements and Renaissance Jewellery.

But could it happen that daily market movements too influence these deep-pocketed investors? They do not, as an analysis for the October-February period shows. 'Sell' transactions in IPO stocks were roughly the same in number whether the Sensex finished lower or higher on listing day.

While most transactions by institutions on listing day appeared to be motivated by the chance to make quick gains, a few also helped limit the downside. DB International, India Diversified Mauritius, Ultra India Mauritius, Deutsche International and Elara India Opportunities were some institutional sellers on day one, in stocks such as Empee Distilleries, KNR Constructions and Bang Overseas.

Their move to exit was well-timed, as each of these IPOs lost as much as 20 per cent on listing day. Cords Cable Industries was among the exceptions, which managed to close at a 3 per cent premium after listing at a discount.
What's in it for you

Many small investors take cues from strong QIB subscription numbers to subscribe to and project listing gains on IPOs.

Strong institutional interest during an IPO is taken as a sign that the stock may attract buying post-listing. However, if above trends are any evidence, it is possible that institutional investors too (at least a few of them) are in the game for the short term.

Remember the hype surrounding Reliance Power IPO? Overall, the IPO was oversubscribed 62 times, while the QIB portion was over-subscribed a massive 83 times. But the stock still closed Day One well below its offer price.

Although there is no record of bulk/block deals related to the Reliance Power stock on listing day, one must remember that quite a bit of institutional selling may escape the "bulk deals" net, if transactions are broken into smaller trades, thus escaping notice.

Apart from 'flipping' being a risky game (refer 'Flipping your stock is a risky game', Business Line, September 30, 2007), these trends are reason to take IPO subscription numbers with a pinch of salt.

Large investors too are driven by profit motives and their mere presence in an IPO may not be a vote of confidence in the company or its long-term prospects.

Via Businessline

Sita Shree Food Products IPO Analysis

2008-03-09T23:13:00.003+05:30

Investors can refrain from subscribing to the initial public offer from Sita Shree Food Products.The risks associated with the company's new business foray are high and may outweigh the return potential from this offer.

The company, which has been engaged in making wheat products such as atta, rava and sooji, proposes to raise Rs 31.5 crore through this book-built IPO to fund the setting up of new manufacturing facilities for soya oil and deoiled cake (500 tonnes per day) and to expand flour milling capacities (additional 275 tpd). The offer is being made in a price band of Rs 27-30, valuing the company at a stiff 24-27 times its earnings, without considering the equity expansion due to the offer.
Business

Sita Shree Foods makes wheat products which are sold mainly in bulk form. It has managed a steady ramp up in its sales from Rs 23 crore to Rs 82 crore between FY-04 and FY-07.

Operating profit margins in this business, however, have been thin, hovering in the 3 per cent range in recent years and net profits have risen from Rs 16 lakh to Rs 92 lakh over the same period.

The company has in the past been one of the suppliers to Godrej Pillsbury and Unilever and also counts retail chains such as Pantaloon Retail and Reliance Retail among its clients. Going forward, the opportunity for supplying wheat products in bulk or packaged form to retail chains may continue to expand as these players lay a greater thrust on dry groceries and private label sales.

Though the company's expansion plans for wheat products may come in handy in this respect, margins may continue to be wafer thin, given competition from much larger and unorganised players in the flour milling segment.
Risk factors

The company's foray into soya oil and soyameal business (used and exported as animal feed) comes at an opportune time, when global demand and prices for soya products are firm. Though good location advantages and the promoter's experience in commodity trading may translate into procurement advantages, the lack of scale (competitors such as Ruchi Soya and Gujarat Ambuja Exports control capacities of over a million tonnes per annum) and an overseas presence pose risks to the company's ability to find and sustain a market for its products. Though the company also plans to establish its own brands as well as a marketing network in the domestic market, it will face competition from players with much deeper pockets. The stiff pricing also pegs up the risk element.

Via BL

Grey Market - V Guard, Gammon Infrastructure, Rural Electrification

2008-03-09T23:13:00.001+05:30

Rural Electrification 105 12 to 14

V. Guard Ind. 82 4 to 5

Gammon Infra 167 to 200 16 to 18

Sita Shree Food Pro. 27 to 30 2 to 4

Gammon Infrastructure Projects IPO Analysis

2008-03-09T23:12:00.001+05:30

Investors can stay away from the initial public offer of Gammon Infrastructure Projects Ltd. (GIPL). While the company's unique positioning as a developer in the infrastructure space does provide long-term potential, the offer appears stiffly priced. At the price band of Rs 167-200, the offer values the company at 33-40 times the expected per share earnings for FY 2010. We, therefore, advocate revisiting the stock at a later date either when the secondary market offers better entry opportunities or when the company's projects under development start contributing significantly to cash flows.

