Category: IPO/NFO

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Indian Governments have been known for acting as late as possible in taking important economic decisions. But, contrary to their reputation, this time they are acting fast, quite fast. Soon after getting over with a week full of holidays, the Government is quick to announce its decision to sell its 5% stake in one of its Navratnas, Rural Electrification Corporation (REC).

For financial year 2015-16, the Government has set a target for itself to raise Rs. 41,000 crore by selling its minority stakes and Rs. 28,500 crore by selling its controlling stakes in Central Public Sector Enterprises (CPSEs). To meet its target of Rs. 41,000 through minority stakes, the government has scheduled yet another offer for sale (OFS) on the stock exchanges tomorrow. This time the company is REC.

The government will be selling its 5% stake in the company i.e. 4,93,72,950 shares at Rs. 315 a share as the floor price. With 5% discount for the retail investors, the government will be able to raise approximately Rs. 1,540 crore from this share sale. Currently, the government holds about 65.64% stake in the company, which will come down to 60.64% post this OFS.

Before we check out the factors affecting our decision to invest in this OFS, let us first check the basic details of this offer.

Shares on Sale – The government has decided to offload its 5% stake in REC and will place 4,93,72,950 shares in the offer for sale, out of which 20% shares i.e. 98,74,590 shares will be reserved for the retail investors investing up to Rs. 2 lakh.

Offer Price – Share price of REC closed at Rs. 321.25 on the NSE today. The government has fixed Rs. 315 as the floor price in the OFS, which is a discount of 1.95% to its closing price. As always, the floor price has been disclosed by the government after market hours today.

5% Discount for the Retail Investors – Again, the government has decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the retail investors bid in the OFS or the cut-off price set by the government, whichever is higher.

Brokerage – Unlike IPOs, stock brokers levy brokerage charges on these OFS transactions. These charges are normally higher than the rate of brokerage investors pay on their routine transactions. So, if the allotment price is fixed at say Rs. 317, the retail investors will get it at Rs. 301.15 a share plus applicable brokerage charges and taxes thereon. So, the retail investors should consider these charges in their overall cost of acquisition.

Introduction of Cut-Off price option still elusive – Offer for sale (OFS) process is still very complicated for the retail investors. They either require proper guidance or the option to bid at the cut-off price. But, this time also, the cut-off price option is missing.

Only a Single Day OFS – REC OFS will remain open for a single day only and that too, during the trading hours of the stock exchanges i.e. between 9:15 a.m. and 3:30 p.m. You’ll get to know the status of your bids by 6 p.m. and if successful, you’ll get the shares allotted by the designated stock exchange on T+1 basis.

Once bidding starts, you can check the bidding status on the National Stock Exchange as well as on the Bombay Stock Exchange.

How does an OFS process work?

If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.

How to invest?

You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get the bid placed through telephonic confirmation.

Should you invest in REC OFS?

Power sector is one of the key drivers for a country’s rapid economic growth and poverty alleviation. Approximately 30% of India’s population do not have access to this basic amenity called electricity. For the past many many years, India’s power sector has been paralyzed with one issue or the other.

Poor financial condition of the state electricity boards (SEBs), unreasonable poll promises made by our politicians during elections, coal shortages due to scams/litigations or high import prices, poorly drafted laws of land acquisition, policy paralysis, shortage of funds or equipments for new capacities are some of the reasons due to which India’s power sector has shown an extremely poor growth.

However, the government is committed to provide electricity to all households over the next few years. Keeping that in mind, the government has recently taken many initiatives, including transparent & competitive auctions of coal mines, implementing gas price pooling policy, encouraging Coal India to meet its production targets etc. It makes me feel that the government is doing an excellent job at the ground level and it should start reflecting in growth numbers very soon.

REC is India’s biggest infrastructure finance company (IFC) for the power sector. Amidst a challenging environment for the power sector, the company has managed to keep its gross non-performing assets (NPAs) under control at 0.8%. Due to its low cost of borrowings, the company has managed to keep its net interest margins (NIMs) at a healthy 5.1% in the nine months period ended December 31, 2014.

From a long-term investment perspective, the stock price of the company is trading at extremely attractive valuations. Assuming the government to fix its allotment price to the retail investors at Rs. 300 per share, the stock is available at approximately 5 times its estimated earnings per share (EPS) and 1 time its estimated book value (BV) for the current financial year. It has also managed to keep its return on equity (RoE) above the levels of 20%. As the company is expected to post an earnings growth of around 30% in the next 3-5 years, its valuation of 5 times earnings seems strikingly cheap to me.

With the government moving in the right direction, an efficient minister heading the power ministry and the interest rates heading downwards, I think India’s power sector should do extremely well in the next 3-5 years. The need of the hour is not to mix politics with economics. Unnecessarily giving subsidies to people who can comfortably afford power makes no sense to me. I think the state governments should focus on making their electricity boards (SEBs) and power generation & distribution companies more efficient rather than subsidizing our electricity bills.

I think this offer for sale is attractively available at Rs. 315 a share and a 5% discount to this price again leaves a reasonable margin of safety for the retail investors. With the government taking it in the right direction, I expect the stock price to move past Rs. 350 levels very soon and to touch Rs. 500 in the next 15-18 months time.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

After a poor response to the Initial Public Offers (IPOs) of Ortel Communications and Adlabs Entertainment, Inox Wind Limited is knocking your doors to raise money for its expansion plans. The company is in the business of manufacturing wind turbine generators (WTGs) and plans to raise approximately Rs. 700 crore in this Initial Public Offer (IPO). The issue got opened yesterday, March 18th and will get closed tomorrow, March 20th.

About Inox Wind Limited & its Business

Inox Wind Limited is a company promoted by Gujarat Fluorochemicals Limited (GFL) and incorporated on April 9, 2009. Inox Wind is one of India’s leading providers of integrated wind energy solutions. The company manufactures WTGs and its major components, provides turnkey solutions by supplying WTGs and offering services including wind resource assessment, site acquisition, infrastructure development, erection and commissioning and also long term operations and maintenance of wind power projects.

