Category: IPO/NFO

for the employee reservation part of its offer.

Forgive the mis-leading headline but the Coal India IPO opened today, and as expected, there was a lot of excitement in the media about its subscription numbers.

Reading through the headlines I felt the IPO must have done quite well on the first day itself, but on closer look, I found nothing  spectacular about these subscription numbers.

So, I thought I’d go the other extreme and with a little use of selective statistics create a headline which is eye catching, true to an extent but not really reflective of the underlying reality.

It’s true that most retail investors participate on the last day, and that as the momentum builds this issue may be over-subscribed by up to 10 times, but that hasn’t happened yet, so instead of speculating on what could happen, I thought I’d take a look at the current subscription numbers, and show you how they are mostly dull.

As long time readers know, a certain percentage of stock is reserved for different categories of investors, so I will show you the Coal India IPO subscription numbers as they stand at the end of day 1 broken out into the different categories.

All data from NSE.

As you can see the QIBs are the ones that have taken a good position on day 1, but the responses from other categories is just about what any other IPO would expect, so really there’s nothing much to see here.

If you are not familiar with the categories, and how the headline over-subscription number most often reported is the sum of all categories, and is not entirely relevant for retail investors read my earlier post on over-subscription numbers that I did during the NHPC IPO.

Oh, and I almost forgot, here is how the shares are reserved among different categories.

The Coal India IPO price band has finally been fixed at Rs. 225 – 245, and there is going to be a customary 5% discount to retail investors.

So looks like the gray market was quite close because they had earlier talked about a range of Rs. 225 – Rs. 270. The EPS in 2010 was Rs. 15.56 so the P/E multiple at the higher and lower end of the price band is 14.46 and 17.3, so looks like the ministry decided to leave something on the table for investors. I think you are going to see huge over-subscription numbers on this Coal India IPO.

You can read my earlier review of Coal India IPO here.

Business Standard has a story today on how the IPO grey market is really excited by the Coal India IPO, and it reminded me of the Reliance IPO a couple of years ago; here are a few interesting tid bits from the report:

1. The IPO price hasn’t been fixed yet, but there is already a Rs. 10 – 12 premium!
2. Brokers are paying up to Rs. 4,000 to retail participants to apply on their behalf.
3. Some brokers are even helping investors open demat accounts just to invest in this IPO.

I was truly amazed by the details in this article, and it is well worth your time, go read it now.

And if you wanted to read something with that talks about the details of company itself, then read this post I did a couple of days ago about the Coal India IPO.

Among other news, SCI (Shipping Corporation of India Ltd ) shares jumped up 14% today on news of part government disinvestment and Career Point Infosystem lists with a 103% premium!

Coal India IPO is likely to be the biggest Indian IPO when it opens on the 18th of October this year. The IPO is expected to fetch the government $3 billion, by divesting about 10% of it’s stake in this Navratna. The big numbers are not surprising given that Coal India is the biggest coal producer in the world with a production of 431.26 million tons in 2010. Coal India also holds the highest coal reserves in the world, and produced 81.9% of total coal production in India. They had revenues of Rs. 525,922.92 million in 2010, with a profit after tax of Rs. 98,294.09 million in 2010. The Networth was Rs. 258,437.73 million, cash and bank balances of Rs. 390,777.60 million, and total debt of Rs. 20,868.51 million, and had 397,158 employees.

With numbers such as these, it is easy to see why CARE assigned a grade of 5 out of 5 to the Coal India IPO. Point worth repeating is that IPO grades don’t take pricing into account, and only consider the fundamental strength of the company.

Coal India operates 471 mines in 21 major coal fields across 8 states in India. They produce non coking coal, and coking coal, but the majority of raw coal production is non coking coal with 91.6%. Despite the big numbers, Coal India continues to expand with 45 projects lined up as of March 2010. Of these – 22 projects are capacity expansion projects and 23 are new mine projects.

The company sells to power generation, steel and cement companies among other industrial companies. NTPC was their biggest customer, and the top 5 customers are all public sector power utilities. The company prices it’s high grade quality coal 15% below the landed cost of comparative imported coal in India.

Financials of Coal India IPO

The company has grown its revenues consistently over the last few years, and they were Rs. 525,922.92 million for 2009 – 10, Rs. 460,640.65 million for 2008-09, and Rs. 386,166.97 million for 2007-08.

The profit after tax was Rs. 96,224.47 million for 2010, Rs. 20,786.92 million for 2008-09, and Rs. 52,432.72 million for 2007-08.