There is unlikely to be significant upside in GIPL's earnings in FY 2009 as three of the seven projects under development are expected to become operational only by FY-10. The rest of the projects, mostly in the power segment, may have a longer gestation period before contributing to revenues. Besides, a number of other players in this business (not necessarily with the same business model) such as, IRB Developers and IVRCL, offer higher visibility for returns and have attractive valuations.
On the company and offer

GIPL is a holding company with subsidiaries and associates that are engaged in infrastructure project development. The company is a subsidiary of Gammon India. The parent will hold 73 per cent, post-issue. The company plans to raise Rs 270-330 crore through this offer, the proceeds of which would be invested in projects of subsidiaries and repayment of loan to the parent company. Post-issue, the market capitalisation of the company would be Rs 2,400-2,900 crore at the two ends of the price band.
Current projects

GIPL can be termed as one of the few pure infrastructure developers in the country as against a good number of players which remain part contractors. The company's operations are clearly demarcated from its parent, as all infrastructure development projects are routed through GIPL.

The company also has a diversified basket of projects ranging from roads to power and ports with substantial holding in each of these. However, only four of the 11 projects are currently operational with the rest in the development phase (excluding the SEZs).

Of the operational projects, GIPL has two annuity road projects that provide a steady stream of revenues (by way of annuity and operation and maintenance) based on fixed long-term concession agreements. However, the fixed agreement rules out any scope for significant ramp up in revenues from these projects. Income from annuity constituted 70 per cent of revenues for the six months ended September 2007.

While the third subsidiary Cochin Bridge Project is toll-based, the project's contribution to the revenue stream is minimal. Further, the Government has stipulated fixed toll rates, thus reducing the scope for any significant acceleration in revenues. The possibility of any surge in traffic also appears unlikely given the location of the bridge.

The fourth project management of two berths in Visakhapatnam Port now accounts for 12 per cent of revenues. While this subsidiary is yet to become profitable, we believe that the project holds high earnings visibility and lower risk, with favourable clauses such as take-or-pay. GIPL's stake in this project is, however, restricted to 42 per cent at present as the project is in consortium with Portia Management Services of the UK. Of the four operational projects through subsidiaries, we expect the Vizag Sea Port to be the key revenue driver.

Revenue on a consolidated basis was Rs 147 crore for FY 2007 and Rs 77 crore for the half-year ended September 2007. Consolidated net profits for the above period stood at Rs 30 crore and Rs 11 crore respectively.
Future holds potential

GIPL's more recently formed subsidiaries which have seven projects under development offer a diversified basket with toll and annuity road projects as well as hydro and bio-mass projects. Of these, the hydropower projects have longer gestation periods with operations expected to commence in FY 2011 and FY 2012. The renewable energy and container terminal projects are yet to witness financial closure and, therefore, not considered by us for valuation purposes.

The power projects could well hold potential what with a judicious mix of projects with power purchase agreements and those that can be sold as merchant power. For the biomass projects, while steady supply of raw materials such as rice straw or bagasse could be a constraint, the company is likely to be supported with good power tariffs in States such as Punjab and Haryana. Hydro and bio fuel projects hold the potential to improve the company's profitability over the long term.

Similarly, the Mumbai Offshore Container Terminal Project in which the company has a 50 per cent stake holds favourable revenue sharing and exclusivity terms. The operation and maintenance clause is yet undecided with financial closure also pending. The business per se holds potential given the extreme congestion in the Mumbai harbour. Revenue flow from this stream has to be watched before assessing profitability.
Advantage of developer model

While the infrastructure space is generally known to offer low operating and net profit margins, infrastructure development lends potential for earning superior margins. Once the initial expenditure on building the asset is complete, such projects could provide a regular/accelerated stream of revenues.

As O&M cost of such assets are also paid for by the concessionaire, the profit margins are different from what are typically derived in a construction contract. GIPL's operations currently earn margins of over 70 per cent on a consolidated basis. However, high interest costs (as each project involves significant debt-financing) can lead to more moderate net profit margins.

