Month: April 2010

I thought I had written about enough IPOs this week, but how could I pass up writing about the SJVN IPO, which is promoted by the president of India herself!

First off, this is a power company that generates hydro – electric power, and runs the Nathpa Jhakri Power Station (NJHPS) on the Sutlej River in Himachal Pradesh. It is the largest hydro – electric power generation facility in India with a capacity of 1500 MW. They are currently constructing another 412 MW facility called the Rampur Project, which is downstream the NJHPS. This project is expected to complete in 2013.

They have also been awarded the rights to develop two hydroelectric projects with generation capacity of 825 MW by the state government of Himachal Pradesh; they will have a 51% stake in these two projects.

They have also entered into MoU with the state government of Uttarakhand for three hydroelectric projects with an expected aggregate generation capacity of 363 MW.

SJVN is also participating in a joint venture with NHPC Limited and the Manipur state government for the development and operation of a 1,500 MW hydroelectric power project to be located in Manipur.

What’s more, they SJVN is also been awarded the right to to construct and operate on a build, own, operate and transfer (BOOT) basis, a 900 MW hydroelectric power project to be located in Nepal.

Through these projects, their total installed power generation capacity will be increased by approximately 3,588 MW.

The company had revenues of Rs. 16,348.4 million for 2009, and a net profit of Rs.7,593.2 million on it. For the nine months ended Dec 31st 2009 – the company has clocked revenues of Rs. 15,100 million and profits of Rs.7,753.7 million on it.

The company had positive cash flow from operations for each of the past five years, and increased its cash by Rs. 5,778.4 million in the last year. The EPS for 2009 was Rs. 1.85 and the annualized EPS for this year is Rs. 1.89.

The issue price is between Rs. 23 and 26, which is lower than the Rs. 30 that was reported earlier. The issue has also been graded 4 on 5, which is among the higher ones when you think about the companies that have come out with recent IPOs.

There is also a 5% discount for retail investors and employees, and the lower price (compared to what was reported earlier), and the discount shows that the government is trying to get the retail investors back in the game and recognize that some of the recent offers, whether private or government have been overpriced.

I looked at the subscription numbers today, and the retail part is just subscribed 0.15 times, so I don’t know whether this is low enough or not, but is certainly a good start. It will be interesting to see how this one plays out, and I think that will have a bearing on how the future government IPOs are priced as well.

What are your thoughts on this? Do you see feel the lower price is good enough, or do you feel they had scope to still come down a bit?

There has been a steady flow of IPOs for the last few days, and the next one in line is Jaypee Infratech. This offer opened on 29th and is going to close on the 4th of May. The name of the company tells you a couple of things:

1. It is part of the Jaypee group.
2. It is an infrastructure company.

This is a a special purpose company that was incorporated in 2007 to develop, operate and maintain the Yamuna expressway, which connects Noida and Agra. The Yamuna expressway is going to be a 6 lane – 165 kilometer highway, which will have the potential to be expanded into 8 lanes.

Jaypee Infratech will make money out of toll revenue that it will have rights to for 36 years. They are going to develop 6,175 acres of land along the highway at five locations, which will be developed for residential, commercial, amusement, industrial and institutional purposes.

Readers will recognize this is as the Build Operate Transfer (BOT) model popular in India, and the company needs to complete this highway by 2013 based on its agreements. They expect it to be done much earlier though, and the prospectus states that they could be done as early as 2011. They expect to earn toll revenue beginning 2012, but the real estate development part of the company is already getting some cash in.

Jaypee Infratech is getting land allotted to them in five parcels, which they will develop and make money out of as well. They expect half of the allotted land to house residential projects, one third for commercial use, and the rest for toll plazas, and open spaces.  The parcels are of 1,235 acres each, and are located in Noida, Aligarh, Agra, and two in Gautam Budh Nagar.

There is work going on in the Noida parcel, and Jaypee Infratech has five residential and commercial projects planned there. They have already sold 88% of these projects, and the projects themselves are going to get completed by 2013.

Last year the company had revenues of Rs. 5,545.43 million, and net profit of Rs. 2,553.65 million. The EPS for the same period is Rs.2.76, and the price range of the IPO is between Rs. 102 and Rs. 117.

The IPO has been graded 3 out of 5 by both ICRA and CARE, and they give the following rationale for their grades:

• Experienced promoter team.
• Significant progress in the development of the highway.
• Availability of size-able land parcels in Noida and Greater Noida at a relatively low cost.
• Competition from the existing NH – 2.
• Competition from existing players in the real – estate market.

One final point about the issue – retail investors are going to get 5% discount on the issue price.

I don’t think I have written about any IPO that was about a company that was in the cattle / poultry feed business, so I was really intrigued with the Tara Health Food IPO.

Wait…what?

Tara Health Foods is actually about cattle feed?

Well sort of.  The company does both.

Tara Health produces edible oil, and cattle / poultry feed, and sells it in the states of Punjab, Delhi, Haryana, Uttaranchal, Bihar and Jammu and Kashmir.

It was known as Tara Olive Oil just before it was renamed to Tara Health Foods, and the company has actually got  a patent pending for the invention and method of manufacturing a blended oil. It is a blend of olive and rice bran oil, and is supposed to have all the benefits of these oils. It has two products called  – Tara Unique and Zaitoon Tara, and although I have never heard of them before, I’d be interested to know if you have heard or used these products and how good they are. These blended oils are cheaper than olive oil, but are meant to have some of the same qualities.

