February, 2007 | Dalal Street

Power Finance IPO – Heavily Subscribed

February 7, 20071 min read

I am not sure if Finance Minister P Chidambram is awake @ 1:00 AM on Feb-7th, but if he is, he would probably be celebrating the confidence FIIs have in his economic policies. I just received the final SMS which said the recently concluded IPO of Power Finance Corp is subscribed 77.24 times.

Foreign Institutional Investors have bid for a whopping 5.68 Billion shares of PFC against the total offering of 117 Million.

The final subscription figures are as below.

Sr.No.

Indian Bank IPO – Reveiw and Analysis

February 6, 20072 min read

Indian Bank was the worst bank during the mid 90s through 2000, when the Government of India decided to infuse capital into the bank which operates mostly in Southern India. With the economic boom and support from the Government, the bank has successfully turned around and growing strongly.

Background:
Since restructuring, Indian Bank has done extremely well. It has 1408 branches and 500 other points of presence for banking. It has 1.5 crore customers mostly in the rural and under-privileged urban areas, which is one of the largest market to bank on these days.

Strengths:
Current Account and Savings Account customers account for mere 35% of Bank’s income. Their is more headroom in this segment for Indian Bank to cash on. Almost all the branches are now computerized and 84% of its business is already under Core Banking Solutions platform. The bank has six asset recovery branches and they have been doing well. Any recoveries will directly add to the bank’s bottomline. Gross and Net NPAs of the bank have declined from 5.1% and 1.9% to 3.4% and 1.3% over the last one year.

Concerns:
37% of its income comes from Trasury operations. However, this has decliend from 50% over the past couple of years. It also has large portion of its securities on Available for Sale block and the bank may have to bear mark to market loss as interest rates rise.

Financials:
Indian Bank reporetd a PAT of Rs 333.9 crore for the Half year ending FY2007 an increase of 42% over the corresponding half in the past FY. The Bank has been profitable since 2002. Annualizing the same, Indian Bank conservatively will report a PAT of Rs 670 crores for FY 2007.

IPO Details:
Price Range – Rs 77 to Rs 91
Retail Quota: 23, 206, 500 * 91 = Rs 211 crore. [Expected to subscribe 10 times]
Fully Diluted Equity – Post IPO = Rs 429.77 crore
We expect an EPS of Rs 15 for FY2007. Indian Bank can be compared to Allahabad Bank, OBC, Corporation Bank which are trading at P/E of 8 and 10.

Recommendation:
Indian Bank is also in tie up with other regional banks to cross sell products. The long term road map set by wizards in the Finance Ministry is to merge and consolidate smaller PSU banks where they find synergy and strengthen the financial system of India. We recommend investors to apply and not to SELL immediately on listing as the gains in the next few years will be much higher.

Equity Research

Macquaire Bullish on Sterlite for 12 Months

February 6, 20072 min read

Macquaire Equity research in its report is bullish on the prospects of Sterlite Industries and puts a 12 month price target of Rs 852 using sum of parts valuation methodology.

Strong 3Q results: Net sales at Rs68.1bn grew 94% driven by all-round volume growth and higher LME prices. EBITDA at Rs29.5bn grew 215%. Net profit at Rs12.9bn grew 225%.

Zinc – the prime contributor: The zinc business contributed around 67% of net profits and we expect this to continue with our forecast of higher zinc prices and 50% expected capacity expansion.

Aluminium – huge volume growth: With the faster-than-expected stabilisation of its 250kt new smelter, this subsidiary has seen growth of 309% in its operating profits to Rs5.4bn. We expect this business to continue its stellar performance with our forecast of lower alumina prices.

Copper – peaking out: The company realised TC/RCs of 34.8c/lbs for this quarter, driving operating profits to grow 58% to Rs4.5bn. We expect TC/RCs to drop to around 16c/lbs and estimate profits to fall sharply by 50% from next quarter onwards. However, we expect 30% volume growth to lower the impact somewhat.

JV Vedanta alumina refinery on track: The 1mt alumina refinery is expected to be commissioned by March 2007 and will add to profitability in FY08.

Sterlite is expected to to maintain its high profitability, even with our falling forecast for all metal prices. Macquaire expects a recovery in zinc prices, earnings upgrades, visibility on the ADS offering and its purchase of residual stakes in HZ IN from the government to drive the stock up.

