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Tuesday, January 29, 2008
India Daily Technicals - Jan 29 2008
Nifty — The index opened on a negative note and dipped in morning trade, after which it saw a pullback towards the close. It ended the day with a loss of 109 points.
Inside day — The index posted an “inside day” on the daily bar chart. Yesterday’s price range (high=5381, low=5071) was within the price range on 25 January 08 (high=5399, low =5035). A breakout from the 5399-5035 range should see an intra-day directional move.
Support & Resistance — Index has support around the 5035 level, intra-day support is around 5177. Resistance is around the 5399-5480 range.
Conclusion — Expect intra-day strength above the 5399 level.
Crude oil ends higher
Prices give up earlier losses and ends higher as dollar weakens against euro
Crude prices erased earlier losses and finally ended higher for the day, today, Friday, 28 January, 2008. Prices rose today after the dollar fell against the euro. Expectations about another rate cut from Federal Reserve in its upcoming meeting on January end also boosted prices. This was crude’s third consecutive rise in prices. In the earlier two sessions, crude had gained almost $4.
Crude-oil futures for light sweet crude for February delivery today closed at $90.99/barrel (higher by $0.28/barrel or 0.3%) on the New York Mercantile Exchange. Prices are 64% higher than a year ago. Earlier it dropped more than 2% to an intraday low of $88.78.
In the currency markets today, the dollar dropped as traders increased speculation that the Federal Reserve will cut the target lending rate by a half- percentage point this week to prevent the U.S. from heading into a recession. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, lost 0.6% to 75.510.
Falling U.S. interest rates have prompted the dollar to drop against the euro and other currencies.
Last Tuesday, Federal Reserve slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Federal Reserve’s decision came as a surprise to everyone but Fed took the same as stocks markets worldwide, had been plunging on fear that US economy would be hitting a recession soon.
Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.
OPEC expected to increase production in its next meeting
Brent crude oil for March settlement today rose $0.48 (0.5%) to $91.38 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.
Natural gas in New York rose today on expectations the Federal Reserve will cut its benchmark lending rate by half a percentage point this week. Gas for delivery under the February contract, which expires tomorrow, rose 11.2 cents (1.4%).
Against this backdrop, February reformulated gasoline gained 0.71 cents to $2.3253 a gallon and February heating oil rose 0.74 cents to $2.5265 a gallon.
Members of the OPEC left production targets unchanged at the 5 December meeting in Abu Dhabi. The group, which produces 40% of the world's oil, will review output at a 1 February, 2008 meeting in Vienna. The cartel is expected to increase production.
At the MCX, crude oil for February delivery closed at Rs 3,569/barrel, higher by Rs 20 (0.6%) against previous day’s close. Natural gas for January delivery closed at Rs 314.9/mmtbu, higher by Rs 3.9/mmtbu (1.2%).
Gold soars again on weak dollar and rate cut hope
Gold prices strike another new high as dollar weakens on further rate cut hopes
Precious metal prices soared on Monday, 28 January, 2008 as the dollar fell against the euro, enhancing the metal's appeal as an alternative investment. Expectations about another rate cut from Federal Reserve in its upcoming meeting on January end also boosted prices. Silver prices also gained today.
Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.
Comex Gold for February delivery rose $16.4 (1.8%) to close at $927.1 an ounce on the New York Mercantile Exchange. Earlier in the day, it hit an intraday price of $929.8 an ounce. Last week, gold prices gained 3.3%. This year, prices have gained 10.8% till date.
Comex Silver futures for March delivery rose 26 cents (1.6%) to $16.75 an ounce. Silver has gained 12.5% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.
Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.
In the currency markets today, the dollar dropped as traders increased speculation that the Federal Reserve will cut the target lending rate by a half- percentage point this week to prevent the U.S. from heading into a recession. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, lost 0.6% to 75.510.
In the energy market today, crude oil rose on speculation that the Federal Reserve will cut its interest rates this week. Crude oil for March delivery rose $0.28 (0.3%) to settle at $90.99 a barrel.
Last week, Federal Reserve slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Federal Reserve’s decision came as a surprise to everyone but Fed took the same as stocks markets worldwide, had been plunging on fear that US economy would be hitting a recession soon.
Gold had climbed 31% in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. The Fed reduced federal funds rate three times in FY 2007.
