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.

MARKET MOVING TOO FAST - VAUATION OVER STRECHED - THE BUBBLE WILL BURST ONE DAY.

Although, the India growth story remains intact, the market is moving too fast, mainly due to liquidity factor. When the party ends, the correction will be sharp and deep. Small investors should follow cautious approach. Follow the 65:35 principle, in the over heated market. Stay invested only to the extent of 35%, keep the rest in bank.    India is one of the market which offers good opportunity for FIIs / PE funds, hence the rush. However, the music has to stop one day.

The sector, that is likely to out perform the market / index are Financial services including PSU banks, Infra, Telecom and Information Technology.  Be stock specific.

TEN REASONS WHY ONE SHOULD NOT INVEST IN SKS MICRO FINANCE IPO

1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.


2. Unsustainable business model: The business model will not sustain in the long -run.


3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.


4. Look at the salary of top executives :

Suresh Gurumani - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.

Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.


5. Mohd. Yunus says - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”


6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.

7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.


8. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.




9. The average cost of acquisition of shares by promoters is less than Rs50/-The Company has limited period of history and no dividend payment record.


10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.
  
FOR IPO ANALYSIS OF SKS MICRO FINANCE LOG ON TO  FIRSTCHOICEIPOANALYSIS.COM

MICRO FINANCE LENDING

It is sin to charge interest @ 26-36%p.a. on the monies lent to the hapless poor and the down trodden. These MFIs are no better than the blood sucking money lenders. The argument that we can not lend below 26% holds no water. The fact remains that the MFI s are in business to make more money by exploiting the situation. MFIs should function as NGOs. If you can not do business like an NGO do not do that, no body is forcing you to do that. The government is bound to regulate interest rate. That will happen sooner than you think. The MFIs which are not functioning on the lines of an NGO will crumble. These MFIs will realize their sin. If you want to help the poor, lend it like an NGO. Even if you lend it 10 people it is a noble work.

IPO ANALYSIS: HINDUSTAN MEDIA VENTURES LIMITED – SOARING CIRCULATION, STRONG BRAND EQUITY - INVEST

One of the leading print media company, which publishes, among others, ‘Hindustan‘, the third largest daily newspaper in India, in terms of Readership, with a Readership of 9.3 million readers. ‘Hindustan‘ began publication in 1936, during freedom movement and has been one of India‘s eminent Hindi newspaper dailies for over 70 years. ‘Hindustan‘ has the largest Readership in key Hindi-speaking markets of Bihar and Jharkhand, with a strong and growing presence in Delhi NCR and the states of Uttar Pradesh and Uttarakhand. It is one of the fastest growing Hindi daily newspapers in India.

‘Hindustan‘is presently printed at 16 locations in the states/regions of Uttar Pradesh, Bihar, Jharkhand, Uttarakhand, Punjab and Delhi NCR. The distribution of newspapers takes place through a multi-tiered network of agents and vendors.

They also publish two Hindi magazines, ‘Nandan‘, a children‘s magazine, and ‘Kadambini‘, a general interest magazine. The company also operates the website, www.livehindustan.com, which focuses on providing news in Hindi with regional content.

ISSUE DETAILS:

ISSUE OPENS/CLOSE ON	05-07-10 / 07-07-10
ISSUE SIZE/FV	RS 300 CR/ RS 10
PRICE BAND	RS 162-175
BRLMS	EDELWEISS,KOTAK MAHINDRA
PROMOTERS	H T MEDIA LIMITED

  

FINANCIALS - RS IN CRORES

	08	09	31-12-09
REVENUE	16.85	17.73	52.14
NET PROFIT	0.28	0.19	3.57
EPS	0.70	0.28	5.11
RONW	2.54%	1.74%	21%

OBJECTS:

The objects of the Issue are to raise funds for (1) setting up new publishing units (Rs 66cr) (2) upgrading existing plant and machinery (Rs 55cr) (3) prepayment of loans (Rs153cr)
CHALLENGES:


The Indian newspaper and magazine industry, particularly the Hindi newspaper and magazine industry, is intensely competitive. In each of the markets, the company faces competition primarily from other newspapers and magazines for circulation, readership and advertising. In addition, there is competition from other alternative forms of media including, but not limited to, television broadcasters, magazines, pamphlets, flyers, radio broadcasters and internet websites. These other forms of media compete with newspapers for advertisers and for the time and attention of the readers. Ad-spend by the advertisers and the ability to attract new advertisers is influenced largely by the circulation and readership, the geographical reach, readership demographics of the newspapers and the preference of advertisers for one media over another. Pricing in the short term may be affected by the Circulation of the newspapers and magazines among the readers which is an important source of revenue for the Company since its derives significant revenues from subscriptions and sales. In addition, circulation and readership significantly influence ad-spend by advertisers and the advertising rates in the newspapers. Circulation and readership is dependant on the quality and reach of the publications and the loyalty of the existing readers. Circulation in the Indian market is also largely affected by price and, therefore, the circulation of the newspapers may be adversely affected if the company fails to meet any price competition.

Changes in technology may render the current technologies obsolete or require the company to make substantial capital investments.

STRENGTH:

• Hindustan – Strong brand recognition.

• Emerging as a leading Hindi daily with leadership in key markets.

• Ability to successfully launch ‘Hindustan’ daily - in new markets.

• Strong relationship with Advertisers.

• Ability to provide local, national and international news with quality editorial content.

• Credible editorial team.

• Modern and advanced printing and technology infrastructure.

• Synergies with HT Media Limited.

• Strong management team.



RECOMMENDATIONS – INVEST

HMVL is a professionally run company and focuses a lot on adopting good corporate governance practices. It is a subsidiary of HT Media, which has been acknowledged as one of the top 25 companies adopting good corporate governance practices for 2009 by the Institute of Company Secretaries of India. HMVL draws its governance practices from HT Media itself and is expected to have similar robust board practices. HMVL
has a completely different senior and second line of management.

BHARAT BANDH: WHY CANNOT OPPOSITION RULED STATES REDUCE VAT.

The BJP and some other political parties have called for Bharat Bandh on 05-07-10 against price rise and for increase in prices of petroleum products. Assuming for the sake of argument, that Center's policies are flawed and the present UPA government is anti-poor. Among others, VAT constitute any where between 24 -33% of the petroleum product prices. VAT is a state subject and the respective state governments have the power and authority to slash the rate to zero level if they are so concerned about the common man,for whose sake the strike being called.
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