Sunday, February 28, 2010

FORTH COMING IPOS/FPOS

Career Point Infosystems Limited
Gyscoal Alloys Limited
Mittal Corp Limited
Inventuregrowth and Securities Limited


Asian Business Exhibition and Conferences Limited
Parabolic Drugs Limited
NMDC Limited
Technofab Engineering Limited



Oberoi Realty Limited
Indosolar Limited
Aster Silicates Limited
Eros International Media Limited


Jindal Power Limited
Neptune Developers Limited
Persistent Systems Limited
United Bank of India


Gujarat Pipavav Port Limited
BPTP Limited
Tirupati Inks Limited
Gallantt Ispat Limited

Thursday, February 25, 2010

NMDC FPO - BLUE CHIP AMONG THE BLUE CHIPS- INVEST




The FPO of NMDC opens 10-03-10 and closes on 12-03-10.

Retail investors will get 5% discount to the offer price.

For detailed analysis move on to blog archive.

HATHWAY CABLE - NEGATIVE LISTING

Hathway Cable and Datacom Limited which came out with a public issue of 2, 77, 50,000 shares of Rs 10/ each including offer for sale of 77, 50,000 shares at Rs 240, recently, listed, at a discount of Rs 29/- in the exchanges today.

FIRST CHOICE HAD RECOMMENDED TO STAY AWAY FROM THE ISSUE, BECAUSE OF HIGH PREMIUM.

FIRST CHOICE ANALYSIS HAS AGAIN PROVED CORRECT.

Wednesday, February 24, 2010

1.D B REALTY LISTS AT DISCOUNT 2. EMMBI POLYMERS PLUMMETS

The Mumbai based real estate company's shares were listed at Rs 455/- a discount of Rs 13/-to the issue price of Rs 468/-

Emmbi Polymres's shares were closed at Rs 28/- against the issue price of Rs 45/-

First Choice had recommended not invest in the above issues.

Tuesday, February 23, 2010

UNITED BANK OF INDIA'S IPO FULLY SUBSCRIBED

The United Bank of India's IPO has been fully subscribed on the first day itself.


The issues closes on 25-02-10. For analysis of the IPO move on to blog archive.

IPO NEWS

1. POWER GRID CORP.INDIA LIMITED - The follow-on public issue of Power Grid is likely to be in Sep 2010 according to Mr.S K Chaturvedi, CMD of the company. The funds are raised for the purpose of expansion and is hoping to mobilise around Rs 3500cr.

2.Man Infra IPO subscribed 62 times. FIRST CHOICE was first to recommend the IPO, for subscription.

3.Sistema Shyam Teleservices, a joint venture between Russia's Sistema and India's Shyam group is planning to enter the capital market with an IPO, in the next 6-9 months, according to sources.

WHAT AILS THE PRIMARY MARKET: GREED, GREED, GREED AND GREED

The response to the public issues that hit the market in the recent past has been very tepid, particularly from retail investors, barring few exceptions. There is no dramatic change in the BSE index from first week of Jan until date. In spite of this, the sentiment of the retail investors, in the primary equity market, has been very badly shaken. The highly competitive merchant banking business making the merchant bankers to offer unrealistic and un reasonable premium to the issuers, to get the merchant banking assignment. Equally, the greedy promoters are exploiting the situation by unreasonable pricing of the issues.

The law of economics tells us that if the price is right, there would be demand for practically any scrip. It appears that the greed of the issuers got the better of their discretion and judgment. The lead managers to the issues also need to take the blame for poor professional judgment and advice whereby they could not persuade the issuers to price their issues realistically, leaving some thing for the investors too. Some issues get over subscription due to high premia in the grey market, which disappears, once the issue closes. The uninformed investors become victims of such market manipulations. Together, the issuers and the merchant bankers are responsible for the pathetic condition of primary market.

Saturday, February 20, 2010

BUSINESS ECONOMICS - FORTNIGHTLY MAGAZINE

Dear readers,

The ipo analysis on Texmo Pipes and Products Limited by the same author has appeared in the above magazine in Feb 16-28 issue.

http://www.businesseconomics.in/images/content/Feb_16_28_2010.pdf

Thanks for your support and encouragement.

COAL INDIA PUBLIC OFFER IN AUG

Coal India Ltd is likely to hit the market with its initial public offer (IPO) in the second week of August with the draft red herring prospect (DRH) to be tentatively filed by June,according to CIL chairman Partha Battacaryya.

Thursday, February 18, 2010

FPO ANALYSIS: NMDC – MINERAL RICH NAVRATNA – STRONG FINANCIALS –- INVEST

The Government of India owned public enterprise, NMDC, is involved in the exploration of wide range of minerals including iron ore, copper, rock phosphate, limestone, dolomite, gypsum, magnesium, diamond, tin, tungsten, graphite and beach sands etc.
NMDC is the country’s largest iron ore producer and exporter, presently producing about 30 million tons of iron ore from three fully mechanized mines.
NMDC has the only mechanized diamond mine in the country with a capacity of 1.00 lakh carats / annum, at Panna (Madhya Pradesh).
NMDC has made valuable contribution in the mineral sector during the last five decades and in recognition to the Company's growing status and consistent excellent performance, the Company has been categorized by the Department of Public Enterprises as ‘NAVRATNA’.