Though debt-free on a stand-alone basis, GIPL, on a consolidated basis, has a debt equity ratio of close to three. While the funds from the issue would strengthen the networth, the proceeds appear insignificant compared to the size of projects under implementation. Hence the subsidiaries would have to either tap debt avenues or look at further equity expansion at a later date. Such expansion over the medium term could dilute earnings, given that the payoff profiles for the company's projects are fairly long.

The offer is open from March 10-13. Retail and non-institutional investors have the option of applying through a part-payment of Rs 50.

Via Businessline

Grey Market - GSS, Rural, VGuard

2008-03-01T12:41:00.000+05:30

Rural Electrification 90 to 105 20 to 22

GSS America InfoTech 400 to 440 Discount

V. Guard Ind. 80 to 85 9 to 10

Largest IPO in US History

2008-02-26T09:44:00.001+05:30

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

2008-02-25T09:54:00.000+05:30

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

2008-02-25T09:41:00.001+05:30

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

2008-02-24T23:06:00.001+05:30

Rural Electrification Allotment - Subscription Details

2008-02-24T23:01:00.001+05:30

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

2008-02-20T09:49:00.001+05:30

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

2008-02-18T09:24:00.000+05:30

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 !

2008-02-18T05:12:00.000+05:30

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

2008-02-18T05:11:00.001+05:30

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

2008-02-18T05:10:00.001+05:30

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

2008-02-18T05:06:00.001+05:30

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

2008-02-15T09:47:00.001+05:30

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

2008-02-12T23:49:00.000+05:30

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

2008-02-11T02:35:00.001+05:30

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

2008-02-11T02:34:00.001+05:30

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

2008-02-11T02:33:00.001+05:30

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..

2008-02-11T02:30:00.001+05:30

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

2008-02-11T02:29:00.000+05:30

One day to go

And

the Grey Market Premium is between 110 to 120

GSS America Infotech IPO Analysis

2008-02-11T02:25:00.001+05:30

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

2008-02-11T02:24:00.001+05:30

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

2008-02-11T02:19:00.001+05:30

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

2008-02-11T02:17:00.001+05:30

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!

2008-02-11T02:14:00.000+05:30

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..

2008-02-06T09:39:00.001+05:30

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..

2008-02-06T09:38:00.001+05:30

Discounts at Grey Market

2008-02-04T09:44:00.001+05:30

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 ?

2008-02-04T09:23:00.001+05:30

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

2008-02-04T01:30:00.001+05:30

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

2008-02-04T01:27:00.001+05:30

Wockhardt Hospitals IPO Review

2008-02-04T01:21:00.001+05:30

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

2008-02-04T01:20:00.001+05:30

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

2008-02-04T01:19:00.001+05:30

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

2008-02-04T01:11:00.001+05:30

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 )

Grey Market - Shriram EPC, IRB Infrastructure, Reliance Power

2008-01-31T23:45:00.001+05:30

Future Capital Holding 765 340 to 350

Reliance Power 450 150 to 160

Emaar MGF 610 to 690 90 to 100

J. Kumar Infraprojects 110 to 120 Discount

Cords Cable Ind. 125 to 135 8 to 10

KNR Construction 170 to 180 Discount

Onmobile Global 425 to 450 35 to 40

Bang Overseas 200 to 207 30 to 35

Shriram EPC 290 to 330 25 to 30

IRB Infra 185 to 220 60 to 65

Reliance Power Allotment Status

2008-01-31T23:44:00.000+05:30

Reliance Power Allotment Status can be checked here today evening or tomorrow (Jan 31 or Feb 1 )

Shriram EPC IPO Analysis and Recommendation

2008-01-31T23:42:00.000+05:30

Investors with a high-risk appetite and a two-three year investment horizon can consider investing in the initial public offering of Shriram EPC (SEPC). However, we would be more comfortable if the offer is priced at the lower end of the price band.

Given the company's wide-spread exposure to businesses such as renewable energy, process & metallurgy and municipal services, SEPC appears well set to leverage on the strong demand for both its product as well as service offerings.
Valuation

Foray into higher-capacity wind turbine generators, bio-ethanol plants and increasing bias towards execution of turnkey projects also suggest strong prospects.

However, the offer is expensively priced. In the price band of Rs 290-330 the offer is priced at about 22-25 times the likely FY09 per share earnings.

This is backed by SEPC's presence across high-growth business verticals and its robust order book (about Rs 2,270 crore).
Business verticals

SEPC's business can be broadly classified under two categories Engineering, procurement and construction (EPC) projects and manufacture/sale/maintenance of wind turbine generators (WTG). The company's EPC business focuses on three segments renewable energy, process & metallurgy and municipal services.

