Flexituff International IPO Analysis

Flexituff International (FIL) promoted by Kalani Industries Pvt. Ltd., Miscellani Global Pvt. Ltd. and Sanovi Trading Pvt. Ltd., is a multi-product company engaged in the business of manufacturing polymer products like flexible intermediate bulk containers (FIBC), reverse printed BOPP woven bags, special PP bags and leno bags, geo-textile fabrics and cround covers. These products are manufactured at three manufacturing units located in Pithampur (Madhya Pradesh) and Kashipur (Uttrakhand). It has a current capacity of 48,500 million tones (m) and proposes to expand the same to 70,311 mt by next fiscal.

Taksheel Solutions IPO Analysis

Taksheel Solutions was incorporated on 23 September 1999 as IBSS Techno-Park Private Limited in Hyderabad, Andhra Pradesh, under the Companies Act, 1956. The name was changed to Taksheel Solutions Private Limited on 29 November 2006. The company was converted into public limited company in December 2006. It is engaged in the business of providing information technology services to wealth management service providers.

In 2007, Taksheel acquired clients of Dataformix Technologies Inc., which enabled it to establish its foothold in the data warehousing & business intelligence business. In 2009, Taksheel acquired telecom software products from Verisoft Business Solutions Pvt. Ltd. Taksheel has acquired products in IP multimedia system (IMS), telecom signalling integrated standard digital network (ISDN), channel associated signalling (CAS), signalling system 7(SS7), short message service centre (SMSCs), least cost routing system (LCR), optimal routing solutions (ORS), voice mail servers (VMS) and other value added services (VAS) content delivery platforms.

M and B Switchgears IPO Analysis

M and B Switchgears (MBSL), promoted by Shyam Sunder Mundra, Vikalp Mundra and Anurag Mundra, is engaged in manufacture of transformers upto 25 MVA capacity at 132 KV class and automatic voltage controllers. The company plans to diversify into solar power generation by setting up a 2 MWp grid connected solar power project in Madhya Pradesh.

Currently the product portfolio of the company comprise transformers for varied applications such as Power & distribution transformers, Rectifier Transformers, Furnace Duty Transformers [Arc Furnace & Induction Furnace], Dry type transformers, automatic voltage regulators, converter duty transformers, Fire Proof transformers and Special purpose transformers.

The company's transformer plant is in Indore, Madhya Pradesh. Currently the annual production capacity of transformers in terms of KVA is 900000 KVA per annum (or 75,000 KVA per month) on single shift basis. The transformer business of the company accounted for 72.14%, 65.47%, 94.91%, 88.10% and 90.05% of its total sales revenue for the last five fiscals 2007, 2008, 2009, 2010 and 2011 respectively.

The 2 MWp Solar power project of the company is based on PV Cells technology and is coming up at Rajghar District of Madhya Pradesh which has a solar radiation of 5.8-5.5 Kwh/sqm/day which is ideal for solar power generation. The company has roped in Tata BP Solar India as its turnkey contractor for commissioning of its solar power project. This project funded through internal accruals and a term loan from banks is expected to commence power generation by August/September 2011.

In addition the company is planning to set up additional 4 MWp solar power project. On commencing operation this 4 MWp solar power project is expected to generate 6.656 million units of power at 19% plant load factor (PLF). The company proposes to assign the execution job excluding the land development, civil works and evacuation infrastructure to TATA BP Solar. The company has already spent Rs 37.43 crore on acquisition of land and advance for plant and machinery largely funded by unsecured inter corporate deposits. The project is expected to commence supply of power by March 2012.

The company proposes to raise Rs 90-93 crore from the IPO, of which about Rs 71.36 crore will be used to fund its 4MWp solar power project at Rajghar District of Madhya Pradesh and balance for general corporate purposes. The company has taken a bridge loan by way of unsecured corporate deposit from third parties to fund the proposed 4 MWp solar power project and this will be repaid out of the proceeds of the issue.