NMDC is presently producing about 22 million tonnes of iron ore from its Bailadila (Chattisgarh) sector mines and 7 million tonnes from Donimalai (Karnataka) sector mines. Bailadila complex possesses the world's best grade of hard lumpy ore having +66% iron content, with negligible deleterious material and the best physical and metallurgical properties needed for steel making.

OFFER DETAILS:

Offer for sale of 33, 22, 43,200 Equity Shares of Rs 1 face value, by the GoI, representing 8.38% of the outstanding Share capital of the Company. This being an offer for sale, the Company shall not receive any proceeds of this Offer and the Selling Shareholder shall receive all the proceeds. After the issue, the government holding will be approximately 90% of the company’s paid up capital.

The issue opens 0n 10-03-10 and closes on 12-03-10. UBS Securities, CITI group global, Edelweiss Capital, Kotak Mahindra Capital, Morgan Stanely and RBS Equities are the BRLMs.



FINANCIALS (RUPEES IN CRORES)

09 08 07

INCOME 8575.46 6412.01 4534.04

NET PROFIT 4372.25 3250.98 2320.21

NET WORTH 11605.59 8278.74 5752.77

RONW(%) 40.16 39.69 37.48

EPS 12.15 * 248.64 # 174.83 #


• * FACE VALUE RS 1
• # FACE VALUE RS 10



BUSINESS OVER VIEW

Iron ore sales represented approximately 99% of the consolidated income from operations for Fiscal 2009.The Company has access to significant reserves of high-grade iron ore. The Company operates the only diamond mine in the country, which is situated in Madhya Pradesh. NMDC intends to produce limestone, dolomite and magnesite, which are used internally to produce iron ore pellets for steel plants.

The Company operates a wind power plant through seven towers with an aggregate capacity of 10.5 MW. The power plant station is located in Chitradurga in the State of Karnataka, approximately 995 meters above sea level on hilly terrain.

The Company intends to develop an integrated steel plant project in Jagdalpur in the State of Chhattisgarh with a capacity of 3 mtpa. The Company is in possession of 995 acres of land and in the process of acquiring the remaining land.

STRENGTHS

• Large Reserves of High Grade Iron Ore
• Largest producer of iron ore in India by volume
• Resources making the Company a low-cost producer
• Well Positioned to Capitalise on India's Growth and Resource Potential
• Research and development center and in-house exploration capability

CHALLENGES

The Company's competitiveness and long-term profitability substantially depends upon its ability to maintain a low cost base, including low transport and labour costs.
Mineral reserves decline as the ore is mined; the Company's future results and margins depends upon the ability to access mineral reserves with geological characteristics that allow mining at competitive costs. The proposed merger with Sponge Iron India Limited, a loss making entity, may have an adverse impact on the operations.

RECOMMENDATIONS:

NMDC’s operating margin is in excess of 75%,has net profit margin of 51% and RNOW is around 40%. Zero Debt Company. Healthy dividend pay out record. The bonus component in the capital is 66.66%. Blue chip among the blue chips. The share is currently quoting around Rs 430.00. Going by the recent REC pricing, the issue is likely to be priced by a discount of 8% to the prevailing market price. INVEST.

REC FPO PRICED AT RS 203.00 - INVEST

The follow on public offer of Rural Electrification Corporation (REC) is fixed at Rs 203 per share, 7.5% lower than the prevailing market price. Invest in the issue.

For detailed analysis of REC-FPO move on to blog archive.

Wednesday, February 17, 2010

IPO ANALYSIS: UNITED BANK OF INDIA: SIX DECADES TRACK RECORD - BANKABLE ISSUE - INVEST

The Kolkata based public sector bank floating an initial public offer of 5,00,00,000-equity shares of Rs 10/- each in the price band of Rs 60-66. SBI Capital Markets Limited, Edelweiss Capital Limited and Enam Securities Private Limited are the BRLMs. The issue opens 23-02-10 and closes 25-02-10.

The government has restructured the Bank’s capital to enable the bank to improve its valuation per share. Accordingly, the paid up capital has been reduced from Rs 1532cr to Rs 266cr. United Bank of India is one of the 14 banks, which were nationalised in 1969. The bank has presence in 28 States and in 4 Union Territories in India. As of December 2009, the bank had 1,484 branches, 265 ATMs, 28 regional offices.
The Bank is currently wholly owned by the Government of India. The Government, post issue will hold 84.20 % of the diluted equity of the bank.

The Core Banking Solution (CBS), which is a suite of software applications that facilitate centralised operations through a single data base, has been implemented in all the branches and extension counters, covering 100% of the bank’s business.


The Current and Saving Account (CASA) Deposits advantage:

The bank traditionally maintained high CASA deposits because of the large retail customer base spread across India, particularly in eastern and northeastern regions. As of September 30, 2009, the share of CASA deposits was at 33.95% of total deposits, out of which saving deposits, which are less volatile, accounted for 26.41% of total deposits, while current deposits accounted for 7.55% of total deposits. This provides the bank with significant cost advantages over other players. According to RBI’s report on ‘profile of banks’ (2008-2009), United bank’s cost of funds for Fiscal 2009 was 5.78%, which was lower than the average cost of funds of nationalised banks (6.18%) and all banks in India (6.05%) for the same period.



OBJECTS OF THE ISSUE:

The objects of the Issue are to augment the capital base to meet the future capital requirements arising out of the growth in assets.


