Recently Central Bank’s IPO was open for subscription and it left me really puzzled. On one hand it was getting very heavy subscription (which usually means there is going to be a good listing gains) and on the other hand i had some reservations about its valuations. (which i felt was too steep)
So this morning I was reading the bank’s prospectus and this line caught my attention:
“PROMOTER: The President of India acting through MoF, GoI”
Guess what was the next thing I did?
Bharat Earth Movers Ltd.
A Bangalore based public sector company specializing in defense contracts and manufacturing of heavy earth moving and mining equipment.
Date: 27th June to 3rd July
Price: 1020-1090
Today a friend dropped by and asked me if he should invest in the offer.
I was like… Why on earth would you invest there?
1) even at the lowest price band the issue would be at 1020 which is at just 1% discount from the secondary market price of 1035/-. So you can never make any quick bucks (even if you make any) from this issue.
2) the BEML is not the most aggressive or the biggest machine manufacturer.. there are better picks to choose from.
Price band 41-46.
Size: About 520 Cr.
Dates: 25-27 June.
I would say investors should avoid this issue.
1) Spice has been constantly making losses in all the telecom circles it operates.
2) It has the 8th largest network… which makes it too small for any strategic investments.
3) The company has not listed even a single move with which it plans to overturn its ailing fortunes.
4) The Promoters (Modi and Telekom Malaysia) are not very serious about the company. They wanted to sell it to Idea (Birla) , but the merger failed due to greediness of Modis. Hence to earn quick bucks Spice is going for this IPO.
5) NSE has refused to list its shares (but it has the permission from BSE)
DLF IPO had an option that retail investors instead of paying 550/- per share, could pay a token 150/- Per share and Pay the rest after allotment.
ICICI Bank FPO also has an offer… instead of paying 950/- investors can pay just 250/- at the time of application and pay the rest within 6 months of allotment.
I am applying to ICICI Bank as an investment, hence I would pay only 250/- upfront and then 4-6 months later pay the balance. On the other hand my father is lured by the 5% discount that ICICI bank offers him and wants to encash it ASAP, hence he is paying the entire amount upfront.
A friend of mine asked me why would anybody make a full payment if the IPO/Offer allows part payment?
My answer (the plain old standard answer….) It Depends!
Why Full Payment
1) If the reasons you are trying to invest is because of “Listing gains” (i.e. you will sell the entire holdings the moment you get the possession of the certificates) Then it makes sense to apply in full. At the time of listing there is a price discovery mechanism which causes the prices to jump up and down a lot… hence improving your chances to make a killing at the time of listing.
2) Lured by the benefit of leverage, a lot of people will make a partial payment and will end up with a non tradable ‘OPTION’… hence reducing the supply of shares. Remember it makes perfect sense to sell the shares when the supply is restricted and you would not like to miss this opportunity 
Why Partial Payment:
1) Lure of leverage… (buy more than the amount of cash in hand) One of the reasons why I am rethinking my old strategy to invest in IPOs is because of the huge amount of capital that gets blocked for 20 days.
2) Long term investment… ICICI will 6 months time for investors to convert the partially paid shares into full shares. So I can effectively hold 95K worth of shares for 6 months by blocking just 25K (sounds tempting??)
3) Over subscription: If the company allows you to pay only 1/3 of the cost upfront and the issue gets oversubscribed 3 times…. well you will get 33K of shares by paying 33K instead of the full 1L.
Typically IPO are considered safe bet for retail investors.
1) You always apply at cut-off (which means you do not have to spend a lot of time doing research about what the allotment price is)
2) There is a 35% reservations (yes Indians love reservations)…
3) You can expect some listing gains.
But recently I have started questioning my investments
1) A good issue gets oversubscribed 30-40 times .. and very good ones even more.
2) Your capital gets blocked for 20 days (almost a 550/- interest lost on a 1L application)
3) If by mistake you apply in a bad IPO, you will not only get 100% allotment, but it will also list below the issue price.
4) If by stroke of luck you get an allotment, it would be of 6-7K worth… Now this is so small a piece of pie for me to track.. so either I need to shell out an additional 20-25k to make it sizable or get rid of the allotment on the very first day 
Hence defeating the very purpose of application.
For the past 1 year, i used to keep 1L aside for IPO applications. But since I got 1L straight refund for my last couple consecutive applications I am thinking of revisiting this strategy. From now on I won’t be investing in IPOs unless it is a mega issue.
What has been your experience with IPO?
DLF is going for IPO at a price band of 500-550/-
Reasons why not to invest.
1) It is a mega issue… I will be surprised if it gets fully subscribed (in all categories) leave alone over subscribed.
2) with a EPS of Rs 12.80 it will have a PE of 47.7x… too high for an industry that is facing recession.
3) With high interest rates and construction more than the requirements (yes a lot of the developed property is now waiting for occupants) i do not see a short term bright future for any company associated with real estate.
4) With Delhi and NCR almost fully saturated, DLF plans to move outside to other regions… a risk which can backfire.
My strategy… wait for the listing… if the stock lists at 450/- buy some and if it goes to less than 400 go bullish on it.
