United Bank of India: Right Price

United Bank of India is entering the capital market from the 23rd Feb 2010 to 25th Feb 2010 with a public issue of 5 crore equity shares, issued in the price band of Rs.60-66 per share. It aims to raise Rs.300 crore at the lower price band and Rs.330 crore at the upper price band. Retail investors have been given a discount of 5% over the issue price.

It seems like a modestly priced bank issue but somehow, it does not seem to have the kind of brand presence, which is usually associated with PSU banks. This maybe due to the fact that of the 1505 branches, 973 are in Eastern India and 258 are in North East India; 82% presence is in Eastern India only. Hence for the rest of India, it’s name is not too familiar, often getting confused for Union Bank of India.

The bank, probably because of its concentration in East India, where credit offtake is typically lower than the deposit inflows, which is the banking pattern of the region, the bank obviously has healthy CASA deposits. As at 30th September 2009, the share of CASA deposits was at 33.96% of the total deposits of which savings formed 26.41%. Naturally, this brings down its cost of funds, which was at 5.78% for FY09 as against the average cost of nationalized banks at 6.18%. This is also the reason why the bank has a low credit-deposit ratio of 63.7% while the cost-income ratio is high at 57%. But this is also the reason why the growth of the bank will remain dull and stable and unless the bank gets a pan India presence, its growth rate would not exactly jump through the roof.

And it is to tackle this issue of growth that the bank is making this IPO. Its main purpose is to improve the capital adequacy. As at 30th Sept 2009, it was at 12.93% and it is expecting that once the fund infusion comes, it will go up to 15%. The Govt is injecting an additional dosage of Rs.550 crore through preference share allotment.

This bank also faces the risk faced by all the PSU banks – it has to dance to the whims and fancies of the Govt. The agriculture waiver of loans is such a case in point. Its outstanding from farmers as at 31st Dec 2009 stood at Rs.33.13 crore, which is not too much but then the sword of the Govt diktat keeps hanging.

Financially, the bank is being compared with the likes of Allahabad Bank and Andhra Bank. But even compared to these two, it is a much smaller bank, in terms of earnings. The total business (deposits and advances) of the bank stood at 1.05 lakh crore as of September 2009. The bank posted a net profit of Rs.358.55 crore for FY09 as against Rs.769 crore posted by Allahabad Bank and Rs.653 crore posted by Andhra Bank. NIM of United Bank was at 2.14% for FY09. Allahabad Bank for Q3FY10 had a NIM of 3.2% and Andhra Bank at 2%. So this comes somewhere in between. Net NPA was at 1.3% which is much higher than that of Andhra Bank of 0.17% and 0.35% of Allahabad Bank as at31st Dec 2009.

Net profit for H1FY10 was at Rs.231.10 crore and on an equity capital of Rs.266.43 crore, annualized EPS works out at Rs.17. This gives us a PE of 4 times on the upper price band of Rs.66 and 3.5 times on the lower band of Rs.60. Andhra Bank has a similar annualised EPS of Rs.17 and its current market price is Rs.100, giving us a PE of 6 times.

So if we keep Andhra Bank as a benchmark, then probably, the valuation of United Bank looks attractive. Gains will not exactly be windfall but slow and steady. So if Andhra Bank is your cup of tea, so will United Bank be.

Man Infraconstruction: Ohh God, No Man

Man Infraconstruction has entered the capital market from 18th Feb 2010 to 22nd Feb 2010 with an IPO of 56.25 lakh equity shares, with a face value of Rs.10 per share. It is offering the shares in the price band of Rs.243 to Rs.252 per share. This means, it will raise Rs142 crore at the upper-end of the price band and Rs.137 crore at the lower band.

A contracting company in the garb of an infra construction company? When the existing investors are running as far away as possible from the bigwig realty companies, how did the promoters of Man think that mankind would be interested in an expensive, pure realty company at this point of time? Maybe the company felt that investors would bite the bait, as it is a zero debt company.

Man Infra is basically a realty contracting company, and though it says it provides construction services for port infrastructure, residential, industrial, commercial and road infrastructure projects, its main bread winner is through building residential properties. As at 31st Dec 2009, 83% of the outstanding order book of the firm of Rs. 3,020 crore was in residential projects of which about 50% was for slum redevelopment and 10% for commercial and less than 5% is for ports. One question comes to mind – does building homes also come under the umbrella of ‘infrastructure building’? Just wondering about it as the name of the company seems to suggest that!

Financially, for FY09, the company has a topline of Rs.440 crore on which it posted a PAT of Rs.60.30 crore, giving an EPS of Rs.13.75. For 9MFY10, the company posted a revenue of Rs.381 crore and PAT of Rs.66.40 crore, with EPS at Rs.15. NPM was at 17% and this is currently higher than the average industry NPM of around 8%. Clearly, the forthcoming IPO has acted like a steroid when it comes to performance. But will this NPM be sustainable, that is the biggest question? Seems highly unlikely.

