There have been some emails and comments about when PowerGrid FPO allotment will be declared, and how many shares a person can expect, so I thought I’d create a small post letting you know that the allotment has been declared and can be checked at Karvy’ s website.
After you find out how many shares got allotted to you please leave a comment and let us know what the ratio was, so that we can use that as future reference for other IPOs.
On a totally different subject – Yesterday I created a page called “Suggest a Topic”, and you can use that to suggest topics for future posts.
A lot of you reply to emails with suggestions for future topics, and that’s great, but sometimes these emails just get buried in my mail box, so I thought I’d create a separate page for this, and better track your suggestions.
You can click on the green call out on the left side bar (just under Seeking Alpha logo) to access this page, or click here.
I just got my hands on the red herring prospectus of MOIL Limited (formerly Manganese Ore (India) Limited), so I’m not quite ready to do a full post yet, but a quick glance shows that the company is on pretty sound footing.
It is the biggest producer of Manganese Ore in India, which is used for steel production, and is a profitable company with zero debt. The MOIL IPO will open on the 26th November 2010, and close on 1st December 2010 for retail investors. The pricing has not been decided yet, and will be declared on the 23rd November.
Here are some vital stats of the MOIL Limited IPO.
MOIL IPO Vital Stats
I will try and do a full review later, but it will probably make more sense to wait till the pricing is out because other than that the company looks to be in pretty good shape.
Update: Since the pricing is out, I did a more detailed post on MOIL IPO here.
In the last poll I had asked you the objective of your IPO investment, and you had three options:
To get a good stock for the long term.
To sell on listing and make a quick buck.
I don’t invest in IPOs
Here is the results of that poll, and I will make a couple of points about long term investing in IPOs and short term listing gains as well.
Do you invest in an IPO - Poll Results
IPOs as a Long Term Investment Vehicle
If you look at the picture above (you might need to click it) – the graph at the lower half shows you the number of IPOs in a particular month in 2010 on one axis (the bars), and the Nifty close at the end of the month on another axis (the red line).
You can see that in the last couple of months or so the number of IPOs have increased quite a bit, and Nifty has rose to highs as well.
Since the promoters are trying to maximize the money they can raise from the market it is only natural that there are more issues in the market when the sentiment is positive, and there is general euphoria in the markets.
If you had a company would you take it public when there is blood on the streets, or when everyone is gung – ho about stocks?
This is an important thing to keep in mind for long term investors. If you are looking at a time horizon of several years, and you feel that the promoters of the company have not left much on the table for investors then it is probably better to wait for the markets to settle down, and initiate a position when the markets are not close to their all time peaks.
At the same time if you like a company because of its fundamentals and feel that the issue has been priced attractively – by all means – go for it.
This is just meant as a piece of caution because you will hear and read a lot about IPOs at about the time the markets are high, so that’s one thing to keep in mind while investing in them for the long term.
IPOs for Listing Gains
In August I took all the IPOs that had came out in 2010 (till that point), and plotted their returns to see how they fared. The results were quite mixed. Here is how that looked.
Even though the data has not been updated, the point still remains that you have to do a bit of a guess-work in determining which one of your IPOs will get you a good listing, and which ones will be just dud issues. If it’s too apparent that pricing is attractive then the over-subscription will be high and you won’t be left with much money.
Personally, making a quick buck at listing gains doesn’t attract me in the slightest, but that’s just my view, and no reason why it should turn you away. I’d just say that take stock of the IPOs you have invested over the years, the money you have made, and the money you have blocked in them. How would that compare to simply investing in a mutual fund or even a fixed deposit? A little bit of introspection might change your mind.
Lastly, thanks to all of you for voting, and I’d love to hear what your experience with IPO investing has been, and also like to hear any poll topics that you might want to see here.
I got a comment the other day about how an IPO price band is fixed, and I thought I should do a post on the book building process, which is used to determine the final price for a lot of IPOs these days.
The crux of book building is that through people’s bids – the issuers find out the highest price at which they can sell their IPO.
Let me take an example. Suppose you own a company that sells Walkmans and want to do an IPO for your company. You decide to offer 3,000 shares at a price band of Rs. 20 – 24.