At the MCX, gold prices for February delivery closed higher by Rs 196 (1.7%) at Rs 11,728 per 10 grams. Prices rose to a high of Rs 11,745 per 10 grams and fell to a low of Rs 11,547 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 289 (1.4%) higher at Rs 21,437/Kg. Prices opened at Rs 21,200/kg and rose to a high of Rs 21,483/Kg during the day’s tradingNifty January 2008 futures at discount
Turnover in F&O segment rises
Nifty January 2008 futures were at 5253.30, at a discount of 20.80 points as compared to spot closing of 5274.10.
The NSE's futures & options (F&O) segment turnover was Rs 43,395.88 crore, which was higher than Rs 39,007.70 crore on Friday, 25 January 2008.
Reliance Capital January 2008 futures were at discount, at 2051, compared to the spot closing of 2075.55.
Essar Oil January 2008 futures were at premium, at 236.70, compared to the spot closing of 234.60.
ICICI Bank January 2008 futures were near spot price, at 1273.90, compared to the spot closing of 1273.95.
In the cash market, the S&P CNX Nifty lost 109.25 points or 2.03% at 5274.10.
Wockhardt Hospitals IPO Analysis
Wockhardt Hospitals is a leading private healthcare services provider in India with focus on core areas such as cardiology and cardiac surgery, orthopedics, neurology and neurosurgery, urology and nephrology and critical care, with specialisation in minimally invasive surgery. It has a network of 10 super-speciality hospitals and five regional speciality intensive care unit (ICU) spread across western, eastern and southern India. Of these, six are greenfield properties, while the balance nine represent brownfield expansion. The company also owns and operates ten pharmacies located at its facilities.
As part of its expansion plan, Wockhardt Hospitals is adding three greenfield hospitals (one each at Kolkata, Mumbai and New Delhi) and is expanding the bed capacity at Wockhardt Heart Hospital, Mumbai. In addition, Wockhardt Hospitals will also add six brownfield hospitals at Goa, Bhavnagar, Nasik, Bhopal, Ludhiana and Jabalpur. On completion, the expansion will add 2,127 beds, raising the capacity from 1,374 beds end December 2007 to 3,501 beds end December 2009.
The expansion plan involving a capital expenditure of Rs 636.35 crore will result in a pan-India presence for Wockhardt Hospitals. It had spent Rs 66.88 crore on the expansion plan end December 2007 and intends to fund the balance requirement of Rs 569.47 crore by tapping the capital markets. In addition, the company would also utilize around Rs 285 crore of the IPO proceeds to pre-pay short-term loans.
Wockhardt Hospitals has entered into a memorandum of understanding with Al Bateen Investment Co, an Abu Dhabi-based company, to provide expertise in setting up, managing and operating hospitals to a special purpose vehicle (SPV) that will pursue healthcare initiatives in Abu Dhabi. To start with, a greenfiled hospital specialising in women's and children's care would be the first project. The SPV will also explore brownfield opportunities in Abu Dhabi.
Around 2.51-crore equity shares are being offered by Wockhardt Hospitals. Of these, five lakh are for employees. As such, the net offer to the public would be around 2.46-crore equity shares. In January 2008, the company raised around Rs 149.33 crore by making two pre-IPO placements with BCCL (16,12,903 equity shares at Rs 310 per share) and with CGMMPL (33,00,000 equity shares at Rs 301 per share), constituting 1.5% and 3.2% of the post-issue equity share capital, respectively.
Strengths
The healthcare sector is evolving rapidly in the county. Healthcare-spend equaled around US$ 35 billion or 5.2% of GDP in 2004. Growing at a compounded growth rate of 12%, healthcare-spend would rise to around US$ 60 billion by 2009. The growth would be fuelled by changing demographic profile, rising incidences of lifestyle diseases and increasing medical expenses. Popularity of health insurance and growing medical tourism would also contribute to the expected growth. As private players are expected to continue to control a majority of the healthcare spend, players such as Wockhardt Hospitals would be major beneficiaries of the boom. .
A well recognised brand. Only India-based private hospital group associated with Harvard Medical International (HMI), a self-supporting not-for-profit subsidiary of the Harvard Medical School. Agreement with HMI in 2000 was amended and restated in 2004, and extended until 2010. HMI provides education and training and helps in designing facilities, developing clinical programs and setting up quality management and other systems and protocols.
Weaknesses
Property in Mumbai and two properties in Bangalore accounted for around 71% and 68% of total income in the year ended March 2007 (FY 2007) and in the nine months ended December 2007. These three hospitals collectively comprised around 35% of the total bed capacity. Due to this concentration, any negative economic, regulatory, competitive or other developments may adversely impact the operations, and disturb the financial performance.
