Category: IPO/NFO

The government starts off its disinvestment program for this financial year with the divestment of up to 9.59% stake in Hindustan Copper tomorrow.

They have set a floor price of Rs. 155 which means that bid for shares can only come at that price or higher, and the entire process will close tomorrow.

The announcement says that it will take place on a separate window of BSE and NSE, and this doesn’t seem to follow the usual IPO or FPO process. I’m not quite sure how retail investors can bid for these shares, and if anyone has information on that then please do leave a comment or send me an email.

The Hindustan Copper stake sale is very interesting in one respect which is the fact that the floor price set by the government is Rs. 155, and the stock closed at Rs. 266.30 today.

If your eyes lit up thinking about the great arbitrage opportunity here, hold your horses.

Remember how the government is willing to divest up to 9.59% of its stake in Hindustan Copper? That’s because they have already divested 0.4% of the stake in Hindustan Copper, and that’s all the stock that trades in the stock exchange.

So, the the float is so low that the current market price doesn’t indicate much, and by extension, the huge discount of floor price to the market price doesn’t mean much either.

Also note that this is the floor price and not the price at which the shares will be ultimately sold. That level will be decided by how many bids come at what levels.

In my opinion, the thing to remember is to forget about the discount of offer price to current market price.

Treat this is as an IPO and think of valuation in terms of P/E multiples or free cash flow or whatever else you normally use. A quick look at the financials show that the EPS in the last financial year was Rs. 3.50, so that’s a trailing P/E multiple of about 44 on the floor price.

This will likely not present an arbitrage opportunity because the shares offered in the current sale are so much more than what’s already traded in the market, and therefore your decision to buy should be based on whether you’re willing to hold the shares for at least the slightly longer term.

Edit: Changed the discount number mentioned in the title from 70% to 40%.

2011 has been a particularly bad year for Indian IPOs, and I see that out of the 30 odd IPOs that came out in 2011 – 14 have fallen by more than 50%!

As if that wasn’t bad enough – there are 9 that have fallen by more than 80% and 1 that has fallen by more than 90%!

I don’t have numbers for the IPO bust after the tech bubble when even cement companies started putting infotech in their names and came out with IPOs, but barring that time – I think this must be the most terrible time for Indian IPOs.

Here is how the complete list looks like.

Sr. No.	Name of the issue	LTP	Issue Price	Date of Listing	Profit / Loss
1	TAKSHEEL SOLUTIONS LIMITED	14	150	19-Oct-11	-90.67%
2	BHARATIYA GLOBAL INFOMEDIA LIMITED	10	82	28-Jul-11	-87.80%
3	BROOKS LABORATORIES LIMITED	14.15	100	5-Sep-11	-85.85%
4	PARAMOUNT PRINTPACKAGING LIMITED	5.05	35	*	-85.57%
5	ACROPETAL TECHNOLOGIES LIMITED	13.1	90	10-Mar-11	-85.44%
6	SHILPI CABLE TECHNOLOGIES LIMITED	10.15	69	8-Apr-11	-85.29%
7	INDO THAI SECURITIES LIMITED	11	74	2-Nov-11	-85.14%
8	SERVALAKSHMI PAPER LIMITED	4.45	29	12-May-11	-84.66%
9	VASWANI INDUSTRIES LIMITED	9.15	49	24-Oct-11	-81.33%
10	SANGHVI FORGING AND ENGINEERING LTD	24.5	85	*	-71.18%
11	PTC INDIA FINANCIAL SERVICES LIMITED	10.5	28	30-Mar-11	-62.50%
12	M AND B SWITCHGEARS LIMITED	80.9	186	20-Oct-11	-56.51%
13	TIMBOR HOME LIMITED	27.8	63	22-Jun-11	-55.87%
14	SRS LIMITED	36.25	58	16-Sep-11	-37.50%
15	OMKAR SPECIALITY CHEMICALS LIMITED	62.65	98	10-Feb-11	-36.07%
16	INNOVENTIVE INDUSTRIES LIMITED	82	117	13-May-11	-29.91%
17	SUDAR GARMENTS LIMITED	55.7	77	11-Mar-11	-27.66%
18	L&T FINANCE HOLDINGS LIMITED	44.7	52	12-Aug-11	-14.04%
19	MUTHOOT FINANCE LIMITED	157.55	175	6-May-11	-9.97%
20	TD POWER SYSTEMS LIMITED	231	256	8-Sep-11	-9.77%
21	FUTURE VENTURES INDIA LIMITED	9.1	10	10-May-11	-9.00%
22	PG ELECTROPLAST LIMITED	220	210	26-Sep-11	4.76%
23	TREE HOUSE EDUCATION & ACCESSORIES LIMITED	159.9	135	26-Aug-11	18.44%
24	INVENTURE GROWTH AND SECURITIES LTD	154	117	*	31.62%
25	PRAKASH CONSTROWELL LTD	204.9	138	*	48.48%
26	LOVABLE LINGERIE LIMITED	317.5	205	24-Mar-11	54.88%
27	FLEXITUFF INTERNATIONAL LIMITED	241.5	155	19-Oct-11	55.81%
28	AANJANEYA LIFECARE LIMITED	425	234	27-May-11	81.62%
29	RUSHIL DECOR LIMITED	137	72	7-Jul-11	90.28%
30	ONELIFE CAPITAL ADVISORS LIMITED	231	110	17-Oct-11	110.00%

