Grey Market - Emaar MGF, Reliance Power, KNR Constructions

Future Capital Holding 765 360 to 380


Reliance Power 450 160 to 170


Emaar MGF 610 to 690 110 to 120


J. Kumar Infraprojects 110 to 120 3 to 5


Cords Cable Ind 125 to 135 10 to 12


KNR Construction 170 to 180 Discount


On Mobile Global 425 to 450 40 to 50


Bang Overseas 200 to 207 32 to 35


Shriram EPC 290 to 330 20 to 22


IRB Infrastructure Developers 185 to 220 50 to 55

Cords Cable IPO Subscription,Allotment Details

Sr.No.	Category			No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)			6.8271
1(a)	Foreign Institutional Investors (FIIs)
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1(c)	Mutual Funds
1(d)	Others
2	Non Institutional Investors			5.1132
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)			2.5818
3(a)	Cut Off
3(b)	Price Bids
4	Employee Reservation			1.0143
4(a)	Cut Off
4(b)	Price Bids

Cords Cable Industries IPO review

Cords Cable Industries, promoted by mechanical engineers Naveen Sawhney, D K Parashar and Rakesh Malhotra in 1991, caters to the growing requirement for high quality customised cables. Over the years, the company has been expanding its product range and has added a variety of specialty cables to its product range. The aim was to address specific requirement of industries involving modern process technologies, instrumentation and communication demanding the highest standards of precision and reliability and household users with assured quality and safety standards.

Recently, Cords Cable Industries increased its capacities for existing products (including low-tension cables) at Rs 13.20 crore. Production from the expanded facility started in January 2008. The product portfolio includes low-tension (LT) control and power cables (up to 1.1 KV); instrumentation, signal and data cables; thermocouple extension/compensating cables; panel wires/household wires/flexible cables and specialty cables (tailored for each application as per specifications of customers).

In view of the increasing demand for cables and the need for diversifying and expanding its existing range of products, Cords Cable Industries plans to add high-tension (HT) cables and rubber cables to its existing product range at an outlay of Rs 57.40 crore (Rs 5.19 crore has already deployed in this project). The commercial production from this expanded facility is expected to start from April 2009. For funding such expansion and for working capital and general corporate purpose, the company has lined up an IPO to raise Rs 38.56 crore to Rs 41.65 crore comprising fresh issue of 30.85 lakh shares in the price band of Rs 125 to Rs 135 per share. It will take on Rs 12.20-crore debt for the proposed expansion.

Strengths

• The organised cable industry has grown at an estimated CAGR of 25% in the last three years. This growth is likely to sustain over the next few years due to various favorable factors such as large-scale investment in power (generation, transmission and distribution), steel, refineries and other manufacturing sectors leading to huge demand for cables and investment in new sectors like metro rail, aviation, and wind power leading to demand for speciality cables.

• Has a diversified client profile including from the power, cement, refineries, steel, fertilizers and chemicals sectors. Is the approved vendor for many large caps such as NTPC, Bhel, Powergrid Corporation of India, Nuclear Power Corporation, L&T, Tata Steel, Reliance Energy, Tata Power, Hindalco, ACC, HPCL, GAIL, and Honeywell. Also has been approved by almost all top consultants like Kvaerner Powergas India, Toyo Engineering India, Engineers India, and Rites.

• Production from expanded facility to produce LT power cables and other products started in January 2008. Empanelled with most of the large corporates and top consultants comprising Bhel, Tata Steel, NTPC, L&T, Reliance Energy, Nuclear Power Corporation of India, and Cairns.

• The barriers to enter the cable industry are pre-qualification on technical grounds and proven track records. Pre-qualification with proven track record with consistent performance will help in selling products.

Weaknesses

• Power-cable producers are required to get pre-qualification on technical grounds and should have proven track record. This is a long drawn out process and needs substantial investment of time and money. At present, Cords Cable Industries has pre-qualifications for LT cables but not for HT and rubber cables to be manufactured after proposed expansion.

• Competition from large number of cable manufacturers in the organised as well as unorganised sectors and imports. Rising raw-material prices will also put pressure on margin.

• Contingent liabilities of Rs 51.09 crore not provided for. Net worth after the issue would be Rs 69.98 crore.