FINANCIALS: 07 08 09 (Rs in crores)

TOTAL INCOME 3122.77 4022.80 4802.73

NET PROFIT 267.28 145.11 358.55

EPS (RS) 1.74 0.95 2.34

RONW (%) 14.18 7.36 14.13

DIVIDEND PAYMENT (RS) 45.97cr 45.97cr 45.97cr

Net Asset Value per Equity Share as of March 31, 2009: Rs. 14.93



Comparison with other mid sized public sector banks

EPS (Rs.) P/E RoNW (%) Book Value/ Share


United bank 2.34 -- 14.13 14.93
Andhra Bank 12.70 8.20 18.94 75.20
Bank of Maha 8.40 6.00 19.59 48.00
Dena Bank 14.5 5.70 24.05 67.90
Indian Bank 27.1 6.20 24.09 127.50
Vijaya Bank 5.9 8.70 11.86 53.50


Pre and post-Issue Equity Shares (Restructured Capital)
Equity Shares outstanding prior to the Issue 26, 64, 30,800 Equity Shares
Equity Shares outstanding after the Issue 31, 64, 30,800 Equity Shares


CHALLENGES AND OPPORTUNITIES:

The results of operations depends to a significant extent on net interest income, and volatility in interest rates and other market conditions could materially and adversely impact the business. With the base rate regime set to rule from April next, net interest margin (NIM) will determine the ground for efficiency of banks. The margins will be under pressure since the base rate is likely to be fixed 300 bps to 400 bps below the existing BPLR across banks.

Banks are required by the RBI to maintain a minimum capital adequacy ratio of 9.0% in relation to our total risk-weighted assets. The required capital adequacy ratio was 10.37% (Basel I) and 12.93% (Basel II) as of September 30, 2009.

Major part of the branch network is concentrated in eastern and northeastern India and thereby exposing the bank to regional risks. As of December 2009, out of our 1484 branches, 955 branches are located in eastern India and 256 branches are located in northeastern India.

Banks faces rapid technological changes in the highly competitive banking business, the success depends on the ability to compete with other banks and to respond to technological advances and emerging banking industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails significant technical and business risks.


Consolidation in the banking sector in India may adversely affect the Bank.The Government has expressed a preference for consolidation in the banking sector in India. Mergers among public sector banks may result in enhanced competitive strengths in pricing and delivery channels for merged entities. The Bank may face greater competition from larger banks because of such consolidation, which may adversely affect the Bank’s future financial performance.

One more challenge for the public sectors banks are their ability to continue to maintain and grow a pool of experienced professionals, particularly in the field of credit evaluation, risk management, treasury, technology and marketing.

Retail Banking

Retail banking has immense opportunities in a growing economy like India. As the growth story gets unfolded in India, retail banking is going to emerge a major driver.
The rise of the Indian middle class is an important contributory factor in this regard. The percentage of middle to high-income Indian households is expected to continue rising. The younger population not only wields increasing purchasing power, but as far as acquiring personal debt is concerned, they are perhaps more comfortable than previous generations. Improving consumer purchasing power, coupled with more liberal attitudes toward personal debt, is contributing to India's retail banking segment. Some of the key policy issues relevant to the retail-banking sector are financial inclusion, responsible lending, access to finance, long-term savings, financial capability, consumer protection.

Information technology poses both opportunities and challenges. Even with ATM machines and Internet Banking, many consumers still prefer the personal touch of their neighborhood branch bank. Technology has made it possible to deliver services throughout the branch bank network, providing instant updates to checking accounts and rapid movement of money for varied purposes. Specific challenges include ensuring that account transaction applications run efficiently between the branch offices and data centers.

VALUATION AND RECOMMENDATIONS

The bank is likely to post an EPS of Rs 13/- (on the restructured post issue capital of Rs 316.43 cr). At Rs 66 (upper end), the valuation comes to 5x of the annualized earnings of FY 10.The rating agency CARE has assigned grade-4 for the issue indicating above average fundamentals. Compares well with the mid sized public sector banks. Bankable issue. INVEST.

Monday, February 15, 2010

IPO ANALYSIS -LODHA DEVELOPERS LIMITED:PREMIUM OVERLOADED - AVOID

The Mumbai Metropolitan Region focused real estate developer is planning to raise around Rs 3000 cr through IPO. The company proposes to issue equity share of Rs 5/ each in the price band of Rs 560 - 600/ share. The issue is likely hit the market in the next two/three weeks. Enam Securities, J P Morgan Stanley, Citi Group Global Markets and Global Trust Capital Finance private limited are the Book Running Lead Managers.

BUSINESS:

Mangal Prabhat Lodha founded the Lodha group in 1980. In the years following its inception the Lodha group concentrated on developing affordable housing in the suburbs of Mumbai and from 2002 onwards, the group diversified into other segments and regions in the Mumbai Metropolitan region. As of June 30, 2009 the Lodha group had developed approximately 9,771,299 square feet of saleable area. The company has received awards and recognition including being selected as one of India’s top ten builders by Construction World. The company is one of the recognized players in the premium segment.

Currently, the company has 38 ongoing projects, of which 35 projects are in the Mumbai Metropolitan Region and one project each in Hyderabad, Pune and Lonavala, giving the company the presence across different segments and price points. These projects account for an estimated saleable area of approximately 29,871,021 square feet. The company also has another 11 projects in pipe line with an estimated saleable area of approximately 36,228,877 square feet. The ongoing and planned projects would give the company near to medium term cash flow visibility. In all the company has land reserves of approximately 139,206,419 square feet, of which approximately 99.67% is in the Mumbai Metropolitan Region.

