• RBI sets up working group to study the working of NBFCs.
• Libya crisis - Brent cude crosses $118 a barrel.
• DMK softens stand, may agree to Congress demand, market likely to open in the positive.
• TCS to focus more on cloud computing.
• United Phosphorus bus 50% stake in SIB of Brazil.
• SEBI imposes penalty on Coal India IPO lead managers, for depriving 12,000 investors due to technical hitch.
• Scam tainted Balwa out of DB Realty. Resigns as CMD and also as director.
• Accumalate Coal India at CMP.
• Lovable Lingerie IPO opens totady. Price band Rs 195-205.
• L& T Finance IPO deferred till June / July 2011.
• Karnataka Banks' rights issue opens today.

NIFTY MAY FACE RESISTANCE AT 5700 LEVEL.

• RBI's Monetary policy review ( mid quarterly) in third week of March 2011.

• China and Russia are above India in corruption graph - FITCH.
• Parsvanth Developres wins the bid for 38 acres land project in New Delhi.
• Free charity dinner with Buffett for IRDA chief.
• Wealth management business - RBI and SEBI may get more teeth.
• Diesel decontrol unlikely till June end.
• Buy Reliance Industries at CMP - Rs 985. Three months target Rs 1150.

MARKET WATCH

• Ashish Dhawan quits PE firm Chrys Capital.
• Raising oil prices a concern for Asian economies - Pranab Mukherji.
• DMK directs its ministers to quit, Govt - safe for now.
• Stock splits, bonus from NALCO. Stock split from Rs 10 into two shares of Rs 5 each. Bonus in the ratio of 1:1.
• By 2020, Infy may have to hire a million - BNP report.

• Indian Bank to add 100 braches in FY 12, May come out with FPO.

MARKET WATCH

• IDBI Capital has been mandated to sell 5% of NSE stake. The Exchange is valued around Rs 20,000cr.
• Hind Copper FPO deffered again. The FPO will happen in the second quarter of FY 12.
• Fortis Global acquires 28.6% in Colombo hospital. Fortis has paid $ 36.3 million for the 350 bed hospital.
• Lanco Infra buys Australian coal forms for Rs 3400cr. These firms have an esitmated reserve of 1.2b tonnes.
• Canara Bank raises $ 350 m  under medium term note to fund credit growth in overseas business.
• RBS : Oil prices unlikely to dip in the short term. At $120 a barrel, may affect GDP of Asian countries by 2%.
• Bank of India to buy 51% in Bharati AXA Mutual Fund.
• Shriram to dilute 15% stake to TPG. TPG will be investing around Rs 1800cr in Shriram Capital Limited.

IPO ANALYSIS: LOVABLE LINGERIE LIMITED – BLOATED EQUITY, AGGRESSIVELY PRICED – AVOID.

The Mumbai based innerwear manufacturer is entering the capital markets shortly with issue of 45, 50,000 equity shares of Rs 10 each in the price band of Rs 195-205. The company recently raised Rs 20cr (Pre IPO placement) by allotting 10 lakh equity shares @Rs 200 to SCI Growth Investments, including share premium of Rs 190. Anand Rathi is the BRLM. The issue opens on 08-03-11 and closes on 11-03-11.

BUSINESS:

The company, incorporated in the year 1987, is one of the country’s leading women’s innerwear manufacturers.  The products include brassieres, panties, slips / camisoles, home wear, shape wear, foundation garments and sleepwear products. The Company was licensed the brand Lovable from Lovable World Trading Company, USA. Subsequently, by an agreement, the Company acquired the brand “Lovable” from Lovable World Trading Company, USA, on an exclusive basis for the territories of India, Nepal, Sikkim and Bhutan. The innerwear products manufactured under the brand Lovable cater to the premium segment market in the country.

Lovable and Daisy Dee are the flagship brands.  Lovable is amongst the top preferred brand in women’s innerwear in the country. As part of the growth strategy, the company has diversified the portfolio of brands and acquired brands like “Daisy Dee” from Maxwell Industries Limited, and College Style from Levitus Trading Limited, Hong Kong. 

The company has three manufacturing facilities of which two are situated in Bengaluru and one is situated in Roorkee, Uttarakhand. The company has a total installed capacity of 30 lac pieces each per annum to manufacture brassiere and panties.

