Jaypee Infratech: JP ho

Jaypee Infratech is entering the capital market on 29th April 10 to 4th May 10, with a public issue of Rs.1,650 crores, comprising of a fresh issue, as also an offer for sale of 6 crore equity shares, by J P Associates, being the promoters of the company, in the price band of Rs.102 to Rs.117 per share. A discount of 5% is to be given to Retail Individual bidders, on the discovered price.

The company is developing 165 kms., 6 lane Expressway between Noida and Agra, with concession period of 36 years, as also developing 6,175 acres of land as real estate development, at 5 locations between Noida and Agra, on a lease of 90 years, with each location having 1,235 acres of land. Land of 5,060 acres will be required for Expressway and 6,175 acres will be for real estate development and entire 11,235 acres of land would be the actual cost of acquisition by Yamuna Expressway Authority (YEA). This total land is estimated to cost Rs.2,619 crores, of which Rs.2,556 crores, being 98% has already been paid by the company to YEA.

Apart from this, cost of construction of expressway will be Rs.5,300 crores with interest cost during construction of Rs.1,350 crores and contingencies and preliminary expenses of Rs.470 crores. Aggregate cost to the company, of expressway and real estate development land, would be Rs.9,739 crores, of which, Rs.6,250 crores has been spent till 28th February 10. The company is running two years ahead of its expressway project and would complete it by March 11. Real Estate development is a self sufficient project, which has infact, already realised Rs.1,090 crores in last 21 months, from sale of real estate area. Of total real estate land, 55% of the land is in NCR region. Moreover, sale proceeds will not attract any tax as 100% of profits and gains is allowable as a deduction for 10 consecutive years, which the company had availed from FY09.

Of the total amount spent of Rs.6,250 crores till 28th February 10, Rs.4,200 crores was raised from banks while Rs.1,900 crores came from net worth, being share capital and reserve created on sale of real estate area as stated hereinabove.

The company will be getting about 460 million square feet of saleable area with FAR of 1.5, of which, 250 million sq. feet is in NCR region. So the company will be making all the efforts to sale requisite land area, whereby, it can become debt free after availing benefits of tax free income, under section 80 IA (4) of the Income Tax Act. So in this situation, toll income from expressway can largely get added to the bottomline of the company, as no debt service obligations will be there for the company.

The present equity of the company is at Rs.1,226 crores, which in any case, won’t rise beyond Rs. 1,400 crores, even if we presume issue being made at the lower band, less 10% discount to retail individual shareholders. Assuming the company to become debt free in next couple of years, it will have a market capitalisation / enterprise value of close to Rs.16,000 crores, taking issue price at Rs.117 per share.

All this makes the company an infrastructure player in road, coupled with realty company, having presence in NCR region with title and price of land having obtained on clean and best terms. All future cash flows, from FY12 onwards, can make the company to bid and go for similar other projects in other states or pure road and infrastructure projects.

Considering all this, issue looks quite attractive as the company has 98% paid land for realty, with road project to get completed two years ahead of its schedule with very low gearing and expected debt free status. 5% discount to retail individual bidder is an extra sweetner.

Investment is recommended even at the upper band of Rs.117 per share, wherein, effective cost per share will be Rs.111.15 only.

Satluj Jal Vidyut Nigam Ltd. (SJVNL): Go for POWER

SJVN Ltd. is entering the capital market on 29th April 10 to 3rd May 2010, with a public issue of 41.50 crore equity shares of Rs.10 each, in the band of Rs.23 to Rs.26 per share. A discount of 5% will be given to the Retail category and this is an offer for sale by the Government of India.

The company is presently operating a 1,500 MW hydroelectric power project at the Nathpa Jhakri Hydro Power Station (NJHPS) situated on river Sutlej, in the state of Himachal Pradesh. The company is currently constructing a 412 MW hydroelectric power generation facility, known as Rampur Project, located downstream from NJHPS and will be commissioned in 2013. The company intends to finance this project with internal accruals only and hence, equity of the company will remain same at Rs.4,137 crores.

Though the company has many other hydro power projects in pipeline, like 825 MW in Himachal Pradesh with 51% interest, 363 MW in Uttarakhand, 1,500 MW in Manipur in JV with NHPC and 900 MW on BOOT basis in Nepal, but the same are not considered, as they are either at an early and elementary stage or no financial closure of them have taken place.

