Category: IPO/NFO

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!

Talwalkars runs several gyms and a lot of you might know them as the premium gym people. They are coming out with an IPO that opens tomorrow and closes on April 23rd. The price band has been set between Rs. 123 and Rs. 128, and the issue has been graded 3 out of 5 by CARE.

What is interesting about the issue price is that Talwalkars has issued shares in the last 12 months, which is lower than this price.

In October 2009 – they issued 291,339 shares at Rs. 635 each. Before you get too excited about getting something worth 635 in 128, know that they issued bonus shares – 7:1 in Nov 2009, and that means that the effective price is just Rs. 79.375, not Rs.635.

I am curious to know why they issued shares at a higher price and then gave out a bonus in about a month, and also if the people who were subscribing to these shares at Rs.625 knew that a bonus was coming in a month. If anyone knows the answer please leave a comment.

On to the business itself – Talwalkars own and operate gyms in India – in a market that is largely dominated by unorganized sector – Talkwalkars has established a brand name for themselves, and people associate them with a premium gym. They have been in the gym business for a long time now, and the first gym was set up by the late Mr. Vishnu Talwalkar in 1932 in Mumbai. Currently, Talwalkars operate 58 health clubs in 28 cities with 55,000 members.  The chain has been growing of late with revenues of Rs. 594.22 million in 2009, Rs. 384.98 million in 2008, Rs.222.88 million in 2007,  and Rs. 102.54 million in 2006. The company has turned in a profit for all those years too, with Rs. 56.87 million last year, Rs. 45.17 million in 2008, Rs.10.94 million in 2007 and Rs.4.20 million in 2006.

The diluted EPS for the year ended March 31, 2009 was Rs. 3.61, and based on that the P/E multiple comes out between 34.07 and 35.46.  That’s a bit on the higher side, and these numbers are pulled from the prospectus and don’t take into account the new shares that will be issued, and how they will lower the EPS going forward.

Object of the Talwalkar IPO

Talwalkars is coming out with this IPO to raise money to repay their existing debts, and fund future expansion. They have earmarked Rs.502.20 million to fund expansion, and Rs. 205.92 million to repay existing debt. They want to add 27 health clubs by the end of 2011, and these IPO proceeds will help in that.

What caught my eye was that they were raising these funds to pay off unsecured debts, even when the balance sheet shows that they have secured loans of Rs.509.28 million as on March 31 2009, as against unsecured loans of Rs.303.34 million on the same date.

The fact that most of these unsecured loans are granted to the company by promoter groups goes a long way in explaining this action.

These were some interesting things that caught my eye while looking at the Talwalkar IPO, and will hopefully help you make a final decision when you consider this IPO.

I wrote about the NMDC FPO a few days ago, and I wanted to follow up on that with a post about the company, and hoped that the price band is set by the time I am ready to publish the next post, – and although the NSE website still states the price is to be determined, BS reports that the NMDC FPO price range has been set up between Rs. 300 – Rs. 350.

The stock closed at Rs. 398.50, and it will be interesting to see how soon it comes within the range of Rs. 300 – 350, if it does that at all. I have already written about the 5% discount retail investors will get, so will not go into that again.

Business of NMDC

NMDC stands for National Mineral Development Corporation and is the largest iron – ore producer in India. It produced 28.5 million tonnes of iron ore in fiscal 2009, and its main iron ore mines are located in the state of Chhattisgarh and Karnataka. Some parts of the company’s operation are exposed to rebel attacks due to their location, and here is something interesting I found in the red herring prospectus:

Certain of the Company’s mining operations are located in areas of India that are exposed to risk of attack by rebel groups. Such attacks have had and may continue to have a material adverse effect on our business, results of operations, and financial condition. For example, the slurry pipeline owned and operated by Essar Steel Limited at Chhattisgarh which carried the Company’s iron ore slurry production from the Kirandul Complex to Vizag was damaged by Naxalite rebels in May 2009. The slurry pipeline is currently not functioning and, as a result, instead of slurry, the Company is selling fines to the customer by rail from the Kirandul and Bacheli complexes, which has had a material adverse effect on the revenues and profitability that the Company derives from the supply to this customer

Let’s get to iron ore itself now – iron ore is primarily used in manufacturing steel, and steel’s demand is linked to the manufacturing, industrial and infrastructure growth.

NMDC primarily caters to the domestic market and sells most of its iron – ore to the Indian makers. Last year, exports constituted 15% of its revenues and were mainly to Korea and Japan.

Interestingly enough, NMDC also owns a diamond mine at Panna in Madhya Pradesh, which is the largest diamond mine in Asia.

NMDC also plans to develop an integrated steel plant in Chhattisgarh with a capacity of 3 million tonnes per annum, and the company has acquired land for this project.

