Month: March 2008

Business of KSK Energy Ventures Limited

KSK Energy Ventures is a power project development company in India. Currently KSK has three operational power plants which generate 144 MW of power. However KSK is currently under expansion mode which when fully materialize would generate 8993 MW of power.

There are two power projects under construction, one a 135 MW lignite based power project in Rajasthan which would be commissioned in October 2008. The second one is a 540 MW coal based power plant which would commission in December 2009 in Maharashtra.

There are three power plants under development for which the company has secured debt or have entered into term sheets.

The first among these is a 43 MW expansion of the existing power plant in Arasmeta which would be commissioned by the first fiscal in 2011.

Second among this is a 1800 MW coal based power project in Chhatisgarh which is expected to be commissioned in second quarter of fiscal 2012.

Then there is a 130 MW run of the river hydro electric power plant in Arunachal Pradesh which is expected to commence operations in fourth quarter of fiscal 2011.

Along with the above projects there are two more 1800 MW coal based power projects which are in the planning stage in the states of Chhatisgarh and Orissa. The company expects them to be commissioned in fiscal 2013 and 2012 respectively.

Financials of KSK Energy Ventures

The revenues of KSK Energy Ventures grew from Rs.2744.54 lakhs in fiscal 2004 to Rs.9281.63 lakhs in the fiscal 2007. For the same period profits grew from Rs.10.24 lakhs to Rs.1886.16 lakhs.

The EPS for the year 2007 was Rs.2.74 and the two years before that was Rs.2.02 and Rs.2.64 respectively.

Key Risks facing KSK Energy Ventures

Limited experience in developing and operating power projects of the size that are being planned for. One look above at what the company has operational and what the plans are for illustrates that while the company has operational power plants the planned power projects are much bigger in size.

Power projects typically have long gestation periods and it may take a long time before there are returns available on the capital that has been employed by the company.

There has been a restructuring done with the promoter group and as a result of this the historical financial results may not be comparable to the financial results going forward.   

Business of Microsec Financial Services

Microsec is a diversified financial services company which offers services in the area of investment banking, retail brokerage, wealth management, insurance broking and financing services to HNI, corporate and institutional clients.

Microsec has 176 business locations spread across 49 Indian cities and towns. The company is concentrated in the eastern region with over 90% revenues coming from this region and 79 branches located in Kolkata.

Financials of Microsec

The company generated revenues of Rs.185.92 million for the year ended 2007 and the revenues for the preceding year were Rs.125.70 million. Over the same years the profit after tax was Rs.76.42 million and Rs.42.39 million respectively.

The revenue and profit figures for the six months ended Sep 2007 were Rs.183.41 million and Rs.94.51 million respectively.

The EPS for the last year was Rs.7.64 on a consolidated basis which was up from Rs.4.24 in 2006.

Objectives of the IPO

Microsec is coming out with the IPO to meet fund requirements for a host of activities which include the following.

Rs.1100 million is expected to be used for financing activities. Microsec provides loans to its clients against the shares that the clients own and there were about 150 clients for such financing for the period ending December 31 2007. The financing done for these clients was approximately Rs.200 million.

The other big ticket item is to augment the working capital requirements. Microsec needs to place margin money with stock and commodity exchanges and part of the IPO proceeds would go towards augmenting the margin they keep with the exchanges which would enable them a higher volume of trade. This would be done for subsidiaries as well.

Microsec also plans to increase its geographic footprint by adding 50 more branches, set up regional offices and strengthening the office facilities in Mumbai.

Key Risks facing Microsec

Microsec has received notices from SEBI for not exercising due diligence as a merchant banker and from NSE for various non compliances.

Inherently the business of lending against shares is risky for which a substantial part of the funds of the IPO are earmarked. In the case of highly volatile markets this risk becomes even greater as the clients may not be able to repay part of the debt and this would impact profitability as well as revenues.

Business of Lotus Eye Care Hospital

Lotus eye care has been promoted by Dr.S.K. Sundaramurthy who has over 25 years of experience in the in the field of eye surgery. Lotus has four super specialty hospitals which focus on eye care operating in South India.

Lotus eye care has two hospitals in Coimbatore, one in Salem and one in Tirupur and the total bed strength is 120. There are nine operation theaters and 3 lasik laser equipments. There were a total of 4200 surgeries performed during the calendar year 2007.

Lotus introduced Multi Scan Lasik in the year 1998 and Wave front based Esiris Custom Lasik in the year 2002 for the first time in India. Lotus was also the first hospital in South East Asia to have Epilasik in July 2004.