The company can well be compared with NHPC, which has 5,175 MW hydropower generation capacity, with 13 projects, located in 5 states. Though capacity of NHPC is about 3.50 times of SJVN Ltd., but the topline and bottomline of NHPC is not commensurate with its capacity, due to power plants being in operation for the last over 15-18 years, with low power tariff. For FY09, NHPC had a total income of Rs.4,050 crores with PAT at Rs.1,245 crores, giving an EPS of Re.1.10, on equity base of Rs.11,182 crores, with book value at Rs.16.45, as at 31st March 09. As against this, SJVN had total income of Rs.1,635 crores with PAT at Rs.759 crores, resulting in an EPS of Rs.1.85, with book value at Rs.16.45 as at 31st March 09.

Despite better financials of SJVN, price band has been kept reasonable at Rs.23-Rs.26 per share, and on top of it, a 5% discount is being offered to retail category. It seems that the government has realised its mistake of aggressive pricing of NHPC. Even if we take the upper band of Rs.26, share is issued at a PBV of 1.40 times, based on expected book value of Rs.18.50, as on 31st March 10. Issue price of Rs. 26 per share is giving as PE multiple of 10 times on expected EPS of Rs.2.60 for FY10. Enterprise value of the company is likely to be at Rs.13,000 crores, which translates into EV per MW of around Rs.6.80 crores, on expanded capacity of 1,912 MW or at Rs.8.70 crores, on present capacity of 1,500 MW, which looks quite reasonable.

Considering all this, issue is recommended for investment even at the upper price band of Rs.26 per share, as it can list at around Rs.30. Effective cost per share, to retail investor will be Rs.24.70 per share, at the upper band.

Tara Heal Foods: Unhealthy for you

Tara Health Foods has entered the capital market on 28th April, 2010 with a public issue of 1 crore equity shares of Rs.10 each, in the revised price band of Rs. 175 to 185 per share, down from Rs.180 to Rs.190 per share earlier. The closing date of the issue has also been extended till 5th May, 2010. Since the price reduction is too meagre, the issue is still an avoid, even at the revised price band.

The company is a solvent extraction unit, presently having 250 TPD solvent extraction plant, 120 TPD edible oil refinery and 500 TPD cattle/ poultry feed plant (250 TPD - 2 plants) in Punjab and Uttaranchal. Of these 4 units, only one unit being 250 TPD cattle/ poultry feed, having made operational in February 2007 and located in Uttaranchal, is entitled for 100% income tax exemption for first five years under section 80 – IC and 100% excise exemption for 10 years. So bottomline, which was quite meager till FY07, suddenly shot up in FY08 to 9M of FY10. In FY08, tax liability of the company has been at around 12 percent, while it was at 11 per cent in FY09 and at 16% in 9 months of FY10. So does it mean that major chunk of profit is coming in only from 250 TPD cattle feed plant located in Uttaranchal, a tax free zone while other 3 plants are not contributing much to the bottomline of the company? As such, 100% tax exemption of this unit will expire in March 11, while new unit, being set up at Malerkotla in Punjab, would not be entitled for such benefits.

The company is now setting up an edible oil refining plant of 300 TPD and cattle feed plant of 250 TPD, as also augmenting long term working capital requirements. All this is estimated to cost Rs.170 crores excluding issue expenses and funds for general corporate purposes. All this is going to get financed from IPO.

It may be seen that the working capital requirements of the company is very high as evident from inventory and debtors of Rs.196 crores, as at 31st December, 2009, on total income of Rs.243 crores, for 9 months ending 31st December, 2009. This represents over 7 month sales. This is partly financed by working capital finance of Rs.107 crores while balance of Rs.90 crores from net worth and creditors. Due to this, net block of Rs.56 crores is still financed by term loan of Rs.33 crores, as on 31st December, 2009. So, there is hardly any room for any money coming in from internal accruals, in case of delay, over-run or short fall. As such there is no substantial progress on the proposed expansion, as all the funds are to be mobilised from the IPO only. It is also most likely that even if the company succeeds in successfully completing the IPO, new project won’t be operational in FY11.

