DSIJ Mindshare

Invested In IPOs? What should you do now?

Every bull market has always witnessed a torrent of IPOs. In a secular bull market, companies of all sizes and with all kinds of businesses jump on to the bandwagon of garnering funds to support their future business plans. It happened in 1988, 1994, 2000 and again in 2007. The trend is so strong that one finds them being discussed all over the place. They form the hottest topic around workplaces, cocktail circuits and neighborhoods, enthralling every segment of investors’ who bet on them in the hope of making big bucks. All this sounds fairly good when the markets are rising.

Huge listing premiums have provided good gains for those who have flipped their allotments for some quick gains. In fact listing gains have become a phenomenon as far as the IPOs are concerned. But what happens to those who continue to hold stocks bought in an IPO and do not exit on listing? How do investors having a long-term perspective of the market benefit from holding these stocks? The real problem for those who continue to hold on to the stocks subscribed to in IPOs begins when the market tide turns over. In a bull market valuations are not some-thing that investors pay particular attention to. It is only in weaker times that issues crop up, thereby pulling down stocks to more realistic levels.

The market is presently in more or less a similar situation. It has been struggling to find a meaningful direction with many worries on the macro economic front plaguing it for quite some time now. In fact the scene for the IPOs is not very encouraging even globally. According to a Reuters report, a record USD 58 billion in withdrawn IPOs in Asia and muted market debuts are expected to force listing hopefuls to cut valuations to win over investors in the world’s top region for offerings. Investors who have bought into recent IPOs and who continue to hold those stocks have been facing a big dilemma of what to do with these stocks, many of whom have not been able to deliver value as perceived by the shareholders.

Investors are wondering as to when their investments will deliver value, if at all. We have tried to simplify their job by answering this question for them. If you look at the period between January 2009 and December 2010, a total of 93 companies have come to the market with either their initial public offerings or follow-on public offers. What we have done is to analyse the prospects of the stocks of those companies which came up with IPOs of more than Rs 1,000 cr in size during these two years. The reason for doing so is that investors are bound to be more stuck up in large-sized companies where the euphoria is often the highest. We have deliberately excluded companies - particularly PSUs which came up with their FPOs - because in those cases the price discovery was already in place. This left us with 13 companies which came to the market to garner more than Rs 1,000 cr during 2009 and 2010.[PAGE BREAK]
Among the 13 companies that are a part of our list, as much as four companies have seen their issues being subscribed by more than 40 times than what was on offer. Put together, these 13 companies have raised a whopping Rs 41,500 cr among themselves. Of them, ten have listed at a premium to their issue price while three went in at a discount at the time of listing. If you look at their current market price, the situation is starkly the opposite. Only three are presently trading at a premium to their issue price while the remaining ten are trading at a discount. Except for the three that are still trading at a premium to their issue price, the performance of the remaining is something that should worry their holders in a big way.

What should shareholders be doing in these circumstances? Is the deep discount to the issue price an opportunity to buy more? Should you be getting rid of these stocks and park your money in much better opportunities that are probably available in the current market? Or should you just hold on to your nerves expecting better days ahead? What follows are elaborate answers to these questions so that you can make the right decision. As a continuation of this story we are also presenting a primer on what and how other companies that came up with the IPOs are doing. This should provide a wake-up call to our readers who have been holding on to the stocks so far.

NHPC
Issue Price Rs 36
CMPRs 23.40
Change Over Issue Price-35%

At a time when power sector IPOs were being cold shouldered by investors, NHPC showed lot of promise.  Investors were comfortable to see a government owned power-company tapping the primary market. However their expectations met with an anti climax on the listing day as NHPC listed at a premium of just 10% over an issue price of Rs 36. Currently trading at of Rs 23, the scrip is down 36%. The obvious question is what went wrong?

A deeper look at NHPC shows that, the problems had started even before it came out with an IPO. According to media reports dating back to 2008, a senior NHPC executive had said that contractor issues and a huge exodus of employees; mainly engineers, to private power players had affected their projects leading to delays. Most of its projects got delayed by as much as one to two years while those that had yet to go off the ground were expected to be delayed too. Incidentally these were the very projects for which NHPC came out with an IPO.