Inox Wind has an order book for WTGs with aggregate capacity of 1,258 MW, comprising orders for supply and erection of WTGs with aggregate capacity of 694 MW and orders for only the supply of WTGs with aggregate capacity of 564 MW.

Inox has an exclusive license from AMSC Austria GmbH (AMSC), a NASDAQ listed leading wind energy technology company, to manufacture 2 MW WTGs in India and a non-exclusive license to manufacture the same outside India, based on AMSC’s proprietary technology.

Currently, the company has a combined manufacturing capacity of 800 Mw at two of its manufacturing facilities — Una in Himachal Pradesh and Ahmedabad in Gujarat. The company plans to double its capacity by the end of FY 2016. The company is also progressing very well at its Madhya Pradesh plant.

GFL currently holds 75% stake in Inox Wind and will continue to own a substantial stake in the company after the completion of this issue.

What’s on Offer?

Inox Wind has fixed its price band to be between Rs. 315-325 per share and is offering Rs. 15 per share discount to the retail investors and its eligible employees. The issue is a mix of fresh issue of 1.32 crore shares and offer for sale of 1 crore shares by its promoter, Gujarat Fluorochemicals Limited (GFL). Inox Wind will not receive any proceeds from the share sale by GFL.

The company will be issuing a total of approximately 2.32 crore shares to the investors as the offer gets fully subscribed. 35% of the issue size is reserved for the retail individual investors. At Rs. 325 per share, the company is expected to raise approximately Rs. 700 crore in the offer and GFL is expected to garner approximately Rs. 325 crore.

Approximately 94.25 lakh shares have been issued to the Anchor Investors, namely Sundaram Mutual Fund, IDFC Fund, FIL Investments (Mauritius), SBI Infrastructure Fund, Grandeur Peak Global Reach Fund, Blackrock India Equities Fund (Mauritius), Reliance Capital Trustee Company, Morgan Stanley Investment Management, Tata AIA Life Insurance Company, Birla Sun Life Insurance Company, Kotak Fund, Goldman Sachs India Fund, Swiss Finance Corporation (Mauritius) and Indus India Fund (Mauritius).

Bid Lot Size – Investors need to bid for a minimum of 45 shares and in multiples of 45 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 13,950 at the upper end of the price band and Rs. 13,500 at the lower end of the price band.

Objective of the Issue – The company plans to use the IPO proceeds to expand and upgrade its existing manufacturing facilities by spending Rs. 147.48 crore, to invest Rs. 131.54 crore in its subsidiary, Inox Wind Infrastructure Services Limited (IWISL), primarily for development of power evacuation infrastructure, for long term working capital requirements up to Rs. 290 crore and other general corporate purposes.

IPO Grading – The company has opted not to get its IPO graded by any credit rating agency. SEBI had made IPO grading voluntary in December 2013.

Listing – The shares of the company will get listed on both the exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Risks

* High Working Capital Requirement – The business, Inox Wind is into, is capital intensive and also requires huge working capital, as manufacturing and maintaining WTGs require huge investments in project sites and equipments etc.

* Limited Diversification – Top 5 customers of the company contributed approximately 85% of its revenues for the nine months ended December 31, 2014, which makes me a little uncomfortable as far as customer diversification is concerned.

* Limited Operating History – Inox Wind got incorporated in April 2009 and since then, the economic growth has been weak and the government policies have not been clear as far as renewable energy business is concerned. So, the conservative investors should wait & watch before they invest with the company.

Financials of the Company

For the financial year ended March 31, 2014, total income of the company was Rs. 1,576.34 crore as against 1,063.63 crore for the year ended March 31, 2013. The company reported profit after tax (PAT) of Rs. 131.46 crore for the financial year ended March 31, 2014 as against 150.42 crore for the financial year ended March 31, 2013.

Note: Figures are in Rs. Crore, except per share data & percentage figures.

For the nine months ended December 31, 2014, its total income has been Rs. 1,794.98 crore and it clocked a net profit of Rs. 179.31 crore, resulting in a net profit margin of 9.99%. The company reported EBITDA margin of 16.62% for the nine months ended December 31, 2014, 11.71% for the year ended March 31, 2014 and 18.92% the year ended March 31, 2013 respectively.

Total debt/equity ratio of the company stands at 1.25 as on December 31, 2014, whereas long term debt/equity ratio of the company stands at a very comfortable 0.09.

Though the valuations seem to me a bit on a higher side, I think for a growing company with high historical growth, reasonable debt-to-equity ratio, efficient management and a strong promoter group, the valuations Inox is seeking in this offer are reasonably justified. If all goes well for the company, I think its stock price could double from its expected allotment price of approximately Rs. 310 in the next 2-3 years time.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

I covered Wonderla Holidays initial public offer (IPO) last year in April. Wonderla raised approximately Rs. 181 crore by issuing 1.45 crore shares at Rs. 125 a share. Its share price is trading close to Rs. 271 on the stock exchanges right now, a jump of 117% in less than a year.

Now, Adlabs Entertainment has launched its IPO to raise money for retiring its debt and expanding its footprint in the amusement park business. The issue opens today and will get closed on Thursday, March 12th. Wonderla Holidays is the only listed company with which we can compare Adlabs to take our investment decision. But, as Adlabs has a very short operating history, it is very difficult to compare these two companies as well.

What’s on Offer?

Adlabs has fixed its price band to be between Rs. 221-230 per share and is offering Rs. 12 per share discount to the retail investors. The issue is a mix of fresh issue of 1.83 crore shares and offer for sale of 20 lakh shares by the existing investors. The company will not receive any proceeds from the offer for sale.

The company will be issuing a total of approximately 2.03 crore shares to the investors as the offer gets fully subscribed. 10% of the issue size is reserved for the retail individual investors. At Rs. 230 per share, the company plans to raise approximately Rs. 465 crore in the IPO.

Bid Lot Size – Investors need to bid for a minimum of 65 shares and in multiples of 65 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 13,585 at the lower end of the price band and Rs. 14,170 at the upper end of the price band.

Objective of the Issue – The company plans to use the IPO proceeds to make partial repayment of its existing loan and for other general corporate purposes. However, the break-up of the issue proceeds for the repayment of loan and general corporate purposes will be disclosed after the issue gets closed.