For FY09, the total income of the company was at Rs.198 crores with PAT at Rs.17 crores, giving a PAT margin of 8.60%. In 9 months ending 31st December, 2009, PAT is placed at Rs.36.30 crores on total income of Rs.243 crores resulting in a PAT margin of 14.95%. Is this the magic of IPO? In normal circumstances, FY11 should be able to post a topline of Rs.350 crores with PAT of Rs.30 crores, which also happens to be its last year of 100% tax exemption for Uttaranchal unit. This will translate into an EPS of close to Rs.10 on expanded equity of Rs.30 crores, which results in issue at a PE of 18 to 19 times. Even if we double the EPS, still EPS works to 9 to 9.50 times, against PE of 7 times of Raj Oil Mills which is expected to have an EPS of Rs.9 on topline of Rs.400 crores for FY10 on equity base of Rs.36 crores. Even Murli Industries, expected to have an EPS of Rs.44 for FY10 on topline of Rs.600 crores, is ruling at Rs.96, a PE of about 2.2 times.

Considering all this, issue has no substance as it is grossly overpriced with many threats of better corporate governance, attracting higher tax rates, future prospects and long gestation of new projects. Clearly, avoid it, even at the lower price band, and look to buy peers available much cheaper in the secondary market.

Mandhana Industries: More Dhan at lower end

Mandhana Industries is entering the capital market from 27th April 2010 to 29th April 2010, with a public issue of 83 lakh equity shares of Rs.10 each, in the price band of Rs.120 to Rs.130 per share.

The mood is just right and hence the timing of the issue perfect! The investor perception is currently positive for textile companies and an IPO from this sector is sure to evince some interest. But that positive vibe is only if the pricing is right.

The company is a vertically integrated textile and garment manufacturing company starting from yarn dyeing to making garments. The company has capacity to make 180 lakh meters per annum of greige fabrics and during 9 months ending Dec.09, production was 115 lakh meters. The company has 1,150 sewing machines, with an overall production capacity of 36 lakh pieces per annum.

Now, the company is setting up a new garment manufacturing facilities at Tarapur, as also, expanding the yarn dyeing and weaving facility at Tarapur. This is estimated to cost close to Rs.240 crores, which is partly financed by term loan of Rs.104 crores, being availed under TUFS and balance by the IPO, with shortfall coming in from internal accruals. It is good to see Axis Bank infuring Rs.25 crores for this expansion, by subscribing to equity shares, at Rs.115 per share, on 15th September 09.

For 9 months ending Dec.09, the company has posted a total income of Rs.439 crores with PAT of Rs.28.50 crores, which has been achieved after incurring a forex loss of Rs.18.60 crores, which has been booked by the company, in this period. This has resulted in an EPS of Rs.11.50 for the period. The company should be able to post an EPS of close to Rs.18 for FY10, on pre-IPO equity of Rs.24.82 crores.Paid up equity will rise to Rs.33.12 crores, post IPO.

The company has been a consistent performer and having good global clients, spread in Europe, where margin is better than U.S. markets. Also, the strength of the company lies in its design, for which the company has a studio cum garment sampling house at Sewree in Mumbai. Presently, textile sector is doing quite well and those having vertically integrated structure are doing well. Due to strength of providing designer clothes for ladies segment, the company has an edge over its competitors.

For FY11, the company is likely to have a topline of Rs.675 crores with expected bottomline of Rs.66 crores, which would translate into an EPS of Rs.20, on expanded equity base of Rs.33.12 crores. Even the present book value, per share, is at Rs.74, as at Dec.09, which is quite comfortable. However, debt equity ratio of 2:1 is bit on the higher side for this growing company; which will fall to 1.65 times, post IPO. So, share at Rs.120, being its lower band, is issued at a PE multiple of 6 times, based on estimated earnings for FY11, at Rs. 20 per share. Also, company having issued shares to Axis Bank at Rs.115 per share, about 7 months back, gives confidence.

So, share at Rs.120, looks reasonably priced, thus leaving a margin of about 15% on table for the prospective investors, while at Rs.130 being the upper band, looks little expensive.

Tarapur Transformer: High Voltage shock

Tarapur Transformer has entered the capital market on 26th April 10, with a public issue of 85 lakh equity shares of Rs.10 each, in the band of Rs.65 to Rs.75 per share.