The dip in profits in between is due to an increased expense on employee remuneration. The employee remuneration charge was Rs. 166,555.22 million in 2010, Rs. 197,420.85 million in 2009, and Rs. 126, 351.59 million in 2008.

This increase was due to the provision for retroactive increase in remuneration. What this means is that they had a salary increase for executive, non executive employees, and in the amount of gratuity as well, and this amount was increased retrospectively due to which the company had to create provisions for increased remuneration in 2008, 2009 and 2010, with 2009 being the biggest number at Rs. 41,157.80 million for salaries and wages, and Rs. 39,997.01 million for increased liability towards gratuity.

The total workforce size reduced from 2007 to 2010, but the productivity as measured by output per manshift increased from 2.54 tons in 2007 to 4.47 tons in 2010.

Coal India had an EPS of Rs. 15.56 in 2010, Rs. 6.43 in 2009, and Rs. 6.78 in 2008. The Return on Net Worth (RONW) was 38.03% for 2010, 21.37% for 2009 and 24.91% for 2008.

Coal India IPO Grading Rationale

It’s not often that an IPO gets graded 5 out of 5, but it’s not very hard to see why Coal India got graded that based on their near monopolistic position, and their huge size. Here are some points from the ICRA grading report about the Coal India IPO.

• Coal India is the largest coal company in the world with access to vast reserves.
• Highly favorable demand supply situation in the domestic coal industry.
• Coal India’s near monopolistic position in this industry.
• Continuous labor productivity due to the use of technology, and high share of production from open cast mines.
• Deregulated coal pricing regime gives them the power to price their coal along with other factors like favorable demand – supply, and cost competitiveness.

Coal India IPO Price and Dates

The price for this IPO hasn’t been fixed yet, and I will update this section once it is done. The IPO will most likely open on the 18th October, and close on the 21st October.

These were some of the more interesting things I found in the prospectus that Coal India has filed for its IPO, and this is no way is a comprehensive review, but I hope you will find this useful in deciding how well Coal India fits in your portfolio. I will update this post with more information as and when I find it.

Update: The price band has been fixed between Rs. 225 and Rs. 245, and there is a 5% discount for retail investors.

Click here to read about the IDFC Infrastructure Bonds.

Check out the review on the latest Coal India IPO here.

Business of Orient Green Power Limited

Orient Green Power IPO opened yesterday, and will close on September 24th. The offer is priced between Rs. 47 to Rs. 55, and has been graded 4 out of 5 by CRISIL.

Orient Green Power Limited is the largest independent operator and developer of renewable energy power plants in India with a total of 213.03 MW installed capacity. Currently, this is split out between Wind and Biomass with Wind energy forming the majority.

In the future they plan to add a small component of hydro electric power to the mix and increase the committed and development project capacity to 836.5 MW. Orient Green Power also derives revenues from the recognition of carbon credits.

Here is the break-up of planned energy generation from various sources:

The company’s wind farms are present in Tamil Nadu and Andhra Pradesh, and in the future they’re going to expand to Maharashtra, Gujarat, Sri Lanka, Croatia, Czech Republic and Hungary. The customers for these wind farms are state owned electricity boards, and private customers who need to supplement their energy needs from conventional sources. The current wind farms are all acquired from third parties.

Financials of Orient Green Power Limited

The company had revenues to the tune of Rs. 104.47 million in 2009, and Rs. 441.58 million in 2010, and a net loss of Rs. 113.08 million and Rs. 122.41 million respectively. Because of the limited history, and the planned expansion these financial numbers don’t hold as much meaning as it would for a company for a much longer operating history.

The grading report by CRISIL also indicates that these numbers do not contain the profits from the wind business as the ownership of the wind assets was only transferred in Jan 2010, and the report says that they expect the financials to improve on profitability going forward.

Business Line reports the following about the pricing of this issue:

The price discounts the estimated FY-12 earnings 21 times. In terms of P/BV, other private power utilities enjoy valuations of over three times. Some discount is justified for OGPL due to the lower load factors likely for renewable energy, feedstock risks and the untested nature of the business. As their current portfolio of projects is small, investors need to hold on to the stock for a two-three year period to take advantage of the high earnings growth.

The company has a limited operating history, but has a lot of people excited because of the green energy space that it is in, and also because the market itself is relatively high, so more people are just generally interested in stocks and IPOs as well. However, at the end of the first day of opening there was hardly any retail interest, but that usually picks up as the end date approaches.