IPO Grading – The company has opted not to get its IPO graded by any credit rating agency. SEBI had made IPO grading voluntary in December 2013.

Listing – The shares of the company will get listed on both the exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Adlabs Entertainment Limited (AEL) is a company promoted by Manmohan Shetty and Thrill Park Ltd. Adlabs currently owns and operates two amusement parks – Imagica and Aquamagica, which is a part of Imagica itself with a separate entrance. It is situated near the city of Khopoli on Mumbai-Pune expressway in Maharashtra.

Adlabs Imagica – The Theme Park, is one of the fastest growing theme parks in India. The park was opened on 18th April, 2013 on a land of 132 acres. Imagica is a one-of-a-kind offering in India and currently has 25 rides and other attractions of international standards, food and beverages (“F&B”) outlets and retail and merchandise shops spread over six theme-based zones.

It also offers entertainment through live performances by acrobats, magicians, dancers, musicians and other artists throughout the day in various parts of its theme park. It can accommodate as many as 20,000 visitors.

Aquamagica is a water park, which became fully operational on October 1, 2014. Aquamagica offers 14 kinds of water slides and wave pools and has a separate admission ticket and a separate entrance from the theme park.

Adlabs has an additional land of 170 acres around Imagica which it plans to develop in future. Adlabs is also exploring the hospitality business with its Novotel brand of hotels, which is under construction and the first phase of which is expected to get completed by March 2015.

Risks

* Limited Operating History – Adlabs Imagica became partially operational on April 18, 2013 and fully operational only on November 1, 2013, while Aquamagica became operational on October 1, 2014. So, the company has a limited operating history which might adversely affect its ability to implement its growth strategies.

* Huge Investment – Amusement parks business is capital intensive, as these companies require huge investments in land, equipments etc. Regularly adding rides to keep visitors’ interest and replacement of existing equipments also require huge funding.

High Debt – As on December 31, 2014, the company currently has debt of approximately Rs. 1,278 crore, which is likely to increase in the next few years due to company’s expansion plans in Hyderabad etc.

* Limited Diversification – The company derives all of its revenues from Imagica and Aquamagica. Its operating results might get adversely affected if the company is not able to operate these two parks successfully.

Financials of the Company

For the financial year ended March 31, 2014, total income of the company was Rs. 106.92 crore and loss was Rs. 52.48 crore. For the six months ended September 30, 2014, its total income was Rs. 73.32 crore and loss stood at Rs. 53.53 crore.

As the company has limited operational history, high interest cost due to its high level of debt, limited sources of revenue generation as of now, high capex requirements due to its expansion plans, I think it will take the company at least 3-5 years to turn profitable. As there is a high degree of uncertainty with its revenues, growth, profitability and debt retirement plans, I think this IPO is for high risk takers only. Risk-averse investors should avoid this issue as of now and closely monitor its operating performance before taking a plunge.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

It is that time of the year again when people start exploring tax saving options other than their routine 80C investments and one of those options is Rajiv Gandhi Equity Savings Scheme (RGESS). A few days back, Kunal asked me to review one such scheme launched by HDFC mutual fund under this category.

Here is what he had quoted:

Kunal February 9, 2015 at 12:08 pm

Dear Shiv

Can you please review the Mutual Funds coming up under Rajiv Gandhi Equity savings scheme. I believe right now – HDFC RAJIV GANDHI EQUITY SAVINGS SCHEME is Open. It would be good if you can review and list pros and cons of investing there as it seems like close ended with 3 year lock in, but normally everyone advertise equity mutual fund in long term more than 5 yrs or so. Is this scheme or others like it really worth the risk.

Regards

Kunal

Before I focus on HDFC’s new fund offer, let me first share some features of RGESS.

What is RGESS and under which section it provides tax benefits to its investors?

Investment in Rajiv Gandhi Equity Saving Scheme provides tax exemption to its investors under section 80CCG of Income Tax Act, 1961. Manshu covered RGESS when it got introduced during financial year 2012-13.

As per Section 80CCG of the Income Tax Act, 1961, a resident individual who is a ‘New Retail Investor’ and acquires listed equity shares or listed units of equity oriented mutual fund in accordance with the RGESS, is entitled to a deduction of 50% of the amount invested from his total income to the extent the deduction does not exceed Rs.25,000.

These schemes provide tax exemption of up to Rs. 25,000 on an investment of up to Rs. 50,000 i.e. 50% of the amount invested and carry a lock-in period of 3 years.

There are certain conditions which a retail investor needs to fulfill in order to avail tax benefits u/s 80CCG. Here are those conditions:

* The gross total income of the investor for the relevant year should not exceed Rs.12 lakhs.

* The investor should be a ‘New Retail Investor’ as per the definition of RGESS.

* The investment should be made in such listed equity shares or listed units of equity oriented mutual fund as specified in RGESS.

* The investment is locked-in for a period of 3 years as provided in RGESS.

Who is a New Retail Investor?

New Retail Investor means a resident individual:

* Who has not opened a demat account and has not made any transactions in the derivative segment before the date of opening of a demat account or the first day of the relevant year, whichever is later.

* Provided that an individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of RGESS.

* who has opened a demat account but has not made any transactions in the equity segment or the derivative segment before the date he designates his existing demat account for the purpose of availing the benefit under RGESS or the first day of the Initial Year, whichever is later.

HDFC Focused Equity Fund – Plan A

HDFC Mutual Fund launched one such scheme last month called “HDFC Focused Equity Fund – Plan A”. This scheme got launched on January 15th and is getting closed tomorrow, February 13th. It is an 1100-days closed-ended diversified equity fund which will invest in “eligible securities” as per the terms of RGESS.

The eligible securities for HDFC Focused Equity – Plan A are as follows:

1. Equity shares of those companies which are part of “BSE-100” and “CNX-100”;
2. Equity shares of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the Central Government;
3. Shares issued in a public offer by companies covered in (a) and (b) above;
4. Initial Public Offer (IPO) of a public sector undertaking (PSU) wherein the Government shareholding is at least fifty-one per cent which is scheduled for getting listed in the relevant previous year and whose annual turnover is not less than four thousand crore rupees during each of the preceding three years.

