Tag: JainMatrix Investments

Large Cap Model Portfolio Update Feb 2013

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JainMatrix Investments is pleased to present subscribers the Feb update on the JainMatrix Large Cap Model Portfolio 2013.  

This is an environment where the Indian economy looks sluggish, interest rates and inflation are not coming down, and the markets seem to have lost some steam. The Q3 results are more or less behind us, and their aggregates are positive. We now expect a quiet period of anticipation before the Budget. 
There may however be some pockets of activity. PSU divestment is gathering pace. Telecom auctions are expected. The government is trying to clean up its act and finish FY13 with a hurrah. 
The Large Cap portfolio held up well overall in this short period. Investors are advised to continue to invest in SIP fashion. 

JainMatrix Knowledge Base:

JainMatrix Large Cap Model Portfolio 2013
JainMatrix Mid Cap Model Portfolio 2013
L&T: At the Business Crossroads
Arshiya International: A Collapsing Star
Make Equity Investing less tricky: the JainMatrix Eleven 
Bharti Airtel – This is a year of consolidation –LINK
Titan Industries – The Jewel in the Crown

Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/

CARE IPO: They do care about shareholders – Invest

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________________________________________________________

IPO follow up on 12th Dec 2012

  • The CARE IPO closed on Dec 11th with an amazing last day leap
  • Subscription jumped from 2.25 times on 10th EOD to 41 times on 11th
  • Institutional subscription was 46 times; Non Institutional – Corporates + HNI was 111 times, while Retail was 6.18 times. The chances of Retail getting an allotment are higher, as well as the proportion of shares he will get will also be higher than other categories
  • On a personal note – my expectation of 10-15 times subscription was exceeded. I am happy that my opinion was by and large the market view, and I erred only due to conservatism :-)
  • The market is like a slowly awaking ‘Kumbhakaran’ at this stage!!

Original Report Published on: Dec 10, 2012 @ 19:23

  • Date Dec 10, 2012
  • Industry – Credit Ratings, and Mid Cap share – 2,200 cr. mkt cap
  • Price range: Rs. 700-750 and IPO Period: 7-11 Dec 2012

I have to confess, I did not get time to research CARE IPO until today. I got a letter today that goes:

On Mon, Dec 10, 2012 at 5:57 PM, SK wrote:

Hi Punit, Can I go ahead and take CARE IPO when compare with the Upcoming IPO’s . Waiting for your quick response.. thanks in advance. Regards, SK

So I dived into the reports, did some comparisons, and here’s my response.

Dear SK,

CARE IPO looks excellent. Here’s why:

  • The Indian ratings industry is dominated by CRISIL, CARE and ICRA, in that order by revenues. The other two are already listed.
  • PE valuation of CARE at 17.5 times at upper end is half that of CRISIL, and lower than ICRA (22.5 times).
  • CARE has the lowest cost base, employee cost is only 25% compared to almost 50% for ICRA and CRISIL as the back office is located in Ahmedabad.
  • ROCE is high and EBITDA margins are highest of the 3.
  • Cash on books is 370 crore, 17% of market cap. Debt free status.
  • Subscription data of today is that IPO is 2.25 times subscribed, as per NSE website.

Good IPO offering, that leaves a lot on the table for subscribers, but the signs are that it will be 10-15 times oversubscribed due to the last minute rush.

Go ahead and try your luck, use ABSA, and your funds will not even be tied up.

Regards, Punit Jain

 

JainMatrix Knowledge Base:

  • Bharti Infratel IPO – Aggressive offering of Passive Infrastructure – LINK
  • Bharti Airtel – This is a year of consolidation – LINK
  • Telecom – Auctions speak louder than words – LINK
  • TBZ: A Glittering IPO Offer – Invest  – LINK
  • MCX – 800 pound Gorilla of Commodities; Invest – LINK

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Disclaimer:

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com Also see: https://jainmatrix.wordpress.com/disclaimer/

Gold, Apple and a Coal Monopoly

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————————————————————————————————————

Gold is all charged up ….. again !! 

