Indian Stock Market Blog

Info Edge Oversubscribed by 55 times. November 3, 2006

The scaling of the 13,000 peak by the benchmark index Sensex has lead to a spurt in the primary markets as well with Info Edge India Ltd, owner of job portal Naukri.com, receiving a massive response to its public offer.

The company’s IPO has been oversubscribed by 54.76 times. It has received a total of about 29.15 crore bids for its offer of 53.23 lakh equity shares of Rs 10 each, according to the information available on stock exchanges.

Info Edge, which also runs matrimony website Jeevansathi.com, plans to raise between Rs 154-174 crore, based on the price band of Rs 290-320 per share.

The issue, which closed yesterday, saw an overwhelming response in the Qualified Institutional Buyers (QIB) portion, especially from Foreign Institutional Investors (FIIs).

QIB portion has been oversubscribed by 84 times. FIIs alone have bid for 17.47 crore shares against the 28.74 lakh shares reserved in the QIB portion.

While the retail portion received bids of more than 12 times of the reserved 14.37 lakh shares for the section, the non-institutional investors portion was subscribed by more than 68 times.

The offer consists of 53.23 lakh equity shares, of which 5.32 lakh shares are reserved for employees. The issue would constitute 19.50 per cent of the fully-diluted post issue paid-up capital of the company.

Info Edge would utilise the funds to purchase or lease real estate for its offices, to acquire companies and to develop alternate delivery models.

ICICI Securities and Citigroup Global Markets India Pvt Ltd are the book running lead managers to the issue and Intime Spectrum Registry Ltd is the registrar.

IPO. September 24, 2006

FIEM : Avoid.
Gayatri Projects, Minar International: Invest at Cut-Off

Regards,
Bhavin.

Richa Knits-Avoid September 10, 2006

Investors can avoid the initial public offer by Richa Knits. The offer price of Rs 30 values the company at about six times its FY-06 per-share earnings. With the equity base more than doubling post offer, however, growth in the per-share earnings is unlikely to keep pace with revenue and profit growth. The offer also comes with attendant risks.

The company is expanding in the knitted garments segment, where it is a relatively new player.

The segment itself, while registering robust growth in the export market, is witnessing intense pressure on realisations. With no distinct competitive advantage and a lack of scale, the company’s ambitious expansion plans in the garments business may not translate into a commensurate growth in revenue and earnings.

Richa Knits is a relatively small player in the textile industry with its FY-06 revenues at Rs 45 crore.

It has a presence across the value chain, from knitting fabric to dyeing and processing fabric. It entered the knitted garments business in 2002-03, and has tapped the export market. Exports now account for about 15 per cent of sales.

Scaling up

India has been one of the top performers in the knitted garments export front since 2005. Exports of men’s knit shirts to the US in the first six months of 2006, for instance, appreciated by more than 20 per cent, even as China’s exports have declined. Realisations have, however, declined significantly, on the back of intense competition and pricing pressure from large importers.

The strong volume growth, however, appears to have prompted Richa Knits to expand aggressively in the garments business.

Rich Knits has just completed the doubling of its annual capacity to nine lakh pieces in December 2005, and is now embarking on its new expansion project, which will further triple its capacity. The company expects to operate at a 65 per cent capacity utilisation in 2007-08, which means it will have to quadruple its current production. Its ability to attract orders of this scale, however, is likely to be an uphill task.

At 27 lakh pieces, Richa Knits is unlikely to be a significantly large player in a fragmented industry where all players are expanding. Product lines such as knitted

T-shirts or track-suits are not as design heavy as fashion garments, making it difficult to build a competitive advantage. Even if it succeeds in bagging large orders, it will have to take a knock on pricing.

The company will also be expanding its knitting, dyeing and processing facilities, which would mainly serve its in-house needs.

The integrated nature of its operations will help contain costs. However, managing an increased work force could also pose a challenge.

The stock will trade at a market capitalisation of just over Rs 50 crore, at the issue price of Rs 30. As a small-cap stock, it is vulnerable to market risks.

Offer details: The company will raise Rs 27 crore through the offer of 90 lakh shares. The offer will partly fund a Rs 63-crore project to expand its knitting, dyeing and processing and garment capacities.

Post-offer, the promoter’s stake will be about 56 per cent. The offer opens on September 13 and closes on September 19. The lead manager is KJMC Global Market.

Gwalior Chem – Invest at Cut-Off September 10, 2006

Investors with a medium-term perspective can consider subscribing to the initial public offering of Gwalior Chemical Industries. At the upper end of the band, fixed between Rs 71-85, the company is offering shares at 13 times its FY-06 earnings on an expanded equity base. Gwalior Chemical plans to sustain its aggressive growth by focusing on forward integration and overseas markets. A diversified client base and healthy demand from user industries are positive elements .

Gwalior Chemical’s growth prospects primarily depend on the agro-chemicals, dyes and flavour and fragrance industries. It also caters to the pharmaceutical industry, which contributes about 10 per cent of its revenues. Benzaldehyde and thionyl chloride contribute the chunk of Gwalior Chemical’s revenues. Benzyl alcohol, which generates 20 per cent of its revenues, contributed to a large part of Gwalior Chemical’s 25 per cent revenue growth in FY-06.

Aided by a surge in revenues, Gwalior Chemical posted a 20 per cent growth in earnings for FY-06. The company has consistently maintained strong operating margins; however, this is susceptible to fluctuations as prices of toluene — a key feedstock — tends to move in tandem with prices of crude oil.

Gwalior Chemical’s high debt-equity ratio is a cause for concern. Its long-term debt repayment schedule and interest coverage ratio, however, provide confidence.

Gwalior Chemical Industries plans to deploy a significant part of the proceeds in expansion and de-bottlenecking of its current product lines. It also proposes to utilise about Rs 16 crore for setting up facilities to manufacture benzyl esters and acid chlorides.

Details of the offer: Gwalior Chemical is offering shares worth Rs 80 crore within a price band of Rs 71-85. JM Morgan Stanley is the manager to the offer and Intime Spectrum the registrar. The offer opens on September 11 and closes on September 14.