The Bannerghatta Road, Bangalore, and Kolkata properties are enmeshed in litigation. Upcoming hospitals in Kolkata and South Mumbai are also subject of litigation, and so also three-brownfield properties at Nagpur, Rajkot, and Vashi, Mumbai.
Valuation
There are very few listed major players with multi-location presence such as Apollo Hospitals, Fortis Healthcare and Wockhardt Hospitals in the healthcare sector. Among the three, the bed capacity of Wockhardt Hospitals is more or less at par with Fortis Healthcare (around 1,400 beds) but is much lower compared with Apollo Hospitals (around 7000 beds). Occupancy rate for Wockhardt Hospitals was the lowest among all in FY 2007: Apollo Hospitals (77%); Fortis Healthcare (72%) and Wockhardt Hospitals (68%).
Net sales jumped 49% to Rs 236.48 crore, but profit grew a mere 8% to Rs 15.54 crore due to surge in interest costs and erosion in margin in FY 2007. Revenue of Rs 259.48 crore in the nine months ended December 2007 surpassed that of FY 2007. Margin increased 420 basis points to 20.8%. But the annualised surge in interest cost by 177% to Rs 23.56 crore (actual) eroded the gain, leading to an annualised fall in net profit of 36% to Rs 7.41 crore (actual). The company’s debt:equity ratio is high at 5:1.
At the offer price band of Rs 280-Rs 310 and on FY 2007 earning, the P/E works out to 187.9 (on the lower band) and 208 (on the upper band). The revenue growth, margin is superior to both Apollo Hospitals and Fortis Healthcare. But the 451% rise in interest cost (annualized nine-month figure) between FY 2006 and nine months ended December 2007 has played havoc, making meaningful comparison difficult. If interest costs can be cut down substantially, which may happen after the IPO, the bottom line will improve. However due to the long gestation and high capital intensive nature of new hospitals and high running costs, reporting a healthy EPS will take time. At the lower and the higher price band, Wockhardt Hospitals’s market cap of Rs 2919 crore and Rs 3232 crore will be higher than Apollo Hospitals’s market cap of Rs 2893 crore and far higher than Fortis Healthcare’s market cap of Rs 2190 crore on 18 January 2008. Subsequent market fall has further weighed the scales against it. Consistent profit and good expansion plans make Apollo Hospitals a better bet than Wockhard Hospitals. Hence, paying a higher market cap to Wockhard Hospitals does not look reasonable.
Manjushree Extrusions
Manjushree Extrusions (MEL), promoted by Vimal Kedia and Surendra Kedia, manufactures specialty plastic packaging products mainly containers and jars for multinational companies in the fast moving consumer goods (FMCG), pharma, food processing and agrochemical sectors. The products include injection/blow moulded polyethylenetelephthalate (PET) / polypropylene (PP) and multiplayer plastic containers manufactured by adopting Japanese and European technologies.
Enjoying a preferred supplier status, MEL’s specialty plastic containers are marketed under brands Polypet, Duraflex and Thermopet to MNCs in the FMCG sector, assuring a consistent market. The company proposes to expand its existing capacity of specialty plastic containers by 10,100 tonnes per annum, to 14,240 tonnes by operating shifts thrice a day. Funds will be raised through public issue, right issue and debt. Commercial production from expanded capacity is scheduled from April 2008.
MEL had come out with an IPO of 42,00,000 equity shares of Rs 10 for cash at a premium of Rs 2.50 per share aggregating Rs 5.25 crore in September 1995 to part finance the project to set up a unit for the manufacture of PET containers. The shares are listed on the Calcutta, Gauhati and the Ahmedabad stock exchanges. However, they are not traded on any of these exchanges.
Now, MEL is mopping funds through a rights-cum-follow-on-public-offer of equity shares aggregating Rs 35.70 crore. It intents to issue 51,26,100 follow-on-offer equity shares of Rs 10 each for a cash premium of Rs 35 per share (i.e., at a price of Rs 45 per share) aggregating Rs 23.08 crore. The rights issue will comprise 42,10,800 equity shares of Rs 10 each for cash at a premium of Rs 20 per share (i.e., at a price of Rs 30 per share) aggregating Rs 12.63 crore in the ratio of one equity share for every one equity share held on 24 December 2007. The term loan of Rs 18 crore will be for 72 months excluding the moratorium period at 13.25% per annum with monthly rests, subject to revision every two years.