Going forward, the company proposes to implement a project for modernization and integration at a new location in Doddakalasandra, Bengaluru, which will result in increase in capacity and value-addition by 25 lacs pieces per annum. The manufacturing unit situated at Roorkee, Uttarakhand commenced operation in February, 2010 and has an installed capacity of 7.5 lac pieces per annum to manufacture brassiere and panties. 

OBJECT OF THE ISSUE

 The objects of the Issue are:

1.  Setting up of a manufacturing facility to create additional capacity at Bengaluru

2.  Expenses to be incurred for Brand Building;

3.  Brand Development expenses for “College Style” 

4.  Investment in Joint Venture;

5.  Setting up of Exclusive Brand Outlets

6.  Setting up of retail store modules for “shop-in-shop”

7.  Up gradation of design studios

8.  General corporate purpose

FINANCIALS:

RS IN CRORES

	08	09	10
TOTAL INCOME	63.08	68.81	86.79
PAT	4.16	2.87	10.55
EPS (RS)	6.31	3.82	14.07##

## On an equity of Rs 7.50cr, the post issue equity will be Rs 16.80cr.

MAATERS OF CONCERN:

a. The company has capitalized its reserve by issuing bonus shares (97,50,000) to the promoters in the year 2010. This, along with the present issue will raise the equity base to Rs 16.80cr.

b. Labour intensive industry and hence may face labour disruptions, which may affect the production.

c. For setting up of additional manufacturing facilities at Bangalore, the appraisal was done by BOB in 2009, for which a Term loan of Rs 16.33cr has been sanctioned by BOB. However, for the purpose of IPO, the company again has included the entire amount as cost of the project. One wonders what happened to the Term Loan availed, for the same purpose.

d. The land on which the proposed expansion is to be carried out is a disputed one. The expansion is likely to be delayed.

e. The Company is dependent on third party transportation providers for the supply of raw materials and delivery of the products and any disruption in their operations or a decrease in the quality of their services could affect the Company's reputation.

f. IPO grade 3 by CARE.

VALUATION AND RECOMMENDATIONS:

At Rs 195-205, the issue is very expensive, considering the bloated equity before the IPO. Assuming that the company will report a PAT of Rs 12cr for FY 11 (up 20% over previous year), the EPS on the post issue equity of Rs 16.80cr will be around Rs 7/- and the PE will be around 30 which makes the IPO expensive.  Most of the IPO funds will be spent on brand building, JV and Exclusive out lets, which may not add up to higher margins. Compared to the previous years, the margin in the year 2010, (IPO in mind) has improved substantially which is to be taken with a pinch of salt.  AVOID SUBSCRIPTION.

KNOW YOU BRLM – KOTAK MAHINDRA CAPITAL COMPANY

The performance of the issues managed by the number ‘one’ merchant banker in the country is pathetic. From 1^st Jan 2010 till date, the company has managed 19 issues. Out of the 19 issues only 9 IPOs are quoting above the issue price. The company’s success rate is 47%.  Where as First Choice IPO’s recommendations were correct in 16 out of the 19 IPO managed by Kotak, thus giving a success rate of 84%.

IPOs quoting below the offer price

NAME OF THE COMPANY	MONTH	ISSUE PRICE	PRICE AS ON 24-11-10	FIRST CHOICE RECOMMENDATIONS
VASCON	JAN	165	132	AVOID
DB REALTY	JAN	468	257	AVOID
NTPC	FEB	201	178	AVOID
HATHWAY	FEB	240	174	AVOID
NMDC-FPO	MARCH	300	257	INVEST
NITESH ESTATES	APRIL	54	36	AVOID
JAYPEE INFRA	MAY	102	79	AVOID
SKS MICRO	JULY	985	733	AVOID
BAJAJ CORP	AUG	660	584	INVEST
PRESTIGE ESTATES	OCT	183	160	AVOID

IPOs quoting above the offer price

NAME OF THE COMPANY	MONTH	ISSUE PRICE	PRICE AS ON 24-11-10	FIRST CHOICE RECOMMENDATIONS
JUBILIANT FOOD	JAN	145	593	AVOID
REC-FPO	FEB	203	348	INVEST
STD. CHRTD. BK IDR	MAY	104	118	INVEST
HM MEDIA VENTURE	JULY	166	167	INVEST
GPPL	AUG	46	58	INVEST
EROS	SEP	175	189	INVEST
TECPRO	SEP	355	395	INVEST
OBEROI REALTY	OCT	260	266	INVEST
COAL INDIA	OCT	245	310	INVEST

IPO ANALYSIS: MOIL LIMITED – A MINI RATNA –ATTRACTIVELY PRICED. INVEST.