OBJECTS OF THE ISSUE

The company proposes to utilize the proceeds of the issue towards construction expenses of the ongoing and planned projects, funding certain subsidiaries for prepayment/repayment of their loans and General corporate purposes.

FINANCIALS

The company’s revenue and net profit has shown study increase during the last three years. As on 31-03-09, the total income of the company stood at Rs 950.60cr and net profit of Rs96.22cr. However, the company’s net profit margin has come down from about 25% in 2007 to as low as 10% in 2009. The company had negative cash flow during 08 and 09.

EPS (in Rs.) Face Value (Rs. 5)*


March 31, 2007   


2.24
March 31, 2008   
2.88     


March 31, 2009   
4.34  




Weighted Average 3.51

(*Adjusted for the split of equity shares of face value Rs. 100 to face value of Rs. 5, the issuance of bonus.)
As of March 31, 2009, the NAV is 12.21 per share of face value of Rs.5.


COMPARISON WITH INDUSTRY PEERS: (Fiscal 2009)










EPS
NAV
       P/E
RONW
(%) 





HDIL
24.00
 178.00
6.00
                    
           20.50
DLF
9.10
71.50
  
          25.00
   43.20





Unitech
3.00
30.40
        29.00
29.60





Lodha
4.34
12.21
---
19.93






VALUATION

The premium of Rs 560-600 is not justified on the Face Value of Rs 5/ share. At Rs, the P/E works out to in excess of 100. The industry peers, DLF, HDIL and UNITECH are quoting at an average P/E of less than 30.


RISK FACTORS/ MATTERS OF CONCERN:


1. The average cost of acquisition of shares by the promoters is less than Rs 2.00/share.


2. The Company is heavily dependent on the performance of, and the prevailing conditions affecting, the real estate market in the Mumbai Metropolitan Region.

3. Lodha Developers experienced rapid growth in the recent past and may not be able to sustain the growth or manage it effectively.

4. The Company has granted unsecured loans to certain entities, which are not the subsidiaries or Group Companies.


5. The Company has incurred substantial indebtedness to finance development of ongoing and planned projects. As of March 31, 2009, the outstanding loans were in excess of Rs. 1000.00crores.


6. The company operates in a highly competitive sector, whose fortunes are neither stable nor certain. Family owned and controlled business enterprise. The profitability has shown declining trend.

7. The group (Subsidiary - Shreeniwas Cotton Mills Limited) had defaulted to State Bank of India in respect of loan availed. The matter is pending in DRT court.

8. The rating agency CARE has awarded grade – 3 for the IPO, indicating average fundamentals.

9. The company had negative cash flow in the last three years.


THE CHALLENGES

The company’s operations are presently focused in the Mumbai Metropolitan Region. The supply of land in Mumbai and particularly in south and central Mumbai is limited and acquisition of new land in these and other parts of Mumbai poses substantial challenges and is highly competitive. In addition, due to the limited supply of land, the acquisition of land in Mumbai is costly. The company had acquired land in Mumbai in the past through participation in the auction of mill lands by the National Textile Corporation and in the suburbs of Mumbai through private land acquisitions. There is no assurance that the company will be able to continue to acquire land through such or other means. Due to the increased demand for land in connection with the development of residential, commercial and retail properties, the company may experience increased competition in the attempt to acquire land in the geographical areas in which the company operates and the areas in which they anticipate operating in the future. This increased competition may result in a shortage of suitable land that can be used for development and can increase the price of land.


RECOMMENDATIONS:


Investors may better avoid the IPO of Lodha Developers, considering the high premium sought, uncertain sector they operate and other observations made above. .

Sunday, February 14, 2010

REVIEW OF RECENT IPOS

NAME OF THE COMPANY

ISSUE PRICE

INITIAL LISTING PRICE

CURRENT PRICE

FIRST CHOICE RECOMMED-
ATION

EURO MULTIVISION

RS 75

BELOW OFFER PRICE

RS 30

AVOID

INDIA BULLS POWER

RS 45

BELOW OFFER PRICE

RS 31

AVOID

DEN NET WORKS

RS 195

BELOW OFFER PRICE

RS 191

AVOID

COX & KINGS

RS 330

ABOVE OFFER PRICE

RS 425

APPLY

JSW ENERGY

RS 95

ABOVE OFFER PRICE

RS 110

APPLY

GODREJ PROPERTIES

RS 490

ABOVE OFFER PRICE

RS 477

APPLY

BIRLA SHLOKA

RS 50

BELOW OFFER PRICE

RS 45

AVOID

INFINITE COMPUTERS

RS 165

ABOVE OFFER PRICE

RS 212

APPLY

VASCON ENGINEERS LTD.

