Grey Market Premium Dt. 29-6-2008

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Subscribe only considering Fundamental of the companies

Grey Market Premium Dt. 29-6-2008

Company Name	Offer Price (Rs.)	Premium (Rs.)
Avon Weighing	10 (Fixed Price)	8 to 10
Sejal Architectural Glass Ltd.	115	19 to 21
First Winners Ind. Ltd.	125	3 to 3.50
Archid Ply Ind.	74	5 to 6
Lotus Eye Care Hospital	38	2.5 to 3
KSK Energy Venture	240 to 255	Discount
Somi Conveyor Belting	35	3 to 5
Birla Cotsyn (India)	15 to 18	1.50 to 2

KSK Energy Ventures: Ad"Venture"

KSK Energy Ventures is entering the capital market on 23rd June 08 and is scheduled to be open till 25th June 08, with a public issue of 3.46 crores equity shares of Rs.10 each in the band of Rs.240 to Rs.255 per share.

Post Reliance Power, investors have become cautious about all the power stocks and hence it becomes more essential to understand this company well.

The company presently has three operational power plants, generating 144 MW of power and two power projects of 675 MW are under construction, which would be operational in December 08 (135 MW) and 540 MW in December 09. Three power projects of 1,973 MW are under development for which term sheet for debt financing has been secured and construction would start soon. The total cost of these three projects has been pegged at Rs.7,786 crores which is being financed at a debt equity ratio of 3 : 1. They will go for commercial production by June 10 (43 MW) March 11 (130 MW) and September 11, for 1,800 MW.

The company has also planned five more power projects of 6,345 MW with project cost of Rs.27,086 to be financed at a debt equity ratio of 3 : 1. All these projects are likely to be operational in phases with last commencing by September 12. The fund for debt and equity of these projects need to be arranged,

The company now proposes to source finance for its 1,800 MW Wardha Chattisgarh Power project estimated to cost Rs.6,874 crores which is financed by debt of Rs.5,156 crores and equity of Rs.1,718 crores. Of this, Pre-IPO placement of 1.73 crore equity share were made at Rs.240 per share for Rs.415 crores while remaining Rs.1,300 crores would get raised from equity issue, including proposed IPO, and subscription by actual users.

The good part about structuring of various power projects by the company is supplying power generated from the projects directly to the users, which results in better realization of power. Also, these users have subscribed to the equity of each SPV generating power, with non-participating economic interest, which enables the company to earn a higher return on lower equity investment. This model also gives the benefit of captive power plant, including coal dispensation through captive route.

For example, operational power project of 43 MW having set up by SPV Arasmeta Captive Power Co. P. Ltd. had project cost of Rs.160 crores, which is being financed by the equity of Rs.50 crores, of which 49% shares were subscribed by Lafarge India P. Ltd. with Class A equity shares, having non-participatory preferential right to dividend equal to 0.10% of the face value, while 51% is held by the company, entitled to normal dividend declared by the company on equity. This results a higher return on investments to the company.

L B India, an affiliate of Lehman Brothers will hold 28.41% of the post IPO equity of the company while 55.24% would be held by the promoters with 6.35% by pre-IPO allottees. The post issue equity of the company would be placed at Rs.346.10 crores.

With the present financial closure, the company shall have 2,792 MW power generation capacity without any equity dilution. Remaining capacity creation of 6,345 MW would be requiring about Rs.8,000 crores as equity, which may dilute equity and may raise it to between Rs.500 crores to Rs.600 crores, over a period of time. So, even that kind of equity base would be considered quite low for power generation capacity of 9,137 MW.

Considering the feedstock tie-up for almost all of its power projects, coupled with participation of actual users in the differential equity as also having actual user status of projects the structuring of all the projects, instill confidence.

Since pre-IPO placement has been made at Rs.240 per share, which happens to be its lower band, one could safely contemplate investment in the issue. But considering the current market volatility, it will need adventurous person to go for it.

Somi Conveyor Beltings: Conveying good signals

Somi Conveyor Beltings is entering the capital market on 24th June 08 wait a public issue of 62.28 lakh equity shares of Rs.10 each at a premium of Rs.25 per share (total issue price Rs.35 per share). Of this, promoters are subscribing to 15 lakh shares while 47.28 lakh shares are being offered to the public.

