IPO
November 23, 2010
Shipping Corporation of India (SCI),the government owned carrier is coming out with a Follow on Public Offering (FPO) of 84,690,730 Equity Shares to divest 18% of its equity which will be equally shared by the company and the government.At the current price the company will raise around Rs 600 crores for the company with another Rs 600 crore going to the government. SCI is India's largest shipping line by tonnage deriving most of its revenues from oil/gas transport.SCI like other shipping companies has faced a very bad 2009 due to the sharp contraction in world trade and dropping in shipping rates.However results have started to improve with the improvement in the world economy and it is returning to its normalized sales and profits.The valuation of the company is not expensive according to normalized profits however note that shipping sector in general does not enjoy high p/e due to the cyclical and capex intensive nature of the business.The pricing of SCI has not been decided as of now,in the secondary market it trades at Rs 156 which is near its 52 week low in anticipation of the share dilution due to the FPO.Here is a list of the pros and cons.
November 16, 2010
Valuation
MOIL has a Net Worth of Rs 1860 crores and a NAV of around Rs 110/share.The Company will probably earn around Rs 700 crore this fiscal year after doing Rs 465 crores last year (which was a bad year for the industry).Operating Cash Flow has been generally higher than the Net Profit leading to improved cash position over the last 4 years.The Capital Requirements of the Business is quite low leading to high Return Metrics.If the Government sells the 20% stake at Rs 1500 crore that would give the company a market cap of Rs 7500 crore.Taking out the Rs 1700 crore in cash would make the company be valued at 3.2x BV and 8-9x P/E.This is a substantial discount to Global Mining Companies.
Summary
Like Coal India Limited,MOIL looks like a very safe commodity investment at a cheap valuation.With growing Indian Demand,MOIL can hardly miss continuing on a steady 10-15% earnings growth over the next 4-5 years.If the commodity prices flare up again like 2008 due to QE2,then MOIL provides a big upside as well.Its a good investment for investors looking to invest in safe mining plays.With government ownership,the typical Indian management risk is also greatly mitigated.
November 16, 2010
India has seen a rash of junk IPO offerings in the past year due to the strong bullish conditions.Most of these IPOs have managed to raise money based on stock market shenanigans by Market "Operators".More than 50% of these micro cap IPO junk has given negative returns but the flow seems unabated as India has become an IPO Pump and Dump Heaven.Aster Silicates,Tarapur Transformers,Prakash Steelage,Sea TV are some of the microcap junk that I have written about earlier.R.R.P Constructions joins the infamous bandwagon trying to sucker money from retail investors.The Company is expensively prices,slow growing (compared to other construction peers),has management that you would not want to trust a dollar with,high debt and still wants you to pay ~25x P/E.There are many better opportunities in the Construction and Infrastructure Space in India right now for example Tecpro Systems and VA Tech Wabag.Here are some R.R.P Construction stock negatives gleaned from its DRHP as I could not find any positive about the company.
November 13, 2010
India's Stock Market remains a heaven for Pump and Dump Operators of IPOs.Despite some high quality IPOs in recent times like Coal India,the majority of the IPOs being done are by fly by night operators and promoters.Their is little justification for the valuation and the subscription numbers.But it is a lucrative trade for shady operators who easily manage to manipulate small cap IPOs leaving huge losses for retail investors.The stock market regulator SEBI strangely remains asleep at the wheel despite some blatant pump and dump issues.More than 50% of the IPOs in the Indian stock market over the past year are below their issue prices.But there has been no investigation and prosecution over these white collar crimes just seem gentle scolding.Like the totally infamous and ineffectual SEC of the US Stock Market,SEBI looks more and more like a toothless tiger.Despite some laudable reforms in favor of retail investors,it needs to act more quickly and reform much more.