Despite these concerns NHPC went ahead with its IPO and raised around Rs 6038 cr at very steep valuations (Rs 2012 cr went to the government, while the balance Rs 4026 cr came to NHPC) firming up plans of commissioning a massive 3240MW by December 2012. Did it deliver on its promise? In the last 19 months, NHPC has managed to commission only 120MW, taking its total capacity to 5295MW as on March 31, 2011. This categorically means all the identified projects have been delayed further. According to the prospectus NHPC had intended to commission 1240MW by December 2011, but that is unlikely to happen with over-all delays ranging 6-26 months (refer table on NHPC project details with revised commissioning schedule). In fact as on March 31, 2011 NHPC has utilised only 40% of the IPO proceeds. Rs 2394.40 cr is still lying in banks. The company has come up with various reasons for project delays, but wasn’t the company aware of these issues when they came out with the IPO. No wonder the scrip is down by 36%. We feel the scrip is still expensive at an EV/MW at Rs 7.59 cr its FY11 figures compared to a six and half times bigger peer such as NTPC, which is available at EV/MW of Rs  5.21 cr. Investors would might as well sell out the counter and invest elsewhere.[PAGE BREAK]

SJVN
Issue PriceRs 26
CMPRs 21.25
Change Over Issue Price-19%


Part of the Government of India’s, disinvestment plan, SJVN was yet another mega issue that hit the capital markets during April – May 2010. At an issue price of Rs 26 (price band Rs 23-26) and with 41.5 cr equity shares on offer, the PSU successfully raised about Rs 1079 cr. But the only difference between this Category 1 Mini Ratna’s IPO and the other PSU issues was that the entire proceeds from the SJVN issue were to go to the government, thus making it purely an offer for sale from the government of India.

Apart from a Category 1 Mini Ratna status, there was nothing unique that SJVN brought to the table for investors. Established as a joint venture between the Government and the State Government of Himachal Pradesh, SJVN is a hydroelectric power company, which develops and operates Nathpa Jhakri Power Station (NJHPS). With an aggregate capacity of 1500MW located on the Sutlej River in Himachal Pradesh (HP), SJVN supplies power to Himachal Pradesh and various states located in the Northern region of India. The company is also currently constructing the 412MW hydro-electric Rampur Project in Himachal Pradesh and is expected to be commissioned in 2013 resulting in a total capacity of 1912MW. Thus with no immediate massive capacity expansion plans like its peer NHPC, SJVN looked a more plain vanilla bet, which has been doing decently over the last few years

At an issue price of Rs 26, SJVN was available at EV/MW of Rs 7 cr, which was at par with what NHPC was trying to command and even at a higher premium to that of NTPC. No wonder the scrip never took off. It gave a mere 7.69% gain on listing. At a CMP of Rs 21.25, the scrip is down by more than 18%.[INSERT_2]

So where does it go from here? At the current level though the valuations have corrected, we still believe it is better to stay away as we don’t see this scrip going anywhere and may continue to underperform as there are no major triggers. Apart from the existing 1500MW, the only 412MW capacity that is expected, will be commissioned after more than a year and that too if the project completes on time. Apart from that the other projects the prospectus mentioned are in a developmental stage. The lack of triggers makes it sensible to avoid a fresh exposure. What does one do with the existing shares? Hold on for some more time.[PAGE BREAK]

JSW Energy
Issue Price Rs 100
CMPRs 67.00
Change Over Issue Price-33%


JSW Energy, a Mumbai-based power generation company also engages in transmission, power trading, mining, and equipment manufacturing. It is considering expansion into renewable energy and distribution. It got listed on the bourses in January 2010 after a draft RHP withdrawal in July 2008 due to unfavorable market conditions. The company through its IPO raised Rs 2673.27 cr which was subscribed 1.68 times. At present the company is trading at Rs 67 which is 33% below its issue price of Rs 100.

For FY11 the company reported a modest growth of 13% on a YoY basis in its bottomline which stood at Rs 841.82 cr. This increase in the net income for FY11 was despite a revenue growth of 82% on a YoY basis (Rs 4294 cr for FY11 vs. Rs 2355 cr in FY10) reflecting the erosive impact of higher fuel prices and weak merchant tariffs. Though, it continues to remain on track to commission 3140 MW of power capacities by FY2012, its capex on the development portfolio beyond that remains negligible.

Availability of coal continues is a major concern for the company. The management recently indicated that supplies from Sungai Belati will most probably not materialize, thus further increasing JSW Energy’s dependence on spot purchase of imported coal. JSW Energy’s excessive leverage to spot markets coupled with the fact that 60% of the power is likely to be sold in the short-term market remains a cause of concern.

