TBZ IPO - Indian IPO Blog Insight

Tribhovandas Bhimji Zaveri Ltd., an Indian top jewellery retailer, is entering the capital markets with an IPO of 16,666,667 Equity Shares of Rs.10/- each, which would remain open for subscription between April 24, 2012 and April 26, 2012. Is the jewellery retailer worth the glitter? Let's try to find out:

The Price Band for the IPO is Rs.120/- to Rs.126/- per equity share. Correspondingly, the bid lot would be 45 Equity Shares and in multiples thereof.

The objects of Tribhovandas Bhimji Zaveri Ltd. IPO are:
1. To finance the establishment of new showrooms;
2. To finance incremental working capital requirements;


IPO Rating:
CRISIL has assigned an IPO Grade 3 to Tribhovandas Bhimji Zaveri Ltd (TBZ) IPO. This means as per CRISIL, company has 'Average Fundamentals'. CRISIL assigns IPO grading on a scale of IPO Grade 5 to IPO Grade 1, with IPO Grade 5 indicating strong fundamentals and IPO Grade 1 indicating poor fundamentals. Click here to read more on TBZ IPO - CRISIL Rating


Significant Risks involved in the issue:
1. There are criminal proceedings pending against two of the company's independent Directors
2. The objects of the Issue includes the financing of the establishment of nine new large format high street showrooms in eight cities. However, interestingly, within the cities identified, the exact location of where these showrooms would be located has not yet been finalised
3. There are five third parties with the right to use the "Tribhovandas Bhimji Zaveri" name
4.The company does not register its jewellery designs under the Design Act, 2000 and may lose revenue if the designs are duplicated by competitors
5. For Fiscal 2011 and the nine months ended December 31, 2011, 94.15% and 93.69% of total turnover, respectively, was generated from concentrated regions. Hence, lack of geographical diversion can be a restriction for the company


Analysis of Financials:
Following are the financials of the company as per the Red Herring Prospectus filed by the company:

The company has managed to achieve a turnover of around Rs.1,194 Crores for FY ending 2011. The PAT  margin for the said year comes to a rather scant 3.35%. As against this, Gitanjali Gems Ltd., a listed peer, has a bit stronger position with a Turnover of Rs.5,122 Crores and a PAT margin of around 4.38%. Besides, unlike Gitanjali Gems, lack of geographical diversity and extensive global presence can also be a bottleneck for TBZ.

Although a strong brand name and experienced management can be positives for the company, investors may not digest the risk factors and not so extraordinary financial performance of the company

MT Educare - Indian IPO Blog Analysis

MT Educare Limited, an education support and coaching services provider for students in the secondary and higher secondary school and popular with brand name "Mahesh Tutorials" is entering the capital markets with an IPO for equity shares aggregating to 3,500 lakhs (fresh issue) and an offer for sale of up to 80,00,000 equity shares.(including anchor portion of 17,37,914 equity shares.) MT Educare also provides coaching services for students pursuing graduation degree in commerce, preparing for various competitive examinations and undertaking chartered accountancy examinations

The IPO would remain open for subscription between March 27, 2012 and March 29, 2012. The object of the issue are for general corporate purposes and for:
1. Part financing the cost of construction of a PUC campus in Karnataka, which includes the cost of acquisition of land;
2. Establishing new Coaching Centres at 20 locations

Enam Securities Private Limited is the Book Running Lead Manager to the Issue while Link Intime India Pvt. Ltd. is the Registrar


IPO Grading:
CRISIL has assigned an IPO Grade 4 to MT Educare IPO. This means as per CRISIL, company has 'Above Average Fundamentals'. CRISIL assigns IPO grading on a scale of IPO Grade 5 to IPO Grade 1, with IPO Grade 5 indicating strong fundamentals and IPO Grade 1 indicating poor fundamentals. View MT Educare IPO Grading Report


Analysis of Financials:

Following are the standalone financials of the company as per the Red Herring Prospectus filed by the company:

