Category: India IPO Reviews and Updates

Investors willing to take exposure in the booming Retail Sector in India, can subscribe at “Cut-Off” to the IPO of Vishal Megamart.

Vishal Retail focuses on value retailing in tier-II and tier-III cities. 43 of its 50 stores are located in these cities. Sure their is enough potential for retailing in these cities as well. Through backward integration, in-house design and manufacture of
apparels, the Company substantially controls cost of production and pass on the cost benefits to customers.

Financials:
Over the past 3 years, the company has reported a top line growth of 100% YoY. For they ear ended March-31st 2007, the company had total income of Rs 771 crore and a Net Profit of Rs 24.9 crore. ICICI in its research report expects the Vishal Retail to report a Net Profit of Rs 45.6 crore for year ending March-2008.

IPO Offer:
Offer: Rs 110 crore worth of shares in the price band of Rs 230 to Rs 270.
Fully Diluted Equity Post-IPO: 22.4 crore
Expected EPS assuming Vishal Retail reports a net profit of Rs 45 crore = Rs 20.4

So in the current IPO the shares are offered at a forward P/E of mere 13.5 compared to 30+ for other retailers. Blindly subscribe to the issue. Retail Individual Investors category of the issue is just Rs 33 crore, so allotment will be LOTTERY for even Rs 1.0 lakh application.

Post-Listing Strategy:
The company has no immediate threat and is a good investment bet in the medium term. Vishal Retail will benefit from low real estate prices and staff costs in tier II and tier III cities. However, on strong listing, you are requested to book profits.

The IPO of Nelcast which closed for subscription this evening was subscribed 7.36 time according to a fax received just a while ago.

Here is the breakup of subscription.

All Retail Individual Investor’s application for more than 150 shares will get firm allotment of at least 30 shares. Good Luck and keep checking back for more information on basis of allotment and grey market pricing.

Nelcast is dependent on the auto industry ramping up of exports and increasing machining are required to maintain growth as domestic users face a slowdown.

Right now, Neelcast exports about 9% of its sales Globally, export of castings to developed nations is on the rise on account of rising costs, lack of skilled foundry people and environmental restrictions in these markets. The company plans to increase its focus on exports and become the preferred full service supplier to original equipment manufacturers (OEMs) across the globe. The export target is 30% of sales by 2010.

Strengths:
The composition of machined castings is about 10% of production. This is to be increased to about 20%-25% over the next two years so as to improve margin.

Weakness:
More than 70% of revenue is derived from the HCV and tractor segments. Both these user industries are set to slow down significantly in FY 2008 when the company’s substantial capacity expansion is under implementation.

Ancillaries to domestic auto and auto components sectors often have to maintain their prices despite rising raw material cost due to a limited number of clients. Margin is down from 11.9% in FY 2004 to 8.9% in FY 2006, though it jumped to 13.4% in FY 2007.

Valuation:
At a price band of Rs 195 – 219, Nelcast’s P/E works out to 17.2 – 19.3 times FY 20007 earning on post-diluted equity. Industry peer Ennore Foundries is trading at a P/E of 19.0.

Investors with some risk appetite may apply at Cut-Off.

The allotment status of recently closed IPO of Mice Electronics is available online. You may check the allotment status here. The Grey market Premium is Rs 35. Good Luck to all the allotees!.

The IPO of Nitin Fire Protection Industries for which we had a subscribe recommendation was oversubscribed 48.48 times. Here is the breakup of subscription that we have obtained from the National Stock Exchange.

Institutional Quota was oversubscribed by 49.9106 times
High Networth Individual Quota was subscribed by 101.32 times
Retail Individual Investors Quota was subscribed by 30.297 times

All retail applications for 1 Lakh will be allotted in the ratio of 1:2. Grey Market Premium is Rs 45 as of Saturday. Good Luck!

Nitin Fire Protection Industries, promoted by Nitin M Shah alias Sanghavi, was incorporated to manufacture fire extinguishers. The company presently provides fire protection, and safety and security by offering end-to-end turnkey solutions. This business is carried through two wholly owned subsidiaries and one partnership concern.

The other business of high-pressure seamless cylinders is presently carried through wholly owned subsidiary Eurotech Corporation, which outsources the manufacture of these cylinders to China. CNG gases are transported to CNG stations through CNG cascades. The company also manufactures these cascades.

Recently, Nitin Fire Protection Industries floated another wholly owned subsidiary Nitin Cylinders to set up a manufacturing unit of high pressure seamless cylinders at the Vizag special economic zone (SEZ) primarily to cater to the export market. The company has planned a capacity of 5,00,000 units per annum at this plant, which will come up in two phases. The first phase of 2,50,000-unit capacity is scheduled to commence production in May 2007, while the second phase is scheduled for commissioning by October 2007. The total cost of this expansion is estimated at Rs 118.08 crore. The company is coming out with an initial public offer of equity shares to partially finance this expansion.

The high-pressure seamless cylinders primarily cater to the industrial, medical, fire-fighting and beverages segments. However, with the advent of CNG as an alternative eco-friendly automotive fuel, a new segment has opened up, which is growing rapidly in India as well as globally.

To further benefit from the evolving market for CNG applications, Nitin Cylinders also intends to make and sell fuel dispensers. It has entered into an MoU for technology transfer with Kraus Global Inc., Canada, and for the supply of its proprietary products in India, Bangladesh and the UAE.

Nitin Fire Protection Industries picked up a 10% stake in the consortium along with petroleum giants such as GSPC (20%), Gail (20%), HPCL (20%,), BPCL (10%), Hallworthy (10)% and Silverware (10%) for the exploration and prospecting of crude oil block RJ-ONN-2004/1, admeasuring a contract area of 4,613 sq. km, in Rajasthan. The cost of operating the oil block is estimated at about US$ 30.67 million out of which the company’s share works out to US$ 3.07 million (over Rs. 13 crore).

Strengths:

Operating from SEZ will help in effectively tapping global markets for high pressure seamless cylinders. The demand for high-pressure seamless cylinders to carry CNG will continue to grow at a high rate due to the global shift to CNG as an automotive fuel. The business of CNG cascades and the tie-up for manufacturing CNG fuel dispensers for domestic markets hold immense potential for future with a number of city gas distribution projects planned. The availability of natural gas is expected to double in the next two years.

Weaknesses:

Will need to establish its brand image and marketing network in the export markets.
Foray into oil exploration looks diversionary and may lock up funds in unrelated business.

Valuation:
The price band for the IPO is Rs 171 to Rs 190, which translates into a P/E of 21.0x at the lower band and 23.3x at the higher band on the consolidated EPS (on post-IPO equity) of Rs 8.2 for the year ended March 2007. Around 51% of the consolidated profit comes from the fire protection business and the balance from the cylinder business. The proposed project is in the cylinder business. The nearest comparable company in the cylinder business is Everest Kanto Cylinders, which already commands substantial market share in this business, is currently trading at Rs 1168, with P/E of 37.6 times consolidated nine-month annualised EPS. The strong financial and stock market performance of Everest Kanto after listing is likely to augur well for Nitin Fire Protection in the short term.