As part of its charitable drive Lotus Eye Care offers free screening schemes targeted at school children, textile laborers, patient suffering from glaucoma disorder and a few other schemes also.

Financials of Lotus Eye Care Hospital

Lotus eye care has been experiencing steady growth in revenues during the past five years. The revenues have grown from Rs.112.76 lakhs in the year ending 31^st March 2003 to Rs.729.9 lakhs in the year ended 2007.

For the same period profit after taxes have grown from a loss of Rs.1.35 lakhs to a profit of Rs.128.68 lakhs. The profit growth has not been as steady as the revenue growth though as there was a loss of Rs.4.27 lakhs in the year ended 2005 because of significant jump in administrative expenditure.

The EPS for the year 2007 was Rs.1.21, 2006 was Rs.2.14 and 2005 was Rs. (0.23).

Objects of the IPO

Lotus Eye Care is coming out with the IPO primarily in order to raise funds for expansion of existing facilities, establishing new centers and meet working capital requirements.

Lotus Eye Care is planning to set up secondary eye care centers in the regions of RS Puram, Tirupur, Karur and a Tertiary Eye Care center at Salem. Additionally the premises right now at Salem and Tirupur are rented and Lotus plans to shift them to premises owned by them. There would be a fund requirement of Rs.1580 lakhs for the land acquisition.

The cost of constructing hospitals would total to Rs.1590 lakhs, equipment would total to another 980 lakhs.

Lotus Eye Care also plans to set up primary eye care units in Bangalore and Chennai which would focus on diagnosis, treating simple eye problems and optical sales. The expected investment on this is Rs.330 lakhs. The working capital requirements for the company is estimated to be around Rs.150 lakhs.

The funds requirement mentioned above would be taken care of by the IPO as well as debts from bank. Lotus has already got sanction for term loans from ICICI Bank, Indian Overseas Bank, ABN Amro bank and HDFC Bank for a total of Rs.999.54 lakhs.

Business of Cox and Kings

Cox and Kings is a travel organization which is engaged in three main verticals of leisure travel, corporate travel and Forex. Cox and Kings is one of the oldest and most reputed names in the travel business and has evolved during a period of more than 250 years and has created a brand name across the globe.

Within Leisure the vertical is further sub divided into Inbound travel, Outbound travel and domestic travel.

The inbound travel enables tour operators from across the world on providing destination services for tourists travelling to Indian subcontinent. This involves providing ground tour management services like hotel booking, event planning, airline bookings, car, rail, private air charter and excursion planning, conference management etc.

The outbound and domestic segment includes packaged holidays in India and abroad. The holidays abroad are in the nature of holidays which are escorted tours as well as for free individual travelers.

The domestic holidays include pilgrimage tours, weekend breaks, activity holidays, spa holidays, budget holidays and the like. The other products under the domestic vertical target tourists that are coming to India or organizing conferences, meetings and exhibitions.

Cox and Kings also happens to be one of the leading forex dealers within the country and has also entered the business of providing travel insurance.

Financials of Cox and Kings

The total revenues for the year ended March 31 2007 was Rs.994.19 million up from Rs.657.53 million the year before. The profit after tax for the years ended 2005, 06 and 07 was Rs.92.29 million, Rs.173.45 million and Rs.210.52 million respectively.

The consolidated EPS for the year ended March 31, 2005, 2006 and 2007 is Rs.102.33, Rs.23.10 and Rs.54.75

Objects of the Issue

Cox and Kings plans to raise funds from the IPO for the purpose of capital expenditure within India which is estimated at Rs.1173.90 million. Apart from this a sum of Rs.1000 million has been earmarked for acquisitions, Rs.762 million earmarked for investments in overseas subsidiaries and branches and Rs.750 million would be used for repayment of debt.

The capital expenditure in India would involve consolidation of office properties in Mumbai and Delhi and having one office in each of these locations instead of the multiple offices that exist today for the purpose of better administrative control.

Right now there are 14 branches cum shops located within India and Cox and Kings plans to segregate the branches from the shops and then set up an additional 30 shops in various cities across India. The shops act as point of sale for retail customers.

Cox and Kings already has subsidiaries in Dubai, UK, Japan, and Singapore. The company plans to set up a new subsidiary in Malaysia. The sum earmarked for investments would be utilized in these subsidiaries and setting up of the Malaysian subsidiary. In addition to this a sum of Rs.51 million would be spent in the subsidiary in USA.