RS 165

BELOW OFFER PRICE

RS 155

AVOID

Friday, February 12, 2010

IPO NEWS: FORTHCOMING PUBLIC ISSUES

Asian Business Exhibition and Conferences Limited

Parabolic Drugs Limited

NMDC Limited

Oberoi Realty Limited

Technofab Engineering Limited

Indosolar Limited

Aster Silicates Limited

Eros International Media Limited

Jindal Power Limited

Neptune Developers Limited

Persistent Systems Limited

United Bank of India

Gujarat Pipavav Port Limited

BPTP Limited

Tirupati Inks Limited

Gallantt Ispat Limited

Fatpipe Networks India Ltd

Sumatex Limited

Talwalkars Better Value Fitness Limited

SOURCE - SEBI

Thursday, February 11, 2010

IPO ANALYSIS - MAN INFRACONSTRUCTION LIMITED: GROWTH OPPORTUNITIES - INVEST

Mumbai headquartered construction company, proposes to raise around Rs 140.00cr, through issue of 56,25,150-equity shares of Rs10/- face value, in the price band of Rs 243-252. The issue opens for public on 18-02-10 and closes on 22-02-10. Issue will constitute 11.36% of the fully diluted post issue paid up capital of the company. IDFC – SSKI Limited and Edelweiss Capital Limited are the BRLMs.


PROMOTERS: Parag K.Shah, Manshi P.Shah and associates are the promoters of the company.

BUSINESS:

The company provides construction services for port infrastructure, and has interest in residential, commercial and road infrastructure projects. Man Infra has presence in six States - Maharashtra, Kerala, Gujarat, West Bengal, Goa and Tamil Nadu. The company has executed significant on shore port infrastructure projects in - Jawaharlal Nehru Port, and in the ports of Mundra, Chennai, Vallarpadam and Pipavav. Port infrastructure projects are complex and their execution generally requires strict adherence to exacting international quality standards and tight time schedules, for which the company has the requisite expertise. Man Infra is in the process of constructing a residential complex in the western suburbs of Mumbai with an aggregate area of 1.95 million square feet. Under SRA (slum rehabilitation authority) project, in Mumbai, the company is in the process of construction of a township aggregating 5.16 million square feet. The company is recipient of Systems and Services Certification from SGS United Kingdom Limited, for its construction services.

Man Infra also intends to bid for projects on a Build Operate Transfer ('BOT') and on a Public Private Partnership ('PPP') basis. The company has, as of December 31, 2009, order book of Rs.2,020.92cr.



OBJECTS OF THE ISSUE:

The company intends utilize the issue amounts for;

(a) Purchase of capital equipment
(b) General corporate purposes.



FINANCIALS: (Rs in crores)

07 08 09

Total Income 88.14 227.47 516.69

Net Profit 14.15 31.62 74.53

EPS (Rs) 4.60 7.82 17.55


Net Asset Value per Equity Share of face value of Rs.10 as at March 31, 2009 is Rs. 61.63.


RISK FACTORS:


1. Man Infra has experienced rapid growth in revenues in the preceding three fiscals. The consolidated revenues increased at a CAGR of 159.66%. The company is unlikely to sustain this kind of growth in future.

2. The company derives significant revenues from a limited number of clients and projects. The loss of one or more of significant customers could adversely affect the performance.

3. Man Infra has little or no prior experience in constructing, managing or operating BOT and PPP projects. The risks associated with undertaking BOT and PPP projects can be substantial, and could adversely affect the business, prospects, financial condition and results of operations.

4. Some of the Promoter Group companies are engaged in the construction and infrastructure development and there may be possible conflicts of interest between the company and such entities.

5. The funding requirements and deployment of the net proceeds of the Issue are based on management estimates and have not been independently appraised.

6. The rating agency CRISIL has awarded grade -3 for the IPO indicating average fundamentals.



OPPORTUNITIES


Construction investments are expected to increase, to Rs 12,189 billion during the five year period from 2008-09 to 2012- 13 from Rs 6,217 billion during 2003-04 to 2007-08 (2008-09 prices). The construction industry is expected to grow at a healthy CAGR of 35 % during 2008-09 and 2012-13. Infrastructure spending especially in roads, power, irrigation and urban infrastructure will drive this growth. This coupled with higher construction intensity augurs well for the construction industry in terms of larger opportunity size. Investments in the industrial sector are driven by capacity addition/expansion plans of companies operating in key sectors of the economy.

The infrastructure sector certainly offers major opportunities in general and the construction industry, in particular. There are several good projects in India, such as, modernization of airports, ports, roads etc. There are also appropriate technologies, expertise and plant-machinery now available to harness these projects with speed, quality and economy.



VALUATION AND RECOMMENDATIONS

Comparison of the Company, with Peer Group
(As 0n 31-03-09)



Book value EPS PE RoNW Face value

Gammon India 127.4 8.7 18.6 9.7 2

IVRCL Infrastructure 135.4 16.8 73.7 3.3 2

Nagarjuna Construction 80.0 5.9 29.1 9.5 2

Simplex Infrastructure 182.5 24.1 25.3 14.6 2

Man Infra Construction 59.74 17.55 - 28.44 10



The company has substantial and diverse order book. Man infra has established long-term relationship with reputed clients like - A.P. Moller group, Maersk India, Gateway Terminals, P&O Ports and Mundra International Container Terminal Private Limited. Taking into consideration the number of equity shares and the funds the company intends to raise, the issue is likely to be priced around Rs 250/ share. The valuation comes to less than 16x of its annualized earnings and less than four times the book value of FY 09. The issue is attractively priced. INVEST.

Wednesday, February 10, 2010

IPO NEWS

MAN INFRACONSTRUCTION LIMITED

Mumbai headquartered construction company proposes to issue of 56, 25,150-equity shares of Rs10/- face value. The issue opens for public on 18-02-10 and closes on 22-02-10. Issue will constitute 11.36% of the fully diluted post issue paid up capital of the company. IDFC – SSKI Limited and Edelweiss Capital Limited are the BRLMs. The price band will be disclosed at least two/three days before the issue opening date.

