IPOS IN APRIL 2010

NAME OF THE COMPANY	ISSUE OPENS ON	RECOMMENDATIONS
TALWALKARS	21-04-10	AVOID
NITESH ESTATES	22-04-10	AVOID
TARAPUR TRANSFORMERS	26-04-10	AVOID

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IPO ANALYSIS: NITESH ESTATES LIMITED: DEBT RIDDEN - WEAK FOUNDATION - AVOID

The merchant bankers, inspite of many IPOs getting tepid response for the issues, particularly from the retail investors (due to unreasonable premium) and IPOs quoting discount to the issue price after listing, have not learnt any lessons. Out of the twelve recently listed IPOs, eight are quoting below the offer price.  How do retail investors get confidence to invest in new issues?

OFFER DETAILS:

The Bengaluru based real estate company is planning to raise around Rs 405cr     through initial public offer of equity shares of Rs 10/- each.

ICICI Securities Limited, Enam Securities Private Limited and Kotak Mahindra Capital Company limited are the BRLM s. The issue opens on 22-04-10 and closes on 27-04-10.

BUSINESS:

The Company is in the business of real estate development and is primarily engaged in the development of residential projects in Bengaluru. Nitesh is also developing a residential and an office project in Kochi. The company is in the process of diversifying into the development of shopping-malls  and  are  expanding  the  geographic  reach  to Chennai  and Goa. The residential projects include multi-unit apartment buildings targeted at high-income and middle-income customers. Nitesh is currently  developing  the  first  hospitality  project,  the  first  ‘Ritz-Carlton’  brand  hotel, on Residency Road, in the central business district of Bengaluru.

 

The Company since its incorporation in 2004 has completed three residential projects totaling 0.55 million sq. ft. of Saleable Area. Nitesh undertakes most  of  the  projects  through  the  joint-development model  as  compared  to  acquiring  a freehold or leasehold interest in the land, which reduces the upfront cost of land acquisition and the total project  financing  costs.  This allows the company to deploy the more funds towards development of the projects. 

OBJECTS OF THE ISSUE:

 

a) To acquire joint development rights,

b)  Funding Subsidiaries and the Associate Company, for repayment/prepayment of loans, redemption of debentures.

c)  Repayment of loans 

d) General corporate purposes.

The fund requirement and deployment of the Net Proceeds of the Issue is based on internal management appraisal and estimates. 

FINANCIALS:    (Rs in millions)

	Sep 09	09	08	07
Total income	458.47	868.89	688.73	240.15
Net profit	60.80	27.60	9.86	28.73
EPS	--	0.43	0.17	0.77
RONW	--	5.30	0.90	7.40

 

RISK FACTORS AND CHALLENGES

The joint development model pursed by the company will have negative impact on the bottom line, since the brand equity and reputation of the company is not strong enough to attract potential joint development partners on favorable terms.

The company’s ability to successfully compete in new segments across different geographies is yet to be demonstrated. The company has a limited operational history.

As per CRISIL estimate, the annual additions in units are expected to grow from 70 million units in 2008 to reach 81 million units in 2014. Estimated annual additions in units in rural areas are to grow from 174 million units in 2008 from 198 million units in 2014.

Nitesh’s  business  is  heavily  dependent  on  the  performance  of  the  real  estate  market  in  Bengaluru. Regional slow down or slow down in IT/ITES sectors will have adverse effect on the performamence on the company.

Nitesh had defaulted in loan repayment to the banks and financial institutions. The auditors were unable to comment on related party transactions. The company is heavily indebted and interest out go will put pressure on margins. Nitesh had negative cash flow in the last three years. A major portion of the proceeds of the issue - Rs 136cr is earmarked for repayment of loans.

The Company was irregular in the deposit of income tax, fringe benefits tax and service taxes. The company had inconsistent margin in the last three years.

Out of current and on going projects, only 4% of the land is registered in the name of the company.

VALUATION:

CRISIL IPO grade 2/5reflects the company’s entry into the highly competitive mid-income housing segment, and development of retail, commercial and hospitality projects, in which the company has a limited track record. These plans also present significant funding and execution risk. In the past, the management’s strategies have not been very successful, with NEL registering very low margins. The company also defaulted on its debt and interest payments in 2008-09, which was subsequently restructured/repaid.

                           Comparison with the peers

Name of the company	F V	EPS	PE	RONW	NAV
Ansal properties	5	4.6	18.7	4.8	98.5
Brigade Enterprise	10	7.2	25.7	8.6	88.6
Purvankara Projects	5	6.2	27.0	30.6	61.4
Sobha Developers	10	11.1	32.9	10.3	169.7
Nitesh Estates	10	0.41	--	5.3	8.15

RECOMMENDATIONS

For a company whose EPS in paise the price band of Rs 54-56 is on the high side.
AVOID SUBSCRIPTION.

IPO ANALYSIS: TALWALKARS BETTER VALUE FITNESS LIMITED – PREMIUM TOO FAT - AVOID.

The Mumbai based fitness company, which has pan India presence, is entering the capital markets through IPO. The company proposes to issue 60, 50,000 equity shares of Rs 10 face value in the price band of Rs 123-128. The issue will open on 21-04-10 and close 0n 23-04-10. IIFL are the sole BRLM.