Conclusion

The IPO of Cox and Kings is one of the few ones which is backed by solid fundamentals and a reputed global company. Right now the pricing for the IPO has not been decided but if the company prices its IPO reasonably then it would be one that the long term investor should certainly consider.

Business of ARSS Infrastructure Projects

ARSS is involved in the construction business and undertakes construction of railways infrastructure, roads, highways, bridges and irrigation projects. The company has expertise in the railways infrastructure projects and has a dominating presence in the state of Orissa. In recent years the company has expanded to other states like Jharkhand, Chhatisgarh, Rajasthan, Haryana and Tamil Nadu.

The major clients of ARSS are Ministry of Railways, State Government of Orissa, Rail Vikas Nigam Limited, NTPC and NHAI among others.

ARSS has completed around 200 km railway line construction and 300 km of roads and highways and has an employee base of 788 employees as at February 2008.

Financials of ARSS Infrastructure Projects

ARSS has been having a high growth period and the revenues for the past five years have grown at a phenomenal CAGR of 117% and stood at Rs.13383.21 lakhs and the profits stood at Rs.1022.57 lakhs for the year 2007 and grew at a CAGR of 162%.

Much of this absolute growth of revenues has come between the year 2006 and 2007 when the revenues almost doubled itself from Rs.6057.88 lakhs to Rs.13,383.21 lakhs and the profit after tax rose from Rs.323.22 lakhs to Rs.1022.57 lakhs.

Similarly the EPS has also grown quite a bit from Rs.1.98 in the financial year 2005 to Rs.3.71 in the next year and Rs.10.61 for the financial year ended 2007.

Objects of the Issue

ARSS is raising funds in order to purchase equipment, investing in joint ventures or BOT projects or funding long term working capital requirements. A sum of Rs.6000 lakhs, Rs.3000 lakhs and Rs.6300 lakhs has been earmarked for these three activities.

Key Risks

One of the promoters of the company is involved in a criminal proceeding in relation to murder of one person. Apart from this there are various other legal proceedings against the company which are in the nature of civil, sales and income tax.

There have been cases of default in the payment of amounts due to third parties and also various banks by ARSS Infrastructure.

ARSS Infrastructure does not have any experience in executing BOT projects and also the company has not yet been awarded with any BOT projects for which the funds are being raised through the IPO.

ARSS operates in a very competitive environment with a lot of Indian and international players present in this field with significantly more financial resources as well as project execution experience than ARSS themselves and this poses a threat to the company.

Business of Fineotex Chemical

Fineotex chemical is engaged in the business of manufacturing specialty chemicals and enzymes for the textile and garment industry, construction industry, leather industry, water treatment industry, agrochemicals, adhesives and others.

Specialty chemicals are usually based on customer specification which cater to specific needs of an industry and thereby are low volume and high price business.

Fineotex was incorporated in 2004 and the company has its manufacturing unit in Mahape in Navi Mumbai. Some of the major customers of Fineotex are Clariant India Limited, BASF group, Pidilite, Bombay Dyeing, Raymond, Grasim among others.

Financials of Fineotex Chemical

The turnover for the period ending 31^st March 2007 was Rs. 105.07 lakhs and for the nine months ended 30.09.07 was Rs.1364.90 lakhs. The profit after tax for the corresponding period was Rs.0.26 lakhs and Rs.179.90 lakhs. The EPS of Fineotex for the year 2006-07 was Rs.1.77 and there was a loss for the prior two years for which the EPS was Rs. (0.30) and Rs. (0.40).

Fineotex is offering its shares between Rs.35 and Rs.42. So the P/E multiple would be roughly 24 based on the last year’s EPS and the higher end of the band of Rs.42.

Objects of the Issue

Fineotex is raising money in the IPO to set up a manufacturing facility of 13,125 MT / annum which will produce specialty chemicals targeted at construction, textile and garment, leather and water treatment industry. The estimated expense for this facility is Rs. 714 lakhs.

Other than this the company plans to set up a sales office in Mumbai which is estimated to cost Rs.180 lakhs and raising margin money for the working capital requirements which is expected to be Rs.208 lakhs.

Key Risk facing Fineotex

The key risks facing Fineotex is that the company has been making negative cash flows since its inception in 2004 and losses from inception till the year 2006.

Essentially the limited history of operations of the company makes it harder for investors to accurately judge the real potential of growth of the company and what would a fair price for such a company be.