LODHA DEVELOPERS LIMITED

The Mumbai Metropolitan Region focused real estate developer is planning to raise around Rs 3000 cr through IPO. The company proposes to issue equity share of Rs 5/ each in the price band of Rs 560 - 600/ share. The issue is slated to open in the third/ fourth week of Feb 2010. Enam Securities, J P Morgan Stanley, Citi Group Global Markets and Global Trust Capital Finance private limited are the Book Running Lead Managers.


NITESH ESTATES LIMITED

Silicon Valley based real Estate Construction Company is planning to raise around Rs 450 cr through IPO. The IPO is expected to hit the market in two/three week’s time.

Detailed analysis of the above IPOs will be published in due course.

Saturday, February 6, 2010

RURAL ELECTRIFICATION CORPORATION LIMITED (REC) - NAVRATNA - CONSISTENT PERFORMER – INVEST.

ISSUE DETAILS:

Public issue 17,17,32,000 equity shares of Rs 10/- each, including fresh issue of 12,87,99,000 equity shares and offer for sale of (by GOI) 4,29,33,000 equity shares in the price band to be determined through competitive bidding process. The issue opens on 18-02-10 and closes on 23 -02 10. Kotak Mahindra Capital Company Limited, DSP Merrill Lynch Limited, ICICI Securities Limited, JM Financial Consultants Private Limited and RBS Equities (India) Limited are the BRLMs.


BUSINESS:


REC is a public financial institution in the power infrastructure sector. The Corporation is engaged in the financing and promotion of transmission, distribution and generation projects throughout India. REC occupies a key position in the GOI's plans for the growth of the power sector.

REC assists clients in formulating and implementing a broad array of power projects and finances those projects. Clients primarily include public sector power utilities at the central and state levels and private sector power utilities. The area of activities include, an integral role in the development of relationships with clients, the operation and promotion of business, loan appraisal, loan sanction and post-sanction monitoring processes. REC’s primary financial product is project-based long-term loans. The corporation funds business with market borrowings of various maturities, including bonds and term loans. The sound financial position enable the Corporation to raise funds at competitive costs and there fore able to price financial products competitively. REC commenced our operations in 1969 for developing the power infrastructure in rural areas. REC has contributed significantly to the development of rural India and India's agriculture through funding of transmission and distribution projects in rural areas.



As of September 30, 2009, REC is one of the 18 Indian public sector undertakings to be granted 'NAVRATNA' status by the Department of Public Enterprise by virtue of operational efficiency and financial strength. The GoI has rated REC’s performance as “Excellent” continuously since 1994. The corporation has been ranked among the top ten public sector undertakings in India by the Ministry of Heavy Industries and Public Enterprises for the years from 2000 -2005, except in 2003.


OBJECTS OF THE ISSUE:

The object of the Offer for Sale is to carry out disinvestment of 4, 29, 33,000 Equity Shares by the GOI. REC will not receive any proceeds from the Offer for Sale. Object of the Fresh Issue: The Corporation intends to utilise the funds being raised to augment capital base to meet our future capital requirements arising out of growth in business.


FINANCIALS:

The total income recorded for the year 07-08 and 08-09 is Rs 3541.80cr and Rs 4923.30cr. The net profit earned for the same period was Rs 958.68 and Rs 1386.46cr.

Earning Per Share - (in Rs) RONW (%)

March 31, 2007 - 10.23 17.36
March 31, 2008 - 12.28 16.10
March 31, 2009 - 16.03 20.09
Weighted Average 13.81 Weighted Average 18.31


Net Asset Value per Equity Share as on September 30, 2009: Rs. 90.00.


Domestically, REC holds the highest long-term borrowing domestic credit rating from each of CRISIL , ICRA , Fitch and CARE Limited. Globally, REC holds long-term borrowing ratings from Fitch and Moody's that are on par with sovereign ratings for India.



MATTERS OF CONCERN:

• The business and industry are dependent on the policies and support of the Government of India, which makes REC susceptible to changes to such policies, and the level of support it receives.

• The Corporation has significant concentration of outstanding loans to certain borrowers and if the loans to these borrowers become non-performing, the quality of the asset portfolio may be adversely affected.

• REC is power sector-specific public financial institution. This sector has a limited number of borrowers. In addition, many of these borrowers are public sector utilities that are loss making and therefore may not have liquidity to repay their borrowings.

• As on September 30, 2009, ten borrower groups to which REC had the highest amount of outstanding loans in the aggregate accounted for 77.89% of total outstanding.

• REC’s ability to compete effectively is dependent on the ability to maintain a low effective cost of funds. Historically, REC had access to funds -equity financing and loans received directly from GOI, as well as tax concessions with respect to, and guarantees of, certain types of bonds and borrowings that enabled REC to price such borrowings at a lower rate of interest.


• Currently, REC funds its business significantly through borrowings that have shorter maturities than the maturities of new loan assets. Funds mis - match and volatility in interest rates may adversely affect the financials.


• REC has granted loans to the private sector on a non-recourse or limited recourse basis, which increases the risk of non-recovery and could expose REC ability to borrow from various banks. RBI imposing restrictions on banks in relation to their exposure on NBFCs (including REC), may adversely affect growth and margins.


• Corporation had continuous negative cash flow in the past.