Of the Rs 53.70 crore to be raised, Rs 42.14 crore will be utilised to expand and diversify operations by setting up facilities to manufacture specialty plastic containers and PET preforms, Rs 8.70 crore will be used to meet the working capital margin requirement, and the balance to meet issue expenses.
Strengths
The backward integration to preform manufacturing has resulted in cost reduction and value addition.
Only in India with technology to manufacture multi-layer containers finding extensive application in food products (milk and its derivatives, ketchup, fruits, and sauces) and agro chemicals.
Additional capacities of PET / PP are coming up in the petrochemical sector. Hence, steady availability of raw materials will not be problem due to existing tie-up with the major player in the petrochemical industry at a competitive price.
Weakness
Has negative cash flows from operating activities in the half year ended September 2007, resulting in heavy indebtedness. The debt-equity ratio stood at 1.88 end September 2007.
Operates in a highly competitive industry.
Valuation
MEL has set a price Rs 45 per equity share of Rs 10 face value. At Rs 45 per share, the P/E would be 14.5x times annualised EPS of Rs 3.1 for the nine months ended December 2007 and 21.4x times the EPS of Rs 2.1 for the financial year ended March 2007. In the plastics industry, comparable companies such as Hitech Plast, Pearl Polymers and Wimplast have TTM P/E of around 18.7, 22.2 and 26.8 times, respectively.
Emaar MGF Land IPO Analysis
Emaar MGF Land (EMLL), a joint venture (JV) between Emaar Properties PJSC of Dubai and MGF Development of India (MGF), develops properties in the residential, commercial, retail and hospitality sectors across India. Emaar Properties PJSC of Dubai, one of the promoters, is among the world’s leading real-estate companies, with development of about 50 million square feet (sq ft) of residential, commercial and other business segments and operations in 16 countries end December 2007. Over the last 10 years, MGF has become one of the key players in retail real-estate development in north India.
EMLL commenced operation in February 2005. It had land reserve of 13,024 acres end December 2007. The land reserves are spread over 26 cities in 16 states. The company has commenced projects in eight cities in seven states. According to its estimates, the land reserve will provide a proposed saleable area of approximately 136.5 million sq ft of plotted residential development (including built-up villas); 318.8 million sq ft of built-up residential properties; 88.9 million sq ft of commercial properties; 18 million sq ft of retail properties; and 4,960 keys in hospitality properties.
Of the land reserve, EMLL has development plans for approximately 12,028 acres translating into a proposed development area of around 588 million sq ft and a proposed saleable area of about 566 million sq ft. These projects are spread over eight residential properties including plots, villas, townhouses and apartments, and one retail and five hospitality properties. The company currently has about 17.7 million sq ft of residential, commercial and retail space under development. These include Mohali Hills, part of the 3,000-acre integrated master planned communities with aggregate saleable space of 9.3 million sq ft consisting of 5.7 million sq ft of developed plots, 1.9 million sq ft of apartments, 1.2 million sq ft of villas, and 0.5 million sq ft of retail space. The other projects are Palm Springs, a high-end apartment block with a saleable space of 0.7 million sq ft in Gurgaon; the Common Wealth Games Village in Delhi, with a saleable area of 1.8 million sq ft; Chennai Esplanade Phase I, a residential group housing project with an saleable area of 0.4 million sq ft; and Palm Drive, a residential project on 35.1 acres in Gurgaon, with saleable area of 3.3 million sq ft plus commercial and retail space of 0.3 million sq ft.
EMLL is also developing a group housing project with a saleable area of 1.9 million sq ft as part of its 510-acre Boulder Hills including an international golf course under development and expected to be completed by March 2008.
In the hospitality sector, EMLL is developing hotels across various price points in the luxury, upmarket, mid-market and budget segments across India. The company has entered into JVs with Accor, France for the development and operation of budget hotels, and with Premier Inn, UK for the development and operation of mid-market hotels in India. The two JVs contain an exclusive clause: the budget hotel and mid-market brands of Accor and Premier Inn, respectively, will be developed only in association with EMLL. In addition, it has entered into agreement with various entities in the Intercontinental Hotels group. EMLL is currently developing a total of five hospitality projects in Kolkata, New Delhi, Dehradun and Amritsar and expected to have 635 keys in operation by the year ending March 2010 (FY 2010) and 1,135 keys in operation by FY 2011 as per the projects under development. However, it has planned to have about 3,825 keys from a slew of proposed hospitality projects. Of the five hotel projects, the one at Dehradun is a hotel-cum-convention project and the other in New Delhi is a luxury hotel.
