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Saturday, January 12, 2008
Air India IPO in second half of 2008
The Union government may consider selling shares in National Aviation Co. of India Ltd, or Nacil, which runs Air India, in an initial public offering (IPO) in the second half of 2008, even as the state-run firm prepares to select joint venture (JV) partners for a handful of related businesses in a bid to increase revenues.
The proposed float and new ventures are part of the restructuring exercise that the firm is going through after the government merged two of its airlines—Air India and Indian Airlines—into Nacil.
The merger is expected to be completed by the end of fiscal 2009.
“We may consider issuing an IPO in the second half of this year,” said Union aviation minister Praful Patel. He had said earlier that about 10-15% of the merged entity’s equity would likely be sold to enhance the carrier’s equity base.
Meanwhile, the JVs are modelled on German carrier Deutsche Lufthansa AG, which, too, restructured from a state-owned airline with most of its revenues coming from passenger operations to a more diversified portfolio.
Like Lufthansa, Nacil, too, will work under six different business units: domestic and international passenger operations, cargo operations, maintenance and repair work, ground handling services, low-cost carrier, and training.
To bring in specialist expertise, Nacil will partner private groups for three of the above units—in aircraft maintenance, ground handling operations and training—over the next one year.
It has already struck a deal with logistics firm Gati Ltd leasing out five of its freighter aircraft, most of which were converted old aircraft, for cargo operations.
Of the rest, said Air India’s chairman and managing director Vasudevan Thulasidas, the airline is seeking alliances for four dedicated aircraft maintenance centres or firms running MRO (short for maintenance repair and overhaul) operations across the country as also for a ground handling partner.
Thulasidas said the airline will have a controlling stake in all JVs.
“We are hoping to sign the agreements with Boeing and Airbus this month. For engines we have to select somebody; so the request for proposals we will be able to publish this month, components will come a month or two later,” he said.
Two separate MRO units formed with Boeing Co. and Airbus SAS will also “have a third partner, who will be a MRO specialist, a company from abroad”, he added.
Airlines in India together have a fleet of more than 310 aircraft currently, including 140 owned by Air India, with another 480 slated to join over the next five years, creating ample catchment for such maintenance centres.
Boeing’s wholly owned subsidiary Alteon Training has also been selected for creating a JV facility for pilot training in Hyderabad.
“This will be built from scratch because there is land available (in Hyderabad),” said Dinesh A. Keskar, vice-president (sales) of Boeing’s commercial aeroplanes business, adding the facility will also be open for use by private airlines such as Gurgaon-based SpiceJet Ltd eventually.
Nacil is also shortlisting a partner for ground handling operations both in India and abroad.
It already has a tie-up with Singapore Airport Terminal Services Ltd for ground handling at the new airports of Bangalore and Hyderabad that start operations by March.
Grey Market - Reliance Power, Future Capital, J Kumar Infra Projects
Future Capital Holdings 700 to 765 570 to 580
Reliance Power 405 to 450 350 to 360
SVPCL 42 DISCOUNT
Porwal Autocomponents 75 DISCOUNT
Precision Pipes & Profiles 150 20 to 25
J. Kumar Infraprojects 110 to 120 22 to 25
Stocks you can buy this week
Patel Engineering
CMP: Rs 949.70
Target price: Rs 1,149
Macquarie has maintained an ‘outperform’ on Patel Engineering after the company announced better-than-expected margins, which made up for marginal disappointment on the topline. “The topline in (third quarter) came in marginally below expectations.
However, EBITDA margins more than made up for the shortfall,” said the report, adding, “the company recorded an EBITDA of Rs 592 million (Rs 59.2 crore), up 26% Y-o-Y.” According to the brokerage, the company is pre-qualified for Rs 60 billion (Rs 6,000 crore) worth of projects, processing of which is expected in the near term.