October 14, 2010
Coal India IPO the biggest primary market-raising company in the history of the markets has raised a huge amount of investor interest.The investor is barraged with […]
October 12, 2010
Indian IPO Rules allows the Merchant Bankers of the Issue to give favored institutional clients a part of the IPO even before the issue starts.This has the advantage for both parties as funds get a guaranteed portion of the IPO and Bankers can tout the quality of the company.However you would have to question these "Anchor Investors' on how they invest in such IPOs.Prestige Estates a Realty Company coming out with an IPO is another low quality company to come out with a high valuation.So finding 21 Anchor Investors is a surprise.Despite the Real Estate Market being avoided by Fund Mangers due to questionable practice,23 Funds have found it worthwhile to add Prestige Estates to their portfolio.Makes you wonder if Institutional Investors are Plain Incompetent ,Compromised or Both
October 12, 2010
Prestige Estates is an Indian Real Estate Company with its operations focused in the southern part of India mainly in the techie city of Bangalore.The company is one on the long list of Realty Companies which have been waiting impatiently to raise money from the Stock Markets trying to pay off their debts.It is raising around Rs 1200 crores or $250mm .Oberoi Realty was a decent Realty Stock as far as the Sector goes which managed good subscription numbers in the last week.With "animal spirits" returning fueled by Bernanke's Helicopter Policy expect more such shoddy Realty issues to hit the market.Note the Sector is an investor minefield with even well connected Fund Managers not trusting the financial statements published by these companies.With the Indian Stock Market already featuring a wide variety in terms of quality and quantity of Realty Stocks,Prestige Estates brings no difference and on analysis seems easy to avoid.Here are some features to this company
Summary
Prestige Estates is another low quality shady highly indebted Realty Company which should be strictly be avoided.It defies any simple analysis because of its convoluted structure and cross holdings.The Company Sales have been stagnant and Margins Low and it has high concentration risk as well.The Management inspires no confidence at all and is a typical example of the badly managed Real Estate Sector in India.Should be avoided at all costs by investors.Note 5 of the last 9 IPOs in India in the last month are giving losses to investors.This promises to be no different given the fundamentals.
October 11, 2010
Coal India is coming out with India's biggest IPO offering in the Stock Market History.The company seems fundamentally strong on almost all aspects and is also pricing itself at a significant discount to its global peers.Both superficially and deep down,the analysis points CIL to be a very safe investment at a cheap valuation.Other analysts are also coming to the same conclusion,as Rating Agency has given CIL a 5/5 Rating which is probably the first in the history of IPO Grading .In order to give a more balanced perspective and avoid herd tendencies,I am listing out what the risks and negatives are with this company.Note this does not make me negative on the stock on which I am very positively biased.It is just to give investors the other side of the debate which I think general analysis will lack.
Despite the above Risks , I think that Coal India is one of the best quality stocks to come out in India's Primary Markets.However investors should be wary of the risks which will be glossed over by the mainstream media and brokerages . As with every investment however safe it might look,there are risks.This does not mean that investors should be fearful of every investment.It is by being aware of the risks,that prudent risk management can be done which is essential to successful investing.
October 7, 2010
The Crap continues to hit the Indian Primary Market with another Junk Microcap trying to raise $11 mm from the market.The company will dilute around 48% […]
October 7, 2010
Coal India Limited (CIL) is the biggest IPO in the history of the Indian markets.The Company has generated a lot of investor interest because of a number of firsts.It is the largest coal producer in the world in one of the biggest demand growth regions.The company has excellent fundamentals being rated 5/5 by the rating agency.The government has disallowed anchor investors for the IPO as it finds that allocation could be construed as biased.Note Anchor Investors in Indian IPOs are favored investor who are preallocated a fixed amount of shares by investment bankers.This is similar to the US practice where all of the IPO is offered to institutional investors by investment bankers solely on their discretion.India is much more egalitarian in its approach to IPO regulation with a fixed amount 35% reserved for retail investors .The pricing of the issue has been a hot topic of speculation with the expected price range to give it a multiple of around 15x which is around 20-30% cheaper than comparable large US and China coal companies like Massey,Shenhua and others.