Close on the heels of the tremendous success of Coal India IPO, one more from IPO from the government. MOIL, formerly known as manganese ore (India) limited, the largest producer of manganese ore by volume, in India, is entering the capital markets in November. MOIL public offerings consists of 3, 36, 00,000 equity shares of Rs 10 each, in the price band of Rs 340-375. The issue is attractively priced. Edelweiss Capital J P Morgan and IDBI Capital markets are the BRLMs.

BUSINESS AND BACKGROUND:

MOIL is the largest producer of manganese ore, accounting for 50% of the total ore produced in the country. Manganese ore is primarily used to make ferro-alloys for steel production. Manganese is the fourth most used metal after iron, aluminum and copper. It improves the strength, toughness, hardness and workability of steel.

The company has long operating history of mining manganese ore in the country for more than four decades.

Over 90% of the world’s production of manganese is utilized in the desulphurization and strengthening of steel. MOIL’s production of manganese ore increased from 864,890 tonnes in Fiscal 2006 to 1,093,363 tonnes in Fiscal 2010.MOIL’s  ore reserves have an average manganese content of 36.0% -40.0%. In addition, none of the MOIL mines produces low-grade manganese ore. The company has access to approximately 22.0 million tonnes of proved and probable reserves and 37.2 million tonnes of measured mineral resources of manganese ore.

The company currently operates seven underground mines and three opencast mines.  MOIL produced 700,776 tonnes of manganese ore from our underground mines and 392,587 tonnes of manganese ore from our opencast mines in Fiscal 2010. India was currently the fifth largest producer of crude steel in the world in 2009 and is expected to become the second largest producer of crude steel in the world by 2015-2016.

 

FINANCIALS:

RS IN CRORES

	2008	2009	2010
TOTAL INCOME	1015.44	1439.40	1087.85
NP AFTER TAX	479.81	663.79	466.34
EPS	27.47	41.09	27.72
RONW	59%	52%	28%

NAV as on 31-03-10 is Rs 100/-

For the quarter ended June -10, the total income and profit after tax was Rs 373cr and Rs 182cr respectively.

OBJECTS:  Disinvestment by the government.

STRENGTHS:

1. Largest producer of manganese ore in India with access to significant reserves 

2. Well positioned to capture the growth potential of the Indian steel industry.

3. Track record of growth and efficient operation.

4. Strategic location of the mines provides the competitive advantages.

5. Strong capabilities for exploration, mine planning and research development.

Domestic demand-supply scenario in India

 

Demand for manganese ore and ferro alloys has increased considerably due to the increase in the production of steel. According to the National Steel Policy, projected steel production is likely to double within a decade’s time. There is likely to be a huge demand gap between the availability and requirement of ferro alloys if the production of ferro alloys fails to match the growth in production of steel.   Slower pace in the development of new mines as against the robust demand from the steel industry has already pushed India in becoming a net importer of manganese ore in the last 3 years. 

 

Outlook of Manganese ore:

With the expectations of robust growth in the domestic steel production, CARE Research foresees, demand for manganese ore is likely to increase during the next few years. CARE Research foresees the domestic manganese ore demand to grow at a CAGR of about 9% during the next 2-3 years and reach levels of 4.1 million TPA by FY12. The rising requirement of ferro alloy products for the steel and other metal-producing industries are likely to be the prime reason for a growth in the domestic demand for manganese ore.

VALUATION AND RECOMMENDATIONS:

Being the largest producer, MOIL is advantageously placed in the sector. The India growth story intact, the demand for manganese ore likely to increase in the years to come. There are no companies listed in this sector, which can be strictly compared to MOIL. However, NMDC and Sea Goa are the nearest ones. At Rs 340-375, the issue is attractively priced, leaving some thing on the table for the retail investors. INVEST.