The renewable energy EPC projects mainly consist of biomass-based power projects, co-generation power projects and bio-ethanol plant projects. In the process and metallurgy EPC projects, SEPC focuses on providing turnkey solutions to sectors such as power, steel and cement. The company typically bids for these projects in consortium with foreign players who provide the technology back up, while SEPC provides for manpower, onsite construction, commissioning and testing services.

It also provides cooling tower and air-pollution control systems through Hamom Shriram, its joint venture company with Hamom group.

Through its municipal services division, SEPC undertakes turnkey projects for water and waste management and executes pipe rehabilitation projects.

The WTG division, apart from manufacturing 250KW-class WTGs, also does installation, commissioning and maintenance of turbine generators. SEPC has formed two joint ventures with Netherlands-based Leitwind to establish presence in high-end WTGs (1.35 MW WTGs). These joint ventures, using Leitner's gearless WTG technology will manufacture and subsequently market and sell these WTGs .

This business may hold potential given the growing demand for windmills and the supply constraints for gearboxes. However, weighed against this, Leitwind's technology is not yet established . SEPC's limited exposure to export market may also pose challenges.

SEPC plans to use the proceeds from this issue for investing in its associate companies, such as Orient Green Power and Leitner Shriram Manufacturing.
Growth drivers

SEPC's foray into providing EPC services for process and metallurgy, given its positioning as a complete engineering solutions provider may help it gain traction in this market.

These projects, which typically enjoy high margins, may also help SEPC better its operation metrics.

Besides, the company's focus towards executing EPC projects in other sectors may also help it diversify and scale up revenues. While so far it had primarily executed EPC projects in the captive power and metallurgy segments, a recent order win worth Rs 570 crore from the cement sector points to broader revenue streams.

The company's unique exposure to various sources of renewable energy also presents significant potential for revenue growth over the long-term. While it is an established player in biomass-based EPC projects, its foray into bio-ethanol is relatively new.

Cracking the bio-ethanol market may take sometime since these projects require a sound technology base and features established overseas players. SEPC may have to partner with global players for sourcing technology.

While finding the right partner may take time, SEPC's partnerships with leading global players in its other business divisions infuse some confidence on this front.

The company's recent order to build a 280 KLPD (kilo litres per day) bio-ethanol plant in Czech Republic in consortium with a leading European player is a case in point.

Further, SEPC's move towards ownership of power generation assets through its associate company, Orient Green Power may also have potential for significant earnings upside over the long-term.

Among other initiatives of SEPC, wastewater management and pipe rehabilitation while insignificant currently, hold good potential.

SEPC's revenue has grown at an annual compounded rate of about 99 per cent over the last two years, albeit on a small base. Earnings, during the same period, grew by about 51 per cent. Profit growth may accelerate significantly if SEPC's entry to high-growth and high-margin segments pays off.
Concerns

While SEPC is attempting to offer a one-stop shop for engineering solutions across segments, it has to tackle competition from established players such as L&T, Praj Industries and Thermax in each of those areas.

This may force SEPC to competitively price its service offerings and may squeeze its margins to an extent. Further, the company's relatively smaller scale of operations may render it unfit to bid for many of the high-value turnkey projects, unless it stikes successful global partnerships.

Moreover, since the company sub-contracts most of the peripheral material requirements for such projects, it may not have complete control over project costs.

This may put to test SEPC's ability to effectively manage its cash flows given its high working capital requirements. Overall, execution risks to this offer are high.

The offer closes on February 1.

Tulsi Extrusions IPO Analysis

2008-01-31T23:41:00.002+05:30

Tulsi Extrusions (TEL) is a medium scale PVC pipe manufacturing company with a presence in Gujarat, Orissa, Assam, West Bengal, Delhi and the interiors of Maharashtra. The company is engaged in manufacturing PVC pipes, PVC fabricated fittings, SWR pipes and fittings, PVC casing and Screen pipes, ASTM plumbing pipes, LLDPE pipes, HDPE pipes etc. The company has 3 manufacturing facilities located in Jalgaon, Maharashtra.

The company markets its product under the brand name 'Tulsi' and is marketed through 867 dealers in the 5 states that it covers. The company has a diversified product to cater to various types of end users.