Beyond the current portfolio of projects under construction aggregating to 3140 MW (of which 2,030 MW has already been either commissioned or synchronized), there is a limited visibility on the development portfolio of 9.5 GW.  At present on the valuation front the company trades at a P/E of 12.79 times its FY11 earnings. A major cause of concern that remains is the%age of merchant sales which was as high as 67% in FY11. A drastic decline in the tariffs is playing a spoilsport for the company as the major projections that the company has made are based on high merchant prices. At present investors should refrain from taking a fresh exposure to the counter for the time being and wait for the appropriate opportunity to invest once the plans materialize and the availability of coal is addressed. For those already holding the stock, it is better to be invested for some longer term gains.[PAGE BREAK]

IndiaBulls Power
Issue Price Rs 45
CMPRs 17.55
Change Over Issue Price-61%


Indiabulls Power (IBPL) is engaged in the development of power projects in India and develops 6615 MW of power through its 5 projects across India. For the aforesaid purpose the company through its IPO has raised Rs 1529 cr in the year 2009 with an issue price of Rs 45. The issue was oversubscribed by 47.34 times, but the company failed to do justice to the euphoria shown by the general public. The stock at the current price of Rs 17.55 trades at a discount of 61% to its issue price.

At present the company has 132475 shareholders as compared to 120794 during December 2009, which indicates that investors who have invested in the IPO did not get a chance to exit on a profitable note. How is the company placed at this point of time and what should investors do with their holdings? The company has raised the money to part finance the construction and development of the 1320 MW Amravati Power Project Phase – I and for funding the equity contribution in the Company’s wholly owned subsidiary, IRL, to part finance the construction and development of the 1335 MW Nashik Power Project. Since the company is still to begin its operations, it has no income from operations and earned Rs 44.18 cr as other income in FY11 as compared to Rs 84.08 cr in FY10 and Rs 141 cr in FY09. As such, it cannot be evaluated based on the price-earnings model. Further, the lacklustre response of the markets, after the listing, can be taken as a clear indication that the market is not ready to buy power generation stocks based on future expectations.

With a current net worth of Rs 2,000 cr and the first commissioning expected only by June 2012, there may be more equity dilution at a later stage. As a result, the stock does not seem to have enough attractiveness currently, from an investment perspective. At this point investors may move out of the stock.[PAGE BREAK]

Jaypee Infratech
Issue PriceRs 102
CMPRs 52.15
Change Over Issue Price-49%


Jaypee Infratech (JPIN) was incorporated on Apr-07 as a special purpose company to implement the concession to develop, operate and maintain the Yamuna expressway in the state of Uttar Pradesh. The concession agreement provides JIL the right to collect toll revenues from the expressway for a period of 36 years and the right to develop 530 million square feet of real estate (approximately 6175 acres) along the Yamuna Expressway at five locations.

It raised Rs 2292 cr through its IPO in May 2010. The issue got over-subscribed by a mere 1.24 times and got listed at Rs 93 as against the issue price of Rs 102. However, at the cur-rent price of Rs 52.15 the stock trades at a discount of 49% to its issue price. The number of shareholders remains almost unchanged at 124162 as of March 2011 as against 127974 for June 2010, which clearly indicates the fact that the shareholders have failed to make a profitable exit from the issue.

In the recent past there have been agitations by farmers against the UP government’s land acquisition policy especially around the expressway project. Correspondingly opening of Yamuna Expressway has been delayed to July 2012 against the earlier indicated timeline of 3QFY11. As per the claims of the company this is primarily on account of a delay in handing over of land by Yamuna Expressway Authority. Even the cost of the project seems to have been revised upwards. Investment valuing Rs 9850 cr has already been incurred on the project till date as against the total project cost estimate of Rs 9740 cr earlier. These are the factors that may play a deterrent role for the company going forward.

