IPO ANALYSIS: JSW ENERGY LIMITED – POWER PACKED - APPLY

Jindal group needs no introduction in capital markets. The group has business interest in the steel, power, cement, aluminum, software, power trading and infrastructure sectors.

The power company from the JSW group is planning to raise Rs 2700 cr through IPO, in the price band of Rs 100 - 115 per share, having face value of Rs.10 per share. The issue will open on 07-12-09 and closes on 09-12-09.

JM Financial Consultants Pvt Ltd, Kotak Mahindra Capital Ltd., ICICI Securities Ltd., IDFC-SSKI Ltd., JP Morgan India Ltd., SBI Capital Markets Ltd., Morgan Stanley India Ltd. and IDBI Capital market Services ltd are the book running lead managers to the issue.

JSW Energy limited, is a part of the JSW Group, headed by Mr. Sajjan Jindal.The company currently owns and operates thermal power plants in Karnataka with an aggregate capacity of 860 MW. It also provides operation & maintenance services for power plants of group companies and project management services for the power plants being set up by the group. JSWEL is currently in the process of enhancing its power generation capacity by 2,790 MW. It is also setting up a transmission line network and developing lignite mines through joint ventures.

OBJECTS OF THE ISSUE

The funds raised are intended to be used for setting up power plants. Repayment of high cost corporate debts and for general corporate purposes.

The cost of the projects is estimated at Rs.14,048 crore and is being funded in a debt to equity ratio of 2.45:1 i.e. long-term debt of Rs.9,979.50 crore and equity of Rs.4,068.50 crore. The company has already tied up the total debt component while, funds aggregating Rs.5, 982 crore were deployed in the various projects as on June 30, 2009. State Bank of India and ICICI Banks have appraised and funded the projects.


VALUATION

The company had a CAGR in excess of 30%, in revenue generation, in the last three years. Consistently profit making company. Professional and experienced management. Known for good corporate governance. Strong financials. Power plant are located at diverge geographical locations. The issue has been graded by rating agency CARE as Grade 4, indicating above-average fundamentals. The company’s RoNW is at 18% as on 31-03-09. At Rs 100 -115, the issue is very attractively priced. Retail investors are offered a discount of Rs 5/.

OPPORTUNITIES

On the successful commissioning of the projects, JSWEL would have benefit of the prevailing high merchant tariff for short term. Given the significant power supply deficit in the country and government recognizing the power sector as a key infrastructure sector to be developed to sustain Indian economic growth, prospects for
growth is favorable for companies in the power sector.

One of the established energy company. One of the early entrants in the power trading business. Currently most of the revenue is derived from power generation. The company has the potential to become an integrated power company in the Indian power sector with presence across the value chain.

The low per capita consumption of electric power in India compared to the world average presents a significant potential for sustainable growth in the demand for electric power in India. There is a very big gap between demand and supply, demand being higher. The company is in the right business at the right time. Investors are advised to apply for the issue for both short term and long term appreciation.

VERY ATTRACTIVELY PRICED APPLY.

IPO ANALYSIS : MBL INFRASTRUCTURE LIMITED -BUMPY ROADS - BETTER AVOID

The Kolkatta based infrastructure development company is planning to raise around Rs 100 cr through IPO, which is slated to open on 27-11-09 and closes on 01-12-09. The company proposes to issue 57, 00,000 of equity shares of Rs 10/each in the price band of Rs 165-180. Motilal Oswal Investment advisors are the Book Running Lead Manager.

The company is promoted by R G Maheshwari and associates, was originally incorporated as Maheshwari Brothers Limited and subsequently changed its name.

The company is engaged in the construction and maintenance of roads and highways, industrial infrastructure projects, other civil engineering projects for various government bodies and other clients.

The company has a pan India presence and has executed or in the process of execution a number of projects in states of West Bengal, Madhya Pradesh, Maharashtra, Rajasthan, Assam, Uttar Pradesh, Bihar, Delhi Andhra Pradesh, Haryana and Karnataka.

The company has also interest in steel trading and waste management and ready mix concrete business.


OBJECTS OF THE ISSUE

The company intends to use the proceeds of the Issue for procurement of capital equipments, investments in joint ventures, for BOT projects, for working capital requirements and for meeting general corporate purposes. However, the project has not been appraised by any Bank or Financial Institution.