The company is presently into manufacture of rubber conveyor belts with capacity of 1.68 MPA of width upto 1200 mm. The products of the company are used by cement, steel, power, fertilizer, sugar, coal and lignite, iron ore and mining sector. Presently, the company is more of a regional player catering to the industries located in Rajasthan. Financial performance of the company, though mediocre, has been showing a growth over the year. FY07 had topline of Rs.15.15 crores with PAT of Rs.1.35 corers while first 9 months of FY08 posted a topline of Rs.11.80 crores and PAT of Rs.96 lakhs.

The company is now doubling its production capacity from 1.68 MPA to 3.40 MPA as also capacity to manufacture rubber conveyor belt of higher width upto 2000 mm. This would give them a better realization as cost of production would almost be the same.

The total cost of project is estimated at Rs.35 crores, which is being financed by term loan of Rs.8.50 crores being availed from PNB and equity contribution of Rs.26.50 crores. Of this, promoters have already subscribed to 17.41 lakh equity shares at Rs.25 in April 07 and would now be subscribing to 15 lakh shares at Rs.35 per share. This results into an average cost per share of Rs.30, which is not bad against the issue price of Rs.35. Post issue promoters stake would be about 53% while 47% would with the public.

A good thing about the project is that all the machineries have been in place with the trials being carried out by the company and it hopes to start commercial production by August 08, thus having no gestation period for the new project. Also, the production of the new unit would be mainly to cater to the need of the existing customers as they all need conveyers of higher width. Hence, there is no need to hunt for the customers on starting the production.

However, if one needs to hunt for a negative in the issue, it could be the high equity base of Rs.11.78 crore and listing only on BSE.

However, the company falls into material handling segment which enjoys better earnings multiple on the bourses. Considering doubling of the capacity with width, issue price at Rs.35 is reasonably priced as it translates into an enterprise value of just Rs.50 core, of which Rs.35 crore is for the new project. Hence existing plant of similar capacity is being valued at around Rs.15 crores. Due to better realization from the new capacity, the company in its full year should be able to post a topline of over Rs.42 crores with PAT of Rs.5 crores, which would result in an EPS of Rs.4.25, translating into a PE ratio of about 8 times. Promoters experience in the sector is an added advantage.

Though the issue and company can be categorised into small cap, the issue price at Rs.35 looks reasonably priced and those who have medium term view, can go for the issue.

Grey Market Premium Dt. 21-6-2008

Grey Market Premium Dt. 21-6-2008

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac.)
Bafna Pharmaceutical	40 (Fixed Price)	8 to 10	---
Avon Weighing	10 (Fixed Price)	7 to 9
Sejal Architectural Glass Ltd.	105 to 115	16 to 18	--
First Winners Ind. Ltd.	125	DISCOUNT	--
Archid Ply Ind.	74	3 to 5	--
Lotus Eye Care Hospital	36 to 38	DISCOUNT	--
KSK Energy Venture	240 to 255	25 to 28	--
Somi Convery Belting	35	6 to 8	--
Note: Dont subscribe for issue by just seeing premium price as it may change anytime before listing. Subscribe only considering companies fundamentally as discussed in our IPO Analysis Section.

Grey Market Premium Dt. 15-6-2008

Grey Market Premium Dt. 15-6-2008

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac.)
Niraj Cement	190	Discount	---
Bafna Pharmaceutical	40 (Fixed Price)	7 to 10	---
Avon Weighing	10 (Fixed Price)	5 to 6
Sejal Architectural Glass Ltd.	105 to 115	18 to 20	--
First Winners Ind. Ltd.	115 to 125	3 to 5	--
Archid Ply Ind.	70 to 80	6 to 8	1600 to 1800
Lotus Eye Care Hospital	38 to 42	3 to 4	1700 to 1800
Somi Convery Belting	35.00	--	--

Archidply Industries: Smooth Ply

Archidply Industries is entering the capital market from 11th June 08 to 17th June 08, with a public issue of 66.16 lakhs equity shares of Rs.10 each in the band of Rs.70 to Rs.80 per share.

The company is having two manufacturing plants in Mysore and Rudrapur in Uttaranchal, making Plywood, Particle Boards, Pre-Laminated Particle Boards and Veeners and Decorative Laminates. The plant at Rudrapur has commenced production in the first quarter of year 2007, which has resulted in improved working for FY 08.