On the financial front the company’s performance for FY11 has been quite good. The topline stands at Rs 2778 cr as against Rs 640 cr during the preceding year. The bottomline too witnessed a sharp rise and stood wait for the appropriate opportunity to invest once the plans materialize and the availability of coal is addressed. For those already holding the stock, it is better to be invested for some longer term gains at Rs 1435 cr for FY11 as against Rs 487 cr last year. On the valuation front the stock trades at a P/E of 4.85 times and an EV/EBITDA of 6.28 times. The debt to equity ratio stands at 1.46 times. Though the company is witnessing a good growth traction (due to sale of the real estate along the expressway) it has to be remembered that the project has a long gestation period and will take some time before proper visibility is seen. Presently we suggest investors can exit this counter and wait for an opportune moment to [PAGE BREAK]

MOIL
Issue PriceRs 375
CMPRs 321.00
Change Over Issue Price-13%


MOIL tapped the primary market as a part of the UPA government’s ambitious divestment plan.  After the grand success of the Coal India IPO, which offered fantastic returns to investors on listing, MOIL was also expected to generate a great amount of interest amongst investors.  It all happened on expected lines with the 3.36 core shares offered by MOIL at Rs 375 per share, getting oversubscribed by 56.43 times. The enthusiasm was also visible at the time of listing as it provided 47% returns on the listing day. But the euphoria lasted for only a few hours and not many were able to take advantage of the same. Rather looking at the initial response, many got into the stock at these higher levels. Eventually the scrip only witnessed one movement and that was down wards and is currently trading at Rs 321 which is 14% down as compared to the issue price of Rs 375. Surely it is much lower compared to the erosion seen by other IPO’s.

The main reason for MOIL’s underperformance is its financials. In H1FY11 it had posted a PAT of Rs  330 cr and with the management’s view about sustainable realisations and volume growth, street expectations were higher. Even we had expected the company to post a bottomline of Rs  660 cr. However due to a substantial decline in the realisation for FY11 it posted a PAT of only Rs 588 cr. Q1FY12 is also expected to be a dull quarter. With supply being stronger than demand, prices are expected to remain under pressure. Considering all these factors we feel there will be slower growth for FY12 on the bottomline front.

Even considering the sales volume of 1.20 million tonnes and a bit improved realisation of Rs 10000 per tonne, the topline is estimated at Rs 1200 cr. With net profit margins at 51-52% the bottomline is estimated at Rs  600-610 cr. So there will be hardly any EPS growth over FY11. With cash in its kitty and its debt free status, it is planning for capital expenditure of Rs 1200 cr.
On the valuation front, the company has Rs 1700 cr cash translating into Rs 100 per share. Hence, considering the EPS of Rs 36, the remaining part is available at 6.13x. We feel this is a fair valuation and hence there will not a fall in the price below these levels. But again there are no expectations of runaway price movement. We are not recommending any fresh exposure to this counter, however current holders can hold the stock for the next 18 months.[PAGE BREAK]

Prestige Estates Projects
Issue PriceRs 183
CMPRs 126.00
Change Over Issue Price-32%


Real estate companies that tapped the primary market in the year 2010 really had a nightmarish experience and hardly any realty IPO managed to provide decent returns to investors. Various factors like rising interest cost, higher debt burden, slowdown in the economy, subdued equity markets, contraction in sales volumes and reducing affordability were the primary factors behind the overall underperformance of the realty sector. Prestige Estates Projects that raised around Rs 1200 cr by offering 6.25 cr equity shares at Rs 183 was not an exception.  The scrip made a debut on the bourses with minuscule gains and in barely 16 trading session it was quoting below the offer price. It is currently trading at Rs 126 resulting in a decline of more than 31%.

When Prestige came out with an IPO, it had a total saleable area of 28.43 million sq ft and leasable area of around 11.04 million sq ft. With a good combination of the lease rentals and outright sales, many expected the counter to be quite stable. Although most of the projects are on schedule some of the projects got delayed. Just to quantify out of the 14 commercial projects around 6 are already behind schedule. Similarly in the case of the residential segment some amount of delay was witnessed. The impact of the same was also visible in the utiliastion of funds, with most of the funds raised for the development of ongoing projects and investment in subsidiaries for construction activities has been under utilised (See Table – Utilisation of Funds). However the company did one smart thing by repaying its higher amount of loans. We feel it was a good move in a scenario where the realty companies were reeling under the pressure of the higher debt. It has around Rs 871 cr remaining from the IPO proceeds and we feel, in the current scenario it is an added advantage.