Since everyone wants a portable way to listen music, love the fact that they can rewind and listen to the same song over and over again – you receive bids from 5 bidders in the following manner:
Bid Quantity
Bid Price
Cumulative Quantity
Subscription
500
24
500
16.67%
1,000
23
1,500
50.00%
1,500
22
3,000
100.00%
2,000
21
5,000
166.67%
2,500
20
7,500
250.00%
You obviously want to sell at the highest price of Rs. 24, but at that price you will be able to sell only 500 shares. So, you come down a rupee, but see that there are only a 1,000 bids at Rs. 23, so you will be able to sell 1,500 shares at that price only.
So, you come down a rupee again, and see that there are 1,500 bids at Rs. 22, which means that you’ve received 3,000 bids from people interested in buying your IPO stock at Rs. 22 or higher.
Rs. 22 then becomes your cut – off price, and all bids above this price level are considered legal bids.
You will price your IPO at 22 or lower, but not at a higher price since you didn’t receive enough bids to be able to get your offering fully subscribed. This is known as the price discovery mechanism of the book building process, and the way most IPOs are priced these days.
In fact the example numbers I took above are very commonly found in prospectuses, and though in the real world, the numbers are much bigger, and complex this is the principle behind fixing the final price.
Ritesh Shah had a very interesting question about how many new shares will be issued in the course of the Power Grid FPO, and I thought I’d elaborate the response into a post because there are going to be a slew of disinvestments shortly, and it’ll be good to be familiar with this aspect for future reference.
Let’s take Power Grid’s capital structure for example and see how it works. Before this FPO – these are the number of shares that the government and others held in PowerGrid.
Shareholder
Number of Shares
Percentage of total
Government
3,634,908,335
86.36%
Others
573,932,895
13.64%
Total
4,208,841,230
100%
For the issue, it was decided that the government will sell shares equal to 10% of the existing capital, and issue an additional 10% also.
In this case 10% of 4,208,841,230 is 420,884,123 – which is equal to the number of shares the government is going to sell, and also equal to the number of freshly issued shares.
Number of shares sold by the government: 420,884,123
Newly Issued shares: Â 420,884,123
This means that post the FPO – the total Power Grid shares will be a sum of the earlier total plus the newly issued shares.
Earlier total: 4,208,841,230
+ Newly Issued Shares: 420,884,123
Total Post FPO: Â 4,629,725,353
The government will hold shares equivalent to their earlier total minus the shares sold by them viz. 3,634,908,335 – 420,884,12 = 3,214,024,212
Others will hold shares equal to the Earlier total held by others + Number of shares sold by the government + The newly issued shares viz.
When they say the total FPO is 20% it means that the total number of shares offered for sale (existing plus new issue) is equal to 20% of the existing capital or pre FPO capital.
The implication of this is that when you issue more shares then your Earnings Per Share (EPS) reduces because now your earnings are spread over a larger number of shares.
When an EPS is reported or a P/E multiple is quoted it is most of the time pre – issue EPS, so that doesn’t take into account the equity dilution due to the new issue of shares. Normally, when an analyst takes equity dilution into account they mention it, so if someone is quoting an EPS or P/E multiple without actually saying that they are taking into account the fresh issue – it is very likely that they are not considering it.
All data from the red herring prospectus
Power Grid FPO Subscription Numbers
The number of shares that are offered during a FPO are reserved for various categories like Qualified Institutional Bidders, Non Institutional Investors, Retail Investors and Employees.
When an issue is oversubscribed the number of shares you get depends on the demand in your own category. For example – the Coal IPO saw very low employee subscription, and an over subscription in all other categories, which means that even though the issue was over-subscribed overall – employees should have gotten the number of shares they bid for, while others got a lesser percentage.
At the end of day 1, here is the demand data for the various categories for Power Grid from the NSE website.
PowerGrid FPO Subscription Numbers
The subscription ratio is not very clear from the above chart, so here is a chart with just the subscription ratio from the same data.
Power Grid FPO Subscription Numbers
The data above confirms the commonly known fact that retail investors wait till the end, and you can see that it’s the institutional investors who have already subscribed twice their quota. As the days go by you will see the retail numbers shoot up, and I’ll update this post regularly to see how that pans out.
Update: At the end of November 11th 2010 – the numbers have increased for the QIB part quite dramatically, and have inched up for other categories also but not by so much. Here is how they look like. Data from NSE.