The company also sells more conventional products like pure refined oils – Rice bran oil, cottonseed oil, and olive oil. The oil business contributes 40% of the revenues, while the cattle feed contributes the remaining 60%. And even though the cattle feed business is not as sexy as the blended oil one – it is the higher margin one, and contributes more in terms of revenues as well as profits.

The company has grown revenues spectacularly from Rs.69.92 million in 2006 to Rs.1,951.75 million in 2009. Despite these run-away numbers – Fitch has graded them 2 out of 5, and we will come to those reasons later. Let’s take a look at how long the company has been around first. Although the company itself has been existence since 1977, the present management has only took over since the last 4 years. The present management of Mr. Balwant Singh, Mr. Jaswant Singh, and Mr. Kulwant Singh were in the poultry feed business prior to that in a partnership structure, and in order to scale up their business they got hold of this company with a private structure.

The company wants to raise money from this IPO to set up a new edible oil plant, and expand its existing cattle feed plant as well. The issue price itself is ranged between Rs. 180 – 190, and the diluted EPS for period ended December 2009 was Rs. 18.48. For the year ended March 2009 this number was Rs.8.89, and was Rs.5.76 the year before. I glanced over the cash flow numbers and unfortunately the company has negative cash flows from operations for the last three years. This means that in conducting its day to day business the company lost cash consistently in the last three years.

Let me hop back to the Fitch rating now. I went through the rating document and the concerns raised in that document were about the company’s ability to manage operations at a larger scale because they are growing so fast, the negative cash flow, company’s policies regarding working capital and inventory management. The last point was especially interesting because the company procures inventory for its entire year at once, and then stores it throughout the year to manage volatility.

I was surprised to see that the Fitch Rating didn’t talk about the two pending criminal cases against the company, and no mention of the other civil cases as well, but I think that is because the money involved is relatively small. The criminal cases were with respect to motor vehicle accidents, and the amount involved is Rs.6.82 million, and the two civil cases are just worth Rs.0.28 million.

All in all, this was an interesting company to look at, and although I will not be investing in the IPO – I will be keeping an eye out on the company to see how it does in the future.

This is not a buy or sell recommendation, just a summary of the company details based on its prospectus and grading document, which I hope will help you make a final decision.

Looks like it is raining IPOs – I wrote about Nitesh Estates yesterday, Talwalkars last week, and today I am going to write about another one that’s open – Tarapur Transformers.

The fact that this IPO has been graded just 1 on 5 means by CRISIL means that I will be taking the short – cut yet again, so this will be a short summary. The price band is between Rs. 65 and Rs. 75, and the offer closes on April 28th. One of the first things to catch my eye about this issue was that just like the Talwalkars issue – they had issued shares for cheaper in the past 12 months; they issued shares at Rs. 60 last November. The second thing that caught my eye was that one of the stated risks that the company faces is substantial indebtedness, and their loans constitute up to 88% of their net worth. The company has also reported negative cash flows for fiscal 2006, 2007 and 2008.

A little bit about the company now – Tarapur Transformers was incorporated in 1988, and in 2006 – 07, they were acquired by the promoters of Bilpower Limited. The company manufactures transformers and has an installed capacity of 1839.40 MVA, and repairing capacity of 1800 MVA per annum.

A look at the  financials show that the company had a EPS of Rs. 2.06 in 2008 – 09, 1.87 in 2007 – 08, and 1.03 in 2006 – 07. A look at the competitors P/E multiples shows that Tarapur has priced its offer at the higher end. Voltamp Transformers has a P/E multiple of 10, EMCO Transformers has a P/E of 8.50 and Rectifiers India has a multiple of 11.

Not the kind of thing that interests me, but if you are going for it, then all the best to you!

With all the excitement about the Talwalkars IPO – I completely overlooked the fact that there was a second IPO at about the same time – Nitesh Estates Limited.

The Nitesh Estates IPO closes on the 27th April, so just a couple more days left, is priced between between Rs. 54 – Rs. 56, and is graded 2 on 5 by CRISIL.

Nitesh Estates is in the real estate business, and was incorporated in 2004. It has since then developed three premium residential projects in Bangalore. It is primarily engaged in real estate development in Bangalore, although it does have projects in Kochi, and is expanding to Chennai, Goa and Hyderabad. These three completed projects totaled 0.55 mm square feet of saleable area, whereas in the next five years it plans to develop 11.74 mm sq ft of residential projects (Nitesh will have a 62% stake in this), and 3.1 mn sq ft of commercial projects (Nitesh will have a 65% stake in that). So, in that sense you can see that the company plans to expand aggressively, and is a relatively new in this market as well.

Since the company got just 2 on 5, which indicates a below average fundamentals relative to other, I took a shortcut to go straight to the financials to see if the promoters were offering the issue cheaply to investors.

The prospectus states that the EPS for the last three years has been Rs. 0.42, Rs. 0.15, and Rs.0.59, and at Rs. o.42 for 2009 – the P/E comes out at about 128 at the lower band.

Given that the company is relatively new in its segment, and is entering a tough market – you would have expected it to offer a discount to IPO investors; not charge a premium.

I am sure a lot of people will find a lot of reasons to enter this IPO and try their luck, but for me – there is no compelling reason  to do so. If you do invest then all the best to you!