Strengths

The promoters of the company are in the business of manufacturing transformers for more than 62 years and are preferred and regular suppliers of quality transformers to SEBs etc. Many of the clients of the company are renowned SEBs/Government controlled utility company/Public Sector Undertakings (PSU's). The company is not dependent on any one industry or sector as it cater to sectors like power, steel, textile, coal and mine, infrastructure, engineering and automobile, etc. and within each of these sectors it has diversity of clients.

Unlike other renewable sources such as wind, small/mine hydel etc the yearly variance in solar power is marginal and thus the cash flow variance will be lower.

Relatively low gestation period for solar power projects unlike other forms of power generation.

Weaknesses

The company's transformer business is small and lacks economies of scale. Moreover the lower KVA transformers typically command lower margin compared to higher KVA transformers due to highly fragmented and severe competition, given low technology barriers in this segment.

High working capital intensity of operations arising out of high debtor days resulting in negative fund flow from operations over the last two years. SEBs/state utilities account for about 54.6% of revenues in FY11 and about 35% of revenues in FY10. Given the precarious financial position of most state power distribution utilities, the working capital cycle may further get elongated affecting cash flows and profitability of the company.

Solar power project, being highly capital intensive, are not viable in the absence of subsidized feed-in tariffs or other financial incentives like revenue through sale of Renewable Energy Certificates (REC), CDM etc. The company is yet to get the registration for REC. Also, REC trading in India is at nascent stage. So, this brings lot of regulatory and market risks to potential REC revenues of the company. Moreover the technology for manufacturing solar photovoltaic cells is still evolving and therefore carries the risk of obsolescence.

CERC has prescribed a band of Rs 12000 to Rs 17000/- per REC. This wide price band may give volatility in Company's solar power revenue stream. However, the validity of the REC is only for a period of 365 days from the date of issue, hence the company may be obligated to sell the RECs at the lowest price of the price band or it may even not be able to sell its entitlement fully during its validity period. Further, the CERC has scaled down the REC price band for the period April 2012 to March 2017 to Rs 9300 to Rs 13400. This reduction in the REC prices which, comes into effect from April 2012 would effect the company's profit and there is no assurance that the price band would not be revised further to company's disadvantage.

The company is yet to sign power purchase/offtake agreement for both the 2 MWp power project, which is under execution and the proposed 4 MWp.

The promoter were directors/ promoters of companies i.e. Indore Transformers, C. S. Steels, Geeta Electricals Indore and Agartala Electricals LLP which are engaged in similar line of business of the company i.e. manufacture, repair and sale of transformers. Since the company has not yet entered into any non compete agreement with these firms, there can be conflict of interest.

Valuation

The company registered sales of Rs 34.49 crore for the fiscal ended March 2011, representing a fall of 4%. The net profit for the same period was down by 16% to Rs 77 lakh. The EPS works out to Re 0.4 on post-IPO equity. The price earning ratio at the offer price band of Rs 180-186 stands at 450-465!

The average cost of acquisition of Equity shares for the three promoters i.e. Shyamsunder Mundra, Vikalp Mundra and Anurag Mundra is Rs 2.18, Rs 4.07and Rs 7.74 respectively.

The well established transformer players such as Voltamp and Transformers & Rectifiers are available at a PE of 9.8 and 6.9 times respectively. Even the renewable energy player Orient Green Power quotes at a PE of 62.7 times its consolidated FY11 EPS.

Sensex slides for fifth time in six days on concerns about Q2 earnings

Key benchmark indices edged lower amid intraday volatility as traders rolled over positions in the derivatives segment from the near-month September 2011 series to October 2011 series ahead of the expiry of September 2011 futures & options (F&O) contracts tomorrow, 29 September 2011. The barometer index BSE Sensex was down 78.01 points or 0.47%, up close to 80 points from the day's low and off about 220 points from the day's high. The market breadth, indicating the overall health of the market, was weak. Likely muted-to-weak Q2 September 2011 corporate earnings weighed on sentiment as the Sensex fell for the fifth time in the last six trading sessions.

