Fairval

Notes on Indian equities, sectors and economy

Archive for the ‘Markets’ Category

Adlabs Entertainment – The Most Expensive IPO EVER?

Posted by fairval on March 16, 2015

Manmohan Shetty owned Adlab Entertainment’s IPO is amazingly expensive, even by the standards of the Media and Entertainment industry, where good stocks do tend to quote at a premium.

Consider this:

  • The company has just 18 month of operating history
  • Still making cash losses. In Apr-Sep’14, it reported a cash loss of Rs 50 crore! This is about 70pc of revenue
  • No debt rating reported after Jan’14, which is suprising given that it has over Rs 1200 crore of debt.
  • Probably needs to double revenue just to break even. Its ticket price is already more than 2x of other game parks. May find it hard to raise ticket prices too much. High ticket prices could limit foot falls too.
  • Hard to see double digit ROCE.

It is asking for EV/Sales of over 20x. The issue’s last date is tomorrow. Lets see if it closes. The retail portion seems to be subscribed

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VCs need to understand secondary markets better

Posted by fairval on September 1, 2014

Now that we are running a couple of Series A transactions in very exciting, but small, unlisted companies, the one question we get asked by interested VC investors is this: But how will we get an exit? They tell us – in this company, IPO is unlikely.

This despite projected revenues of around Rs 400 crore and net profit of over Rs 70 crore in each case. So even if they miss the projections by 20-30%, they could still make a topline of Rs 300 crore and net income of Rs 40-50 crore at exit time. Can an exit via normal IPO happen in a such a company? Most certainly, it can. It seems 6 years of bear market has made VC investors forget how an IPO market behaves.

We give the following examples to the investors in support of our above argument.

1.Talwalkars: IPO occurred in Apr’10.
IPO Size: Rs 77 cr
Oversubscription: 28x
Revenue: Rs 65 cr
EBITDA: Rs 18 cr
PAT: Rs 5 cr
Debt: Rs 91cr
IPO Price: 128
IPO Valuation: Rs 309 cr
PE: 71 x
EV/EBITDA: 23x

Banker: India infoline
Current Valuation (1 Sep’14): Rs 521 crore

2.Speciality Restaurants: IPO occurred in May’12
IPO Size: Rs 176 cr
Oversubscription: 2.54x
Revenue: Rs 152 cr
EBITDA: Rs 34 cr
PAT: Rs 18 cr
Debt: Rs 33cr
IPO Price: Rs 150
IPO Valuation: Rs 704 cr
PE: 47 x
EV/EBITDA: 22x

Banker: Kotak
Current Valuation (1 Sep’14): Rs 650 crore

3.Snowman Logistics: IPO just closed (Aug’14)

IPO Size: Rs 197 cr
Oversubscription: 60x
Revenue: Rs 153 cr
EBITDA: Rs 38 cr
PAT: Rs 22 cr
Debt: Rs 130cr
IPO Valuation: Rs 781 cr
PE: 35 x
EV/EBITDA: 24x

Banker: HDFC Bank
Current Valuation (1 Sep’14): Not listed yet

As can be seen, all 3 were small companies at the time of IPOs. Because of strong growth prospects, leadership position in their niches, they were able to command a good valuation, whether you look at EV/EBITDA or PE, at the time of IPO.
Speciality Restaurants is quoting below its IPO price, indicating that its banker priced it too high. Despite that, it garnered 2.5x oversubscription at IPO.

Posted in IPO, Markets, PE/VC | Tagged: , , , | 2 Comments »

Vinyl Sulphone and H-acid: the new party chemicals

Posted by fairval on August 11, 2014

Vinyl Sulhone and H-Acid are the new party drugs. Well, in a manner of speaking!

These are actually dye intermediates, which are enjoying a bull run in prices (probably temporary). Prices have risen >2x normal levels, margins have expanded dramatically, it seems due to global capacity shortage. The companies manufacturing these are having a whale of time. We know of 4 manufacturers: Bodal Chem, Bhageria Dye Chem, Kiri Industries and Akshar Chem.

Among the lot, Bodal declared results last week and Bhageria came out with results today. And what blow out results, for both!

This is what Bodal declared:

(Rs mn) AMJ-14 AMJ-13 FY14
Sales 3853 1765 9595
EBITDA 920 166 1889
PAT 520 19 307

And Bhageria’s results are equally good:

(Rs mn) AMJ-14 AMJ-13 FY14
Sales 1816 498 3674
EBITDA 257 27 248
PAT 165 16 154

Kiri and Akshar Chem are yet to declare results. All the 3 scrips have risen dramatically, by 10-15x in the last 2-3 quarters.

What we don’t know is how long the party will last. Polyester film makers had dramatic run in FY12, where all companies posted unheard of profits, but now they are back to 2-3% net margin. Hope the crash isnt too bad here.

 

 

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IPOs in 2013

Posted by fairval on February 13, 2014

There were 1046 IPOs in major exchanges around the world in 2013, it seems. US accounted for 22% of these, London half of that. While BSE it seems did have 33 IPOs, most of these must have the SME IPOs, since NSE has only 7 to show. Ranks 4 to 8 are all Asia Pacific countries. So Mumbai’s dream of becoming an Asian financial hub are far from reality.