The management has indicated that they would bid for orders worth Rs 100 billion over next 12 months, adds the report. The company’s order book currently stands at Rs 55 billion (Rs 5,500 crore), 3.4 times trailing 12 months’ revenues. The order book number does not include any in-house build-operate-transfer (BOT) projects, notes the report.
ABG Shipyard
CMP: Rs 936.65
Target Price: Rs 1,096
Prabhudas Lilladher has put an ‘outperformer’ rating on ABG Shipyard after the company’s topline grew by 68% Y-o-Y to Rs 2,584 million (Rs 258.4 crore), accompanied by strong operating margin of 25%.
“On account of higher-than-expected EBIDTA margin, we are raising our margin estimate for FY08 from 19% to 24%, which is an increase of 18% to our earning estimate,” said the brokerage.
“We are also revising our FY09 turnover estimate upwards by 20% to Rs 18.9 billion (Rs 189 crore) on account of the expansion at Surat,” it added. The company has announced Rs 4 billion (Rs 400 crore) expansion of its Surat facility, which will increase its fabrication capacity by four times, noted the report. The brokerage added that in order to fund expansion, the company has issued four million warrants to its promoter at a price of Rs 796.
Further, the company plans to raise Rs 8 billion (Rs 800 crore) through a QIB issue and the estimated equity dilution, post-issue, is likely to be 22%. “Currently, the stock trades at 16 times FY09 estimates. We rate the stock an ‘outperformer’ with a price target of Rs 1, 096,” said the report.
Shree Cement
CMP: Rs 1,325.10
Target Price: Rs 1,693
ICICI Direct has upgraded Shree Cement to ‘outperformer’ after the company reported a 44% increase in its topline on account of its 1.5 million tonne per annum (TPA) capacity addition during the quarter.
“Cement despatches during the quarter amounted to 1.52 million tonne, up by 17.9% Y-o-Y,” said the report. Strong demand boosted realisations to Rs 3,440 per tonne in Q3FY08 from Rs 3,230 per tonne in Q3FY07, while operating margins improved from 45.12% in Q3FY07 to 46.27% in Q3FY08, it added.
While profit before interest, depreciation and taxes increased by 56% during the quarter, the company’s 18 MW captive power plant (CPP-IV) at Bangur City, Rajasthan, resulted in cost savings. However, the report added, higher depreciation costs due to the capacity expansion impacted the company’s bottomline.
US markets have a free fall
US stocks fell sharply on Friday - the third weekly decline- on warning by American Express of mounting credit-card defaults and a slowdown in consumer spending.
While the Dow declined 247 points (1.92%) to 12,606, the Nasdaq Composite dropped 48 points (1.95%) to 2,440.
Indian ADRs, too, fell sharply on Friday. Infosys plunged 6% to $40.14. Satyam and Wipro were down more than 5% each at $23.50 and $13.31, respectively. Tata Motors, HDFC Bank and ICICI also declined.
FIIs in selling mode
Outflow of Rs 630.80 crore on 10 January 2008
Foreign institutional investors (FIIs) sold shares worth net Rs 630.80 crore on Thursday, 10 January 2008, compared to their buying of Rs 274.60 crore on Wednesday, 9 January 2008.
FII outflow of Rs 630.80 crore on 10 January 2008 was a result of gross purchases of Rs 4334.20 crore and gross sales Rs 4965 crore. The 30-share BSE Sensex lost 287.70 points or 1.38% at 20582.08 on that day.
FII inflow in January 2008 totaled Rs 2545.90 crore (till 10 January 2008).
There are a total of 1,248 FIIs registered with the Securities & Exchange Board of India (Sebi).
Friday, January 11, 2008
India tops Asia PE sweepstake in 2007
For the first time, India has topped the Asian Private Equity chart in terms of deal value. India saw PE inflows to the tune of US $9.9bn from 290 deals in 2007, says the the Centre for Asia Private Equity Research (CAPER). China is second in the list with total PE amount of US $9.5bn, followed by Taiwan at US $5.8bn.