October 5, 2010
Real Estate Companies have been trying to raise money from the primary markets for a long time.The depressed markets and the negative sentiment about the real estate sector had prevented that from happening.Realty companies are known for their "creative accouting" shenanigans and their financial statements are not even trusted by Fund Managers.However the Current Bull Run has sparked renewed interest in all sectors even depressed ones like Realty.This has presented a golden oppurtunity for Real Estate Companies to do IPOs.While the last 2 Real Estates issues Jaypee Infratech and Nitesh Estates were disasters,this ones looks better than the last 2 lemons.Oberio Realty has good profits,cash flows and zero debt.This makes their issue much better,however the Realty Sector is a dangerous one to play because of the corruption that pervades the entire industry.So you make an investment here not really knowing what you are getting into.Not a Warren Buffet Investment by a long shot.The upside is limited with huge amount of downsides in the form of unknowns.Here are some of the features of Oberio Realty
September 29, 2010
2) Expensive Valuation - Despite Negative Cash Flows for 3 out of the last 5 years,Cyclical Industry and Customer Concentration Risk,the Management wants around 35x P/E Valuation for their company.This is quite amazing as I would not consider the company a Buy at even 20x.However even shadier and crappier issues have managed to listed.Prakash Steelage,Aster Silicates are all examples of investors trying their hand at such Junk.
3) Customer Concentration - The Company is dependent on a few customers like Tata Motors and Indian Railways for most of its revenues.Competition for supplying Wagons to Indian Railways has increased drastically with even State Owned Companies joing the fray.CV is a cyclical industry and margisn in the CV Body Building Business are nothing great.The Company has failed to show consistent margins in the business
Summary
This is one of the more crappier issues to hit the market.Investors should not be even considering subscribing to the issue given the bad management history,cyclical sector and competition.Margins are nothing great.Growth has been inconsistent and the stock is overvalued even at half of its asking price.
September 27, 2010
India has seen a flurry of IPO’s in the current month of September 2010 as the companies IPOing in this month will not have to submit […]
September 25, 2010
India's Stock Market Regulator SEBI has castigated the investment bankers for giving investors the short end of the stick.The regulator accused the I-Banking community of only looking out for the interests of the promoters by pricing primary issues too high.The proof is in the fact that 62% of the IPOs in the last 3 years are trading at below issue price despite the fact that Indian markets are near an all time high.Bad practises such as charging zero fees from big band government divestment,unethical if not illegal promotion of IPO companies through planted ads in newspapers were some of the other things that SEBI found objectionable.
September 23, 2010
However Tecpro Systems differs from the other 2 IPOs in the sense that it is primarily focused on the Power Sector Space.It is a leader in the ash handling and material handling systems and is currently diversifying into becoming a turnkey provider in this segment.Like other infrastructure players it has seen amazing growth in the last 3 years at around 70%+.Its margins have come down and stabilized at around 7%.Cash Flow have been negative due the breakneck growth and the high WC requirements of the Construction Sector.The valuation does not seem expensive with the promoters diluting around 15% of the company.
Summary
This EPC company seems a good investment to me though not as good as VA Tech Wabag.The valuation at around 17x P/E is not very expensive though the sector concentration increase the risk for the company.However given the management quality,this company seems a better investment that other construction companies.The growth prospects of the Power Sector in India is huge and Tecpro seems well positioned in this space with partnerships with other major companies like Va Tech Wabag.Though there is some concentration risk,I think Tecpro seems a subscribe.
September 22, 2010
Ashoka Buildcon is a Construction Company primarily focused on the Road Segments.Given India's huge demand for infrastructure and roads,the company is growing at 50%+ growth rates.However the quality of management is suspect given tax seizures,criminal cases and related transactions.The valuation of the company is also not cheap at around 22-23x P/E and around 3x P/B.The Company has grown at an excellent rate while maintaining a Net Margin of 8-10%.
Summary
While I like the Road Sector in India and the Company is a well positioned company in this sector,I hate to invest in a company where Management seems untrustworthy.The valuation of the company is not exactly cheap either without being very expensive at around 20x.However if something bad happens Macro wise then expect the stock price to plummet .There are other companies in the Road Sector like IL&FS which operates in the same segment but has a better management trust quotient.