This year should have seen a number of public sector IPOs and FPOs, but we just had the one PFC issue and then due to the depressed market conditions – the government didn’t come out with any other offers, and is now asking PSUs to buyback their own shares in an attempt to meet the Rs. 40,000 crore disinvestment target from there.

The IPO situation has been going bad for some time now, and low quality issues combined with a punting mentality has rendered this  market completely useless for long term investors. I don’t see this situation changing in 2012 either, and while we may see a few good companies here and there, by and large 2012 would probably be more of 2011 as far as IPOs are concerned.

I read the press release on the disinvestment of BHEL today, and thought of creating a list of all disinvestment IPO candidates in India this year. In the past we have seen that these IPOs are bunched together ,and it isn’t till very close to the IPO when they really start appearing in the news.

So far this year only the PFC FPO has taken place, and that means there is still a long way to go if the government wants to meet its target of Rs. 40,000 crores (unrealistic now).

This list will keep all the disinvestment candidates at one place, and will hopefully be updated many days before the IPO opens. I also want to track the performance of each of these IPOs to take a look at the end of the financial year to see how they fared. The performance of all IPOs last year wasn’t good, and it will be interesting to see if the trend changes this time.

With that said, here is a list of all companies that I know of that hope to see disinvestment IPOs this year.

S.No.	Name	Issue Size	Open Date	Close Date	Issue Price	Listing Date	Listing Price	Gain / Loss
1	BHEL
2	National Building Construction Corporation
3	NALCO
4	ONGC
5	SAIL
6	Hindustan Copper
7	Visakha Steel Plant
8	MMTC
9	Scooters India Ltd	Possible strategic sale
10	Indian Oil Corporation
11	HMT Bearings	Possible strategic sale
12	PFC IPO	Rs. 4,650 cr.	May 10 2011	May 13 2011	Rs. 203	Already listed since it was an FPO	Already listed since it was an FPO	–

 

After quite a lull, a big IPO is going to hit the market on 27th July 2011, and it will give a good indication to other companies of how much retail appetite is there for IPOs, and of course it gives me an opportunity to write a post with pretty pie charts.

L&T Finance Holding is a NBFC (Non Banking Finance company) holding company, which means that it has fully owned subsidiaries which operates its business, and their revenues and expenses roll up to the parent company.

They are present in three main lines of business:

1. Corporate and Retail Financing
2. Infrastructure Financing.
3. Investment Management.

Of these, the corporate and retail segment is the biggest, infrastructure funding is the second biggest, and at present, the investment management part of the business is miniscule and contributes less than 1% to the overall pie.