In the residential realty segment, EMLL focuses on development of integrated master planned communities in the mid to luxury segments. Here, it builds properties ranging from villas, townhouses to apartments of varying sizes. Commercial and retail development is also done either as part of the integrated master planned communities or as standalone commercial/retail sites and properties.
EMLL has JV relation with Leighton International and Multiplex (both of Austraila) for construction and Turner Construction International, US for project management.
The issue proceeds will be used as part payment for the acquisition of land and land development rights and related approvals for its ongoing and planned projects amounting Rs 872.80 crore. The funds will also be used for the development and construction cost of Palm Drive in Gurgaon (Rs 775.5 crore) and repayment of loans (Rs 1449.60 crore). Outstanding debt was Rs 5287.58 crore on 12 January 2008.
Strengths
Land reserve of 13,024 acres spread over 26 cities in 16 states end December 2007make it a pan-Indian player. Moreover, the strong parentage and access to capital add muscle for future growth. Enjoys strong parentage benefits. The overseas promoter brings international experience and much needed funds and lends a globally reputed brand name. The domestic promoter has local knowledge for acquisition of land, to deal with regulatory approvals, and for the smooth execution of the project.
Of the land reserve, higher proportion ( 89%) is fully paid. The balance is largely revenue share and not payable upfront. About 51.8% (acreage) and 67.3% (saleable area) is either directly or indirectly owned. Besides the National Capital Region (NCR), has substantial land reserve in Hyderabad, Chennai and Bangalore. The average acquisition cost is about Rs 195 per sq ft.
Weakness
Though with a strong track record in the realty business, promoters lack adequate operating history
Of the current land bank of about 13,024 acres, around 760.26 acres are subject to litigation including 374.81 acres for which proceedings have been initiated by the promoters and about 197.83 acres for which proceedings have been initiated against them. For 187.62 acres, proceedings involve sole/joint development partners.
The JV will be the sole vehicle for development of foreign direct investment (FDI)- complaint realty projects. The MGF group can either on its own or through its group companies take up non-FDI complaint projects.
Change of land use yet to be obtained for agricultural land comprising about 80% of the land reserve. The gravity of this problem can be gauged from the fact Rs 1604.4 crore (including external development charges) is to be spent for converting 1,214 acres of land at Gurgaon NCR.
Valuation
EMLL has not recognised any revenue in FY 2007 and incurred loss of Rs 47.31 crore on account of establishment expenses. Consolidated revenue was Rs 472.72 crore and restated net profit after minority interest Rs 129.83 crore in the half year ended September 2007. The company sold properties worth Rs 3000 crore and recognised revenue for about Rs 500 crore end September 2007 as it follows the percentage-completion method of accounting. The annualised EPS adjusted for extraordinary items (EO) works out to Rs 2.6. The P/E on the lower price band (Rs 610) works out to 234.6 times and that on the upper price band (Rs 690) works out to Rs 265.4 times. Post-IPO, the market cap of Emmar MGF will stand at Rs 68029 crore (at the upper price band) compared with DLF’s current market cap of Rs 147930 crore. Enterprise value per million square foot of proposed saleable area for Emmar MGF stands at Rs 130 crore compared to Rs 211 crore for DLF.
IRB Infrastructure Developers IPO Analysis
IRB Infrastructure Developers (IRBDL), the holding company, develops and constructs road infrastructure through its various subsidiaries. It is one of the largest players in the build-operate-transfer (BOT) road project space. Recently, the company diversified into real-estate development by setting up a township near Pune. IRBDL was involved in the construction or operation and maintenance of approximately 1,200 km of highways and roads in India end October 20’07. The portfolio includes 12 BOT road projects including the large Mumbai-Pune Expressway and four National Highway (NH) BOT projects bagged in March 20’04 and the BOT project of the Bharuch-Surat section of NH 8 awarded in July 2006. IRB Infrastructure Developers was set up to fund the capital requirements of the IRB Group’s initiatives in the infrastructure and construction sectors.
IRBDL operated through 11 subsidiaries end December 2007. Most of them as special purpose vehicles (SPVs) for BOT projects developed and operated by the company. Its 100% subsidiary Ideal Road Builders (IRBPL) is the BOT projects-cum-EPC (engineering, procurement and construction) arm of the company. It also has stake in other SPVs for BOT projects along with its parent IRBDL. Of the 12 BOT projects, four are directly under IRBPL.