September 22, 2010
VA Tech Wabag is one of the best quality companies to come out with an IPO in the Indian Market in 2010.The Company boasts of a quality management,good technology and fast growth.Despite a hiccup in 2009,the company has picked up its growth in 2010 and operating in a fast growing Water Industry with good execution,it looks to have little downsides.While Low Net Margins and High Working Capital is a characteristic of the EPC sector it operates in,the company has constantly been able to improve on those parameters.
Summary
There is almost nothing to dislike about the company except the valuation which is a tad expensive at around around 28-30x,however the sector P/E is also around 30-35x and VA Tech Wabag deserves a premium.Given the high quality of the company and the Water Sector it operates in,I would invest in the company as the future growth is tremendous.Also the international diversification and the Recession Proof Water Industry makes this investment safer than your normal Indian EPC company which are asking for the same valuations.
September 21, 2010
Cons
1) Valuation - The Valuation of the company is not cheap at around 3x P/B and around 28-30x P/E .But with companies of the same quality going in for around the same if not higher valuations,why would the company sell the shares at a discount.This however does not make it better for investors who get very little for investing in a newly listed company.This stock is an unlikely candidate to be multibagger
2) Negative Cash Flows - The High WC Requirements of the Sector and Fast Growth has meant that the Operating Cash flows of the company have been negative in the last 3 years.
Summary
The Company and the Sector in which it operates is a good one,however the Valuation has discounted most of the good things about the company.The company has very little to be negative about except the high working capital ,negative cash flows and the like.But that is a feature of the Construction Sector rather than anything negative about the company.The high valuation given to the issue makes it avoidable given better opportunities in the Indian market.
September 21, 2010
Electrosteel Integrated is coming out with an IPO to raise around $50mm to fund its 2.2 million ton plant in Jharkand,India.The company is promoted by its listed parent Electrosteel Castings which has been running for the past 30 years and is leader in the Ductile Pipe Category.This company will have ECL holding of 34% post IPO with the other major shareholders being a bunch of PE firms and Stemcor.The plant construction will require around $1.5 billion capex out of which around 40% has been already been spent.Debt will be around $1.1 billion mostly at 12.25% interest rate.
Summary
The company has pluses as well as risks,however the plant should start operating in Oct 2010.While the investment is risky,the valuation being offered is cheap with good promoters.For people looking at lesser risk,ECL the parent company also makes a lot of sense.It is trading at 8x trailing P/E and around 1 P/Bx which is again cheap.It has a 34% share in the new company so will gain from any upside as well.Its investment in the company is Rs 700 crore with a total market cap of around Rs 1600 crore.Not expensive and a safer way to invest in
September 20, 2010
Bad Part
1) Bad Sector - It is marked by very high working capital,low margins,high competition and volatility in raw material prices.While Cantabil has grown well,the sector is hardly to excite someone about.The company's expansion plans will need lead to any dramatic improvement in its business model.
Summary
There is nothing to dislike about the company,however there is nothing to like about it either.Valuation at around 12x is not expensive however the risks of the sector and the smallness of the company does not make it very cheap either.Manufacturing in house,reduction of working capital might make it attractive later on. However I would give it a pass as there are better opportunities around.