Objective of this scheme: The scheme aims to generate long term capital appreciation by creating a portfolio of eligible securities in RGESS.

Term/Duration of the Scheme & Liquidity: As it is a closed-ended fund of 1100 days, it will cease to exist on maturity i.e. after 1100 days and the investors will get their investment back along with the returns generated by this fund during this period.

Moreover, the units of this scheme will get listed on both the stock exchanges, NSE and BSE, in order to provide liquidity to its investors. But, if you sell your units prior to maturity, you’ll be liable to pay taxes on the amount of exemption you claimed in the relevant year.

Benchmark: The performance of the scheme will be benchmarked against S&P BSE 100, which is an index of the top 100 companies listed on the Bombay Stock Exchange.

Entry/Exit Load: Neither entry load will be applicable at the time of investment nor exit load will be payable by the investors at the time of maturity.

Is it mandatory to have a demat account to invest in HDFC Focused Equity Fund – Plan A?

If you wish to avail tax benefit u/s 80CCG, then it is mandatory to have a demat account in which the units of this fund will be credited by HDFC AMC.

How to open RGESS demat account with a Depository Participant (DP)?

You need to approach a stock broker or a registered DP to open a demat account under RGESS.

Profile of the Fund Manager

As I mentioned earlier in other posts as well, I think the fund manager is the most important factor to be considered while investing in any of the mutual fund schemes, especially an NFO. So, let me put some light on this scheme’s fund manager.

Srinivas Rao Ravuri, aged 41 years, will be managing this fund on behalf of its investors. He is a B.Com (H) and MBA (Finance) with over 19 years of experience in the Indian financial markets, primarily in equity research and fund management.

Prior to joining HDFC AMC, he worked with Motilal Oswal Securities Ltd., Edelweiss Capital Ltd. and Securities Capital Investments (I) Ltd. He has been a fund manager with HDFC Mutual Fund since October 2004 and is already managing four of its schemes, namely HDFC Growth Fund, HDFC Infrastructure Fund (jointly with Prashant Jain), HDFC RGESS – Series 1 and HDFC RGESS – Series 2.

Here is some relevant data for the schemes he is already managing:

As it is a new fund offer, it is not possible for me to review its performance. But, the past performance of other funds which are solely managed by Mr. Ravuri does not provide enough comfort to me to advise investors here to put their investment in this scheme. So, I think it would be better for the investors to explore other RGESS options for their tax saving u/s 80CCG.

If you are planning to invest in this scheme or any other eligible RGESS, then you please feel free to put any of the your queries here and I’ll try to respond to it as soon as possible.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

The government is currently struggling to meet its fiscal deficit target of 4.1%. Finance Minister Arun Jaitley, in his budget speech last year, had accepted this target as a challenge. He then set a target to divest Rs. 43,425 crore worth of stake in public sector undertakings (PSUs). To meet its target of divestment proceeds this fiscal year, the government has scheduled an offer for sale (OFS) for Coal India on the stock exchanges today.

The government has decided to offload its 10% stake in the company i.e. offering 63.16 crore shares. At Rs. 358 a share as the floor price and a 5% discount for the retail investors, the government will be able to raise a minimum of Rs. 22,386 crore from this share sale. Currently, the government holds about 89.65% stake in the company.

Before we consider the factors to decide whether we should invest in this OFS or not, let us first check the basic details of this offer.

Shares on Sale – The government has decided to offload 10% stake in Coal India and will place 63,16,36,440 shares in the offer for sale, out of which 20% shares i.e. 12,63,27,288 shares have been reserved for the retail investors investing up to Rs. 2 lakh.

Offer Price – Share price of Coal India closed at Rs. 374.95 on the NSE yesterday. The government has fixed Rs. 358 as the floor price in the OFS, which is a discount of 4.52% to its closing price. The floor price of Rs. 358 was disclosed by the government after market hours yesterday. So, the market will react to this price in the trading hours today.

5% Discount for the Retail Investors – The government has decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the retail investors bid in the OFS or the cut-off price set by the government, whichever is higher.

Brokerage – Unlike IPOs, stock brokers levy brokerage charges on these OFS transactions. These charges are normally higher than the rate of brokerage investors pay on their routine transactions. So, if the allotment price is fixed at say Rs. 360, the retail investors will get it at Rs. 342 a share plus applicable brokerage charges and taxes thereon. So, the retail investors should consider these charges in their overall cost of acquisition.

Introduction of Cut-Off price option for retail investors again deferred – Offer for sale (OFS) process is still very complicated for the retail investors. They either require proper guidance or the option to bid at the cut-off price. But, despite of considering it every time a big OFS comes, it has never been introduced so far. I fail to understand the reason for such a delay in introducing the cut-off price option for the retail investors. I think SEBI should introduce it as soon as possible.

Time Period – Coal India OFS will remain open for a single day only and that too, during the trading hours of the stock exchanges i.e. between 9:15 a.m. and 3:30 p.m. You’ll get to know the status of your bids by 6 p.m. and if successful, you’ll get the shares allotted by the designated stock exchange on T+1 basis.

Once bidding starts, you can check the bidding status on the National Stock Exchange as well as on the Bombay Stock Exchange.

How does an OFS process work?

If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.

How to invest?

You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get the bid placed through telephonic confirmation.

Should you invest in Coal India OFS?

Diesel prices form a substantial part of Coal India’s overall cost of production. As a result of sharply falling crude prices, the government has lowered diesel prices a few times in the last 3-4 months and lower diesel prices augur well for the profitability of Coal India. Moreover, the company is expected to have higher realisations in the coming years, which could again boost its profitability.

The government’s focus on doubling its coal production to a billion tonnes by FY20 and also building of three key railway lines in Odisha, Chhattisgarh and Jharkhand by 2017 should also help in improving operational efficiency for the company. Upcoming auction of the coal blocks should also result in higher prices and thereby boosting its profitability.

Say, the government fixes Coal India’s allotment price at Rs. 365 a share and the retail investors get it allotted at a discount of 5% i.e. at Rs. 346.75 a share. So, with Rs. 346.75 as our cost of acquisition per share and an expected EPS of Rs. 25 for FY15, we are buying Coal India shares at 14X its estimated EPS for the current financial year.