Attractive valuations: Sterlite is one of the fastest growing diversified base metals company, while the stock is trading at just 7x PER, which is around 30% discount to its peers globally. We expect this anomaly to correct. Macquaire sets a 12 month target of Rs 852.00 based on a sum of parts methodology.

India IPO Reviews and Updates

Akruti Nirman – Allotment and Listing

February 6, 20071 min read

You can now check the application status of Akruti Nirman IPO. All retail applications for over 144 shares have been firmly allotted atleast 12 shares. The issue price is Rs 540 and the stock will list for Trading on the 7th of Feburary-2007.

Economy, Markets and Macro Views

Ansal Properties & Infra – Bonus Issue Likely

February 5, 20072 min read

The stock of Ansal Properties was locked in upward circuit today due to a rumor of Bonus issue.

Recently, IL&FS Investment Managers (IIML), the private equity arm of IL&FS, signed an agreement to invest in two special purpose vehicles (SPVs) being floated by Ansal Properties and Infrastructure (APIL). DalalStreet.Biz could not confirm the quantum of investment, sources close to the deal said that IL&FS will have 49% equity in the SPVs with an investment of about Rs 130 crore.

The two SPVs that APIL plans to float in partnership with IL&FS, will develop projects in Gurgaon. While the first SPV is being floated for an integrated township, the second SPV will develop an IT special economic zone (SEZ). IL&FS is the second private equity fund to commit investments in an APIL SPV in the last six months. Earlier, HDFC Realty Fund had taken a 33% equity in an APIL SPV for developing an SEZ in Greater Noida.

In recent times, APIL has also attracted private equity investment in the holding company by diluting promoters’ stake. The company had raised Rs 175.8 crore through a 5% private placement with Citigroup in October last. Later, in November, George Soros had bought close to 1% equity in the company for Rs 25 crore through the secondary market.

APIL has reported a profit of Rs 40.19 crore for the quarter to December 2006, up by 256% from a profit of Rs 11.3 crore in the corresponding previous period. The company’s revenues has also jumped 194% to Rs 197.28 crore against a revenue of Rs 67.1 crore in the quarter to December 2005.

In the December quarter, the company signed a Memorandum of Understanding (MoU) with the Uttar Pradesh government for developing a hi-tech city on 2,504 acre adjoining Noida. The company also completed the qualified institutional placement issue to raise Rs 681.75 crore.

To cash in on the booming medical tourism business in India, Ansal Properties and Infrastructure (APIL) is reportedly said to have signed up with Fortis Healthcare for developing a 50-acre medicity project in Greater Noida. Apart from a 200-bed hospital, the project will also have an adjoining service apartments.

Ansal Properties & Infrastructure is engaged in real estate promotion, construction and development activities and executes contracts for building residential complexes, commercial complexes etc. It undertakes projects in India and abroad. The company later diversified into development of shopping malls and retail business by establishing a chain of departmental stores.

Economy, Markets and Macro Views

Metal Stocks Down in Early Trade

February 5, 20072 min read

Hindustan Zinc was down 5% to Rs 657.90, Sterlite Industries was down 5.5% to Rs 491 and Hindalco had shed 2.3% to Rs 178.80, in response to the fall in metal prices arising from fund-liquidation. Reports indicate that a hedge fund had suffered heavy losses.

Benchmark copper for delivery in three months closed at $5,330, down 4.8% from Thursday’s close of $5,600. In New York, copper futures closed at their cheapest levels in ten months. Rising LME copper stocks also dampened sentiment, with stocks up 127% over the last year. Copper is down more than 12% since the start of the year and around $3,000 below the peak hit in May 2006.

Zinc ended down at $3,085 versus $3,390 after falling 11.8% at one point, to $2,990 on Friday. Zinc prices have tumbled by more than 25% since the start of the year on worries about a looming surplus, China’s reporting net exports of zinc in 2006 and a slowing demand in Europe and the United States.

Aluminum fell a relatively modest 1.2%, to $2,720, on Friday.

Copper and zinc makers reported a strong financial performance in the December 2006 quarter on the back of firm prices of these metals on a year-on-year basis. Hindustan Zinc’s net profit rose 305.8% in the Dec-06 quarter to Rs 1335 crore, on 171.3% growth in net sales to Rs 2480 crore.

Hindalco’s net profit rose 91.5% in the Dec 2006 quarter to Rs 643.90 crore on 62.1% growth in net sales to Rs 4656.20 crore.

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