The compay is engaged in making Transformers with installed capacity of 1839 MVA and repairing of 1,800 MVA per annum. Despite the company having three plants, its level of activity has remained quite low. For FY09, the total income of the company was at Rs.24 crores with PAT at Rs.2.15 crores resulting in an EPS of Rs.2.15. Even for 9 months ending Dec.09 it had a total income of Rs.22.88 crores but PAT fell to Rs.1.55 crores resulting in an annualised EPS of Re.1.88. On a networth of Rs.21.28 crores as at Dec.09 its total debt at Rs.18.90 crores and sundry debtors of Rs.13 crores and inventories of Rs.7.77 crores are matter of concern. Why a company partly engaged in repairing of transformers should have such a huge debt and current assets?

Now company has chalked out an expansion and diversification programme of about Rs.70 crores, of which Rs.25 crores is for acquisition for diversification. No detail of the same has been given. This looks too general and not very convincing.

The company issuing shares at lower band of Rs.65 per share, translate into a PE multiple of 35 times while at the upper band, it works out at 40 times. Even annualised topline is multiplied by over 5 times. There are many established players in Transformer making available with PE multiple of close to 15 times, with topline in excess of Rs.500 crores.

So better to give it a pass as it is too expensive an issue from too tiny a company in the sector.

Nitesh Estates: Dont invest in their states

Nitesh Estates is entering the capital market on 23rd April, 2010 with a public issue of Rs.405 crores, in the price band of Rs.54 - Rs.56 per share. This would translate into an issue of about 7.36 crore shares. One good thing which is being noticed now is, fixing of price band with a narrow range of just about 4 per cent, against permissible 20 per cent.

The company seems to be facing a lot of liquidity pressure despite being a small and regional player, having presence in Bengaluru. The company, as on 20th March, 2010 has 7 ongoing projects and 4 forthcoming projects, with a combined saleable area of 3.64 million sq.ft. However, break up of this, given on page 52 of RHP is showing some variations, in share of the company, which is inflated by about 50,000 sq.ft. in some projects like Nitesh Hyde Park and Nitesh Columbus Square. At 2 of its ongoing projects, Wimbledon Gardens, which constitutes 33.7% of its ongoing residential project and 100% of commercial project, work is suspended from FY09. The subsidiary of the company NIRPL has paid Rs.35.50 crores, for 5.80 lakh sq.ft. saleable area in Nitesh Mall and it still has to pay a further amount of Rs.49.50 crores, by 30th June 2010. Even terms of shareholders agreements, entered with PE investors like AMIF I Ltd. and Brand Equity Treaties Ltd., is forcing the company to expedite its IPO. On top of it, the company had a total debt of Rs.194 crores, as on 31st Dec. 2009, on a net worth of Rs.69 crores, resulting in a debt equity ratio of 2.8:1.

Apart form this, the company has no financial performance to speak about; infact it has no significant revenue from its core business of property development. In FY09, of its total income of Rs.88 crores, Rs.55 crores came from contracting work, while Rs.27 crores came from sale of development rights. And though the topline is in double digit, despite being a realty company, its PAT was paltry at just Rs.2.77 crores. Even during 9 months ending Dec.09, total income was just at Rs.67 crores, with net loss of Rs.1.33 crores.

Inspite of such a pathetic financial performance, the company has courage to issue bonus shares in the ratio of 9 shares for every 1 share held, due to which, paid up equity capital of the company, increased to Rs.69.78 crores. Strangely, this has placed net worth below its paid up equity at Rs.69.41 crores as at 31st Dec. 2009, due to debit balance in the profit and loss account, of Rs.37 lakhs.

The company claims to have 3.64 million sq.ft., of which, 1 million sq.ft. is out of Bengaluru. As stated earlier, even of this 2.65 million sq.ft. in Bengaluru, the clear title of the company is linked to so many obligations and performances.

Post IPO, paid up equity of the company will rise to Rs.145 crores. Even now, the company needs about Rs.725 crores, but has restricted its requirement to Rs.361 crores only, leaving uncovered liabilities of Rs.342 crores, in respect to Ritz Carlton Project. These factors may have forced the promoters of the company, even to agree for about 52% dilution to mobilise Rs.405 crores.

So by no way can the present saleable area can be valued out at about Rs.3,850 per sq.feet, which is being asked by the company, on its estimated EV of about Rs.1,400 crores. Infact, there is no track record of performance and even completion of all these projects may take over 5 years.