If I expect a modest EPS growth of 15% for the next two financial years, its stock trades at 12.1 times FY16 estimated EPS and 10.5 times FY17 estimated EPS. From valuations point of view, I think the stock is attractively valued.

But, the problem lies somewhere else. I think the way all these PSUs get managed, it is highly unprofessional. I think Indian PSUs, including Coal India, are marred by labour problems, operational inefficiencies and poor decision making at the top. The company has not been able to meet its production targets year after year and there is nobody who is ready to take responsibility for the same. There are several sectors, including power and infrastructure, which have suffered a lot due to shortage of coal as a result of low coal production and high import cost.

But, I think there is still some hope left and we should give Coal India and the new government some time to act in the right direction. I think the government is committed enough to act swiftly whenever it faces some kind of headwinds. The recent settlement with the Coal India labour union and then immediately coming out with this OFS is a perfect example of government’s efficiency in this regards.

I think the offer price has been attractively fixed at Rs. 358 a share and a 5% discount to this price leaves a reasonable margin of safety for the retail investors. With the government taking it in the right direction, I expect its stock price to move past Rs. 400 levels very soon.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

With its first divestment candidate this financial year, the government today fixed Rs. 83 as the base floor price for SAIL offer for sale (OFS) which is scheduled to be carried out on the stock exchanges tomorrow. Targeting Rs. 43,425 crore in divestment proceeds this fiscal year, the government has decided to sell its 5% stake in the company i.e. 20.65 crore shares.

At Rs. 83 a share, it seems that the government will be able to raise a minimum of Rs. 1,714 crore from this sale. Currently, the government holds about 80% stake in the company.

Before we consider the factors to decide whether we should invest in this OFS or not, lets first check the basic details of this offer.

Shares on Sale – The government will be selling 20,65,26,264 shares in the offer for sale, out of which 10% shares i.e. 2,06,52,626 shares have been reserved for the retail investors.

Offer Price – Share price of SAIL closed at Rs. 85.25 on the NSE today. The government has fixed Rs. 83 as the floor price in the OFS, which is a discount of 2.64% to its closing price. The floor price of Rs. 83 was disclosed by the government after market hours today. So, the market will react to this price in the trading hours tomorrow.

5% Discount for the Retail Investors – The company has decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the company allots its shares to the retail investors.

Time Period – SAIL OFS will remain open for a single day only and that too, during the trading hours of the stock exchanges. You’ll get to know the status of your bids by 6 p.m. and if successful, you’ll get the shares allotted by the designated stock exchange on T+1 basis.

Once bidding starts, you can check the bidding status on the National Stock Exchange as well as on the Bombay Stock Exchange.

How does an OFS process work?

If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.

How to invest?

You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get the bid placed through telephonic confirmation.

Should you invest in SAIL OFS?

I think it is not the best of the times for a company like SAIL to hit the capital markets. On one hand, global commodity prices including steel are on a steady decline as a result of falling demand and on the other hand, the pace of supply is expected to steadily go up in the next few years. So, these companies will continue to face pricing pressure in the absence of a demand pick-up.

As far as the financials are concerned, I think for a public sector company like SAIL, it doesn’t make sense to deeply study its financials and try to gauge its value based on certain financial ratios like price-equity ratio etc. I am saying this as firstly it is a government controlled company and secondly, it is into a cyclical industry.

The fortunes of companies like SAIL depend on various factors like economic health of the country, pace of industrial activity, global commodity prices and how well it is managed by the government and its officers.

In March 2013, the government sold its 5% stake in SAIL at a price of Rs. 63.07 per share. At Rs. 83 a share, the current government is seeking 32% premium to the last OFS price. I think the current price of Rs. 83 is fair and I expect around 35-40% returns from my investment in SAIL in the next 18-24 months. However, with positive economic environment, returns could also surprise on a positive side.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

After huge subscription for Snowman Logistics and Sharda Cropchem IPOs and a grand listing received by Snowman, next company in line to get itself listed on the stock exchanges is Shemaroo Entertainment Limited. The issue opened today for subscription and will remain open for two more days to close on September 18th.

The company plans to raise up to Rs. 120 crore from the issue and has fixed the price band between Rs. 156 to Rs. 170 a share. Retail individual investors will get a discount of 10% on the issue price, so the price band for them will stand between Rs. 139.50 to Rs. 153. Depending on the retail investors’ response, the company will issue approximately 71 lakh to 77 lakh new shares in this IPO.

Promoters of the company are currently holding 90.14% stake in the company, which will come down to around 65% post this offer period.

About Shemaroo and its Business

Shemaroo is into the business of content aggregation and subsequent distribution of that content for broadcasting on television platforms, new media platforms like internet, DTH, mobile etc. and home videos i.e. Blu Ray, DVDs and VCDs. The company distributes content over which it has either complete ownership rights, referred to as “Perpetual Rights” or limited ownership rights, referred to as “Aggregation Rights”.

Perpetual Rights gives Shemaroo the rights to distribute content worldwide for a perpetual period across all mediums. Aggregation Rights are restricted by either period of usage, distribution platforms, medium and geography or combination thereof. Titles where Shemaroo has Perpetual Rights or Aggregation Rights are known as their “Content Library”.

Shemaroo’s content library consists of more than 2,900 titles spanning new Hindi films like Queen, Bhaag Milkha Bhaag, Dedh Ishqiya, The Dirty Picture, Kahaani, OMG: Oh My God!, Black, Ishqiya, Omkara, amongst others and Hindi films classics like Zanjeer, Beta, Dil, Disco Dancer, Mughal-e-Azam, Amar Akbar Anthony, Namak Halaal, Kaalia, Madhumati etc. Out of these 2900+ titles, Shemaroo has perpetual rights of 759 titles and aggregation rights of 1,289 titles.

Objectives of the Issue – Out of Rs. 120 crore issue size, Shemaroo will use Rs. 106 crore to fund its working capital requirements and rest of the proceeds will be used for general corporate purposes.