A lot of you have been interested in knowing the price band of the Power Grid FPO, so I thought I’d do a quick post when I saw MSN India report that the Power Grid FPO price band has been fixed at Rs. 85 – 90.
I think this should cheer a lot of people, as I saw a few tweets that showed people will be interested in a price below Rs. 100.
There is of course a 5% discount for retail investors, so that brings down the effective price a bit more. The issue will open on 9th November, and close on 12th November for retail investors.
Power Grid FPO is going to open on the 9th November, and close on the 12th November for retail participants. As I wrote earlier, the company did extremely well on listing last time around, so a lot of people must be watching it with keen anticipation. As I was reading through the prospectus – I thought I’d do this post with just some of the key numbers that grabbed my attention.
Power Grid FPO
This Navratna transmitted approximately 363.72 billion units of electricity, representing approximately 47% of all the power generated in India in Fiscal 2010, and was ranked as the world’s third largest transmission utility by World Bank in 2009. Power Grid is the only listed power transmission company in India, and has a lot of activity going on with 68 power transmission projects at various stages of implementation. They spent Rs. 291.2 billion towards investment in transmission projects during the government’s 11th Five Year Plan, so you can see that we are talking about huge numbers here.
The tariffs for the transmission projects are determined by the Central Electricity Regulatory Commission and are based on a cost plus tariff based system and provide a return on equity of 15.5% on pre – tax basis.
They have generated massive positive cash from operations in the past, and their profits have been on the rise as well. The EPS was Rs. 4.85 in 2010, and Rs. 3.22 for the six months ended this fiscal. The year has been good for Power Grid as the PAT was up 41.62% at Rs. 4.59 billion for the September 2010 quarter.
While the company primarily generates its revenues from power transmission – they do some consulting work for other companies, and are also present in the Telecom sector.
The Power Grid FPO pricing has not been declared yet, and I will update this post as soon as the pricing details are out.
There are several IPOs and FPOs planned in the next few months by the government, and I thought I’d create an IPO calendar post to keep a track of what’s going on in this space.
This simple table contains all the companies that the government has proposed to do an IPO or FPO for, and also some details about their listing, pricing etc. The row in green is simply the one that I want to draw attention to either because it got recently listed or is about to open up for subscription.
If a particular detail is missing then that either means that it has not been published yet, or the post is out of date. I will try to keep adding details to these and keep the post updated, but if you see something that you think is outdated please leave a comment and help me out.
Name of the Issue
Opening Date
Closing Date
Price Issued
Listing Date
Listing Price
Listing Gains / Loss
Manganese ORE (India) Ltd. (MOIL)
November 26th 2010
1st December 2010
375
December 15 2010
–
–
Shipping Corporation of India Limited
November 30 2010
December 3 2010
140
–
–
–
SAIL
–
–
–
–
–
–
Engineers India Limited
–
–
–
–
–
–
Hindustan Copper Limited
December 6th 2010
December 9th 2010
–
–
–
–
Punjab and Sind Bank
December 13 2010
December 16 2010
–
–
–
–
ONGC
Likely between Jan and March 2011
–
–
–
–
–
Indian Oil Corporation (IOC)
Likely between Jan and March 2011
–
–
–
–
–
Coal India Limited
18th October 2010
22nd October 2010
245
November 4 2010
342.6
39.8%
Power Grid Corporation of India Limited
9thNovember 2010
12thNovember 2010
90
November 25 2010
96.55
7.27%
Please let me know if you see anything missing or wrong.
Micromax recently filed its prospectus, and will be coming out with an IPO very soon. One of the first things that caught my eye about this IPO is that they’re thinking about giving a 10% discount to retail investors instead of the customary 5%. I thought I’d take a look at the Micromax IPO prospectus even though the dates or pricing is not yet out, as I was interested to see how this relatively new player has performed in the highly competitive telecom market.
About Micromax
Micromax is the biggest Indian domestic mobile handsets company and has been growing explosively in the fast growing telecom market since they started in January 2008, and their market share stood at 6.24% for the March 2010 quarter. Micromax has been more about affordable handsets which shows in their average selling price of Rs. 2,275.98 for the March 2010 quarter.