This company is going for an IPO at a price band of 230 - 270 in a lot size of 25 share. I strongly recommend the readers to apply to this IPO.
1) Retail sector is in a boom period. It is going to be the next best thing.
2) Vishal targets value retailing… which unlike other listed retail companies makes it unique, more competitive and better positioned to face the MNC onslaught.
3) The company is very aggressive. It has 50 stores across 18 states and has plans for 80 more stores to make it a truly pan-india brand. It started as a ready-made garment retailer, but has diversified itself to a full fledged retail network.
4) I never recommend investing in a company whose products you would not like to buy. And for the bargain hunters Vishal is just the right place.
Valuations:
1) With a EPS of 20, the share should be alloted at an PE of about 13.3 which makes it 3 times more attractive to other retail chains like Trent, Pantaloom and shopper’s stop, which trade at a PE of 40+.
2) The sales of the company is 1130.7 (and doubling each year) which makes it bigger than Trent and Shopper’s Stop.
I feel a combination of aggressiveness and a boom would make a good investment opportunity.
Chennai based Indian bank plans to have an IPO in order to sell 8,59,50,000 shares and raise about 800-900 crore. The IPO is expected to hit between 1 to 2nd week of January and is being floated to meet the Basel-II norms of capital adequacy.
Salient Points:
1) It has a infrastructure sharing agreement with Oriental Bank of Commerce and Mumbai-based Corporation Bank.
2) The bank did a business of 70,000 crore each year (a 17% growth over last year).
3) The profits rose last year by 38%, primarily due to 25% increase its credit and a 17% increase in deposits.
4) The bank has an authorized capital of 1,500cr, paid up capital of 343 crore, preferential capital of 400 cr, and has over 2,000 crore in reserves.
5) The Net interest margin of the bank is a healthy figure of 3.57% and its NPA is less than 0.45%.
More updates awaited when I get my hand of the detailed balance sheet and the price band of the IPO is finalized.
Cairn India, a subsidiary of the Edinburgh-based Cairn Energy, has raised USD 822.5 million through pre-IPO placement. The company has placed 20.97 crore shares at Rs 176.48 per share and 11.88% equity shares via pre-IPO placement. Most of the proceeds came from Petronas (A Malaysia based oil Giant) who evaluated the company to be around 311.54 Billion INR and took 10% of the stake. The other big names who invested during this fund-rasing are Videocon, Black Rock, Petro Drill and Citibank
Cairn IPO shall be open between 11-Dec to 15-Dec. The IPO size of 32.88 crore shares at a price band of 160-190 to translate into 5800 crore INR. Cairn India is to retain USD 600 million of IPO proceeds and rest will be used to Payoff the current promoters. This is the part of the $2 Billion USD the company is planning to raise.
Cairn is into oil exploration which is usually termed risky but I like the promoter and the fundamentals of the company. By 2010, the company’s Rajasthan oil-fields will be operational and Cairn is expected to be producing 20% of India’s crude oil. So if you want oil in your portfolio do invest in this IPO for the long term.
I love companies which try to raise money before going to IPO
1) Petronas/VC would have done a through evaluation of the business prospects. So the books will be in order and not many skeletons are expected out of the closet.
2) The pricing is more realistic. It will not be like the Air Deccan whose prices dipped by 50% immediately after listing.
3) The company most likely needs money for the genuine business needs rather than the promoter simply cash on the boom phase and exiting his business.
190/- might be a bit high but the share is definitely a good but at 160-180 price band.
My strategy:
1) Invest at an upper cut off of 180/-
2) The listing should happen somewhere in March at around 200/- Sell off half your holding at that price which will lower your acquisition cost.
3) Sell of the rest of the holding at 225+.
UPDATE: 7th December ONGC raised an objection to the red hearing prospectus Cairn filed for the IPO. Although serious, It does not effect the long term prospectus a lot. However if SEBI imposes a fine (or does anything more serious than redrafting the letter) it might scare a lot of institutional investors away. (and hence reduce the listing gains)
UPDATE2:15th December: Cairn was oversubscribed only 1.11 times and 0.9 times in retail. So retail investors can expect full allotment at 160/- (lower price band) and the listing is on 9th of Jan.
It might be a good issue, but I have some concerns:
1) Even the company website did not have any details about the balance sheet of the company. I am a big sucker of balance sheets. When the company says its profits increased to INR234.3 million from INR145.6 million I want to know how?
2) Remember: all the proceeds of this IPO are going to the promoter and not even a single penny is going to the company for its expansion plans.
3) The revenue jump was not impressive 30% taking it to INR2.86 billion.
4) A 10% profit margin and a growth of 30% looks healthy, but no information about capacity utilization and hence scope of growth.
5) Pricing is ok PE of 14 looks impressive.
Dates:Aug. 24, Price band of INR295 to INR345 a share.
Strategy: Risky IPO, but not overpriced. The promoter is trying to liquidate his assets, but provided no info on why. Company needs to release more details before I make up my mind.
Ankur Aggarwal
sree
Sandip Chaudhuri
vbr
skabeesh