Since it is a holding company, it has the following 3 direct subsidiaries:

1. L&T Infrastructure Finance Company: This company invests in the infrastructure sector, had a total income of Rs. 7.03 billion in fiscal 2011, and forms 33.29% of the total company. The total gross outstanding loans for this business were Rs. 71.8 billion.

2. L&T Finance: L&T Finance conducts the retail and corporate finance of the company. The retail part also includes the micro finance business, and the micro finance business comprises of the 4.5% of total unsecured loans of the retail segment. The total income of this group was Rs. 13.9 billion in fiscal 2011, and formed 66.08% of the total revenue. The total gross outstanding loan of this business were Rs. 101 billion.

3. India Infrastructure Developers Limited: This subsidiary doesn’t do any business right now, but they plan to start financing small and medium corporate entities by fiscal 2012.

Further, it has two indirect subsidiaries as well – L&T Investment Management Limited, and L&T Mutual Fund Trustee Limited. Here is the company structure from the offer document.

The L&T Finance IPO price has been set up between a range of Rs. 51 – 59, and this is good because just before this IPO they did a pre – placement with a US Private Equity Investor – MACE CIPEF Limited, and sold about 4% of their stake at Rs. 55. So, retail investors will get about the same deal as the PE players.

L&T Finance is a fairly large company with revenues of Rs. 21.14 billion and net profit of Rs. 3.925 billion in fiscal 2011. In fiscal 2010, the revenues and net profit were Rs. 14.29 billion, and Rs. 2.63 billion. Both the operating subsidiaries have a good Capital Adequacy Ratio of over 16%, and when you look at that number with the size, and growth it’s easy to see why this IPO has been graded 5 out of 5 by the credit rating agencies.

The Diluted EPS for 2011 was Rs. 2.83, and for 2010 it was Rs. 2.17. It was a negative of Rs. 0.05 in 2009. At the EPS of Rs. 2.83, and the higher range of Rs. 60, the P/E multiple comes out to be about 21.2, which I think is not too rich, but not cheap either. Especially so because their own prospectus lists down their competitors and their respective P/E ratios on the closing price of July 1 2011, and basic EPS of 2011.

There will be 2 main uses for the funds raised from this IPO. They are going to pay off some of their parent’s loans, and strengthen the capital base of the subsidiaries. In the prospectus, L&T Finance say that they are going to raise Rs. 15,750 million, and use it to recapitalize, and pay off parent company’s debt in the following ratio.

So, about a fourth of the money is going to repay debt from the promoter which is probably a good thing since this debt is at a relatively high 9% interest rate.

Overall, this is an interesting IPO to watch because of the size, and the timing. It is getting launched at a time when the markets are at reasonable valuations, but the volumes are quite thin. To add to that – India has been one of the worse IPO markets globally in the last year, so the environment is a bit jittery. The government has lined up a series of disinvestment candidates later in the year, so the performance of this IPO will affect the timing of the other ones down the line.

Update: I apologize for the error in this post where I opine that almost everyone has been allotted 1 lot; I spoke to a few people yesterday, and drew my conclusion from those conversations.

However, as is evident from your comments many of you didn’t get any shares. I am sorry about the error, and realize that I should have waited to get information from more people before publishing.

The MOIL IPO Allotment has been done today, and I think that everyone has been allotted 1 lot of 17 shares regardless of the quantity they applied for.

I say this based on the amount of money debited from the bank account. If you have applied for the MOIL IPO then please check your bank account, and I think it is quite likely that you see  Rs. 6,056.25 debited from your bank account.

This means that you got 17 shares at the unit price of Rs. 356.25 (after 5% discount on Rs. 375).

Please leave a comment about the number of shares you applied for, and the money debited from your account, as that helps guess the ratio for future issues.

It is only apt that I highlight a comment made by Loney here earlier who accurately described what to expect in such cases where the over-subscription is reasonably high.