Modern Road Makers, another 100% subsidiary, is the engineering and construction arm of IRBDL. Almost all the construction undertaken by the IRB Group in the road and highways sector for BOT projects or funded construction contracts is currently executed through Modern Road Makers. Other entities in the group including project SPVs typically sub-contract almost all the construction work undertaken by them for both funded construction projects as well as for construction work on BOT projects to MRM, either through IRBPL or directly. Aryan Infrastructure Investment (AIIL) is the realty arm of IRBDL, with land reserves. IRBDL acquired a 66% stake in AIIL on 20 June 2007 and 18 July 2007.
Ideal Road Builders (IRBPL) and Mhaiskar Infrastructure (MIPL) are the two largest subsidiaries of IRBDL in the infrastructure development and construction business, and collectively contributed 88.10% and 92.59% of the consolidated turnover of the IRB Group in the year ended March 2007 (FY 2007) and in the five months ended August 2007, respectively (calculated on the basis of unconsolidated turnover of IRBPL and MIPL for the relevant periods expressed as a percentage of consolidated turnover of the IRB Group in such periods). MIPL is involved in the Mumbai–Pune Expressway and NH 4 BOT project, which is the largest BOT project undertaken by the IRB Group, and contributed 37.17% of the consolidated turnover of the IRB Group in the five months ended August 2007 (calculated on the basis of unconsolidated turnover of MIPL for the relevant period expressed as a percentage of consolidated turnover of the IRB Group in such period). IRBPL is involved in various BOT projects as well as funded construction projects from government entities and contributed 55.41% of the consolidated turnover of the IRB Group in the five months ended August 2007 (calculated on the basis of unconsolidated turnover of IRBPL for the relevant period expressed as a percentage of consolidated turnover of the IRB Group in such period)
Within the real-estate development sector, IRBDL is acquiring land in the Pune district of Maharashtra o develop an integrated township. The proposed township project is in its preliminary stages of planning and development and will be the first real-estate development project undertaken by the group. It intends to develop residential and commercial projects within the proposed township project. Currently, the land reserves consists of approximately 925 acres of land in the Mauje Taje and Mauje Pimploli Taluka in Pune district, and there are plans to acquire an additional approximately 475 acres of land for the proposed township project.
The IPO plans to raise Rs 944.57 crore to Rs 1123.27 crore, with a public issue of 5,10,57,666 equity shares in the price band of Rs 185 to Rs 220 per share. The intended objects of the issue are (a) investment in a subsidiary; (b) prepayment and repayment of existing loans of IRBDL and subsidiaries; (c) general corporate purposes; and (d) Issue related expenses. Investment in subsidiary IDAA would be Rs 90 crore. The prepayment and repayment of existing loans company would be Rs 236 crore, and that of subsidiaries would be: Rs 40 crore (Aryan Toll Road), Rs 75 crore (Modern Road Makers), Rs 207 crore (Thane Ghodbunder Toll Road), Rs 25 crore (NKT Road & Toll), Rs 40 crore (Ideal Road Builders) and Rs 100 crore (Mhaiskar Infrastructure).
Strengths
- Strong mature project portfolio of 11 operational BOT projects and one project under implementation. All the 11 operational BOT projects generate stable and steady revenue/cash flow through oll collections. The Bharuch-Surat BOT project is under construction. The project has completed financial closure. Further, the operating project portfolio consists of heavy traffic toll roads such as Mumbai-Pune Expressway and its alternative NH4.
- Impeccable track record of timely project delivery, often leading to early tolling on account of early completion of project.
- Had orders of Rs 2324.90 crore end October 2007. The current land reserve of 925 acres for realty development is close to Pune in Maharashtra.
- Joint venture (JV) with Deutsche Bank’s Singapore branch facilitates stringent financial (pre-qualification) criteria for bidding for higher ticket size BOT projects from the National Highway Authority of India (NHAI). Entered into eight MoU with the Singapore Branch of Deutsche BanK AG in January 2007 to jointly bid for certain road expansion projects proposed by NHAI. Out of the joint bids was the highest (o n percentage revenue sharing) for the Surat-Dahisar project and the Letter of Acceptance (LoA) is awaited. As per the MoU, the Dutsche Bank will pick up a minimum 10% stake and IRBDL a minimum of 51% in the SPV.