Promoted by Mr. Pradip Mundhra, the company has three manufacturing facilities in Jalgaon, Maharashtra with a total area of 17,955 square meters and a total production capacity of 10,483 metric tones. The company is expanding its production capacity in its Jalgaon unit thereby increasing the capacity of the existing operations to 17,971 metric tones per annum and also expand the product range by venturing into manufacture of PVC moulded fittings, sprinkler systems, online drip irrigation system and fittings for micro irrigation.

The company is also setting up 1.5 MW windmill power plant for captive consumption at an estimated cost of Rs 10 crore. The company further plans to expand its product range by venturing into manufacture of PVC injection moulded fittings, HDPE sprinkler systems, Inline drip irrigation system and LLDPE fittings for micro irrigation.

The products manufactured by the company finds application in agriculture, potable water supply schemes, sewerage and drainage systems, construction industry, telecom industry, bore well for underground water suction etc.

India Is the eighth major consumer of plastics in the world and the plastic industry demand is expected to grow by around 10-12% p.a for the next few years. The global PVC pipe demand is expected to grow by 4% p.a. PVC pipes because of its anti corrosion features and better durability is being used extensively instead of conventional building material in various construction applications. Further on-going accelerated irrigation benefit program and major thrust given to the infrastructure development in India and the construction boom has given a fillip to the PVC building material demand in the recent past.

Strengths

The company has a diversified product range with in the same product line..
The company has also started manufacturing HDPE pipes, which is an immediate replacement for PVC pipes and is chlorine free. This provides an edge for the company, as there are no major competitors in manufacturing HDPE pipes.
The company is aggressively foraying into macro-irrigation sector, sprinkler irrigation, lift-irrigation which are major growth sector going forward.

Weaknesses

The industry is highly fragmented and unorganized.
Due to lower scale of operation the company would not be able to enjoy economies of scale in its operation.
Any increase in global crude oil prices directly influences the input cost of the company as PVC resin prices are directly linked to it.
The company relies on external agencies of major petrochemical companies to source its raw material and it does not have any long term agreement with any major supplier. Hence the company is vulnerable to PVC resin price risk.
The company has substantial outstanding debtors of Rs 6.56 crore, which is outstanding for more than 6 month.
Further the company has been providing around 120 days average credit period to its customers, which is quiet high. This could put severe strain on the working capital requirement of the company.

Valuation

Tulsi Extrusions has set a price band of Rs. 80 to Rs 85 per equity share of Rs 10 each, translating into a PE of 14.1x at the lower price band and 15x at the higher price band, based on the annualized earning per share of Rs 5.7 for the eight month period ended November 2007on post-IPO equity. Notably in these eight months the company has reported very high OPM of 20.4%, compared to OPM of 13.5% last year. In this period while net profit was Rs 4.72 crore, cash flow from operating activities was negative Rs 12.51 crore!

Industry leader and an integrated player Finolex Industries currently trades at a TTM P/E of around 12 and Astral Poly Technik, with a niche and fast growing product line with little competition trades at TTM P/E of around 14.

KNR Constructions Allotment - Subscription Details

2008-01-31T23:41:00.001+05:30

KNR Construction Limited - Bid details

Sr.No.	Category	No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)	1.3750
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	3.2059
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)	0.2772
3(a)	Cut Off
3(b)	Price Bids
4	Employee Reservation	0.6113
4(a)	Cut Off
4(b)	Price Bids

Onmobile IPO Allotment - Subscription details

2008-01-31T23:40:00.001+05:30

ONMOBILE GLOBAL LIMITED - Bid details

Sr.No.	Category	No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)	17.1605
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	2.6258
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)	1.3080
3(a)	Cut Off
3(b)	Price Bids

Shriram EPC IPO Analysis

2008-01-31T23:39:00.001+05:30

Shriram EPC is one of the leading providers of integrated design, engineering, procurement, construction and project management services for renewable energy projects, process plant, metallurgical plants and municipal services sector projects. Besides engineering, procurement and construction (EPC), it also manufactures and installs 250-KW wind turbine generator (WTG) and cooling towers.

The renewable energy business comprises EPC execution of biomass power plant, co-generation power plant projects and bio-ethanol plants. Bio-ethanol technology is sourced from a leading European player with project-specific arrangement. Similarly, EPC solutions for process and metallurgy plants including captive and non-captive thermal power plants are also undertaken. In the process and metallurgy space, bids are placed as part of larger project-specific consortium with international players such as Danielli of Italy for rolling-mill contracts, SSIT of China for coal-dust injection, Waterbury of Canada for stainless-steel mill for an integrated steel plant, Beltran of the US for wet electrostatic precipitators, and Envirotherm GmbH of Germany for coal gasification. In the water and wastewater space, EPC solution is given for treatment plants, water and sewerage infrastructure and pipe rehabilitation.