Market cap is currently at Rs.1,100 crore and post IPO, it would be at Rs.1,250 crore, based on the upper price band of Rs.252. This means we are looking at a market cap turnover ratio of 2 times as against the ratio of 0.5 times for most of the listed peers. The IPO does get the adrenalin going for companies! And once again the big question that pops up is – will this be sustainable?

The question of sustainability does not end here. For FY10, based on the performance till 9MFY10, we can safely estimate that the company would have a topline of Rs.550 crore and PAT of Rs.100 crore, meaning we are looking at an EPS of Rs.22. This means, on the upper price band of Rs.252, it is at a PE of 11 times. Most of the existing companies are currently quoted at a PE of around 7 to 9 times. Man, the company really thinks it’s the cat’s whiskers! The entire effort of the company, post IPO would be wasted on sustaining these existing margins and not about growth.

The IPO is way too expensive, both at the upper as well as the lower price band. When realty companies are wooing people with ‘affordable housing’, how can its contractors make handsome profits? Would investors be really interested in a company whose shares are being offered at an unaffordable price?

Grey Market Premium Dt. 19-2-2010

Latest Grey Market Premium Dt. 19-2-2010

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac Application)
Aqua Logistics	220	2.50 to 3	--
Thangamayil Jewellery	75	2 to 3	--
D. B. Realty	468	Discount	--
Emmbi Polyarns	45	2 to 3	--
NTPC (FPO)	201	4 to 5	--
ARSS Infrastructure Projects	450	130 to 135	--
Hathway Cable & Data Comm.	240.00	+/- 3 to 4	--
Texmo Pipes	85 to 90	8 to 9	1950 to 2000
Man Infraconst.	243 to 252	45 to 48	1800 to 1950
REC (FPO)	203.00	10 to 11	1800 to 1900
United Bank of India	60 to 66	5.50 to 6	1900 to 200

Note: Dont subscribe for issue by just seeing premium Price as it may change anytime before listing. Subscribe only considering Fundamental of the companies

Texaco Pipes: PIP it

Texmo Pipes and Products is entering the capital market from 16th Feb, 2010 to 19th Feb, 2010 with a public issue of 50 lakh equity shares of Rs. 10 each, in the band of Rs.85 to Rs.90 per share.

This Madhya Pradesh based company clearly thinks that in the current market, retail investors have an appetite for an issue like this. It has two manufacturing units, located adjacent to each other at Madhya Pradesh. The company is a manufacturer of PVC and HDPE pipes, with the current installed capacity of PVC pipes standing at 25,094 MTPA and that of HDPE at 11,023 MTPA. It is raising money from the market to expand the total capacity of PVC pipes to 41,674 MTPA. It plans to diversify into making woven sacks and injection mouldings. It also plans to make CVPC pipes, drip inline pipes and DWC pipes.

Out of the total order of Rs.30.42 crore received in FY09, 16.26% came from Idea Cellular, 7.43% from Tata Communciations, 1.53% from Aditya Birla Tele and rest from small sized companies. 53.02% orders came in FY09 from the agriculture sector, 24.89% from the telecom, 16.15% from potable water segment and 5.94% from others. As at 31st Dec 2009, the company had 169 dealers and looks like the 11 distributors, who were there in FY09 were given the boot.

For the seven month period ended 31st Oct 2009, the company had a net sales of Rs.39 crore, on which it posted a net profit of Rs.3.36 crore. Its cash and bank balance for the period was at Rs.1.15 crore. Its loans, secured as well as unsecured stood at Rs.25.88 crore, which is almost six times its earnings. With interest rates expected to start going up, this size of debt for the size of operations which the company has, does not seem like a good idea. Even net worth of Rs.15.22 crore results into a debt equity ratio of 1.70:1.

Post issue, promoters holding will stand at 55.63% while 43.48% will be held by the public.

At the upper price band of Rs.85, its PE based on EPS as at 31st March 2009 is at 12.50 times and at 13 times on the upper price band of Rs.90 per share. It is in direct competition with the likes of Kisan Moulding, Precision Pipes, Tulsi Extrusions, which are ruling at lower PE multiples.

This is a typical low margin kind of industry and investor fancy for the same is also poor. Like is the practice nowadays, we may see listing gains but this would have nothing to do with either the fundamentals or the investor fancy for the IPO. Too expensive even at the lower price band.