But while there are certain advantages, there are certain matters to worry. The first and the foremost is the acquisition of additional land. Prestige at the time of IPO had a total saleable area of 28.43 million sq ft and it has delivered a major part in FY11. So the company will have to look for more land parcels for future growth as its land bank will only get slimmer and this will surely come at a cost. On the valuation front also the scrip is richly valued as the net present value of the future projects along with the commercial and retail leased area come to Rs 126 which provides no appreciation from current levels. We are not considering the revenues from the hospitality segment, as it will take some time till it contributes to the bottomline. Hence considering the weak macro economic factors, lower growth visibility and already rich valuations, we recommend investors to exit the counter and look for some other opportunities.[PAGE BREAK]

Oberoi Realty
Issue PriceRs 260
CMPRs 230.00
Change Over Issue Price-10%


The past two years have not been great for companies in the real estate sector. But while most of the real estate companies witnessed a minimum fall of 25% in their stock prices, there was one real estate company that remained rock solid even in a difficult scenario. Oberoi Realty that tapped the market at Rs 260 per share in October 2010 is currently trading at Rs 230 showing a marginal decline of just 11%. At the time of IPO also it had witnessed a good response from the investor’s fraternity and the offer of 3.96 cr equity shares was oversubscribed by 12.13 times. The excitement was visible at the time of listing also. When the whole realty sector was underperforming, it listed positively providing investors some returns and even an opportunity to exit. There were quite a good number of positive factors that had helped the company get a good response to the IPO. The first factor was its debt free status. In a scenario where most of the realty companies were reeling under the pressure of high debt burden, Oberoi Realty was a debt free company and that too with every land parcel (Around 20.25 million sq ft of saleable area) being fully paid for. Then, it had a strong brand value on account of good management, superior product quality and execution capability. Even its strategy of having a portfolio of both investment property and developable property was good. The investment property was one which yielded consistent cash flow even in difficult times. However, with the over-all sentiment being weak, a marginal amount of decline was witnessed in the counter.

At current levels we are of the opinion that still there are some positive factors that indicate towards the strength in the company. It is still a debt free company and has around Rs 1470 cr cash. In the scenario of rising rates, it is really most positive factor. Then while most of the other realty companies are either running behind completion schedules, Oberoi has managed to deliver on time. Even the new projects have started on the time. There has been no decline on the realisation front and there is only miniscule decline in volumes.

A diversified mix of revenues has also helped the company to tide over difficult times. In FY11 the annuity projects like Oberoi Mall, Office Space (Commerze) and Hotel (Westin) generated revenues to the tune of Rs 180 cr (Around 18% of total revenues). All this will help the company going forward.On the valuation front the NPV of its ongoing and planned projects along with the annuity income expected from leasable property arrives at Rs 290. This provides a decent appreciation from CMP of Rs 230. While we recommend those already invested to hold at current levels other can accumulate on decline at the levels of Rs 200-210.[PAGE BREAK]

Oil India
Issue Price Rs 1050
CMPRs 1286.00
Change Over Issue Price29%


Oil India (OIL) is among those very few IPOs (since 2009) that are trading at premium to their issue price. Oil India raised Rs 2777 cr by selling shares at Rs 1050 a piece and the stock is currently trading at Rs 1286, up 22% from its issue price. Part of the reason for such a performance is the better valuation at which the IPO price was set. At the upper price band of Rs 1050 it was available at 3.6 times of EV/boe (barrel of oil equivalents) of proven and probable reserves (2P), a significant discount to its peer ONGC which is trading at 5.2 times of EV/boe (2P). Although the reason for such a discount was the concentration and geographical risk of OIL, that was compensated by other better operating matrix of the company such as finding cost of oil which stood at USD 1.1/bbl, which is much lower than ONGC’s finding cost of USD 2.6/bbl. OIL’s average recoverable Reserve Replacement Ratio over the past five years has been 1.8 times, which is better than international standards. ONGC, over the past five years, recorded an average Reserve Replacement Ratio of 1.2 times.

We believe OIL, which is engaged in the exploration of crude oil and natural gas both domestically and internationally and is India’s second-biggest state-run oil producer after ONGC, will continue to perform well going forward. This will be on the back of organic and inorganic growth, aggressive exploratory activities and planned capex.

The company expects to increase the production of natural gas over the next few years due to increase in the demand of natural gas from new customers like the Assam Accord project, Brahmaputra Polymer and Cracker Limited etc. OIL is also currently exploring opportunities in buying a stake in shale gas assets in Argentina. Besides Argentina, OIL is also scouting for assets in South-East Asia, Australia, Latin America, Canada, some parts of the former Soviet Union and Africa as well. It is also considering the acquisition of a sufficient part of oil-exploring assets in the international market and is expected to invest Rs 4000 to Rs 4500 cr for purchasing these assets. A strong balance sheet of OIL will help it to execute its organic and inorganic strategies.