September 20, 2010
Orient Green Power Ltd (OGPL) is Indias Largest Green Utility and is one of the areas that is a good way to invest in India's Green Energy Sector.The company is owned by the Shriram Group and a couple of PE Players will issue around Rs 900 crores (~$180mm) which will result in a market cap of $450mm.OGPL is a relatively new company setting up and acquiring most of its 200 MW capacity in the last year which comprised of 152 MW of Wind Energy and the rest is Biomass Energy.The company plans to increase this capacity 4 fold to around 1000 MW in the next couple of years with Power Plants in India,Europe and Sri Lanka.The centrepiece of this expansion will be a 300 MW Wind Energy Plant in Tamil Nadu for which $10 million has been already been spent.The company's past profits and cash flow have been negative which is not exactly a concern given that most of the capacity was set up in the last year or so.I like the company's growth plans and the sector in which it operates.India suffers from a huge power deficit and Renewable Energy is being heavily promoted through Government Subsides and Renewable Energy Madates by the CERC.Trading of Renewable Energy Certificates (RECs) should start in a year or so giving additional revenue streams to Green Energy Producers.Here are the pros and cons of the issue
September 17, 2010
Eros International Media Limited (EIML) is one of the biggest owners and distributors of Indian Films.It owns a Film Library of around 1000 Indian Films including some inconic titles.The Company is involved in the business of sourcing,creating and distributing media content which is mainly films.It has grown at a fast clip in the past 3-4 years though the last year was slower on account of the GFC.It is a part of the Eros Group Plc and has till now grown mainly through the financial backing and networking of its parent.There is a lot to like about this IPO and very little to dislike.The valuation on a P/E basis is also not expensive at around 19x.Given that the Indian economy is booming with Entertainment one of the hottest sectors,this is a good play on this sector.Here are some of the highlights from their DHRP
September 15, 2010
Shady Management - Income Tax Raids on the company and its promoters found $1.3 million in unaccounted cash and jewelery,cash and documents were impounded.The promoters have been accused of falsifying accounts,evading tax and Registrar of Companies (ROC) and Service Tax Department have also served notices.
Expensive Valuation - The company will come out with a valuation of P/E of 30-32x which is more expensive than other listed education companies.At least Prakash Steelage with a corrupt management had the decency to come with a discount
Summary
The only thing to like about this company is the sector that it operates in.However Shady Management,Super High Valuation and Regulatory Risk makes this company a strictly no subscribe.However given the shenanigans being openly perpetrated in the Indian Stock Market don't be surprised to see a 100% Listing Gain.
September 14, 2010
Why would anyone want to invest in such a sorry stock is beyond me but I have seen even worse companies list so don't get surprised.The company is basically is using all the investor's money to become a decent business.Its current business with less than $1 million in fixed assets and $500k in profits is not worth putting money into.So if you are a super high risky investor then this stock would make sense for you.
September 9, 2010
India has divested small equity stakes in a number of state owned Commodity Companies this year and the trend is expected to continue in the future […]
September 8, 2010
It does not take a rocket scientist to figure out that stocks are being manipulated to the detriment of the small investors.Experienced people in SEBI would surely know of such manipulation but they are not doing anything.The Prakash Steelage has followed the "Pump and Dump" Script to the letter with the stock in the process of being dumped.The stock fell 13% for no apparent reason and I expect it to soon fall far below its issue price.Note the Promoters of this Stock have already been convicted of Tax Evasion.
September 1, 2010
Coal India Limited (CIL) would be a safe stock to invest in if it priced in the indicated manner that is a $33 Billion Market Capitalization.This stock won't be a multi bagger but would offer decent price appreciation with almost no downside risks.At trailing P/E of 15x and 3 year average trailing P/E of 20x,the company is not expensive given its competitive strengths.Its dividend yield would be around 1.5% with growth of around ~10-12%.However if you exclude $8.5 Billion in Cash,then the stock seems cheap at around trailing P/E of 11x.It has a P/B of 6x and P/S of around 3x.With its ASP being at a 65% Discount to the International Price,the Company has a huge moat around its business model and I would recommend it as a Buy.
August 27, 2010
There is no good way of shorting Prakash Steelage stock otherwise it seems a sure shot money making opportunity.What is funny is that mainstream media websites have described the stock glowingly as a multibagger.More reason than ever to strictly avoid mainstream financial media.These IPOs have become a fertile gambling ground with the dice loaded in favor of the promoters and connected market operators.Retail investors get sucked in not realizing its a "Greater Fool" Game with the whole purpose of making them the Greatest Fools.
August 23, 2010
India’s Real Estate Sector is one of the most unloved sectors in the Stock Market.Even Fund Managers shun this Sector because of the complete lack of […]
August 23, 2010
This Port Stock maybe a good buy for all the India Infrastructural Growth Faithful but not for a value investor.This company still have to prove it can generate earnings on a sustainable basis.While a number of PE players have paid more than the issue price in this company,this still does not justify a buy in my opinion.This company might be a good stock to own in 2-3 years but currently you can avoid this issue.