VALUATION

The company has recorded robust revenue and profitability in the last three years and has track record of dividend payment. At Rs 165 (lower end), the price earning ratio of 17 is very much on the higher side, compared to the peers of the sector which are available for less than 10 P/E. Certain criminal cases are pending against the company/ its subsidiaries/group companies and income tax (disappropriate income) appeal. Company is heavily dependent on government/government funded projects. The rating agency ICRA has awarded grade 2 indicating below average fundamentals. The premium sought is very much is on the high side, considering the above factors.



CHALLENGES AND RISKS

Demand for infrastructure services depends mainly on general developmental activities in the country and expenditure levels in the building and infrastructure sectors. The infrastructure services are principally dependent on sustained economic development in the regions in which the company operates. In addition, demand for infrastructure services is largely dependent on government policies relating to infrastructure development and budgetary allocations made by governments for such development, as well as funding provided by international and multilateral development financial institutions for infrastructure projects. Investment by the private sector in infrastructure projects is dependent on the potential returns from such projects, is therefore linked to government policies relating to private sector participation and the sharing of risks, and returns from such projects. A reduction of capital investment in the building or infrastructure sectors for any reason could have a material adverse effect on business, results of operations and financial condition. Instability of economic policies and the political situation in India could adversely affect the fortunes of the Industry. Investors are advised to stay away from the issue.

IPO ANALYSIS: COX & KINGS: ATTRACTIVELY PRICED – APPLY

One of the leading and oldest recognised service provider in the travel and tourism industry with pan India and global presence in 18 countries is planning to raise around Rs 600 crore through IPO. The company proposes to issue 1,84, 96,640-equity shares of Rs 10/ each, including offer for sale of 30, 46,640 shares in the price band of Rs 316 -330/ share. The issue is slated to open on 18-11-09 and closes on 20-11-09. India Info line limited are the Book Running Lead Manager.

The company caters to the overall travel needs of an Indian and International traveller and it is one of the India’s largest tour and travel operator, which serve as a ‘One Stop Shop’ for all travel and travel related products.

Cox & Kings business are broadly categorised as Leisure Travel, Corporate Travel, Forex and Visa Processing. They also design travel packages for both individuals and groups for their domestic and international leisure travel, as travel arrangements for corporate clients to cater to their business meetings, conferences and events. They also provide end-to-end travel solutions including land, air and cruise bookings, hotel bookings, in-transit arrangements, local sightseeing, visa, passport and medical insurance assistance. The company continuously innovates product offerings with the flexibility to meet the changing needs of the customers and to address their needs better.

OBJECTS OF THE ISSUE

The proceeds of the IPO are intended to be deployed for acquisitions, investments in overseas subsidiaries, repayment of loans and for general corporate purposes.

THE PRICING

Taking into consideration the company’s strong brand equity, efficient management, wide range of products, geographical reach, investment in technology and financial performances, the issue can be considered very attractively priced. The rating agency CARE has assigned Grade 4, indicating above average fundamentals. At Rs 316-330, the price-to-earning ratio is around 16 multiple based on the average weighted EPS of Rs 22.00 for the last three years, as against the average industry PE multiple of 36. There is enough scope for further appreciation.

CHALLENGES

The company operates in a highly competitive market and hence faces stiff competition from other players operating in this sector as also from the un-organized sectors. Many Indian and foreign players have entered the market both in the online and offline space. Pricing is one of the key factors that play an important role in customers’ selection of products. There are several strategies adopted by competitors to increase their market share through advertising, pricing, service, new product innovations and distribution reach amongst others. This increased competition by both traditional and new players is likely to affect margins. However, this could stand mitigated by the the brand equity and the trust it has earned over the years. The company appears well poised to face the challenges and emerge a winner. This is one of the public issues that the investors can apply and look for positive returns.

ACTS OF IMMATURITY

The unruly behavior of the MNS legislators (Goonda Raj HT 10-11-09) in the assembly during the oath taking ceremony on 09-11-09, in assaulting the SP MLA for taking oath in Hindi is a shameful act. There are many peaceful ways to express one’s views on a subject. These kinds of behavior indicate how immature one is. Earlier, the same Samajawadi party MLA had made a ridiculous demand, that the business agenda of the Assembly should be made available in Hindi. He has chosen Maharastra for his political career and the people of the state have been magnanimous enough to elect him to the Assembly from two places. Propriety demands learning/acquiring working knowledge of Marathi language even before contesting the election. He should have respected the public sentiments and taken oath in Marathi. Being an elected representative, it is beyond anyone’s understanding as to how Azmi is going to inter act with the people of his constituency. Voters should take note of the above acts of immaturity, by both the sides, while excersing their franchise in future.