The WTG business is focused on developing, manufacturing, erecting and commissioning 250-KW WTGs. Currently, megawatt class WTGs are being developed through a subsidiary and associate company, which have formed a joint venture (JV) with Leitwind of the Netherlands. End December 2007, over 210 WTGs were supplied and installed and four wind farm projects developed for clients in India, particularly in Tamil Nadu. The first export order to supply 250-KW WTG to a client in Thailand in fiscal 2007 was executed recently. To move up to MW class of WTGs, one 1.35-MW WTG was installed in Tamilnadu in September 2007 and another is to be installed in Karnataka by February 2008.

The process and metallurgy business accounted for 62.7% of the EPC contract revenue and 39.1% of total consolidated revenue in the year ended March 2007(FY 2007). The biomass power-plant business generated about 26.8% of the EPC contract revenue and 16.7% of consolidated revenue. The municipal services business accounted for 106% of the EPC contract revenue and 6.6% of consolidated revenue. The WTG business generated 35.9% of consolidated revenue.

Shriram EPC has three associate companies manufacturing WTGs, renewable power generation, and metallurgical coke. Orient Green Power (OGPL) is the associate company in which Shriram EPC holds a 48.7% stake, focuses on developing renewable energy source based (biomass and hydel) power plants on build-own-operate (BOO) and build-own-operate-transfer (BOOT). To date, OGPL has identified four biomass power projects in Dindugal, Pattukottai, Vandavasi and Pollachi in Tamilnadu of 1x7.5 MW each, aggregating 30 MW ; one mini hydel power project (of 15 MW) in Orissa; and one poultry-based power project (of 6 MW) in Andhra Pradesh for development. The licence for these six projects to be executed are already in place with third parties. OGPL is expected to acquire a majority / entire stake in each of the special purpose vehicle (SPV). OGPL has also bid for licences for two biomass power plants in Punjab and one in Madhya Pradesh, with a capacity of 10 MW each. Ennore Coke is the listed company and the second associate. Leitner Shriram Manufacturing is the other associate company, where Shriram EPC owns 49%, with the balance 51% held by the Netherlands-based JV partner, Leitwing BV, manufacturing 1.35-MW class WTG machines. This JV is expected to commence operation from January 2008.

Hamon Shriram Cottrell (formerly Hamon Thermopack Engineers) and Shriram Leitwind are the two subsidiaries of Shriram EPC. While Hamon Shriram Cottrell manufactures and erects cooling towers and air pollution control units, Shriram Leitwind (Shriram EPC owns 51%) markets WTG of both 25 KW class and 1.35 MW class. Shriram EPC also plans to shift the manufacturing and marketing of the KW machine business to the newly formed JV companies. Shriram EPC acquired majority stake ( 50% + 2 shares) in erstwhile Hamon Thermopack Engineers from Hamon Group and also got exclusive licence to design, manufacture and sell certain air pollution products and systems from the stable of Hamon Research Cottrell Inc.

The issue proceeds will be used to capitalise the subsidiaries and associate companies to purchase of equipment for pipe-rehabilitation projects and fund expenditure for general corporate purpose.

Strengths

Presence in potentially strong growth sectors such as renewable energy including bio-ethanol plants, metallurgical EPC contracts and water and waste water infra projects. This sector presents strong potential with increasing capital expenditure. Operating in complementary projects such as cooling towers and air pollution control equipment, and coal gasification solutions will help to maximise the business share from both existing and future clients.

Consolidated order book stood at Rs 2279.18 crore end December 2007, translating into about 7.7 times FY 2007 revenue. The order book is also diverse by project mix with the share of process and metallurgical-plant projects including cooling towers and pollution control equipment about 57%, municipal services 9.2%, and biomass-power plant 9.3%. The WTG business accounted for about 7.7% of the total order book. Has also bagged a Euro 69-million contract to design and build a 280-kilo litre per day (KLPD) bio-ethanol plant in Czech Republic.

Successful project execution capability in time-bound and cost-effective manner backed by an able management team. Has executed large and complex projects on time or before the scheduled completion date. As lump-sum turnkey projects do not come with a price-escalation clause, timely completion and cost effectiveness is a big determinant of profitability.