There were 96 new foreign IPOs on these exchanges. India is yet to see one.

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Posted in BFSI, Data, IPO, Markets | Tagged: , , , | Leave a Comment »

DIIs to return to markets in FY15?

Posted by fairval on January 10, 2014

Domestic institutions have been pretty much absent from equity markets since 2009, apart from a small blip in 2011. The total for 2009-13 would be clearly in the negative. Indian investors have pulled out money for the last 5 years. Extreme risk aversion or rational behaviour? I guess when interest rates available from 9% from FDs, it is pretty much rational behaviour.

This Deutsche report posits that DII investments will turn positive in FY15. This is what it says:

“ULIP sold by insurance companies till Aug 2010 had a lock in of 3 years. Policy holders are allowed to redeem the ULIP’s after the expiry of the lock in period without incurring any penalties. Consequently, we believe that the selling by life insurance companies over past two years was largely driven by redemption pressure from these ULIP policies. Since the last of the 3 year lock in ULIP’s were sold in August 2010, redemption from these policies should come to an end by March 2014. Our expectation of the redemption driven selling coming to an end is premised on the belief that policy holders wishing to redeem policies would most likely do so within 3-6 months of the expiry of lock in.

The lock in for ULIPs sold since Sep’2010 was changed to 5 years, implying that Life Insurance companies should not face further redemption pressure from these policies, which should help ease the massive DII selling which we witnessed in 2013″.

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Sensex performers (FY07-13)

Posted by fairval on January 9, 2014

Pharma, consumer, IT, select financials – that remains the consistent India story. ICICI Bank underperforming also remains a consistent story – Chanda Kochar or Kamath, not much difference. (chart from a MoST report)

Sensex

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Earnings yield chart still doesn’t look good for the Indian markets

Posted by fairval on January 2, 2014

Couple of interesting charts from a report by Emkay. The first one is Earnings Yield (EY) versus 10 year treasury yield (TY) for India. While treasuries are giving around 9-10% now, EY is around 6-7%. As we have pointed out earlier, it is only when EY is less than TY, that markets have given big rallies. For example, in 2002-04 period, EY was less than TY. Similarly, in 2009, EY was less than TY. In both cases, big rallies followed.

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Now contrast this with the same chart for the US markets. TY is around 2.5%, while EY is around 6%. So EY>TY by more than 3%. This is totally the reverse of what we have in India.

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With several local negatives – high inflation & interest rates, need for fiscal tightening; and globally – recovering developed economies, risk of US taper – things don’t look good for Indian markets. The current situation suggests that Indian markets will meander sideways, with more downside than upside. Modi or AAP – either ways there won’t be any near term miracles for the markets, maybe a short blip at best, till interest rates start coming down.

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2013 Recap: A tough year for investors

Posted by fairval on January 1, 2014

2013 was once again a bear market for Indian investors. This may not be quite apparent from the headline index: Sensex was up 9%. However, BSE500 was up only 3%. We calculated returns for traded stocks (over 2500). Equal weighted returns come to 4%. These aren’t good returns.

More than Indices, the number we prefer to look at is: Annual Advance Decline. This is what gives the true picture for a retail investor. Only 1 in 3 scrips gave positive returns. Only about 1 in 5 scrips gave a return of more than 15%. Those are very tough odds to make money on. So if you did not make money on your picks last year, now you know the reason: the odds were against you. There was quite a rally in the last 3-4 months of 2013, otherwise the numbers would have looked a lot worse than this.

The markets seem to be following a yo-yo pattern atleast for the last 4 years for which we have data. 2014 could depend a lot on election results. A 3rd front, propped by Congress, cant be ruled out. Modi just may have peaked too early. While there is value in some sectors, rampant inflation, screwed government finance remain dampeners. Interest rates will remain high for sometime. Hope we don’t have taxes going up to reduce fiscal deficits.

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Sep’13 profits down at overall level

Posted by fairval on November 9, 2013

About half the results are now in for the Sep’13 quarter, and the picture is not good. The following table has data for about 1555 companies which have declared results so far.

While there is still double digit sales growth, EBITDA margins are down, and net profit for the whole lot is down 14%. That the indices hit an all time high seems to suggest that market has figured the worst is over.Valuations were certainly cheap by the end of Aug, so some rebound was justified. But with inflation still out of control, RBI stance still aggressive, too early to presume a recovery. Lets see how do the rest of the  results pan out, we will know in another one week,

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Just Dial is now the 4th most valuable media stock in India

Posted by fairval on June 25, 2013

Just Dial seems to have done well since listing. Having gained over 15% from the IPO price, it is now ranked 4 amongst Indian media stocks. This makes it more valuable than all listed print stocks, radio stocks, and behind only 3 stocks – 2 TV broadcasters cum distributors, and one pure TV distributor (DTH co).

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It also seems to have decisively left behind Info Edge, the other classified advertising company, which is still struggling to grow beyond recruitments.

Just Dial is tho now perhaps the most expensive stock on Indian stock markets, quoting at over 60x trailing. It needs to grow earnings at >50% CAGR for shareholders to make returns from these price levels.

Posted in IPO, Media and entertainment, Valuation | Tagged: , , , | Leave a Comment »