The IPOs this year have been a mixed bag, and it’d be interesting to see how this breed of green IPOs perform once they list on the market.

Click here to see how Indian IPOs performed this year.

There is a renewed interest in IPOs once again, and some of them have oversubscribed quite a bit lately. I was wondering what the cause of this is, and if people have really started to make money on listing gains again.

So, I took all IPOs that have come out in India this year, and saw how they performed at the end of their first trading day. The results showed that while most IPOs made money, they didn’t gain by a lot. Since most people get a fraction of stocks that they apply for – in absolute terms investors wouldn’t have made a lot of money.

It also showed that a good percentage of these IPOs were graded 2 out of 5, which shows below average fundamentals, but some of the biggest listing gains were on stocks in this grade. There were just a few that were graded 4 out of 5, but they didn’t show any spectacular gains. This is probably due to the fact that when an issue is graded – price is not considered a factor, so the IPOs with better fundamentals were priced higher initially itself.

What this data doesn’t show is how these stocks did post listing, and there I saw that some stocks with a lower grade tend to fall quite a bit following their listing, but that post is for another day.

Looking at this info-graph, I can’t really make out the reason behind the renewed interest because the results are at best mixed, and this interest is possibly more due to optimism than anything else.

The greener the shade, the higher the listing gain, and red means losses. You can hover over any square to see more details on it.

Gujarat Pipavav Port is coming out with its IPO which will open on 23rd August, and close on 26th August.

The IPO is priced between Rs. 42 – 48, and has been graded 4 out of 5 by CRISIL, which denotes above average fundamentals.

Business of Gujarat Pipavav Port

The company is promoted by APM Terminals which is one of the largest container terminal operators in the world, and currently own 57.9% equity in Gujarat Pipavav.

Gujarat Pipavav operates APM Terminals Pipavav, which is India’s first private sector port, and has multi cargo and multi user operations. APM Pipavav is located in the Saurashtra region in Gujarat, and is an all weather port. It provides port handling and marine services for container cargo, bulk cargo, and LPG cargo. It commenced cargo handling operations in 1996, and container handling services in 1998. Their capacity is to handle up to 0.60 million TEUs of container cargo, and approximately 5 million tonnes of bulk cargo per year.

Here is a snapshot of how their volumes grew in the last few years. You can see that the numbers didn’t grow much from 2007 – 2008 due to the recession.

Continue reading “Gujarat Pipavav Port IPO”

I wrote about the Standard Chartered IDR yesterday, and I thought I’d supplement that post with a little more detail about IDRs, since this is the first IDR ever, and there will probably be many more to come in the future.

What is an IDR?

IDR stands for Indian Depository Receipts, and Standard Chartered is the first company to come out with an IDR. StanChart derived 12% of its income from India in 2009, and India contributed $1.06 billion of its $7.23 billion operating profit last year, and that may have something to do with this first.

An Indian Depository Receipt is a way for a foreign company to raise money in India. The foreign company deposits its shares with a custodian, and then the custodian issues depository receipts based on these shares. To that extent, IDRs are derivative instruments because they derive their value from the underlying shares. In this case, Standard Chartered Bank, Mumbai is the domestic depository, and it has appointed Bank of New York, Mellon as its overseas depository.

Dividends related to IDR

For this particular issue, 1 IDR stands for one-tenth of a share, and any dividend declared by Stan Chart will be apportioned according to your IDR holdings, and distributed to you by the depository.

The same is true for Rights issues also. If Stan Chart announces a rights issue, you will have rights, similar to stocks, and there will be a price set in Indian rupees that you can pay to get into such issues.

If you are interested, then you have voting rights too, but there is no such thing as a tenth of a vote, ten IDRs will count towards one vote, 20 as two, and so on and so forth.

Taxation related to IDR

This is an interesting aspect because as I understand it, the current tax provisions put IDRs at a distinct disadvantage when compared with other common stocks.

For starters, dividend tax will be assessed at 30% (plus 10% surcharge) on all the dividends you get from these IDRs. Investors don’t need to pay any dividend taxes on other common stocks in India. The dividend taxes are paid by the company itself, and then the investor doesn’t have to pay any tax on it.

Next up, short term capital gains. On Indian stocks, the short term capital gains is charged at 15% plus surcharge, however in the case of IDRs, the short term capital gains will be charged at 30%.

Similarly, there are no long term capital gains on stocks in India, but in the case of IDRs – investors will need to pay a 20% long term capital gains plus 3% surcharge on IDRs.