• REC is registered as a NBFC with the RBI. Currently, REC is a ‘non-deposit accepting NBFC and yet to obtain specific approval from the RBI for accepting public deposits.


• The cost of funding and the pricing of loan products are determined by a number of factors, many of which are beyond REC’s control.


• The power sector financing industry is becoming increasingly competitive and REC’s profitability and growth will depend on the ability to compete effectively and maintain a low effective cost of funds.


• The funding requirements of the Company and the deployment of a portion of the Net Proceeds are based on management estimates and have not been independently appraised by any bank or financial institution.


• Shortages in the supply of crude oil, natural gas or coal could adversely affect the Indian economy and the power sector projects to which the company has exposure, which could have a material adverse effect on the business, financial condition and results of operations.


OPPORTUNITIES:


India is among the fastest growing economies globally and has grown at an average rate of 8.2% perannum during the last five years. The per capita energy consumption in India is relatively low in comparison to most other parts of the world, including other developing nations. According to data from Key World Energy Statistics (2009),
India's per capita electricity consumption was 543 units per year, as compared to a world average of 2,752 units per year and yearly per capita consumption of 3,252 units in Middle Eastern countries, 1,838 units in Latin America countries, 2,346 units in China, 705 units in Asian countries and 578 units in African countries.
The power industry in India has historically been characterized by energy shortages, provides opportunities for funding mega power projects, where in, REC is a leader and has the requisite expertise.


RECOMMENDATIONS:

The share, currently is quoting around Rs 235/- in exchanges (52 week - high/low of Rs 275/75) Investment in the company may be considered depending upon the prevailing market price during the issue period. The price should be, at least, Rs 15 -17 less than the market price.

TEXMO PIPES AND PRODUCTS LIMITED: UNIMPRESSIVE TRACK RECORD – AVOI D

ISSUE DETAILS:

Public issue of 50,00,000 equity shares of Rs 10 face value in the price band of Rs 85 -90. The issue opens on 16-02-10 and closes 0n 19-02-10.The Company intends to raise around Rs 45cr from the IPO. Almondz Global Securities Limited are the Book Running Lead Manager.

PROMOTERS: Sanjay Agarwal, Rashmi Agarwal and associates are the promoters of the Company.

BUSINESS HISTORY:

The Company was started as a partnership firm under the name Shree Mohit Industries in 1999. It was converted into a Public Limited Company under the present name in 2008. Shree Mohit Industries started its operations in the financial year 1999-2000 with manufacturing of PVC, HDPE pipes. During 2000-01, the installed capacity was increased from 2928 MTPA to 4392 MTPA. The firm also introduced new products - plumbing pipe, conduit Pipe and PLB HDPE cable duct. Subsequently in the year 2003, the erstwhile firm started manufacturing suction & delivery hosepipe, elasto-meric sealing ring fit PVC Pipe (Gasket Pipe), SWR Pipe, column pipe, HDPE plain pipe, sprinkler pipe and drip irrigation system. The installed capacity was further increased to 6797.20 MTPA for PVC and to 7217 MTPA for HDPE pipes in subsequent years. The company to consolidate the operations, signed Business Transfer Agreement in 2008 for purchase of specified assets and liabilities of the three promoter group entities - Shree Balaji Industries, Shree Venkatesh Industries and Shree Padmavati Irrigation Private Limited.
Idea cellular, Tata communications and Aditya Birla telecom limited are among the top clients of the company.

OBJECTS OF THE ISSUE:

The company intends to utilize the proceeds of the issue to increase the product range (Rs 11.33cr), for setting up manufacturing facilities for injection mouldings/ fittings and
Woven sacks (Rs 22.06cr) and for meeting long-term working capital requirements (Rs 10.00cr), among others. However, the fund requirements and the funding plans are as per the management’s estimates, and have not been appraised by any Bank / Financial institution.


FINANCIALS: 07 08 * 09* (Rs in crores)

Total Income 20.48 59.08 47.03

Net Profit 0.41 4.26 4.33

*Figures include revenues of partnership firms prior to conversion.

EPS (Rs) 0.68 7.11 7.68

MATTERS OF CONCERN:


1. While converting the partnership firm viz. ‘Shree Mohit Industries’ it into a public limited company, independent valuation was not done. The same was done as per the estimates of the management.

2. During 2007, the company was debarred by BSNL for award of any further work / contract for a period of one year. Reliance Communication Infrastructure Limited invoked the performance guarantees twice in 2007, once by BSNL in 2008.

3. The company is yet to place orders for 100% of the plant & machinery, equipment, etc. for the proposed project.

4. The average cost of acquisition of Equity shares by the Promoters is Rs 10.20.

5. Texmo faces competition from both organaised and un organaised sector.The major competitors are Jain Irrigation India Limited, Kriti Industries India Limited, Kisan Mouldings, Manjushree Extrusions, Precision Pipes, and Nagarjuna Pipes. Further, there are no entry barriers in this industry and any expansion in capacity by existing manufacturers would further intensify competition.

6. The Company has no history of dividend payment.


DEMAND OUT LOOK AND OPPORTUNITIES:

Increase in real estate construction due to urbanization and demand for homes and government impetus on increasing the use of irrigational facilities in the farming sector will drive growth in PVC pipes. The Eleventh five-year plan aims at adding 11 mn hectares of irrigational facilities, thus requiring huge investments in the sector. it is estimated that steel pipes will witness robust demand of 22% - 25% in next 3-5 years. SAW pipes and exports will lead the growth in demand. However, exports could be plagued to a certain extent by slowdown in US economy. Cement and PVC pipes are expected to sustain growth momentum of 16% - 18%.