- Strong operating margin. Cconsolidated operating margin was 54.1% in FY 2007 and 56.6% in the first five months of FY 2008
Weaknesses
- Certain entities in the promoter group are in similar business activities and that could result in conflict of interest. For instance, Aryan Construction, a proprietary concern of V D Mhaiskar HUF, part of the promoter group is in construction activity. Aryan (AIIL), a 66% subsidiary, has awarded Aryan Constructions the lumpsum turnkey contract for the development of a proposed township for an aggregate Rs 2259.66 crore, with an mobilisation advance of Rs 183.91 crore out of Rs 252 crore of total agreed advance. Quite a few of the promoter group companies such as Rideema Toll, A J Tolls, MEP Toll Road, and VCR Toll Servicers are in toll collection services.
- Current operations are concentrated in Maharashtra and Gujarat. Ability to succeed in bagging contracts outside these two states remains to be seen.
- Has little experience in realty development and marketing.
- The IRB group has undertaken series of substantial restructuring steps in the recent past and, hence, the consolidated FY 2007 results as well as the latest five months ended August 2007 results are not comparable with the past nor will be comparable with the future. Under these circumstances its impossible to make any judgement about its financials.
Valuation
IRBDL is one of the major BOT project companies in India. Other major companies with more BOT projects include Larsen & Toubro and Gammon India. But they are significantly larger in size. Being engineering and construction companies, their revenue from BOT operations is relatively small to their total turnover.
The IRB Group underwent restructuring with various subsidiaries coming under its fold on various dates in FY 2007. Consequently, the consolidated restated profit and loss account for FY 2007 do not reflect a full fiscal year of consolidated operations. Consolidated revenue in FY 2007 stood at Rs 305.72 crore and the restated net profit after minority interest at Rs 22.73. The EPS works out to Rs 0.68. At the price band of Rs 185-Rs 220, the P/E works out to 272.1-323.5 times FY 2007 consolidated earning.
Nearest comparable player is the Noida Toll Bridge, which quotes at a P/E of 111.7 of its FY 20’07 consolidated earnings. The market cap of IRBDL at the upper price band will be Rs 7312.01 crore compared with Noida Toll Bridge’s Rs 1085.49 crore. Noida Toll Bridge has only one operating BOT project, while IRB has 11 projects. But the margin of the former is higher at 71.3% in FY 2007 and 60.7% in FY 2006. The construction business typically has lower margin, which pulls down the overall margin of IRBDL.
Consolidated revenue was Rs 261.88 crore and consolidated net profit after minority interest being Rs 23.97 crore in the first five months of the current fiscal. The annualised EPS works out Rs 1.73 and the P/E at the price band works out 106.9 – 127.1 times five months ended consolidated FY 2008 annualised earning.
Normally, such companies are valued based on sum-of-parts and net present value (NPV) of its BOT projects and EPS and P/E may not reflect the true picture.
Bang Overseas IPO Analysis
Incorporated in 1992, Bang Overseas provides fashion fabrics and meets the ready-to-wear requirement of customers in the apparel, textile and retail segment. Starting as a textile trader, the company has been conceptualising and designing fashion fabrics and an outsourcing hub for textile companies in Turkey, Portugal, Mauritius and other European countries since 1998. The first apparel-manufacturing unit, Reunion Clothing Company, with an installed capacity of 350,000 pieces per annum, was set up in Bangalore in 2005, A second manufacturing unit, Formal Clothing Company, with an installed capacity of 360,000 pieces per annum, was started in 2006. At present, the company has an installed capacity of 720,000 and 540,000 pieces per annum at the two manufacturing units. Its products retailed through 157 points of sales comprising own retail outlets, large format stores (LFS) like Shoppers' Stop, Pyramid, Globus, the Loot, Saga, and other multibrand outlets (MBO) spread all over India. A centralised warehousing and logistic centre at Kalher Village near Bhiwandi in Maharashtra facilitates the supply-chain management.
A third manufacturing unit, with total installed capacity of 600,000 pieces per month, is to be set up in the Kolar district in Karnataka and 41 retail outlets are to be opened across India. The current IPO, expected to raise Rs 70 crore, is to meet the expenditure required to set up the manufacturing unit, retail outlets, warehousing and logistic facilities, and for brand building and general corporate purposes including issue expenses.
The fund requirement estimated for setting up the new apparel-manufacturing unit is Rs 36.71 crore, retail outlets Rs 10.63 crore, and warehousing and logistic facilities Rs 10.23 crore. The entire expenditure is to be financed by the IPO. Funds are to be deployed over the next two years.