The Net Worth of the company was Rs.47.75 Crores as on March 2011 which grew close to Rs.57 Crores till September 2011. On the revenue front, for financial year ended 31st March 2011, company reported Rs. 105 crore as total operating income, with PAT of Rs. 8 crore, on a consolidated basis. If we consider FY11, the EPS turns out to be around Rs.2.4. Assuming the shares would be issued at the upper end of the price band, i.e. at Rs.80/- per share, the resulting PE would still be on the higher side


Significant Risk Factors:
1. The company is heavily dependent on the services of the promoter Mahesh Shetty, directors and key members of the management team. Any damage to reputation of the promoter / his services may have an adverse impact on the business

2. There is heavy concentration when it comes to geographical diversity. Most of the coaching centres of the company are located in Mumbai and around 90% of the standalone fees is also received from there.

3. The company has provided loans to MT Educare Charitable Trust in the past at price not linked to market variables and may continue to do so in the future

4. Despite having loan burden of its own as on March 2011, In FY11, a loan of Rs.5 crore was given to a group company Neptune Venture and Developers


Concluding Remarks:
Even while keeping the growth and revenue potential of educational coaching centres in view, it may be difficult for investors to digest a heavier PE for a concentrated business such as this. The IPO may give some listing gains, but continued growth in shareholder value or rather the maintainability of the same over the long term remains a question keeping in view the risk factors involved

Understanding New IPO Listing norms by SEBI

According to the new norms mandated by SEBI for IPOs, investors must note that the shares offered under the IPO on the listing day, would initially go through a pre-open session period which will last for an hour between 9:00 AM and 10:00 AM. During this period, investors would be allowed to punch in orders, modify them and/or cancel them during the first 45 minutes, i.e. upto 9:45 AM. The rationale behind such a move is aimed at protecting the interest of the retail shareholders from artificial price-rigging on the bourses.

However, the crux of the new norms introduced by SEBI states that all the IPO listings on the bourses would be controlled by circuit limits right from the listing day. According to SEBI regulations, in case the equilibrium price (price at which the bid rate matches with the ask rate) is discovered during the pre-open session, the price band for normal trading session shall be 20 per cent of the equilibrium price. In case the equilibrium price is not discovered, then the 20 per cent circuit limit would be applicable on the issue price. While the above mentioned rules are in place for companies with issue sizes in excess of Rs.250 crore, the ones with issue size up to Rs.250 crore would have set circuit limits of 5 per cent either on the equilibrium price or the issue price as stated above.

Thus, taking the example of the recently concluded MCX IPO, since MCX falls in the bracket of Rs 250 crore and above, its shares would trade within the range of 20 per cent either on the equilibrium price or on the issue price. If in case the equilibrium price is not met during the pre-open session and the issue price becomes the trade open price during the normal hours, then the price would be restricted within a range that can hover upto 20% on either side of the Issue Price, i.e. the price cannot go in excess of Rs 1,238 per share on listing.

If in the first hour of trade, MCX gets a base equilibrum price of Rs.1,400, then the stock price can hover 20% on either side, i.e. in the range of Rs.1,120 to Rs.1,680 during the rest of the trading session. If the base price is discovered at Rs.1,500, then the stock price can roam around in the range of Rs.1,200 to Rs.1,800 and so on

Hence for all those investors who apply to IPOs with a view of enjoying stupendous listing day gains, these norms would imply a cap on their expected gains. While, the pre-open session is expected help cater to the unreasonably high volatility and price movements witnessed on the first day of listing in case of many IPOs, it remains to be seen how the regulation actually works out. Stay tuned to Indian IPO Blog for the latest happenings in the IPO market in India

MCX IPO - Indian IPO Blog Analysis

Multi Commodity Exchange of India Ltd (MCX), the Indian electronic commodity futures exchange, is entering the capital markets with an Initial Public Offering (IPO) with a certain amount of bang around it and an expectation from many of reviving the bleeding IPO market. Does it have what it takes? Let's try to find out....