Weakness

Though has a strong presence in 250 KW class, has entered into the MW class with a relatively new player as technology partner. Furthermore, the gearless technology of Leitwind is new, without a track record. This and competition in the global wind-power equipment market calls for strong marketing muscle, which is yet to be seen.

A single order (the EPC contract for setting up of a 1.5-tonne per day grassroot cement plant for Sree Jayajothi Cements in Andhra Pradesh) constituted about 25% of the total order book end December 2007. About 10 projects represented 72.6% of the order book end December 2007. Any delay or holdback of the project will affect the revenue flow.

GEI Industrial Systems has filed a petition before the Company Law Board against Compagnie Financiere Hamon and other praying for restraining Hamon/ or any subsidiary or group company from entering into any new JV and cancellation/ termination of existing JV. In the event of adverse decision against Hamon, the JV Hamon Shriram will be asked to terminate.

Has little experience in the successful execution of bio-ethanol plant. Its ability to scale up in this market by competing against established players is to be seen. Similarly, has also won order for the execution of a cement plant and a coal-gasification plant, where it lacks experience.

Valuations

Consolidated revenue in the fiscal ended March 2007 was higher by 105% to Rs 295.72 crore and the restated net profit up 117% to Rs 14.06 crore. The EPS for FY 2007 works out to Rs 3.3 on post-IPO equity. At the offer price band of Rs 290-Rs 330, the P/E works to 87.9-100 times the FY 2007 consolidated earning. However, the P/E based on consolidated half-yearly EPS (annualised) works out to 59.2 (on the lower price band of Rs 290) times to 67.4 times (on the upper price band of Rs 330). Given the diverse operational profile, there is no comparable player of its size. Nevertheless, peer players such as Thermax, BGR Energy, Praj and Suzlon Energy are quoting at a P/E of 42.3, 175.8, 38.1 and 58.7 times their FY 2007 consolidated earning

Shriram EPC IPO Analysis

2008-01-30T09:40:00.001+05:30

The issue proceeds will be used to capitalise the subsidiaries and associate companies to purchase of equipment for pipe-rehabilitation projects and fund expenditure for general corporate purpose.

Strengths

Weakness

Valuations

KNR Constructions IPO Review

2008-01-28T03:09:00.003+05:30

Investors with a two-year perspective can consider applying to the initial public offer of infrastructure company KNR Constructions. A strong order book, reasonable track record in the industry and ability to forge joint ventures to foray into larger projects are the key positives that provide earnings visibility over the medium term.

At the offer price band of Rs 170-180, the company is valued at 8-9 times its expected per share earnings for FY 2009 on the expanded equity base. The stock's market capitalisation at the issue price would be about Rs 500 crore. The small market-cap could expose the stock to steep declines if there are any broad market corrections. Investors should, therefore, be willing to hold the stock over a longer time horizon.
Offer details

KNR Constructions is a Hyderabad-based infrastructure company with operations predominantly in the road and highways sector. The company is also present in irrigation and urban water infrastructure segments. It plans to raise Rs 142 crore through this offer. The proceeds will be utilised to invest in capital equipment and finance build-operate-transfer (BOT) projects secured through joint ventures.
Strong order book

The unexecuted portion of the orders in hand is Rs 1,734 crore. This is about 5.4 times the company's sales for FY 2007.

That a good number of these orders are slotted for completion by FY 2009 provides strong earnings visibility for the next two years.

KNR is also geographically well diversified with state/NHAI projects in Andhra Pradesh, Uttar Pradesh, New Delhi, Assam and Gujarat. While the South accounts for 70 per cent of the order book (as a result of the large size of BOT orders bagged in the region), the rest of the orders are from the East, North-East and the Northern regions.

With the National Highway Development Programme moving to the next phases (Phase IIIA and later IIIB) of road development, KNR's qualification in projects across the country lends confidence as to its ability to bag bigger orders in the new phases.

While roads remain KNR's area of focus, it has diversified into irrigation as well as urban water solutions. Although business prospects for these segments remain bright, the company may have to compete with larger/established regional players.
Deriving strength through joint ventures

KNR has steadily moved to implementing larger-sized orders, thus improving its operating profit margins. Its OPMs have grown from 8.3 per cent in 2006 to 15.5 per cent for the half-year ended September 2007. The company's ability to forge successful joint ventures may have been the key to ramp up the size of orders.