INDIRA GANDHI WAS A GREAT LEADER, PAR EXCELLENCE

The views expressed by Parsa Venkateshwar Rao Jr in the article’ Indira Gandhi was merely a politician’(DNA 03-11-09) is not correct. She had all the qualities of a very strong, great leader. Bank nationalization, Pokaran nuclear test, Garibi hatav programme, Right of ownership to the tiller, the win against Pakistan in 1971 war, are some of the feathers in her cap. She was the true leader who knew the pulse of the voters. Her strong leadership qualities when in power and out of it was hailed in India as well outside the country. Although there were some drawback in her style of functioning, it is wrong to attribute the same as lack leadership. Politics is a different ball game. One has to deal with the elected representative whether they are educated or not, whether they understands host of other things of efficient administration. Even today, it is difficult attract talented people for various (obvious) reasons for any political party. The assertion that she lacked the ability to build a team of talented people is again not correct. Contrary to the views expressed in the article, undoubtedly Indira Gandhi was one of the greatest leader India has produced and not merely a politician.

TENDULKAR DISMISSAL, TURNING POINT

The not so formidable bowling attack of Australia defended the modest score of 250 runs on a good batting pitch. The all-round display by Shane Watson helped the Aussies to win the Mohali match. India started well, Sewag hitting the ball to all parts of the ground. As it happens most of the time, he did not lost long. Master blaster, Tendulkar, was shaping his innings well. Cricket fans were hoping that he would cross the all-important milestone of scoring 17000 runs in ODI. However, a wrong decision by the umpire (as confirmed by the television reply) adjudging him as out, to a ball which was pitched outside the leg stump, turned out be the turning point of the match. After that, India lost wickets at regular intervals and the run rate started climbing. Harbhajan Singh did his best. That was not good enough for India. He and Praveen Kumar have demonstrated in this series so far, that they have the potential to become genuine all rounders. The team management should take note this and utilize their batting potential to the maximum in the overall interest of the team India.

DESPERATE BASU

The patriarch of CPM, the man who holds the record, for occupying the post chief minister for highest number of years in the history of Indian democracy, is desperate to save his party, in the coming assembly by polls. Basu has sought the support of traditional Congress voters to fight the Trinamool Congress. What an irony. The man, who fought against the party his entire life, is seeking the votes of the supporters of the same party. The reason being that the LEFT gave unconditional support at the center to counter the threat of communalism. The people of the state/country are also aware that the bottleneck they created for various developmental programmes and for reforms, the UPA government wanted to implement sincerely. Moreover, for the same reason that the LEFT were routed out in the previous Lok Sabha election. Since then there is no change its programme, policies and ideology. Hence, on what basis Basu is seeking the support of Congress voters is perplexing. It appears, writing on the wall, for LEFT is very clear. As a seasoned politician, he can read very early and clearly than others can.

CATCH THE OTHER FISHES, TOO

First time in the history of Indian democracy, a sitting Loksabha member is to be prosecuted under the Prevention of Money Laundering, Act (PMLA). (TOI 01-11-09). The MP in question is, Madhu Koda, an independent from Jharkand. The I T department conducted nationwide raids on 60 premises belonging to him/his associates for diversion of funds to the extent of Rs800 crore during tenure as chief minister of the state. Whoever is responsible for this initiative/action against a politician should be congratulated. At least a beginning has been made to weed out corruption in politics. Politics as a profession pays you nothing. Then, why are most of our politicians crorepathis. Unless they are corrupt (barring exception) and pursue unethical ways to amass wealth this cannot happen. There are big fishes in other political parties, including the Congress, who have amassed wealth much against their known sources of income, by virtue of being in politics or being close to a leading politician. It is universal truth that most politicians spend 20-25 times more than the limit fixed by Election Commission while fighting an election. There are loopholes in the system and they easily escape being caught. Will the establishment responsible for action against Madhu Koda initiate similar action against other corrupt politicians in the country. Otherwise, one would presume that action against Madhu Koda is a political stunt ahead of assembly election in the state or he is being singled out because he does not belong to any major national/regional political party.