MCX provides online trading facility along with clearing and settlement operations for commodity futures across India. MCX is the largest among the five officially recognized electronic multi-commodity national exchanges in India and accounts for more than 80% of the market share of the Indian commodity futures exchange industry. As of December 31, 2010, MCX has more than 2,107 registered members operating through over 180,000 trader work stations in over 1,139 cities across India. MCX emerged as the 5th largest exchange in the world

MCX IPO would be open for subscription between February 22, 2012 and February 24, 2012. Citigroup Global Markets India Private Limited, Edelweiss Capital Limited, Morgan Stanley India Company Private Limited are the Book Running Lead Manager to the Issue while Karvy Computershare Private Limited is the Registrar to the Issue


Promoter Background:
MCX is promoted by FTIL with a pre-IPO stake of 31.18%. FTIL is a software developer and a technical service provider of automated electronic solutions in the areas of finance and technology like foreign exchange, commodities and equities. It is listed on the BSE, the NSE, the Ahmedabad Stock Exchange and the Madras Stock Exchange. The promoters of FTIL are Mr Jignesh Shah (18.1%), Mr Dewang Neralla (0.13%) and La-Fin Financial Services Private Ltd (26.5%).

 
IPO Rating from CRISIL: 
CRISIL has assigned an IPO Grade 5 to MCX IPO. This means as per CRISIL, the company has 'Strong Fundamentals'. CRISIL assigns IPO grading on a scale of IPO Grade 1 to IPO Grade 5, with IPO Grade 1 indicating poor fundamentals and IPO Grade 5 indicating strong fundamentals

The grade reflects MCX’s leadership position in the Indian commodity futures market over the past four years, with a share of 82% of the overall traded turnover in FY11. It is a leader in the trading of bullion, crude oil, copper and natural gas (which accounted for ~85% of MCX’s traded turnover in FY11). Historically, metals and energy commodities have witnessed lower regulatory intervention. With a strong technology-backed trading platform and infrastructure (supplied by its promoter Financial Technologies India Ltd), MCX is able to provide high liquidity and low impact cost of transactions – key criteria for the success of any exchange


According to the Grading Report, the grade takes into account the benefits that MCX will derive from amendments to the Forward Contracts (Regulation) Act, which will allow trading of options and indices, and participation by institutional investors, leading to increase in the traded turnover on commodity exchanges. The grade also draws support from MCX’s strong management team and its ability to attract talented and experienced personnel

While new commodity exchanges have been set up over the past couple of years, they have not been able to nudge MCX from the top. However, given the high profitability and cash-churning nature of the business, we expect competition to intensify in the future


Read Analysis of Financials and more in MCX IPO - Analysis - Part 2>>

MCX IPO - Indian IPO Blog Analysis - Part 2

Analysis of Financials of MCX IPO:
The Statement of Assets and Liabilities and Income and Expenses of the Company as per the RHP are as under:

Statement of Financial Position:


The company is building upon strongly on the Net Worth from around Rs.5000 mn in FY09 to around Rs.8500 mn in FY11. MCX holds long-term investments in other operational exchanges – MCX Stock Exchange Ltd (5% equity stake) and Dubai Gold and Commodities Exchange Ltd (5% equity stake). MCX also holds 634 mn warrants in MCX-SX, which carry no voting or dividend rights. The company therefore, has the option to generate more cash as and when it decides to liquidate these investments

Statement of Income:
 
MCX’s sources of operating income are
(a) Transaction fees,
(b) Membership admission fees,
(c) Annual subscription fees and
(d) Terminal charges

Transaction fee is the largest contributor to operating revenue. MCX’s operating revenue has grown at a CAGR of 32% over FY09-11, with much of the growth coming through transaction fees, which grew at a CAGR of 37% over the same period.

EBITDA margin improved to 60.4% in FY11 from 53.6% in FY09, on account of operating leverage. Also, adjusted PAT margin has improved from 35.5% in FY09 to 39.4% in FY11

The company also has an excellent business profile. MCX offers more than 40 commodities across various classes such as bullion, ferrous and non-ferrous metals, and a number of agri-commodities on its platform. Globally, MCX is the largest silver exchange; the second largest gold, copper and natural gas exchange; and the third largest crude oil exchange in terms of the number of contracts traded in each of these commodities

Taking into account the strong profile of the company backed by financial performance, the IPO is clearly worthy of a full blooded go.

Read Indian IPO Blog Analysis on MCX IPO - Part 1