I think you should not have withdrawn the application. You should have applied for the minimum lot of 17 shares. Because, Karvy and NSE which will finalize the allotment has this particular habit of allotting shares even to people who bid for the minimum lot at the expense of people who apply for the maximum lot size within the limit. Therefore there was a probability that you were alloted 17 shares even if you subscribe for just one lot.

Thanks Loney!

The SCI FPO dates and pricing are out; in fact the first day is already over, but there hasn’t been much activity on the subscription front probably because people were too busy with the MOIL IPO.

SCI FPO Price Band

The price band has been fixed between Rs. 135 and 140, and the EPS last year was Rs. Rs. 9.29 which was down from Rs. 22.66 EPS in 2009, and Rs. 17.82 EPS in 2008.

The stock closed at Rs. 143.65 on the NSE on Tuesday, which means that a price of Rs. 140 is not all that attractive for people. The subscription numbers are pretty low but that could also be because this is the first day, and the other disinvestment IPO – MOIL has generated a lot of interest today.

Here are the subscription numbers at the end of Day 1 of the SCI FPO. I will update this post with new numbers as each day progresses.

All data from NSE.

Also read the detailed SCI FPO post.

The dates for the Hindustan Copper FPO have been declared recently, and this issue is going to open on 6th December 2010, and close on the 9th December 2010, and I thought I’d do a post with the financials, capital structure, and a brief summary of what it does now, and update the post when pricing is out later.

Like several other disinvestment companies, Hindustan Copper is also the only player in its field and is a commodity company.

Hindustan Copper is the only copper ore producing company in India, and has access to over two – thirds of India’s copper reserves. The company mines copper ore, is engaged in concentration of copper ore into copper concentrate, and also does smelting, refining of copper ore into saleable products like cast wire rods, wire bars, and copper cathodes.

Here is a break up of Hindustan Copper’s key production and sales volume for the last three years from its red herring prospectus.

The prospectus goes on to state that the company’s primary product will be copper concentrate rather than refined copper products in the future as they plan to expand the production capacity from 3.21 MTPA to at least 12.41 MTPA by the end of fiscal 2017.

Hindustan Copper FPO Issue Structure

This FPO consists of fresh issue of shares as well as existing shares from the government which means that part of the proceeds will go to the government, and part of them will go to the company.

The way the issue has been structured is that the government is going to sell 10% of the existing capital, and the company will issue new shares which will be equal to 10% of the existing capital. So, half of the money from the proceeds will go to the government, while the other half will go to Hindustan Copper. Here are the details.

Hindustan Copper Financials

The revenue of the company has grown from Rs. 10,537.59 million in 2006 to Rs. 14,298.48 million in 2010, and the company has been profitable in these years except for 2009 when it had a net loss of Rs. 103.09 million.

Here are the details of revenues and profits in the last few years in Rs. Millions.

The EPS was Rs. 1.89 in 2010, (0.37) in 2009, and Rs. 3.24 in 2008. The stock was traded at Rs. 312.00 in NSE last Friday. The pricing for this issue is not out yet, and I’ll update this post when the pricing of the issue is out.

Update: Updated data for Day 4 now.

Day 1 of the MOIL IPO is over, and I thought I’d create a subscription numbers page like I did for the Power Grid FPO. MOIL is an IPO where no new shares are being issued, and the stake of the state and central government is being sold so the money raised from MOIL IPO is going to go to the state and the center government.

An IPO is divided into various categories like Qualified Institutional Bidders (QIB), Non Institutional Investors (NII), Retail and Employees, and here is how the shares offered are split amongst various categories.

Here are the subscription numbers from NSE at the end of Day 1. I will update these numbers every day to get an idea of how the numbers move.

Update: Look at the QIB number zoom on Day 3, and looks like the retail number will also end up a lot higher than we have seen in the past. I will do a full post once the subscription closes, and update this with Day 4 numbers as well.

The green bar represents the second day from NSE. Usually you see QIB zoom up, and retail only grows on the last day but here retail is slightly higher than QIB on the second day. There are two more days left so let’s see how high the retail goes.