Much better plays are available in mid and large cap segment in reality sector, with strong presence in cities like Mumbai, Delhi, NCR and Bengaluru. Some of them are DB Realty, HDIL, Ansal, Brigade, Peninsula, etc. So, the proposed IPO is made to tide over present financial crisis and inspite of keeping band of Rs. 54-56 per share, it is still looking grossly over-priced, which should not have been more than Rs.30 per share.

Hence, a clear advice is to avoid it.

Talwalkars Better Value Fitness: Will slim your pocket

Talwalkars Better Value Fitness is entering the capital market on 21st April 2010, with a public issue of Rs.60.50 lakh equity shares of Rs.10 each, in the band of Rs.123 to Rs.128 per share. Thank god, atleast band is quite narrow with range of just Rs.5.

Talwalkar is a known name in Mumbai city for operating gymnasium, but is it worth Rs.300 crores of market capitalization or Rs.360 crores, of enterprise value? This is in the backdrop of the promoters of the company, operating about 11 gyms under the similar brand in their closely held companies and 13 gyms operated by the rival factions of the Talwalkar family. This is also, asking for an average valuation of Rs.4.25 crores per gym, against estimated cost of Rs.1.86 crores, for setting up a new gym.

The company is presently having 58 health clubs, in 28 cities of 12 states and is now planning to set up 27 new owned health clubs, with each, costing Rs.1.86 crores. The company also intends to mobilize Rs.20.60 crores, for repayment of part of its unsecured loans, which were at Rs.31.33 crores, as at 31-12-09. So exit is given to JV and Associates by repaying their loans from IPO proceeds.

The present equity base of the company is quite high at Rs.18.07 crores, which will rise to Rs.24.12 crores, post IPO. Infact, company issued shares at Rs.158.19 and Rs.222 per share (adjusted for FV of Rs.10) on 12-01-06 and 07-12-07. Even on 05-10-09, Shares were issued at Rs.635 per share, to the promoters of the company. So to compensate them, the company has issued bonus shares in the ratio of 7 shares for every 1 share held. Now that is what one can ‘better value’!

Coming on its financials, for FY09, it had a topline of Rs.59.42 crores, with PAT at Rs.5.69 crores, which has been its best ever performance, resulting in an EPS of Rs.3.15, on its present equity base. For 9 months ending Dec.09, total income was at Rs.48.82 crores, with PAT at Rs.4.29 crores, giving an annualized EPS of Rs.3.15 only. This indicates a fall in its margin in the current year with not much increase in its topline.

If we take an average issue price at Rs.125 per share, share is being issued at a PE multiple of about 40 times and at a PBV of 5.50 times. Even topline is being multiplied by over 5.50 times, on its EV basis. Asking for a valuation of Rs.4.25 crores per health club is exorbitant. This kind of valuations would not have been justified, even for a company having over 250 gyms or expected to have a market cap of over Rs.1,500 crores. So how this can be valid and justified for a mid size company like this?

Advise to look for value elsewhere and not to spoil your health by joining this IPO.

Grey Market Premium Dt. 23-4-2010

Latest Grey Market Premium Dt. 23-4-2010

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac Application)
Talwalkars Better Value Fitness Ltd.	123 to 128	18 to 20	1600 to 1700
Nitesh Estate	54 to 56	2 to 2.50	1700 to 1800
Tarapur Transformers	65 to 75	5 to 6	1750 to 1800
Mandhana India Ltd.	120 to 130	9.50 to 10	--
Tara Health Foods	--	--	--
Sutlaj Jal Vidhut Nigam (SJVNL)	--	2 to 2.25	1700 to 1800

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Grey Market Premium Dt. 12-4-2010

Latest Grey Market Premium Dt. 13-4-2010

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac Application)
Infrasoft Technology	145	7 to 10	--
Goenka Diamond & Jewellery	135	Discount	--

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Grey Market Premium Dt. 7-4-2010

Latest Grey Market Premium Dt. 7-4-2010

Company Name	Offer Price (Rs.)	Premium (Rs.)	Kostak (Rs. 1 Lac Application)
Shree Ganesh Jewellery	260	Discount	--
Infrasoft Technology	145	10 to 12	--
Goenka Diamond & Jewellery	135	Discount	--

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