Grey Market Premium Dt. 11-2-2010

Latest Grey Market Premium Dt. 11-2-2010

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac Application)
Aqua Logistics	220	4 to 5	--
Syncom Healthcare	75	10 to 12	--
Thangamayil Jewellery	75	3 to 4	--
Vascon Engg.	165	5 to 7	--
D. B. Realty	468	11 to 13	--
Emmbi Polyarns	40 to 45	2 to 3	--
NTPC (FPO)	201	2 to 3	--
ARSS Infrastructure Projects	410 to 450	45 to 50	1900 to 2100
Hathway Cable & Data Comm.	240 to 265	4 to 5	1800 to 2000
Taxmao Pipes	85 to 90	8 to 10	--
REC (FPO)	--	--	--

Note: Dont subscribe for issue by just seeing premium Price as it may change anytime before listing. Subscribe only considering Fundamental of the companies

ARSS Infrastructure: Sound Base

ARSS Infrastructure Projects has entered the capital market from 8th Feb 2010 to 11th Feb 2010, with a public issue of Rs. 103 crores in the price band of Rs. 410 to Rs. 450 per share.

The company is a construction and contracting company with main presence in railway and roadwork. As at 10th January 2010, the total order book of the company was at Rs. 2,878 crores, of which railway orders were of Rs. 1,184 crores and road orders were of Rs. 1,164 crores. The company has executed orders for Indian Railways, Orissa Govt., RITES, IRCON, NTPC, NHAI, IOC, Vedanta Group and JSPL.

For FY09, the total income of the company was at Rs. 628 crores with net profit being placed at Rs. 51 crores resulting in an EPS of Rs. 40.60. The company has posted a CAGR of 117% in its revenue and 120% in its PAT over period between FY2007 to FY2009. For 9 months ending Dec. 09, the total revenue of the company was placed at Rs. 610 crores with PAT at Rs. 50 crores resulting in an EPS of Rs. 40 for the period. As fourth quarter of the company, as well as of the industry is always better, it should be able to post a topline of close to Rs. 860 crores and PAT of Rs. 70 crores which should result in an EPS of close to Rs. 48 for FY10 on the expected expanded equity base of close to Rs. 15 crores.

The company has been commanding better PAT margin of close to 8.20% largely due to focus on railway projects, where profit margin is better, due to the edge and specialization which the company has in executing such projects. The proposed IPO may result in a dilution of close to 16% to 18%, depending on the discovery of the price band. Also, as the company has orders in hand of Rs. 2,878 crores, same are likely to get executed in next 2 years which hints for a growth of over 30% over next 2 years. This should therefore be EPS accretive as dilution under no circumstances is likely to be over 20%.

The issue at the upper price band of Rs. 450 is discounting FY10 earnings of the company by less than 10 times while at the lower band of Rs. 410 it will be less than 9 times. Similar companies in the secondary market are ruling at a PE of over 12 times. So issue seems to be having scope of appreciation on listing and going ahead. It would be prudent and extra sweeter if book is discovered at lower end, giving better margin of safety to the prospective investors.

Hathway: No Way

Hathway Cable & Datacom is entering the capital market from 9th Feb 2010 to 11th Feb 2010 with a public issue of 2.78 crores equity shares of Rs. 10 each, in the band of Rs. 240 to Rs. 265 per share. The issue comprises fresh issue of 2 crore equity shares and an offer for sale of 77.50 lakh equity shares, by 2 investors.

The company is a cable television services provider and cable broadband service provider offering analog and digital cable television services, across 125 cities and towns, with about 13.47 lakh subscribers for analog cable television and 10.02 lakh digital cable television subscribers, as on 30th November 2009.

The company has been consistently incurring losses on the net level from FY05 onwards till 6 months ending 30-09-09, and the total net losses incurred in these 5 and half years have been at Rs. 304 crores. Though the topline of the company has been showing an improvement having moved to Rs. 673 crores in FY09, from Rs. 209 crores in FY05, but what is the point, if net losses are also on an increase with rise in topline. Net loss of Rs. 36 crores in FY05 has moved to Rs. 63 crores in FY09 and to Rs. 42 crores in 6 months ending 30-09-09. This means, the business of the company is like two railway tracks, which looks meeting at a distance but never meet.

Also, this company can more strictly be compared with Den Networks, a company recently went public and share now ruling at Rs. 186. This company has similar business model, similar business objectives going ahead but on a much larger scale. Though, this company has presence in 77 cities for analog and 37 cities for digital, but have cable television in about 10 million homes and about 3 lakh digital cable television subscribers, as of Dec. 08. Due to this, even its topline is quite respectable at Rs. 725 crores for FY09 with net loss of just Rs. 15 crores. For 9 months ending Dec. 09, its topline is at Rs. 633 crores, with net profit of Rs. 13 crores. Also, this company does not have baggage of past losses and debt. Even equity base of the company is reasonable at Rs. 132 crores against expected equity base of Rs. 143 crores, post IPO, of Hathway.