ABSENCE OF BIG HITTERS FELT

Aussies lackluster batting performance in Kotla ground is responsible for their second consecutive defeat against India. Ponting was surely missing the services of Gilchrist, Mathew Hayden and Andrew Symonds, the all time big, awesome, hitters in the game. These players were capable of taking any bowling attack head-on and single handedly win matches for their side. After winning the toss, Ponting elected to bat and opened the innings with Watson. Both struggled to score runs at a brisk rate. Ponting was more cautious, aware the absence of big hitters in the side. The average per over score was around four runs, until the 40th over. One expected the firework in the last ten overs. However, nothing happened. The final score of 220 odd runs was never a tough target for the strong batting line-up of India. Dhoni and Yuvraj played sensibly and India had no difficulty in reaching the target. Its good, India won the match. However, the real action was missing. Long live the phenomenal hitters.

IPO ANALYSIS: ASTEC LIFE SCIENCES LIMITED - AVOID

The agro chemical and pharmaceutical company is planning to raise Rs 61.50 cr through IPO. The company proposes to issue 75, 00,000 of equity shares of Rs 10 each at a premium of Rs 82.00. The issue will open on 29-10-09 and closes on 04-11-09. ALMONDZ GLOBAL SECURITIES LIMITED are the Book Running Lead Manager.

The company is promoted by Ashok Hiremath and Dr.P.L. Tiwari.

The company under the Agrochemical segment, manufactures active ingredients, intermediates and formulations. Active ingredients are sold to crop protection formulators. Intermediates are supplied to technical grade product manufacturers. Formulations are sold in bulk quantities to companies engaged in retail marketing.

Under the Pharmaceutical segment, our Company carries out manufacturing of intermediates which are supplied to Active Pharma Ingredients manufacturers.

Objects of the Issue

1. Expansion of existing manufacturing facilities.
2. Expansion of existing Research and Development facility.
3. Meeting long-term working capital requirements.
4. General Corporate Purposes.

FINANCIALS: 08-09 07-08 06-07 (Rs in lacs)


Total Income 6,120.78 9,388.07 2,750.59


Net Profit after tax 793.52 1,072.78 342.86

RISK FACTORS:

• Scale of operations is very small.
• There is delay in execution of expansion capacity.
• Minimal global presence.
• Expansion project is funded entirely through equity.
• The company faces unresolved litigation, which could pose risks to its operations. Nath Biogene, a former customer, has alleged supply of spurious products by the company; which Astec has disputed.



VALUATION AND RECOMMENDATIONS:

In the price band of Rs 77-82, the offer price discounts the company’s 2008-09 earnings by 12 times, on the expanded equity.

The larger listed peers in the sector — Meghmani Organics and Sabero Organics — are available for less than 6 P/E. AVOID SUBSCRIPTION.

LESSONS FROM SQUABBLINGS IN BJP

The party with a difference, much disciplined, development oriented and cadre based party’s image in Karnataka is in shambles because of indiscipline, infighting and most important lust for power. The state is reeling under un precedented havoc caused by the floods, the elected representatives of BJP for fighting in the streets to fulfill their personal agenda. More intriguing was, while addressing the press conference after his return from ‘Kukke subramaya’ C M Yediyurappa asserted that all his colleagues, MLAs are working overtime to help the people affected in flood affected districts. To the astonishment of viewers, this statement comes when nearly 60 dissident MLAs are locked at Hotels in Andhra Pradesh and Goa, enjoying their free/sponsored holidays. The inorganic growth of BJP in Karnataka is one of the major contributors for party’s indiscipline and dissidence. With the sole intention of winning elections, if people who do not believe in the ideology, policies and programmes are admitted to the party, the current situation is bound to happen. Although the present C M does not have much experience, he has done reasonably well in all fronts. One does not know the real demands of Reddy brothers. The M P from south Bangalore, who was once calling the shots in Karnataka’s BJP affairs is watching the entire ‘drama’ as mute spectator. The central leadership may work-out a compromise formula and solder the relationship between the warring Reddy brothers and the C M, but any such relationship will not be strong.