Valuation

Over the four-year period ended March 2007, revenue grew at a CAGR of 60% and net profit at a CAGR of 166%. Operating profit margin also improved to 15.2% in the six months ended September 2007 from 3.9% in the year ended March 2003. Order book stood at about Rs 77 crore end November 2007. Of this, around 50% comes from the power sector. The historical asset-turnover ratio of more than 6 expected to be maintained. The completed expansion may give additional revenue of about Rs 75 crore annually. Once commercial production after the proposed expansion from April 2009 would add about Rs 275 crore- Rs 300 crore to the top line from FY 2010.

On annualised EPS of Rs 9.4 in the six months ended September 2007 on post-issue equity capital of Rs 11.43 crore, the P/E works out to 13.3 – 14.4 at the price band of Rs 125–Rs 135. The trailing 12-month (TTM) P/E of listed peers Torrent Cables, KEI Industries and Universal Cables were 9.9, 16.6 and 15.3. However, they are comparatively large players. But KEI Industries and Universal Cables also make HT cables--- a product Cords Cable Industries intends to manufacture.

Cords Cable Industries IPO Note

Cords Cable Industries IPO Note

Cords Cable Industries IPO Analysis

Investors with a lowrisk appetite and a moderate return expectation can consider an exposure in the initial public offering of Cords Cable Industries (CCIL).

In the business of manufacturing cables, CCIL offers a proxy exposure to the ongoing infrastructure and power growth story. Robust growth in sales and bottomline, diverse revenue mix, established clientele and the proposed entry into HT (high tension) power, rubber and speciality cables segment, suggest good prospects for the company.

In the price band of Rs 125-135, the stock would be valued at about 12-13 times its likely FY-08 per share earnings on a diluted equity base.

While the valuation is not a steep discount to established players such as KEI Industries, they appear attractive, considering the strong demand environment and the move by CCIL into higher value-added product segment. We would be more comfortable if the offer is priced at the lower end of the price band.

Investment rationale

The demand for cables is set to increase significantly, given the ongoing capex in power and infrastructure and strong growth in industries such as metro rail, shipping and aviation.

In the light of the robust demand undercurrents, CCIL’s capacity expansion in low tension (LT) power cables segment and the proposed addition of HT power, rubber and speciality cables to its product portfolio appear promising. CCIL’s established track record of over 15 years with approvals and pre-qualifications from companies such as NTPC, BHEL, Power Grid and Reliance Energy also lend confidence to its ability to further penetrate the cables’ market.

CCIL’s order-book pegged at about Rs 77 crore (as on November 30, 2007) lends visibility to revenues. Revenues could also get a lift from the management’s renewed focus on the export market.

While the company has so far not enjoyed any significant exposure to the export market (1 per cent in FY-07), it plans to export to over 15 countries by FY-09, broadbasing from the current spread of over five countries.

In this context, CCIL has already tied up with companies in West Asia such as Petroleum Development Oman and Saudi Electric Supply Company.

CCIL witnessed a compounded earnings growth of over 328 per cent supported by a 67 per cent growth in revenues during the last four years. During the period, operating profits enjoyed a CAGR of about 127 per cent; operating profit margins expanded by 8.9 percentage points to about 14.7 per cent.

Going forward, margins may witness a further expansion given CCIL’s foray into higher value-added products. Besides, post-expansion, CCIL may also benefit from better utilisation of its capacities.

Business

CCIL has a diversified clientele and product portfolio. Its current order-book, with the major portion leaning towards power sector (about 48 per cent), is spread across sectors such as cement, refineries and petrochemicals and steel.

The company may be able to further extend its reach to sectors such as railways, shipping and wind power after the proposed expansion of its capacity and the addition of new products. On the product front, it offers an extensive range of high quality control and instrumentation cables, power cables and special cables for oil wells. The company plans to utilise proceeds from the issue towards setting up of production facilities. About Rs 6 crore from the proceeds will be diverted towards working capital requirements.

Concerns

While CCIL does hedge its price risk on copper to an extent, any steep increase in price of copper and aluminium (about 50-70 per cent of the raw material cost) may adversely affect its earnings.

Offer details

The offer is open from January 21-24. Collins Stewart Inga is the book running lead manager to the issue.

Via Businessline

Cords Cable IPO Note

Cords Cable IPO Note

Grey Market - J Kumar, Emaar, Reliance Power

Future Capital Holdings 700 to 765 540 to 550


Reliance Power 405 to 450 300 to 350 (Off from the highs)


J. Kumar Infraprojects 110 to 120 30 to 35


Cords Cable Ind. 125 to 135 5 to 37


Emaar MGF 725 to 850 360 to 380