NMDC also seems to have international ambitions with news stories surfacing about a possible bid for partial stake in an Australian mines. It has also got an estimated Rs. 12,000 crores of cash reserves and plans an expansion plan of Rs. 26,000 crores.

NMDC Financials

The company had total income of Rs. 85,754.6 million in fiscal 2009, and a profit after tax of Rs. 43,495.5 million. The nine months ended Dec 31st 2009, has seen it clock total income of Rs. 48,825.4 million and profit after tax of Rs. 23,897.3 million. The EPS for fiscal 2009 was Rs. 10.97, and at a price of Rs.350 for the FPO – the P/E comes out at about 32.

The red herring prospectus lists peer companies as GMDC and Sesa Goa and states that their P/E on Feb 1, 2010 was 18.3 and 18 respectively. The other interesting aspect about its financials are its zero debt status, and operating profit margins of 70 – 80%.

These were some things that I found most interesting about NMDC, and while I am going to stop here, if you are considering investing in this FPO – I highly recommend this great piece in Business Line about it, and this CNBC video featuring Udayan Mukherjee.

Disclaimer: This is not a buy or sell recommendation, but just a few observations about the company.

Image by State Records NSW

The NMDC Follow-on Public Offer (FPO) is going to be the next big disinvestment by the Indian government. The low retail subscription to previous IPOs and FPOs coupled with the need to raise funds from disinvestment to plug the fiscal deficit is prompting the government to sweeten its deal for retail participants.

The red herring prospectus of the NMDC FPO states that retail participants will get a 5% discount on the price set during the book – building process, and even more interestingly – ET reports that the price band may be set at 30 – 35% lower than the current stock price of Rs. 435.

This is interesting because the government really needs some retail participation in these offers to raise sufficient amounts to meet the divestment target, and retail investors have not really been interested in these offers of late.

The sale will start on March 10 and end on March 12, and we will know the price band on March 8th. I plan to do an IPO post on NMDC before that, but I just wanted to do quick post about this discount, and at least one factor you should keep in mind while thinking about it.

I wanted to do it a little ahead of time because very shortly there will be a lot of news articles about the NMDC FPO, and this discount, and I expect little bit of frenzy as well.

I think retail investors should keep in mind that the discount given is on the current price, but not long ago the price of the stock was Rs.140 odd. This company is in the iron-ore business, which like any other commodity is cyclical in nature. Iron – ore prices have risen sharply in the last year or so, and so when you think about the 30% or 5% or whatever the final number turns out – you need to think about these other things too. This is not to say that the offer will be over-priced, and I might even invest in it myself though I am not decided about that yet. Just something for you to think about in case the frenzy becomes too much.

I am really glad to see that most new IPOs coming in the Indian market have really low retail participation. I am happy about that because every IPO has been very aggressively priced of late, and in my opinion there aren’t many good deals for the investing public. In fact, I can’t remember the last IPO that was priced decently.

This is true of private as well as government companies. The just concluded Rural Electrification Corporation (REC) FPO, and the NTPC FPO — both got lukewarm response from retail investors. In fact, it looks like the government has been egging on public sector banks and insurance companies to pick up the slack.

That’s why on most government IPO / FPO subscription numbers – you see low retail participation, but relatively higher institutional participation.

The just concluded Rural Electrification Corporation (REC) FPO was subscribed 0.22 times in the retail segment and 5.51 times in the qualified institutional buyer (QIB) segment.

Here is what the Business Standard had to say about this:

People familiar with the development said state-run Life Insurance Corporation (LIC) put in bids worth Rs 3,000 crore at Rs 205 per share. Source said public sector banks bids for shares worth Rs 1,200 crore, of which Rs 500 crore was bid by State Bank of India and Rs 300 crore by Canara Bank. The highest bid came in at Rs 215, for 214 million shares. Many mutual funds and foreign institutional investors (FIIs) are also in the fray.

Marketmen, however, are not convinced. “Last-day negotiations at the highest level saw the issue being oversubscribed,” said a banker on condition of anonymity. “As with the NTPC FPO, state-owned entities had to chip in for REC. It is anybody’s guess what will happen to NMDC,” he added.

In fact, LIC acquired 2.5% stake in the NTPC FPO that was recently concluded. That offer was priced at just a 5% discount to the market price. No wonder, people were not interested.

I don’t understand what they are trying to achieve here. This is like taking money from one pocket and putting it in another. These are decent companies, and if their offer is priced right, – the public will be interested. It will also act as a deterrent to private companies who don’t have much by the way of a track record, and come out with lofty prices on their offers.

I have a feeling we will see days when these offers are priced right, because state owned banks and LIC can’t keep doing this forever, but who knows when that will happen.

Photo Credit: Cosmic Kitty