Minimum/Maximum Subscription – Market lot of the issue is 85 shares and thus the investors would be required to invest at least Rs. 11,858 in this issue. Retail investors would be able to apply for a maximum of 1,275 shares at the ‘Cut-Off’ price.

Listing – The company will get its shares listed for trading on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 12 working days from the closing date of the issue.

Risks

* Company’s ability to successfully acquire the required content depends on its ability to maintain existing relationships and form new ones, with industry participants. While Shemaroo has benefitted from its long-standing relationships with certain industry participants in the past, there can be no assurance that it will be able to successfully maintain these relationships and continue to have access to content through such means.

* The media and entertainment industry keeps on undergoing significant technological developments. Its failure to adapt to new distribution technologies or alternative methods of product delivery and storage or changes in consumer behaviour could have a material adverse effect on its business prospects, financial condition and results of operations.

Anchor Investment – Two Anchor Investors, HDFC Mutual Fund and Birla Sun Life Mutual Fund, have been allotted approximately 21.18 lakh shares of the company at Rs. 170 per share, which works out to be approximately Rs. 36 crore.

HDFC Trustee Co. has been allotted approximately 8.82 lakh shares for HDFC Prudence Fund and 2.94 lakh shares for HDFC Capital Builder Fund, whereas Birla Sun Life Mutual Fund has been allotted 9.41 lakh shares for its seven equity schemes, including Series 1-Series 4 of Birla Sun Life Emerging Leaders Fund, Birla Sun Life Pure Value Fund and Birla Sun Life New Millenium Fund.

Financials of the Company

(Figures are in Rs. Crore, except per share data & percentage figures)

Valuations & Financial Standing of the Company

If you look at Shemaroo’s revenues, EBITDA and profit after tax for the past few years, it seems the company is consistently making decent profits and the margins are fairly healthy. It has registered 68% growth in its revenues, 86% growth in its EBITDA and 100% growth in its net profit between FY11 and FY14.

But, the trouble seems to be a part of Shemaroo’s balance sheet. The company has a debt of Rs. 151 crore, out of which Rs. 141 crore is short term debt. It paid Rs. 19 crore as interest charges during FY14 on the debt it has taken.

As on March 31, 2014, inventory levels and trade receivables of the company stood at Rs. 200.51 crore and Rs. 140.55 crore, which represent approximately 75% and 53% of its sales respectively. Such high levels of inventories and trade receivables sound quite alarming to me. The company do not expect any immediate improvement in the current situation anytime soon either.

Comparing the financials of Shemaroo with Eros International suggests that there is very little difference between the price multiples at which Eros is trading on the stock exchanges and at which Shemaroo is seeking the investors to invest in its shares. Given the complexities of its business model and the troubled financial standing Shemaroo has, I would say that the investors should not invest in this issue, rather they should invest their money in some other fundamentally sound businesses.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

IPO season is back again. With the stock markets making new lifetime highs every other day and still showing no signs of tiredness, it seems to be the best of the times in the last few years for companies to raise fresh money by issuing new shares or for existing stakeholders to cut their stakes.

After a bumper response to Snowman Logistics IPO, Sharda Cropchem has decided to get itself listed on the bourses. The IPO, which opened the day before yesterday i.e. 5th of September, will run for two more days to close on September 9.

Objectives of the Issue – The company is not issuing any fresh shares in this IPO, rather the existing shareholders are either making an exit or cutting down their stakes. The company is presently owned by the Bubna family with 84.13% shareholding and the rest 15.87% shares are owned by HEP Mauritius Limited. Post successful completion of this issue, HEP Mauritius would be able to completely exit the company and the promoter shareholding would fall to 75%, thus making this IPO a 25% stake sale.

The offer will carry 2,25,55,124 (approximately 2.26 crore) shares during this period in the price band of Rs. 145 to Rs. 156 per share.At Rs. 156 per share, the existing shareholders will be able to realise Rs. 351.86 crore from the new investors, thus valuing the company to be worth Rs. 1,407.44 crore. 35% of the issue size, i.e. approximately 79 lakh shares, have been reserved for the retail individual investors.

Sharda Cropchem’s Business

Sharda Cropchem is a crop protection chemical company primarily engaged in the marketing and distribution of a wide range of formulations and generic active ingredients globally. It does not produce any of these products though. The company is also involved in order based procurement and supply of belts, general chemicals, dyes and dye intermediates.

The company claims that identifying generic molecules, preparing dossiers, seeking registrations, marketing and distributing formulations or generic active ingredients in fungicide, herbicide and insecticide segments are its core strengths. As of August 5, 2014, the company has over 180 Good Laboratory Practices (GLPs) certified dossiers and as of July 15, 2014, it owns over 1,040 registrations for formulations and over 155 registrations for generic active ingredients across Europe, NAFTA, Latin America and rest of the world.

The company has a presence in over 60 countries with over 100 people working in its own sales force and over 440 people working as the third party distributors.

No IPO Grading – As the issue is an offer for sale by the existing shareholders, it has not been graded by any of the rating agencies.

Risks

* As the company does not produce any of the formulations or generic active ingredients on its own and is highly dependent on the third party manufacturers for the continuity of its operating activities, it seems such a high dependence in a competitive world poses a big risk for the company.

* A substantial portion of the company’s sales gets undertaken against future payments on an ‘unsecured’ basis. So, any major default by any of its customers could result in a substantial loss for the company and its shareholders. The company states that its credit period ranges between 30 days to 180 days. But, looking at its debtor-turnover ratio of 187 days during FY 2013-14, 178 days during FY 2012-13 and 194 days in FY 2011-12, it gets fairly clear that the credit period has always remained stretched and carries a high risk for the company & its shareholders.

* The company has stated that as far as its overseas investments are concerned, there have been instances in the past of delays and failure in making the necessary filings with the RBI.

Also, non-appointment of a whole-time secretary from March 2007 to January 2009 as mandated by the company law board, not conducting internal audit for four consecutive years from FY 2009-10 to FY 2012-13 and significant delays in payment of service tax are some of the instances which reflect the unprofessional attitude of the management in all these matters.

Though the central bank, the company law board or any other regulatory authority has not imposed any kind of penalty in any of these matters, such instances in future could result in penalties or operating inefficiencies for the company.