Hathway is mainly giving exit to its PE investors and alongwith this, raising about Rs. 500 crores, as its existing debt equity ratio is already over 1:1, as of date. Post IPO, even at the lower band, its market cap will be about Rs. 3,500 crores and EV will be about Rs. 4,000 crores, against market cap of Rs. 2,500 crores of Den Networks.

So by any standards the issue is not worth considering, as comparable peer with better fundamental is available at Rs.186.

Just give a pass to the issue as it is highly expensive and proposed IPO proceeds will go in blackhole.

Grey Market Premium Dt. 5-2-2010

Latest Grey Market Premium Dt. 5-2-2010

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac Application)
Jubilant Food Works	135 to 145	20 to 21	--
Aqua Logistics	220	5 to 6	--
Syncom Healthcare	75	8 to 9	--
Thangamayil Jewellery	75	2 to 3	--
Vascon Engg.	165	7 to 8	--
D. B. Realty	468	9 to 10	--
Emmbi Polyarns	40 to 45	2 to 2.50	--
NTPC (FPO)	201	4 to 5	2100 to 2200
ARSS Infrastructure Projects	410 to 450	38 to 40	1800 to 1900
Hathway Cable & Data Comm.	240 to 265	24 to 25	1900 to 2000
REC (FPO)	--	--	--

NTPC: No To Power Company

NTPC has entered the capital market from 3rd Feb 2010 to 5th Feb 2010, with an FPO of 41.23 crore equity shares, of Rs. 10 each, with floor price having fixed for retail and HNI category, at Rs. 201 per share. The entire FPO is an Offer for Sale by the Govt. under its divestment programme, with 50% issue reserved for QIB, 15% for HNIs and 35% for retail category. While HNIs and Retail category will get the allotment at Rs. 201 per share, QIB category will get it above floor price, under French Auction Method. Those who would be bidding maximum price in QIB category, will get full allotment and top down approach for allocation of shares to QIB applicants will be followed.

In case of FPO, there is no point in taking a fundamental call on the company, which infact is the job of institutional investors while retail and HNI category purely goes for the issue, based on the secondary market price. Inspite of this, government has been found to be too greedy while fixing floor price. In this turbulent market, who will go for this issue at Rs. 201 per share when it is ruling at Rs. 209 in the secondary market. If the share could correct from Rs. 242 to Rs. 209 in a month, it can also slip below Rs. 200, (as its 52 week low is at Rs. 167) in the near term. This will also be the fear of the retail investors, which will prevent them to go for it. HNIs are having much better choice and option in the secondary market, either within the sector or within other frontliners and blue chips.

Here, one needs to question the wisdom of government and investment bankers (IB) while pricing the issue. It has been gathered that IBs have earlier indicated a price of Rs. 225 to Rs. 230 per share to the Govt., as it was ruling at around Rs. 240 per share at that time. Also, it was expected that government may offer a further discount of Rs. 10 to Rs. 15, on floor price to be declared, to retail category. But nothing of that sort has happened and even the mistakes made in NHPC IPO, were not understood and learnt by the government.

If we take total issue size at floor price, it comes to about Rs. 8,200 crores. Even if a 5% discount would have been offered, government would have sacrificed Rs. 145 cores, on retail portion, which otherwise would have largely got compensated by larger participation of retail investors. Infact, PSU companies need higher retail investors’ participation, which is now at a maximum of 11 lakh investors in PSU listed companies against 40 lakh plus in case of private sector company.

With this floor price, response is likely to be lukewarm in non - QIB category which will spoil the party, going ahead for PSU divestment, especially via FPOs.

Considering all this, it is advised to skip the issue as looking to the volatility in the secondary market, chances of price shipping below floor price is quite high. It is better to buy the stock from the secondary market, when it slips below Rs. 200, instead of considering FPO.

Skip the issue.

Grey Market Premium Dt. 3-2-2010

Latest Grey Market Premium Dt. 3-2-2010

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac Application)
Jubilant Food Works	135 to 145	18 to 19	--
Infinite Computer	165	30 to 32	--
Aqua Logistics	200 to 225	7 to 7.50	2000 to 2100
Syncom Healthcare	65 to 75	9 to 10	--
Thangamayil Jewellery	70 to 75	3 to 3.50	--
Vascon Engg.	165	8 to 9	--
D. B. Realty	468 to 486	10 to 11	2200 to 2400
Emmbi Polyarns	40 to 45	4.5 to 5	1900 to 2000
NTPC (FPO)	201	10 to 12	2600 to 2700
ARSS Infrastructure Projects	410 to 450	--	--
Hathway Cable & Data Comm.	--	--	--
REC (FPO)	--	--	--