The company posted good financial performance for FY 08 with topline at Rs.144 crores, with an EBITDA of Rs.27.62 crores, PBT of Rs.16.78 crores and PAT of Rs.15 crores, resulting in an EPS of Rs.9.75 for the year on equity of Rs.15.38 crores. Due to various benefits available to the Rudrapur unit, this performance has been possible as the said unit has been contributing about 60% to the company’s topline.

The company is now setting up a new manufacturing facility for Plan Particle Board (PPB), Pre-Laminated Board (PLB) and Decorative Plywood at Chintamani in Karnataka and Medium Density Fibreboard (MDF) at Rudrapur. The total cost of project is estimated at Rs.83 crores, which is being financed by a term loan of Rs.33 crores and Rs.50 crores by the IPO.

A capacity of 45,000 cubic meters of PPB; 38,000 cu. Mt of PLB; 10,000 cu.mt of Decorative Plywood and 60,000 cu.mt. of MDF is being created. MDF has huge potential and it is on this that the company hopes to capitalize. Also, since Rudrapur unit has commenced production last year, improvement in capacity utilization is likely in the current year. New addition in capacity would start from September 09.

Promoters of the company are having over 30 years of experience in the industry and have also subscribed to about 7.50 lakh shares at Rs.100 per share. Probably, present state of market has forced them to keep the price band in a range of Rs.70 to Rs.80 per share. Also, strong marketing network of 61 distributors and 586 dealers would help the company to push through its increased capacity.

Considering an EPS of close to Rs.10, share at the upper band of Rs.80 is being issued at a PE of 8 times. FY 09, though may not see contribution from new projects and could show an EPS of Rs.13 due to improved capacity utilization of Rudrapur unit, which results into a PE of about 6 times at the upper band. Post issue equity of Rs.22 crores results in a market capitalization of Rs.175 crores at the upper band, which leaves scope of appreciation.

Hence investment is recommended in the issue even at the upper band of Rs.80 with medium term view.

Lotus Eye Care Hospital: Will give you a soar eye

Lotus Eye Care Hospital is entering the capital market from 12th June 08 to 17th June 08 with a public issue of 1 crore equity shares of Rs.10 each in the band of Rs.38 to Rs.42 per share.

The company presently has four eye care hospitals in South India with 120 beds with 9 operation theatres and 3 lasik laser equipments. The company is into existence since 2002 but its financial performance has been mediocre. Till FY 05, it was making losses with virtually stagnant topline upto FY 06. For FY 07, PAT was at meager Rs.1.29 crores on total income of Rs.7.30 crores. Even for 9 months ending Dec. 07 total income was at Rs.9 crores with PAT of about Rs.1.60 crores.

Inspite of such a mediocre performance, the company has taken up an expansion programme of Rs.55 crores, to set up eye care centres at R. S. Puram, Tirupur, Karur and Salem. However, progress is gong on only at R. S. Puram,, as land has been acquired and construction work is in progress. Land at other three locations are yet to be obtained. These plans are being financed with term loan of Rs.10 crores, internal accruals of Rs.3 crores and IPO proceeds of Rs.42 crores. Strangely, IPO proceeds have been calculated at the upper band of Rs.42. If book gets discovered at the lower end (which is most likely) there would be a shortfall of Rs.4 crores. It would be difficult to even mobilize Rs.3 crores from internal accruals, as present cash flow may just be enough to support present level of activities.

Present equity of the company is at Rs.10.80 crores which would rise to Rs.20.80 crores. This is definitely very high considering its present and proposed level of activity.

Dr. Agrawal Eye a listed stock with similar business is finding it difficult to float. Inspite of a topline of Rs.40 crores, PAT is less than Rs.2 crores on an annualized basis which results in an EPS of about Rs.4 on low equity of Rs.4.50 crores. Share is ruling at Rs.50 which results in a PE multiple of about 12 times. Lotus Eye is quite expensive and shares are being issued at a PE of about 25. New facility would come up only after 1½ to 2 years and hence high equity would always be a problem for the company.

Healthcare sector has not really caught for specialized services and even corporates having presence in General Medical field with full fledged hospitals have not been well received by the investors. Small hospital companies are, ruling at a PE multiple in single digit inspite of they having low equity base.