In Asia (including Japan), India has been fourth in investment volume for the 2004-2006 period. Incidentally, Japan which has been No.1 since 2003 except for last year when Australia topped the charts, dropped to sixth place with PE deals worth US $3.2bn, according to the CAPER data.
In 2007, the Asian private equity industry saw a rising number of Asia-based limited partners, says the CAPER. An additional US$36.4bn of fresh capital came into the market, but the deal value declined by 21% to US$42.2bn, it adds.
"The industry also witnessed a new high in divestment activities, with US$17.3bn of realised capital being returned to investors' coffers during the year," according to the regional PE research tracker.
Institutional Investors
- 292 institutional investors were known to have made allocations
- corporate investors dominated, accounting for 20% of the known allocations, followed by government agencies at 11%
Funds
- US$36.4bn of fresh capital was recorded during 2007, an increase of 28.3% compared to that for 2006
- venture capital funds recorded the biggest growth at US$7.1bn, an impressive 64.7% surge compared to US$4.3bn for 2006
- buyout funds accounted for US$15.1bn, while funds for growth/expansion situations amounted to US$12.3bn
- China led in recording the largest pool of fresh capital at US$6.9bn, followed by India with US$5.3bn of fresh capital
Investments
- US$42.2bn in aggregate deal value recorded, a decline of 21%
- average deal size has declined by 32.4%, to US$61.1 million
- for the first time since 2005, companies in growth/expansion stage attracted the lion's share of private equity capital, accounting for 50% of the US$42.2bn
- commitments to buyouts slipped to US$20.1bn, a far cry from the US$37.4bn for 2006
- India led in recording the largest aggregate deal value, at US$9.9bn, a fraction ahead of the US$9.5bn garnered by China
Divestments
- 380 divestment processes known to have been initiated, double that for 2006
- US$17.3bn of realised capital recorded
- Medium IRRs for realised capital surged to 67%, compared to 51% for 2006
- South Korea led in divestment performance, where investors were able to realise US$4.8bn, representing 27.7% of the returned capital.
Weekly News - DoT issues LoIs to 9 players
The Department of Telecommunications (DoT) issued Letters of Intent (LoIs) to nine eligible applicants who had applied before Sept. 25, 2007. Four companies - Unitech, Datacom (Videocon Group), Shipping Stop Dot Com (BPL Group) and Shyam Telelink - received LoIs for pan-India mobile operations. Swan Communications got LoIs for 13 circles and S Tel for 6 circles. At the same time, Parsvnath, Cheetah, Allianz Infra and HFCL failed to get any LoIs. The proposals of Indiabulls and ByCell were put on hold due to lack of statutory clearances. Moreover, Idea received LoIs for 9 new circles, Tata Teleservices for 3 new circles and Spice Communications for 4 new circles.
Around eight of these companies paid the required licence fees and bank guarantees. They also deposited financial and performance guarantees. They will now queue up for a newly introduced licence - the Wireless Operating Licence - which will be granted on a first-come, first-served basis, subject to availability of spectrum. The DoT also cleared application from Idea, Vodafone Essar and Aircel for 2G spectrum in circles where they currently hold licences. Idea holds licences in two circles, Vodafone in six and Aircel in 13 circles. In another significant development, the DoT also cleared Tata Teleservices' application for GSM spectrum. The applications of existing GSM operators such as Bharti for additional spectrum, which have been pending for close to two years, have also been cleared.
Once the spectrum is vacated by the defence forces, the demands of existing GSM operators for additional spectrum, for further expansion in the circles where they already operate will be considered first. Vodafone, Idea and Aircel, who already hold licenses come next in queue. Next in line will be dual technology licence holders such as RCOM, Tatas, HFCL and Shyam, who will be given radio frequencies to launch GSM services. All new entrants who received LoIs on Thursday to offer telecom services come last.
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