That is a pretty significant hit right there, when compared with other stocks. There is one important point relating to these taxes, and that is the Direct Tax Code, which is expected to be implemented next year. That will change a lot of things, and by the time you think about selling these IDRs, the tax situation might look completely different.

The other thing about this is that these IDRs will not attract any Securities Transaction Tax (STT), which is a good thing, but my guess is that it isn’t that big a deal.

If someone has a different understanding, is an expert in this area, or just has an opinion – I’d love to hear your views about the tax implication on IDRs.

Listing gains related to IDR

This is another interesting aspect related to IDRs. The way they are being sold is quite similar to an IPO, and most Indian investors interested in IPOs are looking to cash out in the first few days of listing, and hope that the IPO lists at a significant premium to the issue price.

I don’t think this is going to be the case for IDRs because the company already has stock trading in other markets (in Stan Chart’s case – UK and Hong Kong), and there are players like hedge funds who will arbitrage on the price difference in the various markets and make sure the IDR doesn’t run away in price. Unless something happens that influence the stock price between the issue time and listing time, there may not be much in the way of listing gains.

So, there you have it, a summary of the important points of IDRs. For now, I think the tax implication is the most important when thinking about investing in IDRs, but that will probably change in the next few months with the Direct Tax Code kicks in, and the playing field levels out.

Update: Soon after I published this post I saw that Business Standard reports that the IDR will be priced between Rs. 100 and Rs. 115, and BL has a good article about this IDR as well. I think you should read those two stores instead of spending more time here.

I was going through the NSE website today, and saw the Standard Chartered Red Herring Prospectus there for an IPO that is going to come out on May 25th and close on May 28th.

Standard Chartered is going to issue 240 million Indian Depository Receipts (IDR) with every 10 IDRs representing one share of US $ 0.50 nominal value. The prospectus states that the basic EPS for a 50 cent share has been Rs. 78.38 in 2009, so for the IDR, the EPS to be considered would be Rs. 7.83. In 2008 the EPS was Rs. 89.67, and it was Rs. 82.16 in the year before that. Just for reference, I did a quick check on SBI P/E on Bloomberg and saw that it was 12.28. The prospectus itself states the industry composite P/E as 16.77. The price band has not been declared yet, and I will update this post once it is declared.

As is becoming the norm – there is a 5% discount for retail investors and employees on this issue.

Standard Chartered has two business divisions: Consumer banking and Wholesale banking, and here is a brief on what these divisions do from the prospectus:

Consumer Banking products and services include banking services, deposit-taking services, credit cards, personal loans, mortgages, auto finance and wealth management services. Major markets include Hong Kong, Singapore, Malaysia, Indonesia, South Korea, Pakistan, India, Taiwan and the UAE. Principal customers of the Consumer Banking business are individuals in Asia, Africa and the Middle East. In addition to serving individuals, Consumer Banking also offers a range of deposittaking, trade, lending and other banking services to SMEs. As at 31 December 2009, the Group has approximately 1,700 branches and 5679 ATMs operating in more than 71 markets. These are a key part of the distribution network for its Consumer Banking business. Wholesale Banking provides a wide range of solutions to help corporate and institutional clients facilitate trade and finance across some of the important growing markets and trade corridors in today’s global economy.

The Wholesale Banking structure, bringing Corporate and Institutional Banking and Global Markets under one management team, provides customers with an efficient level of service and promotes the cross-selling of products and services to customers through the Group’s emerging market network in Asia, Africa and the Middle East. This is complemented by a sales origination platform in India, the UK, the US, Australia and Japan. Wholesale Banking customers include multinational and large local corporations, banks, other financial institutions and, particularly in Hong Kong, India, the UAE, Singapore and Malaysia, medium-sized local companies.

I will update the post with more details when the pricing is out.

I checked out the NSE website today, and found two interesting things about recently covered IPOs. First one was that the Talwalkars IPO has been listed and the last traded price shows to be Rs. 195.80. The stock was issued at Rs. 128, so people who went for the issue and wanted to make listing gains had a chance to do so. There was an interesting comment stream on the post, so I had it in mind to check out the listing. The issue was over-subscribed by a bit, so I am not sure how many shares got allotted to people in the end and based on that how much was the real potential for gain. If someone has details, and doesn’t mind sharing – please do.

While checking that I saw that the Tara Health foods IPO had been withdrawn on May 5th. Something I didn’t notice earlier. Possibly due to low subscription, but I am not sure.

Thought this was interesting enough to share.