Fate of this company also would be like those of other small healthcare companies and may not be able to give returns to the investors. Better to remain away from making investment in this IPO as share looks expensive.

Sejal Architectural Glass: See the truth

Sejal Architectural Glass is entering the capital market on 9th June 08, clsing on 12th June 08 with a public issue of 91.94 lakh equity shares of Rs.10 each in the band of Rs.105 to Rs.115 per share.

The company is setting up a 2 lakh tonne per annum, floatglass manufacturing plant in Bharuch Dist. of Gujarat at project cost of Rs.435 crores. This is being financed by the term loan of Rs.318 crores, unsecured loans of Rs.15 crores and balance largely by equity issue made by proposed IPO as well as pre-IPO.

The company is calling it a backward integration to enable them to control costs and enhance the quality of glass used for value added products. The company is into processing of glass with insulating, toughened, laminated glass and for decorative glass and having its plant at Silvassa. The company has been procuring floatglass and processing it further and supplying them as decorative glass. Floatglass market at present is facing a situation of oversupply and this is revealed from the raw-material costs of the company, which constituted about two-third of the topline upto FY06, which fell to almost 50% in period ending December 07. Also, inspite of being in business, topline growth of the company is not significant as it was at around Rs.20 crores for FY 04, which rose to Rs.34 crores in FY 07 from its own operations. FY 08 may witness a topline of Rs.50 crores from its own manufacturing operations.

So how could one justify a project of over Rs.450 crores for almost 10% of the company’s present topline, as a backward integration? Apart from this, financing of this project would heavily leverage the balance sheet of the company as debt of Rs.335 crores for new project results in a debt equity ratio of about 2.8 : 1. The present net worth of the company of Rs.50 crores would go upto Rs.150 crores, post IPO.

Asahi India Glass, an existing listed peer having almost 2½ time capacity of the proposed project has not been doing well for the past couple of years. FY08 topline of Rs.1,000 crores resulted in a PAT of Rs.8 crores only. Share price of this company is now ruling at its 52 week low of Rs.55 (face value Re.1).

The floatglass market in the country is largely controlled by MNCs like Asahi and Guardian. The major consumption of floatglass is in automobile sector, and is also now being used for housing, furnishing and decorative segment. In view of huge capacity created by these two players, we have seen sharp fall in the selling prices inspite of rise in cost of production due to sharp rise in soda-ash and furnace oil prices, which are critical raw-material for any floatglass maker.

Sejal Glass claims to have an advantage of having its feedstock as natural gas instead of furnace oil for its furnace and also proximity to source of sand and soda-ash, as both are available in plenty in Gujarat. However, new capacity of 2 lakh tonne per annum coming in from FY 10 would bring down prices further and also, it would be difficult for the company to market such a huge capacity, which is almost 10–12 times of its present capacity being marketed.

Also, promoters and company’s present financial standing is likely to prove risky to implement a Rs.450 crore project which is financed to the extent of 70% by debt. Initial loses can overcapitalize the project cost in coming period.

Considering the present state of floatglass industry, and size of the proposed project, it seems to be quite a risky proposition and hence share price, even at the lower band of Rs.105 per share, looks stretched. Promoters capability to handle such a big project, looking at their track record, is also a big question mark.

Avon Weighing Systems: Attractive Weight

Avon Weighing Systems is entering the capital market on 9th June 08 and closing on 12th June 08 with a public issue of 1.37 crore equity shares of Rs.10 each at par. Of this, promoters are subscribing to 39.97 lakh shares while 98.36 lakh shares are being offered to the public.

For a change, an existing profit making company, having book value per share of Rs.20.50 as at 31-03-08 is offering shares at par. And that is thanks to present state of the stock market!

The company is authorized dealer and one of the distributors of A&D and Tanita, both of Japan, for marketing its weighing scales in India, mainly to gem and jewellery, pharma, chemicals, R&D Laboratories and Defence Sector, where precision weighing is critical. Due to this, the entire income of the company, comprises of trading turnover, was at Rs.50.50 crores for FY 08. PBT for the year was at Rs.2.75 crores while PAT was at Rs.1.85 crores. However, due to high debtors of Rs.41.50 crores as at 31-03-08, the company has to borrow about Rs17 crores as loan. Finance charges for the year was at about Rs.2.50 crores.