PROMOTERS -  Madhukar Vishnu Talwalkar,  Prashant Sudhakar Talwalkar,  Vinayak Ratnakar Gawande,  Girish Madhukar Talwalkar, Harsha Ramdas Bhatkal and  Anant Ratnakar Gawande.

BUSINESS

Talwalkars are one of the largest fitness chain in India, offering  a  diverse  suite  of  services  including  gyms,  spas,  aerobics  and  health  counseling  under  the  brand  “Talwalkars”. “Talwalkars” has pioneered the concept of gyms in India and today is a recognized name in the health and fitness industry.   Presently, they operate 51 health clubs in 24 cities, in 11 states, serving over 55,000 members.

OBJECTS OF THE ISSUE

• For setting up of additional health clubs.
• To repay certain unsecured loans.

FINANCIALS           RS IN CRORES

                           

	08	09	SEP 09
TOTAL INCOME	38.49	59.42	35.88
NET PROFIT	4.51	5.68	3.19
EPS	23.23	28.91	16.00
RONW (%)	39	33	8.34

RISKS AND CONCERN

1. Company operates in a highly competitive market and face stiff competition from other players operating both in organized and un-organized sectors. Some foreign players have also entered the Indian market.

2. Disputed brand - There exists a Group which owns and operates gyms under the same or similar name and which can claim the history of the brand. Further, any deficiency in the quality of services, equipments, training, etc. provided by these gyms may adversely affect the brand image.

3. CARE has awarded grade – 3 for the IPO indicating average fundamentals.

VALUATION AD RECOMMENDATIONS

For the half-year ended Sept -09 the net profit earned is Rs 3.19cr. This translates into an EPS of Rs 2.60 on the fully diluted post issue capital of Rs 24.11cr. At Rs 128, the company discounts FY 10 earnings by almost 50 times. The valuation is very much stressed. AVOID SUBSCRIPTION.

Promoters holding post issue will be 59.39%.

MICRO FINANCE IPOS – WHOM DO THEY BENEFIT - AVOID AT ALL COSTS.

SKS MICROFINANCE LIMITED is likely to hit the market shortly. Many others in this sector have lined up for IPOs. The bubble is growing bigger each day. These companies are similar to the finance and leasing companies that mushroomed in the late seventies and early eighties and disappeared into thin air subsequently. More over, Micro financing started as a social cause enterprise is turning out to be blood-sucking business. The poorest of the poor and hapless sections of the society are being exploited. More and more entrepreneurs and PE funds are eager to do business in this segment.

The Micro Finance Institutions, instead of providing credit at affordable interest rate, exploiting the situation and looking for a return on investments in excess of 30% p.a. Micro finance should not be viewed as a business venture where one can expect very high return on investments. The borrowers pay exorbitant rate of interest. Moreover, most of their income goes for servicing the debt with no savings. This kind of situation is no better than the one the poor borrowers had experienced with the traditional moneylenders. They also defeat the very purpose of establishing the Micro Finance Institutions. The ultimate goal of microfinance is to enable the poor to build assets, increase incomes, reduce vulnerability to shocks and economic stress and improve quality of life by enabling better access to education and healthcare. How can they do that with that kind of interest structure?

Micro finance should not be viewed as a business venture where one can expect very high return on investments. Governmental and statutory regulations, including the imposition of an interest-rate ceiling, are bound to happen. This will adversely affect the
operating results. More importantly, the sector, which sucks the blood of the poorest of the poor, does not deserve any support. AVOID ALL MICRO FINANCE COMPANIES IPOS.

REVIEW OF IPO RECOMMENDATIONS

NAME OF THE COMPANY	ISSUE  PRICE	INITIAL LISTING/CURRENT PRICE	FIRST CHOICE RECOMMENDATIONS
1. EURO MULTIVISION	RS  75	BELOW OFFER PRICE	AVOID
2. INDIA BULLS  POWER	RS  45	BELOW OFFER PRICE	AVOID
3. DEN NET WORKS	RS 195	BELOW OFFER PRICE	AVOID
4. COX & KINGS	RS 330	ABOVE OFFER PRICE	APPLY
5. JSW ENERGY	RS 95	ABOVE OFFER PRICE	APPLY
6. GODREJ PROPERTIES	RS 490	ABOVE OFFER PRICE	APPLY
7. BIRLA SHLOKA	RS  50	BELOW OFFER PRICE	AVOID
8. INFINITE COMPUTERS	RS 165	ABOVE OFFER PRICE	APPLY
9. VASCON ENGINEERS	RS 165	BELOW OFFER PRICE	AVOID
10.HATHWAY CABLES	RS 240	BELOW OFFER PRICE	AVOID
11. REC	RS 203	ABOVE OFFER PRICE	APPLY
12. MAN INFRACONST.	RS 252	ABOVE OFFER PRICE	APPLY
13. UNITED BANK	RS 60	ABOVE OFFER PRICE	APPLY
14. DB REALTY	RS 468	BELOW OFFER PRICE	AVOID
15.EMMBI	RS 45	BELOW PRICE	AVOID
16.THANGAMAYIL	RS 75	ABOVE OFFER PRICE	APPLY
17.PRADIP OVERSEAS	RS110	BELOW OFFER PRICE	AVOID
18.PERSISTENT	RS 310	ABOVE OFFER PRICE	APPLY
19.NMDC	RS 285	ABOVE OFFER PRICE	APPLY
20. TEXMO PIPES	RS 90	CURRENT PRICE- BELOW OFFER PRICE	AVOID

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