Sensex closes 78 points lower on profit booking

Profit booking was the main reason behind today’s fall as the markets had rallied quite sharply yesterday. The Sensex fell 78 points and the Nifty slid 25 points

Major headlines

Excel Crop gains on hopes of SC removing export ban

NTPC signs Rs23.41 billion loan pact

India needs to bring down fiscal deficit: Basu

Indian economy will continue to grow: Pratibha Patil

Indian court rules against Tata in Singur land case

Daily News Roundup - Sep 28 2011

JSW Steel threatened to trigger a price spiral following a crunch in iron ore supply which might force it to shut its showcase 10mt per annum Vijaynagar plant in Karnataka. (BS)

GlaxoSmithKline global CEO Andrew Witty said the company has a war chest of US$1-2bn to support its expansion plans in India. (BS)

GMR Infrastructure said it won a Rs72bn project for widening the 555-km Kishangarh-Udaipur-Ahmedabad highway, from four to six lanes. (BS)

Calm down!

If you can attain repose and calm, believe that you have seized happiness. - Julie-Jeanne.

The market seems to have provided the much needed upturn as Navratri celebrations begin. A smart recovery on Monday and a stellar rally on Tuesday could be followed by a choppy day ahead of tomorrow’s F&O expiry. The start is likely to be sluggish due to indecisive Asian markets. US indices also closed off day’s highs. Multiple resistance levels are placed in the zone of 4990-5030 and the rally can be sustainable if the Nifty closes above 5030.

Copper rises substantially higher

Prices rise on speculation investors were buying the metal

Copper prices at Comex followed other commodities and ended substantially higher on Tuesday, 27 September 2011. Copper rebounded in New York on speculation investors were buying the metal, used in tubing and wiring, to close out bets on lower prices. Prices also rose following the improved sentiment that came amid reports that officials in Europe are planning to shore up the region's fiscal and financial problems. A weak dollar also pushed up metal prices.

Copper rises substantially higher

Prices rise on speculation investors were buying the metal

Copper prices at Comex followed other commodities and ended substantially higher on Tuesday, 27 September 2011. Copper rebounded in New York on speculation investors were buying the metal, used in tubing and wiring, to close out bets on lower prices. Prices also rose following the improved sentiment that came amid reports that officials in Europe are planning to shore up the region's fiscal and financial problems. A weak dollar also pushed up metal prices.

Crude takes a big leap

Prices soar as overall sentiment improves following positive economic data and weak dollar

Crude prices ended substantially higher on Tuesday, 27 September, 2011 at Nymex. Prices shot up as US stocks rallied for the third straight day right out of gate following the improved sentiment that came amid reports that officials in Europe are planning to shore up the region's fiscal and financial problems. A weak dollar also pushed up crude prices.

Bullions end their three-day losing streak

Prices shine as dollar weakens and Europe shows support for Greece

Precious metals ended their three-day losing streak and ended higher on Tuesday, 27 September 2011 at Comex. Prices rose following the improved sentiment that came amid reports that officials in Europe are planning to shore up the region's fiscal and financial problems. A weak dollar also pushed up bullion prices.

Market seen slightly higher on positive global cues

The market is likely to see a positive start on firm global cues. US markets edged higher on Tuesday and most Asian markets were trading firm Wednesday amid hopes that European leaders are preparing a major response to the euro zone debt crisis. Trading of S&P CNX Nifty on the Singapore stock exchange indicates a gain of 7 points at the opening bell.

Foreign institutional investors (FIIs) bought shares worth Rs 34.08 crore on Tuesday, 27 September 2011, as per provisional data from the stock exchanges. FII outflow totaled a huge Rs 3668.99 crore in three trading sessions from 22 to 26 September 2011, as per data from the stock exchanges. Domestic institutional investors (DIIs) absorbed part of the heavy selling by FIIs, with net inflow of Rs 2084.06 crore during those three trading sessions.