Financials of the Company

(Figures are in Rs. Crore, except per share data & percentage figures)

Peer Comparison

Valuations

Total income of the company has jumped from Rs. 449.36 crore in FY11 to Rs. 814.74 crore in FY14, posting a growth of 38% in FY12, 27.82% in FY13 and 2.79% in FY14. Net profit of the company grew even healthier at 65.85% in FY12, 22.79% in FY13 and 26.70% in FY14. Looking at its strong growth and based on its valuations purely, the company is fairly valued, rather cheaply valued relative to its peers. So, if the sentiment remains buoyant, there is a reasonable scope of listing gains.

But, as a large chunk of the company’s revenues come from its trading activities or from marketing and distribution of formulations and ingredients produced by some third party manufacturers, I would say it is very important for the investors to ensure that the management of the company is highly efficient, their intent is absolutely clear to grow the shareholders’ wealth and the company has a long enough history of sustainable profits. As I am not sure about any of these factors, I would like to wait for at least a few more quarters before I finally decide to make an investment in the company.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Gateway Distriparks’ 54.04% owned subsidiary, Snowman Logistics Limited, is coming out with its initial public offer (IPO) from tomorrow i.e. August 26. The company has floated the issue with a price band between Rs. 44-47 per share and is offering 4.20 crore shares during the offer period. The offer will remain open for three days to close on August 28.

At Rs. 47 per share, the company plans to raise Rs. 197.40 crore in the IPO. The face value of its shares is Rs. 10 and thus, the issue commands a premium of Rs. 34-37 to its face value. As the company’s average pre-tax profits in 3 of the preceding 5 years was less than Rs. 15 crore, only 10% of the issue size is reserved for the retail individual investors.

About Snowman and its Operations

Gateway Distriparks owns majority of Snowman Logistics outstanding shares as its shareholding stands at 54.04%. Snowman’s other large shareholders include Norwest Venture Partners VII-A Mauritius (13.78%), Mitsubishi Corporation (12.57%), International Finance Corporation (12.40%), Mitsubishi Logistics Corporation (2.92%) and Laguna International Pte. Ltd. (1.57%).

Snowman is engaged in offering integrated temperature controlled logistics (TCL) services including warehousing and distribution of frozen and chilled products like dairy products including butter and cheese, ice-cream, poultry and meat, seafood, ready-to-eat/ready-to-cook food products, confectioneries including chocolates and baked products, fruits and vegetables, healthcare and pharmaceutical products and industrial products such as x-ray and photo imaging films.

As of March 31, 2014, Snowman carried out its operations having 23 temperature controlled warehouses across 14 locations in India including Serampore (near Kolkata), Taloja (near Mumbai), Palwal (near Delhi), Mevalurkuppam, (near Chennai) and Bengaluru capable of warehousing 58,543 pallets and 3,000 ambient pallets. Further, it had 370 Reefer vehicles consisting of 307 leased and 63 owned vehicles with a total workforce of 1,490 including 383 permanent employees and 1,107 on a contract labour basis.

Snowman has a diversified customer base with top 20 customers contributing approximately 44.10% of its total revenues during FY 2013-14. Its top 20 customers include Hindustan Unilever Limited (HUL), Al-Karim Exports Private Limited, McCain Foods India Pvt. Ltd., Novozyme South Asia Pvt. Ltd., Ferrero India Pvt. Ltd. and Graviss Foods Private Limited.

Objectives of the Issue – Out of Rs. 197.40 crore it targets to raise in this issue, Snowman plans to use approximately Rs. 128.28 crore to set up 6 temperature controlled warehouses and 2 ambient warehouses in various cities including Taloja (near Mumbai), Cuttack, Pune, Mevalurkuppam (near Chennai), Visakhapatnam, Pune and Surat.

IPO Grading – The issue has been graded by CRISIL as 4 out of 5, indicating that the issue is fundamentally above average relative to other listed equity securities. However, this grading is neither a recommendation to subscribe or not to subscribe to the issue nor an opinion of CRISIL whether the issue price is appropriate in relation to the fundamentals of the company.

Minimum/Maximum Subscription – Market lot of the issue is 300 shares and thus the investors would be required to bid for at least 300 equity shares in the IPO i.e. a minimum investment of Rs. 14,100. Retail investors would be able to apply for a maximum of 4,200 shares at the ‘Cut-Off’ price.

Listing – The company will get its shares listed for trading on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 12 working days from the closing date of the issue.

Risks

* The company is yet to obtain certain approvals/licenses for warehouses for which the funds are being raised through the issue.

* Profitability of the company is quite sensitive to power and fuel costs. Any significant increase in these costs or any continuous or chronic interruption in power supply to the warehousing facilities will have a material adverse impact on its operations.

* The company operates 307 of its 370 reefer vehicles and 13 of its 23 temperature controlled warehouses on lease. For these operations to run smoothly, the company is dependent on third party service providers. Any disruption in operations due to any unforeseen reason might result in below par operating performance.

Financials of the Company

(Figures are in Rs. Crore, except per share data & percentage figures)

Anchor Investment – Three Anchor Investors, IDFC, ICICI Prudential and Faering Capital, have been allotted 94.50 lakh shares of the company today at Rs. 47 i.e. the upper end of the price band. IDFC has been allotted approximately 26.6 lakh shares for IDFC Sterling Equity Fund and 3.19 lakh shares for IDFC Infrastructure Fund, whereas ICICI Prudential has been allotted 21.28 lakh shares for ICICI Prudential Growth Fund – Series 2 and 8.51 lakh shares for ICICI Prudential Value Fund – Series 4.

Valuations

Snowman reported a growth of 16.85% in its profit after tax during the last financial year. Assuming a similar growth this financial year as well, the price band of Rs. 44-47 values the company at around 27 times to 29 times on an expanded equity base post-IPO. Considering a short to medium term operating history, these valuations seem to be on a higher side to me.

But, at the same time, considering the cold storage to be a sunrise industry with infrastructure status tag, there is an immense potential of growth and thus, the issue looks attractive with a little risk involved. Though the issue looks attractive from the listing gains perspective, I think the investors should invest in this issue from a long-term perspective. If things pan out well, I expect the issue to generate good returns for the investors over a period of 2-3 years.