They have over 30 handset models selling in the Indian market, and that helps in not relying on just one product to drive revenues, as no single handset accounted for more than 20% of their revenues. Similarly, they are well diversified across states, and no single state accounted for more than 10% of their sales. They are currently not present in Android or Touch phone segments, but plan to produce phones for these segments in the future.
The growth in Indian telecom has been really explosive in the past few years, so it is natural to ask how long will it continue at the current pace, and what happens when a large number of people own mobile phones?
The replacement market has got to be the key going forward with people switching or upgrading their handsets, and I found some interesting numbers on this market from the Micromax IPO draft prospectus.
They quote research from Analysys Mason which states that the replacement market will drive the market rather than new additions. Even currently, the replacement market constitutes as high as 62.77% of the total handset market for 2010, and they expect this percentage to grow to 89.30% of total handset market by December 31st 2014. In absolute numbers – from 118 million handsets in 2010 to 359 million handsets in 2014.
They are also looking at adding some subscription based value added services, and here are a few of them mentioned in their prospectus.
Receive email on SMS: They are developing an application that would allow customers to receive emails on SMS, targeting mobile subscribers who do not have access to GPRS services or data connectivity.
Phonebook backup: They are developing a ‘phonebook backup’ application, where customers can store their contacts backup, and pull them up later when they need it.
Buddy Tracker: This is a Foursquare like application which has already been developed but not launched yet. This application will allow Micromax subscribers to track the location of friends and contacts also using Micromax using paid SMS service.
Facebook agreement: They have also entered into an agreement with Facebook to be able to use their brand features within the applications that Micromax develops.
The biggest risk to Micromax is that it is in a highly competitive market where there exist much larger players like Nokia, Samsung, LG, and Videocon. These players have much bigger resources at their disposal and pose a competitive threat to Micromax.
There are several VC firms invested in Micromax as well, and here are their details:
US Private Equity Firm Stakes in Micromax
Private Equity Firm
Pre IPO Stake
TA Associates
15.00%
Sequoia, Sandstone and Madison
5.77%
http://bit.ly/9hamfX
Micromax IPO Financials
The first thing that struck me about the balance sheet is that there is hardly any debt on its books. The size of the balance sheet is Rs. 5.39 billion in 2010, and the total of the secured and unsecured loans was just Rs. 11.69 million. This is probably due to the fact that they don’t have any manufacturing facility thereby not incurring much capital costs.
Their revenues have significantly grown in the past few years and stand at Rs. 16,017.58 million for 2010 with a net profit after tax of Rs. 2,003.16 million.
The EPS for 2010 is Rs. 11.83 up from Rs. 1.41 in 2009, and Rs. 0.89 in 2008. The company had a negative cash flow in 2008, but it has been generating positive cash flows after that.
Objective of the Micromax IPO
Micromax currently doesn’t have a manufacturing facility, and it intends to change this. Currently they design their products internally and then contract with manufacturers to manufacture and supply them. They suppliers are primarily located in China and Taiwan.
They want to change this by setting up their own manufacturing facility, and the money raised by the IPO will be used for this. They are looking at big numbers too – the plan is to spend Rs. 2.26 billion on setting up factories that will have the capability to produce 2 million handsets per month.
I will update this post with more information about pricing, and dates as and when they are released, and for now I wanted to get a glimpse of what the company has done in the past, what is the money being raised for, future plans etc.
If you were feeling a void in your life because the excitement surrounding the Coal Inda IPO is dying down gradually – I have good news for you. The Power Grid Follow on Public Offer (FPO) is going to commence on the 9th November and will close on the 12th November for retail investors, while it will close a day earlier for Qualified Institutional Bidders (QIB).
I will do a full review on Power Grid a little later when I get my hands on the prospectus, but for this post I wanted to see how the Power Grid IPO performed, and how it’s stock moved after listing.
A quick search through news archives reveal that Power Grid scorched on listing in 2007. The IPO was priced for Rs. 52 and ended the first day with a gain of 93%. The first day also accounted for 21% of the combined turnover of the NSE and BSE.
Power Grid Stock Price since IPO
The move since then hasn’t been that spectacular and shows that the people who bought it post listing didn’t get that good a deal. Before you jump to any conclusions about investing in the IPO based on this chart remind yourself in a high pitched fast paced ridiculous voice that past performance is not an indicator of future returns.