Also read other details about the MOIL IPO.

MOIL IPO price band was declared between Rs. 340 – 375, and the IPO will open on November 26th 2010, and close on the December 1st 2010.

MOIL is a Mini – Ratna engaged in mining Manganese ore which is used for desulphurization and strengthening of steel, thus making it closely tied with the steel industry.

Of the total land based manganese ores in the world – South Africa accounts for a whopping 75% followed by Ukraine which has 10%, and then Australia and India which have 3% each.

The Indian manganese reserves are estimated at 378.6 million tonnes and Orissa has the bulk of them with 40% of the reserves, and Karnataka comes second at 22%.

The domestic steel demand has doubled between 2002 and 2010, and CARE research expects it to grow by 9.2% CAGR from the year 2011 – 2015. In fact the demand for manganese ore has turned India into a net importer of the ore in the last 3 years. India is in fact the fifth largest producer of steel in the world, and the need for infrastructure and economic development in the future will only mean that the demand for steel goes up.

MOIL India is the biggest producer of manganese ore in the country, and produced 1,093,363 tonnes of Manganese ore in 2010. This amounts to about half of the manganese ore production in the country.

They operate 1o mines currently, and a look at the volume of ores mined in the past few years shows a that the numbers have actually declined from 2008 – 2010. In 2008 MOIL mined 1.3 million tonnes of ore, which came down to 1.1 million tonnes in 2009, and 1.09 million tonnes in 2010.

I’m not sure what the cause of this decline is, and I couldn’t find any reference of it anywhere. I wonder if I’m just reading this wrong, so I’m pasting the relevant para from the prospectus here:

We were the largest producer of manganese ore by volume in India in Fiscal 2008 (Source: Indian Bureau of Mines, Indian Mineral Yearbook 2008). We produced 1,364,575 tonnes, 1,175,318 tonnes, 1,093,363 tonnes and 516,749 tonnes of manganese ore in Fiscal 2008, 2009, 2010 and in the six months ended September 30, 2010, respectively.

The company had a total income of Rs. 10,154.5 million, Rs. 14,394.1 million, Rs. 10,878.5 million and Rs. 6,924.9 million in Fiscal 2008, 2009, 2010 and in the six months ended September 30, 2010, respectively.

The profit after tax was Rs. 4,615.6 million, Rs. 6,902.9 million, Rs. 4,656.2 million and Rs. 3,315.0 million in Fiscal 2008, 2009, 2010 and in the six months ended September 30, 2010, respectively, or 45.5%, 48.0%, 42.8% and 47.9% of the total income in those periods.

The EPS for 2010 was Rs. 27.72, which was down from Rs. 41.09 in 2009, and about the same as the Rs. 27.47 EPS earned in 2008. The EPS for the six months of this fiscal was Rs. 19.73. The dip in the EPS is because the number of shares issued, subscribed and paid up increased from 28 million on Sep 30 2009 to 168 millon on Sep 30 2010.

As of September 30, 2010, the cash and bank balances were Rs. 17,628.8 million and they had no debt.

The company has 168 million shares outstanding so cash per share amounts to about Rs. 105.

MOIL Limited has positive cash from operations in each of the last five years, and they even had a positive cash from investing of about Rs. 1 billion in 2010 when they earned Rs. 1.2 billion as interest on fixed deposits!

The total outstanding shares of the company are 168 million, and it is offering 33.6 million shares in this IPO. A lot of you are interested in knowing if the company or the government gets the money in these disinvestments, so let me state that in this particular case there are no fresh shares being issued, and all the money raised from this IPO will go to the state and centre government. The company will not get any money out of this IPO.

The price band of the MOIL IPO is between Rs. 340 – 375, and price will ultimately be finalized using the book – building process.

CARE has assigned a grade of 5 out of 5 to MOIL which indicates strong fundamentals, and finally MOIL Limited is one of the companies in which retail investors will be allowed to invest up to Rs. 200,000 which was recently increased by SEBI.

Also read MOIL IPO Subscription numbers.