At the end of FY10, the company was sitting on a cash balance of Rs 8542 cr which is approximately 61% of the total balance sheet size, beside that, higher margins (43.2% at EBITDA) of OIL will also help it to generate healthy cash. For FY11, it posted a topline and bottomline growth of five% and 10% respectively on a yearly basis. Even on the valuation front it is currently trading at a PE of 10.5 times and EV/EBITDA of 5.32 times which looks attractive and hence we advise our readers to remain invested in the scrip.[PAGE BREAK]

SKS Microfinance
Issue PriceRs 985
CMPRs 345.00
Change Over Issue Price-64%


SKS Microfinance debuted on the Indian bourses on August 16, 2010 with a gain of five% on its issue price of Rs 985. It has oscillated both side of the issue price. After touching high of Rs 1490 in the month of September, the scrip is currently trading at Rs 345, down by 76% from its high and 64% from its issue price. The immediate trigger that fizzled out the dream run of SKS Microfinance was the sacking of its then CEO Gurumani on October 4, 2010. Latter came the ordinance from the state government of Andhra Pradesh (from where it generated its largest revenue), changing the frequency of loan repayment from weekly to monthly. Nonetheless what broke its back was the Malegam committee report that capped the interest rate charged by these companies to 26% and the RBI guidelines that restricted micro finance lenders levy charges to only three items; a processing fee not exceeding 1% of total amount, interest and insurance charge.

All these internal and external changes took a huge toll on the business and financials of the company, particularly in the fourth quarter of FY11. Incremental loan disbursement dropped by 66% in Q4FY11 to Rs 786 cr and the entire loan portfolio too dropped by five% Y-o-Y basis. Its topline stood at Rs 187.66 cr (Q4FY11) down 38% on yearly basis and 51% sequentially. However, if we compare yearly income, we find that SKS has posted growth of 34% primarily due to better performance of the company in the first three quarter of FY11.

This shows the impact of new regulatory changes in the financials of the company. The bottomline of the company was in the red for Q4FY11 with a loss of Rs 69.77 cr compared to profit of Rs 62.89 cr same quarter last year. SKS has even witnessed a deterioration in other operating matrixes like ROE and Net NPA. Its Net NPA increased from 0.16% last year to 1.28%.  On the valuation front, the company is currently trading at price to book value (P/BV)of 1.36 times and looks attractive when we compare it with other NBFCs like Muthoot Finance that is trading at P/BV of 2.5 times. Nonetheless, we believe there is lot of clarity and direction still needed before one can take exposure to the counter. Moreover, SKS is trying to diversify its business to housing finance, financing mobile phones and loans against gold; it is yet to make any major impact on company’s business as it now contributes only 15% of the total loan book. For now the best thing to do is exit this counter.[PAGE BREAK]

D B Realty
Issue PriceRs 468
CMPRs 73.50
Change Over Issue Price-8%


Residential real estate player DB Realty (DBR) came crashing down thanks to the various issues that have plagued its promoters. DBR that hit the primary capital market last year and raised Rs 1500 cr, one of the highest, has the dubious distinction of the worst performing IPO since January 2009. The scrip of DBR that was issued at Rs 468 is currently trading at Rs 73.5 down by 84%. The fall lured many retail investors along with it and is reflected in the increase in number of shareholders in last one year. Number of shareholders (retail) that was around 3943 at the end of March 2010 is now up to 15338 and in terms of%age of total holding it is up from 0.87% to 2.3%. However we do not find the story repeating in case of more sophisticated investors that is institutional investors, where they have reduced their stake in the company from 10.84% to 7.57% in the same period.

We believe that, the major issue the company is currently grappling with is corporate governance, with arrests of its promoters Shahid Balwa and Vinod Goenka in connection with the 2G spectrum scam. This has seriously impacted the image and share prices of the company and is now spreading to the projects and financing of the company. The company raised funds through IPO primarily to meet development cost of its four projects namely, Orchid Ozone, Orchid Centre, Ascot Centre II and Orchid Corporate Park. Out of these four projects two projects are already delayed by more than a year. Out of 13 ongoing projects only five projects have managed to sell more than 50% and three residential projects are yet to start their sales.