Notable among them is KNR's association with Patel Engineering for the past seven years. Joint ventures and special purpose vehicle (SPV) projects with Patel Engineering have enabled KNR to not only diversify to other locations but also move to big-ticket orders. Its recent venture into BOT projects in the road space is through SPVs of Patel-KNR. These SPVs, in turn, secure KNR the Engineering Procurement and Construction (EPC) contract for such projects.

Interestingly, in order to forge a cautious entry into this new segment, the company has decided to go in for annuity-based BOT projects, which provide assured payments from the Government. The company plans to bid for toll-based projects too in future. Its well-timed move into the BOT space and the prospects arising from Phase IIIA (which awards only BOT projects) augur well for future orders in this segment.

KNR being a mid-sized company, its cautious approach to new segments through joint ventures with reputed players and annuity-based models minimises the risks typically associated with small companies aiming to qualify for bigger/high-end projects.

KNR's net profit grew at a compounded annual rate of 42 per cent over the three years ended FY 2007. The company witnessed some slowdown in orders in 2005 before they picked up pace. While the prospects for the next two years, based on orders in hand, appear bright, investors with a longer perspective may have to look out for the company's ability to scale up the order book beyond this time frame.

Although KNR has comfortably managed its debt obligations, its debt-equity ratio has been high. Post offer, however, the ratio would come to 1.6. An adverse interest rate scenario, though not an immediate risk, could affect the bottom line. At the operating profit level though, the increasing contribution from irrigation and urban water infrastructure projects may bolster earnings.

The offer is open during January 24-29. Axis Bank is the book running lead manager.

Bang Overseas IPO Review

2008-01-28T03:09:00.001+05:30

Investors can avoid the initial public offer of Bang Overseas Ltd (BOL). At the upper end of the price band of Rs 200-Rs 207, the offer is valued at close to 20 times the company's annualised FY 08 per-share earnings, on a fully expanded equity base. The company is in its infancy, and with an insufficient track record in the branded retail business, there could be execution risks to its expansion plans. If it manages to execute its capacity addition and retail expansion plans successfully, the valuation is likely to be at more attractive levels on a forward basis. Given the turbulence in the markets, however, staying invested with better-established players may be a more appropriate strategy.
Focus on garments

BOL has a domestic market bias and is, therefore, relatively less exposed to rupee fluctuations and export slowdown, problems that are plaguing most other textile companies.

The company started its garments business in 2002. Till then, it was predominantly a trader in imported fabric. The company sells men's clothing under the brand "Thomas Scott" through a network of multi-brand outlets, departmental stores such as Shoppers' Stop and Globus and 12 exclusive outlets.

A growing share of garments in the revenue mix has significantly improved profitability. Revenues and profits have grown at a stupendous pace since 2005. The company ended fiscal 2007 with revenues of close to Rs 100 crore. Garments currently account for about 40 per cent of revenues.

Through the proceeds of the offer, the company will expand its garments capacity six-fold to more than 7 million pieces a year and expand its retail chain to 100 stores. The fresh capacity is expected to come on stream by September 2008. The company expects to add an additional 88 stores by June 2009; 41 will be company-operated and the remaining franchisee-run.

The additional garment capacity will likely feed its expanding retail operations. and will also help it cater to increasing demand from apparel retailers. BOL is also to foray into women's wear with a line of clothing Miss Scott.

Execution risks

While these moves can help boost margins and profits in the long-term, there are execution risks, especially when it comes to the retail business.

BOL has identified locations across different regions in the country, with focus on tier-two and tier-three cities. However, there has not been much progress in finalising properties for its retail operations. Agreements have been signed for only nine of the planned 41 stores. The company has not entered into further franchisee-agreements for running the remaining stores.

The offer document does not state whether the stores will be stand-alone or in malls, nor does it mention the size of these stores. Less than Rs 10 crore of this Rs 70 crore issue has been earmarked for retail expansion. Cost over-runs are likely, considering increasing real-estate rentals and higher competition from established retailers and other garment exporters in tier-two towns. There could also be considerable delays in store openings. The company's lack of experience in the retail business also does not inspire confidence in its execution. At the same time, retail operations may be crucial to making a mark in the branded apparel business, considering that the company lacks the financial wherewithal to commit huge sums to brand-building. Several large garment exporters are also turning to the domestic market to combat the slowdown on in the export front, which is likely to heighten competition in this segment.

Considering the low visibility of prospects at this stage, investors may be better off following a wait-and-watch approach and revisit the stock once the company gains a firmer foothold in the domestic apparel market.

The offer opens on January 28 and closes on January 31, 2008.