Investors would do well to keep a close eye on the company’s operating performance on a regular basis. Any significant deviation from its expected operating performance should be analysed thoroughly.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Stock markets are going up and as always people are getting excited, disappointed, confused or hyper. Excited, as they are seeing this kind of jump after a very long time and short-term investors have made some real quick money. Disappointed are those who just could not participate and missed this rally. Confused, as they don’t know whether it is the right time to buy stocks or sell their current holdings. Then, there are those who are getting hyper in search of potential multibaggers.

In search of multibaggers and with some quick profits made in the recent issues like Just Dial, Engineers India, Power Grid Corporation, Goldman Sachs CPSE ETF etc., the investors are showing interest in fresh public issues as well. Such an issue has hit the primary markets with Wonderla Holidays Limited, which is one of the largest operators of amusement parks in India.

What is an Amusement park?

Amusement park is the generic term for a collection of rides and other entertainment attractions, assembled for the purpose of entertaining a large group of people, including kids, teenagers and adults. For people like me, who have never visited an amusement park, I would like to name some amusement parks so that we get somewhat familiar with Wonderla’s business model.

Apart from Wonderla Kochi & Wonderla Bangalore, Essel World in Mumbai, Adventure Island (Rohini) & Appu Ghar, both in Delhi, Nicco Park in Kolkata, Ramoji Film City in Hyderabad, Kishkinta in Chennai, Entertainment City in Noida etc. are some of India’s famous amusement parks. Disneyland is the global leader in this business and has presence in many countries, including the United States, Hong Kong, France, Australia etc. Singapore’s Universal Studios is also one of the popular amusement parks.

Amusement park industry today is worth about $25 billion globally and continues to stay dominated by the US, contributing almost half of the pie. India has around 150 amusement parks and the industry here is estimated to be worth Rs. 26 billion.

There are three major heads of revenues for amusement parks – (i) Entry Fees, (ii) Foods, Beverages & Merchandising, and (iii) Resort & other rentals. In India, entry ticket sales contribute to a major chunk of the total revenues of amusement parks. Wonderla generated 81.06% and 79.81% of its total income through such entry fees in FY 2013 and the nine month period ending December 31, 2013, respectively.

About Wonderla Holidays Limited

Wonderla Holidays is a company promoted by Kochouseph Chittilappilly and his elder son, Arun Kochouseph Chittilappilly. Kochouseph Chittilappilly is also the promoter of V-Guard Industries Limited, which is a listed company on the BSE and NSE and has given some good returns to its investors since it got listed in 2008.

Wonderla was founded in 2002 and is one of the largest amusement park operators in India. It currently operates two amusement parks, one in Kochi (Kerala) and the other in Bangalore (Karnataka), and the company is in the process of setting up its third amusement park ‘Wonderla Hyderabad’ in Ranga Reddy District of Andhra Pradesh. It also owns and operates a resort in Bangalore, Wonderla Resort, which contributes about 4% in Wonderla’s overall revenues.

Though I have never been to any of Wonderla’s amusement parks, Ketki has visited it in Bangalore and she liked it quite a lot. This is what she has to say about it.

ketki April 17, 2014 at 3:15 pm [edit]

Also, I personally found their website to be quite unappealing.

Initial Public Offer (IPO) Details

Initial public offer of Wonderla opened yesterday and is scheduled to close tomorrow i.e. April 23. Wonderla has fixed the price band at Rs. 115-125 per share and is offering 1.45 crore shares during this period. At Rs. 125 per share, the company plans to raise Rs. 181.25 crore in the IPO. As always, 35% of the issue size is reserved for the retail individual investors.

Objective of the Issue – Out of Rs. 181.25 crore, Wonderla plans to use approximately Rs. 173.31 crore to finance the balance of its estimated cost for setting up Wonderla Hyderabad.

IPO Grading – The issue has been graded by CRISIL as 4 out of 5, indicating that the issue is fundamentally above average relative to other listed equity securities.

Risks

* Wonderla has acquired 49.57 acres of land to set up Wonderla Hyderabad, out of which 14.70 acres of land is subject to two litigations. Adverse court ruling will impact proposed development, which may affect operations and financial performance of Wonderla.

* Due to the bifurcation of Andhra Pradesh into two separate states, Wonderla Hyderabad may finally be situated within Telangana. Due to various political as well as socio-economic changes, the company might face certain new restrictions in relation to approvals already obtained.

* Amusement parks are extremely land intensive as large parks require some 40-50 acres of land. Some of the proposed amusement park projects have suffered due to uncertainty in the land acquisition process. With the recently passed bill, land acquisition has become extremely expensive as well as difficult.

* Amusement parks are capital intensive also, as they require huge investments in land, equipments etc. Regularly adding rides to keep visitors’ interest and replacement of existing equipments also require huge funding.

Financials of the Company

(Figures are in Rs. Crore, except per share data & percentage figures)

As on December 31, 2013, the net worth of the company was 152.44 crore as against Rs. 121.45 crore as on March 31, 2013. The net asset value per share as at March 31, 2013 and as at December 31, 2013, stood at Rs. 28.92 and Rs. 36.29 respectively.

As of December 31, 2013, Wonderla’s outstanding indebtedness stands at Rs. 21.02 crore and its debt-to-equity ratio works out to be 0.1 times.

Valuation

Considering annualised profit after tax of Rs. 41.32 crore and post-issue outstanding shares of 5.65 crore, its FY 2014 EPS would stand at Rs. 7.31. At the upper end of its price band i.e. Rs. 125, the offer discounts Wonderla’s annualised FY 2014 earnings by 17.10 times. CARE Research expects revenue of the amusement parks to grow by 15-18% on account of rising footfalls and increased spending on other items like food and beverages, spas etc.

For a growing company, the valuation seems reasonably attractive, but it would take at least 3-4 years for the company to fully utilise the IPO proceeds and generate meaningful returns for its shareholders. So, I think it is an attractive offer for the long-term investors, but short to medium term investors should not expect superfast returns from this IPO.