The company having gained expertise of this trade and having good marketing network, has decided to set up its own manufacturing unit at Baddi in Himachal Pradesh with an outlay of Rs.17.30 crores. This is being partly financed by term loan of Rs.2.60 crores and rest by equity. Post issue, equity of the company would be placed at Rs.16.58 crores.

Though equity of the company would be very high and in view of project likely to start by March 09, the results for FY 09 would be purely from existing trading operations. Despite this, considering book value of over Rs.20, the “par” tag and experience of the promoters, share at par holds potential, though it will be of small cap company, as its market capitalization would remain below Rs.50 crores.

One can apply for this IPO.

Grey Market Premium Dt. 8-6-2008

Grey Market Premium Dt. 8-6-2008

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac.)
Niraj Cement	190	Discount	---
Bafna Pharmaceutical	40 (Fixed Price)	10 to 12	---
Avon Weighing	10 (Fixed Price)	3 to 4	2300 to 2400
Sejal Architectural Glass Ltd.	105 to 115	26 to 28	2100 to 2200
First Winners Ind. Ltd.	120 to 130	16 to 18	2000 to 2100
Archid Ply Ind.	70 to 80	8 to 10	1600 to 1700
Lotus Eye Care Hospital	38 to 42	4 to 6	1700 to 1800

First Winner Industries: A Near Loser

First Winner Industries is entering the capital market on 9th June-08, closing on 12th June-08, with a public issue of 55 lakh equity shares of Rs.10 each, in the band of Rs.120 to Rs.130 per share.

We must praise the courage (misadventure) of the promoters, firstly to come out with this issue and secondly at such a stiff valuation. The company has been trading in textile fabrics till FY 07 and on 19-03-07 commenced its weaving activities by installing 100 Rapier Looms with a capacity to produce 108 lakh meter of grey fabrics annually.

The present state of similar companies are not satisfactory and they are not well received and discounted on the bourses. It may be seen that established players with total value chain from spinning to fabrics are not even liked and sector has been discounted at a PE multiple of 5 to 7 times.

Mudra Lifestyle is just one company to narrate, which went public in February 07 and issued shares at Rs.90 per share is now ruling at Rs.42. This company is a complete textile and garment unit with its own facility for yarn dyeing, weaving, processing, garment manufacturing, product development and design studio with sampling infrastructure. Even financial performance of the company is quite good with total income of about Rs.175 crores for 9 months ending 31-12-07 with PAT of Rs.24 crores, giving an EPS of Rs.6.50 for the period. This implies a PE multiple of less than 5 for the company.

This company had posted its best ever results for 10 months ending 31-01-08 wherein, on consolidated basis, total income was at Rs.150 crores which is largely from trading, while PAT was at Rs.12.66 crores. This works out to an EPS of Rs.10 on pre-issue equity of Rs.12.23 crores. Though the company commenced its weaving activities with 100 looms but same is operating just at 51%. Inspite of this, the company is going in for expansion of its weaving division.

The other object of the company is to set up production capacity of 5,000 pieces of men’s wear shirts, per day without having back up support of processing and dyeing and hence margins of this division would remain under pressure. The company had estimated fund requirement of Rs.51 crores, including repayment of term loan of Rs.18 crores. As against this proposed IPO would mobilize Rs.66 crores at the lower end of price band. Also Rs.18 crores, having availed as term loan for its weaving project is now being repaid from proposed IPO. Even the existing weaving project is carrying out job work, which is giving low returns. However, doing own job would need huge working capital and strangely no working capital provision has been made by the company in its cost of project for new projects.

Even as at 31-01-08, the debtors of the company are at Rs.40 crores. As on that date, total debt of the company was Rs.56 crores, which results into a debt equity ratio of 1.25 : 1.

Considering all these, structuring of the new projects by the company is very risky and would continue to face working capital pressure. Considering the peers available in the secondary market, share is not even worth at Rs.40.

Clear advise to remain away from the issue.

Grey Market Premium Dt. 1-6-2008

Grey Market Premium Dt. 1-6-2008

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac.)
Gokul Refoils	195	8 to 10	---
Anus Laboratories	210	40 to 45	--
Niraj Cement	175 to 190	5 to 7	---
Bafna Pharmaceutical	40 (Fixed Price)	10 to 12	---
Avon Weighing	10 (Fixed Price)	--	--