Strengths
Thomas Scott is an established brand in the men's-wear segment, and contributed Rs 10.50 crore to the turnover in the year ended March 2007 (FY 2007).
Margin has shot up from 5.9% in FY 2003 to 17.4% in FY 2007 due to increase in volume of sales of apparels and sourcing of textiles at better prices.
Has 12 Thomas-Scott retail outlets including three franchisees.
Contribution of sales of apparel to total sales has been increasingly steadily, going up from 40% in FY 2006 to about 50% in FY 2007. This is encouraging as the demand for apparels is poised for a strong growth across the globe.
Weaknesses
Has limited manufacturing experience.
Had negative cash flows in the past. Sustained negative cash flow could impact growth and business. Cash flow from operating and investing activities was a negative Rs 1.58 crore and Rs 7.24 crore respectively, in FY 2006. Cash flow from operating and investing activities was a negative Rs 1.69 crore and Rs 2.18 crore, respectively, in the six months ended September 2007.
The franchise model, proposed to be follow, requires inventory to be carried on books till the sale of the apparels to the end consumer and not pass the inventory risk to the franchisee. This requires high inventories, and could result in inventory write-downs and have an adverse effect on business and finances. Presently, there are only three franchise but 47 new franchise-operated outlets are to be added.
With exports comprising about 39% of garment sales in FY 2007, rupee appreciation is a negative.
Valuation
Consolidated net profit was Rs 10.87 crore in FY 2007/ This represents EPS of Rs 5.7 on post-issue equity of Rs 13.56 crore. The offer price discounts FY 2007 EPS 25.3 times at the lower band price of Rs 200 and 26.2 times at the upper band price of Rs 207. Well established and larger players like Gokaldas Exports are available at much lower 13 times discounting, while higher discounting for Kewal Kiran (32.9 times) and Provogue India (122.1 times) are partly for the strong brand name (of the former) and valuations of the mall development subsidiary (of the latter).
Monday, January 28, 2008
Post Session Commentary - Jan 28 2008
The Sensex opened with a negative gap of 350 points at 18,012 on global cues. The index dropped to a low of 17,443 - down 919 points from the previous close - in morning deals.
Buying at lower levels, mainly seen in auto and financial stocks, saw the index touch a high of 18,213 - a recovery of 770 points from the day's low.
The Sensex eventually closed with a loss of 209 points (1.1%)at 18,153.
The NSE Nifty declined 109 points (2%)to 5,274.
The BSE Auto index surged 1.7% to 4,843, and the Bankex moved up over 1% to 11,521.
The BSE market breadth was extremely negative - out of 2,747 stocks traded, 1,851 declined, 865 advanced and 31 were unchanged today.
INDEX SHAKERS...
DLF and Wipro slumped around 5.5% each to Rs 893 and Rs 406, respectively.
Bharti Airtel and Infosys tumbled around 5% each to Rs 870 and Rs 1,447, respectively. Ranbaxy shed 4.8% at Rs 350.
NTPC and SBI plunged over 4% each to Rs 213 and Rs 2,308, respectively.
BHEL and Reliance Communications slipped 3.3% each to Rs 2,092 and Rs 646, respectively. TCS tumbled over 3% to Rs 854.
Tata Steel, Grasim and Satyam dropped around 2% each to Rs 698, Rs 2,970 and Rs 399, respectively.
Ambuja Cements and Reliance declined 1.8% each to Rs 115 and Rs 2,564, respectively.
...AND THE MOVERS
Bajaj Auto zoomed 8.6% to Rs 2,459. Maruti soared 4.4% to Rs 866, and Mahindra & Mahindra moved up 1.8% to Rs 686.
HDFC rallied 2.5% to Rs 2,782. ICICI Bank advanced over 1% to Rs 1,274.
Reliance Energy surged 3.3% to Rs 2,098. ACC added 1.4% to Rs 799.
VALUE & VOLUME TOPPERS
Reliance Natural Resources topped the value chart with a turnover of Rs 239.40 crore followed by Reliance Capital (Rs 179.30 crore), Reliance Energy (Rs 164.50 crore), Essar Oil (Rs 164.40 crore) and Reliance Petroleum (Rs 150.40 crore).
Reliance Natural Resources led the volume chart with trades of around Rs 1.73 crore shares followed by Ispat Industries (1.48 crore), Reliance Petroleum (91.10 lakh), IFCI (76.25 lakh) and Essar Oil (74.80 lakh).
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