For Q4FY11, DBR posted net profit of Rs 8.03 cr against income of Rs 402.3 cr. Data for the same period last year is not available. The saving grace for the company was sale of 560000 sq ft transfer of development rights (TDR), at Rs2600-2800 a sq ft. Although currently the company’s share is trading at a price to book value of less than 0.5 and EV/EBITDA of 5.72 which makes the scrip looks attractive but looking at the corporate governance issue and slow down in real estate market we believe it is fairly valued and do not suggest to take any fresh exposure in the counter. Should one sell current holdings? If you have held the shares from listing it does not make sense to book such a huge loss. Better to frame them for eternity or till such time as the stock’s fortune take a U turn.[PAGE BREAK]

Coal India
Issue Price Rs 245
CMPRs 390.00
Change Over Issue Price63%

In October 2010 Coal India made history with its IPO which turned out to be the largest. Despite its huge size the company not only listed at a premium to its offer price but continues to remain above its offer price even now creating huge wealth for investors. Please note that retail investors got five% discount in the IPO.

Now, after giving handsome gains to the investors, a mute question that arises is that should one book profits in the company if you have been allotted shares in the IPO and those who are not holding shares-does it make sense to buy the same?

Coal India is into a commodity business and globally, a company like Coal India normally commands a P/E ratio of 15 times. For the year ended March 2011 it reported a net profit of Rs 10867 cr giving earnings per share of Rs 17.19. Multiplying the P/E with EPS, we get fair valuation of Rs 257. Adding to this, its huge cash and bank balance of Rs 45863 cr as on March 2011, the fair valuation of the company comes to Rs 329. The scrip at present is quoting at Rs 390 which makes us believe that it is quoting above the fair value and hence one can book profits. We believe that the scrip may not fall substantially from the present level but it may underperform the overall market in coming days despite Coal India’s entry into the Sensex.

Another reason we believe the counter would underperform is that, Coal India would have its wage revision in the current financial year and the company may not be able to pass this on immediately to its customers. Also, this year, Coal India has signed MOU to produced 452 million tons of coal and off take of 454 million tones. This we believe is on the higher side as last year the company could not report a growth in production and off take number as against year before due to some environmental issues. Out of 43 mines where operations were banned by the Ministry of Environment and Forest, 23 mines continue to be under that ban till September 30, 2011. This would impact its production and off take. Also in the current year, off take of coal is rather slow as compared to last year. This means that the company may not be able to report a smart growth in top line and bottom line for the next quarter as well as for the full year. This will not create a right sentiment for the counter. We suggest our readers to book profit on Coal India.[PAGE BREAK]

Adani Power
Issue PriceRs 100
CMPRs 110.20
Change Over Issue Price10%

By successfully raising about Rs 3016.52 cr through its IPO in July 2009 to fund two of its four power projects, Adani Power became part of the list of mega IPOs and an even more selective list of the mega power IPOs. Despite the fact that the investors had burnt their fingers in other power IPOs, Adani still managed a handsome response with an oversubscription of 51x.

But a very subdued listing with a listing gain of just around five%, and the sluggish movement of the scrip till date, clearly shows how wary investors still are about power stocks. The only consolation for investors in this case is that, at a CMP of Rs 110, it is still above its issue price with returns of 11%. Certainly not much, but still good enough considering that most other peers still are trading substantially below their issue prices. So what is the differentiating edge that keeps Adani above its issue price?

The execution capability of the company is what makes it different. Adani has been successfully commissioning its projects in line with what it had promised in its IPO prospectus. As of June 2011, the company has built a total operational capacity of 2640MW. This we believe is quite commendable considering that its peers, especially the PSUs have faced execution problems.

In fact the utilisation of funds as on March 31, 2011 shows that the company has fully deployed the issue proceeds in the projects they were raised for. Thus, effectively Adani Power should have a total operational capacity of 6000MW by FY12, with the balance 600MW spilling over to the next fiscal. Besides, what augurs well for this company is that it not only received the maximum coal allocation possible for its Mundra and the Tiroda project, but also has a long term power purchase agreement (PPA) for more than 80% of its capacity. This will help it start generating incremental revenues as soon as more capacities start coming on stream.

However, the only concern is the valuation. At FY11 numbers an EV/MW of Rs 15 cr is quite steep when compared to its peers. However, we believe the scrip is trading at a premium on account of its on time commissioning of capacities, good revenue visibility due to long term PPAs, fuel tie up etc. But despite this no fresh exposure is advised at the current levels, though those who are invested already can stay put for a longer term.

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