• Low pipeline penetration in India compared to developed nations.
• GoI’s thrust on infrastructure development & water supply.
• City gas pipe projects.
• Higher export market due to proximity to Middle East, which accounts for 14% of the global planned projects.

VALUATION AND RECOMMENDATIONS:

At the higher end of the price band (Rs 90/-) the company demands P/E of 12 on FY 09 earnings. For a mid-tier and family owned, controlled company the valuation is very much stressed. Precision Pipes and Profiles company Limited, another player in the segment, whose book value is around Rs 100/- is presently quoting at Rs 76/- (around 7 P/E). The rating agency CARE has awarded grade 2 for the IPO indicating below average fundamentals. Investors are advised to stay away from the issue.

Thursday, February 4, 2010

HATHWAY CABLE AND DATACOM LIMITED: POOR FINANCIALS, HAZY OUT LOOK, UNREASONABLE PREMIUM – AVOI D

The Rajan Raheja group owned, India’s leading cable television provider - Hathway Cable and Data Com Limited plans to raise around Rs 600 crore through public issue of 2, 77, 50,000 shares of Rs 10/ each including offer for sale of 77, 50,000 shares in the likely price band of Rs 240 - 265. The issue will open on 9 -02 -10 and closes on 11 -02 -10. Morgan Stanley, UBS Securities and Kotak Mahindra Capital Company limited are the Book Running Lead Mangers.

BUSINESS

The Company is one of the leading cable television services provider in India as well as one of the leading cable broadband services providers, having household reach of more than 8 million. The company offers analog and digital cable television services across 125 cities and towns and high-speed cable broadband services across 20 cities, operating in geographical regions. Hathway has won number of awards for cable television services such as being named as “best cable operator”. The company holds a pan-India ISP license and was the first cable television services provider to offer broadband internet services.

OBJECTS OF THE ISSUE

The proceeds of the IPO are intended to be used for general corporate purposes including the repayment of loans of around Rs 100 crores. In fact, there are no specific projects to be implemented.

FINANCIALS

The Company reported net losses of Rs 62.45 cr, Rs 66.81cr, Rs 62.06 cr in the financial years 07, 08, and 09 respectively. In view of this, there was negative EPS and negative return on net worth. However, the company’s revenue has grown at a CAGR in excess of 40%. Due to heavy depreciation and amortization of expenses, the company reported losses during the above period. The company has Rs 384.25 cr as carry forward loss as on 31-03-09.

EPS (Rs.) for the last three years are as follows;
2007 (19.71)
2008 (6.07)
2009 (5.57)
Weighted Average (8.60)



RISKS FACTORS



• Hathway has history of net losses, primarily due to significant depreciation and amortization of expenses.

• Strategic investments or acquisitions and joint ventures may result in additional risks and uncertainties in the business.

• Promoters and directors are involved in other companies, which are in the same line of activity as Hathway. Promoters hold 18.00% of the paid up equity share capital of Asia net Satellite Communications.

• The Company is heavily dependent on Local Cable Operators (LCOs) to reach most cable television subscribers, to increase the subscriber base and to maintain service quality standards. The Company is exposed to liability arising from activities by LCOs that are beyond the control of Hathway.

• Hathway intends to convert subscribers from analog to digital cable television services. Such conversion will require increased capital expenditure for set-top boxes, new software and improvement of cable network.

• The Internet services business faces significant competition from well-established companies, including Bharti Airtel, Tata Communications Limited, Reliance Infocom, HCL Infinet, Tata Teleservices and others.

• Slowdown in economic growth in India could cause the business to suffer.


• Earlier, The Telecom Disputes Settlement Appellate Tribunal (TDSAT) has directed Hathway - Nasik Cable Network, to settle amount due to Zee Turner and ESPN Software India private Limited.


• The purposes for which the proceeds of the Issue are to be utilized are based on management estimates and have not been appraised by any bank or financial institutions.

• The rating agency CRISIL has assigned grade 3 for the IPO indicating average fundamentals.


VALUATION

The Company’s past financial records or the future business prospects,does not justify the very high premium on shares. Recently, Den networks Limited, another player in the cable television field entered the capital market, for which the response from the investors was luke worm, particularly from retail investors. The share is currently quoting below the issue price of Rs 195/-


CHALLENGES

The television distribution industry is highly competitive and is often subject to rapid and significant changes in the marketplace, technology and regulatory and legislative environments. The company primarily competes with other cable television service providers in the markets, as well as with Direct to Home (DTH) service providers, internet protocol television (IPTV). Competition is not limited solely to traditional forms of television services such as; competition based on program offerings, customer satisfaction, network quality and price, but may also include competition in respect of value-added services offered. Further, the development of new technologies and services within the industry may force the company to compete with new types of services offered by other providers. The success of these ongoing and future developments could have an adverse impact on the business operations. Moreover, the cable television business is largely unorganized, fragmented,and based on local preferences. The company’s ability to adjust to the new environment, as and when needed and cater to the local preferences is one more challenge.

RECOMMENDATIONS

In view of company’s poor financial performance, not so rosy business prospects and very high premium sought, investors are advised to stay away from the issue.