  • After some steadiness in the last 6 months, Gold prices are rising sharply once again, see graphs:
Gold Prices, 1 year, JainMatrix Investments

Fig 1 – Gold Prices, 1 year, JainMatrix Investments

  • The Gold Price has broken above 2900 after several attempts.
  • Over the last 10 years, the price path is an accelerating rise.
Gold Prices, 10 year, JainMatrix Investments

Fig 2 – Gold Prices, 10 year, JainMatrix Investments

  • Fundamental strength in Gold comes from worldwide demand by Consumers, Central Banks and investors. Supply will only increase 4% in 2012.
  • Reports claim that demand in India has fallen, and Indian gold imports in Q2 2012 plunged 56% to 131 tonnes (source World Gold Council). However, this is official data, and news reports on customs hauls indicate that of late unofficial import channels (smuggling) is up.
  • Part of the gold appreciation in India has been due to INR weakening against the USD. Its possible that the big INR slide of 2012 can be arrested if inflation and current account deficits are tamed over the next one-year.
  • Having said this, the economic/ debt troubles of USA and Europe are still at large. This strengthens the gold case.
  • Gold prices may rise sharply in the next 1-2 years, I feel. Then the global economy may truly start recovery, and there will be better avenues for cash, so price graphs may flatten or even fall.
  • You can read an article of mine – Gold as an Investment
  • My preferred investment mode is Gold ETFs. Selling is easier and cheaper.

Apple V/s Rest of World

  • Apple’s just won a case in the US courts over Samsung. The case was over copying of patented technologies, shape, size and user navigation aspects. Both Apple and Samsung accused each other of infringements.
  • Apple won, and was awarded over $1 billion in damages. More importantly, Samsung may be restricted in selling its products in some regions. Samsung is also a proxy for Google and its Android operating system. So the loss may have wider ramifications for other Android based producers of mobile phones. Of course, Samsung is appealing in the Supreme Court.
  • It’s an amazingly complex subject, IP and patents protection. But somewhere in these legal battles, common sense is being lost. How can a consumer design aspect be patented? It is only technologies that can be either open source or patented. So any unique new technology that Apple’s R&D has created – wireless, software code, application, sync tool, etc. should not be copied or built upon, competition has to redevelop in order to match features.
  • But a shape, color, design or navigation feature that is consumer and visible to all may be popular, and can become a standard and be copied. As long as Samsung sells the product by prominently branding it as Samsung, it cannot be mistaken as an Apple. In consumer products, the product developer only has the advantage of being first in the market, nothing more.
  • Lets see if better sense prevails, or Apple wins again and gobbles up the global mobile phone market :-)

Coal India and the Coal Monopoly

  • India’s rapid economic strides in recent times are attributed to the opening up of the economy and dismantling of the license and permit Raj. Conversely, the negative effects of this Raj, even today, are apparent in a sector not yet opened up, of Coal.
  • Ever since coal nationalization in 1973, Coal India has a monopoly over mining of coal. It also lords over India’s coal riches, and with estimated reserves of over 200 billion tons, India has the world’s third-largest reserves.
  • What have we actually got from this monopoly?
    • A 5% per annum growth in Coal production over the last decade. At a time when power demand is galloping at 10-12 %. The result is expensive Coal imports and stressed power production assets working below capacity. See graph 3.
    • Coalgate – an issue that is rocking Parliament as of now, as political parties blame each other for essentially the inefficiencies of Coal India.
Coal Production in India, JainMatrix Investments

Fig 3 – Coal Production in India, JainMatrix Investments

  • In today’s times, the monopoly of Coal India has outlived its usefulness. Coal mines and mining in India are no longer an issue of national importance to be protected by PSU ring fencing. In fact they are an inefficient and poor utiliser of these assets.
  • Private firms are quite capable of mining coal. Many have already been allotted mines.
  • Coal India needs to be broken up, perhaps like the breakup of the telegraph giant in USA AT&T into Baby Bells. This ushered in a telecom revolution in USA over decades after 1984.
  • The breakup of CIL should be followed by a lifting of monopoly, opening up to the private sector and a re-listing of the breakup Coal PSUs.
  • This will be easier as CIL is a holding company with seven coal producing subsidiaries and a mine planning and consultancy company.
  • Coal pricing should be based on open market and eAuctions mode. Let the real aspects like coal quality, logistics, demand and supply decide coal prices. Market forces will provide answers, and drive improvements.
  • A Coal sector regulator needs to be set up that oversees the CIL breakup, pricing deregulation, opening up to the private sector, R&D and technology improvements in the sector and environmental oversight.

JainMatrix Knowledge Base:

See other useful reports

NBCC: Small PSU Construction Sub-Contractor IPO, Avoid

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  • Report Date: 27th March
  • The updates of 26th EOD are: Overall 58% subscription with Retail 93% and Institutions 52% with FIIs also stepping in. HNIs are at only 3%. These  are not great numbers.
  • My sense is that HNI will dive in today only, and with Retail and Institutions doing their bit, subscription may go to 2-3 times. Of course this is crystal ball gazing :-)
  • If limited to 2-3 times, then the IPO may list at the lower end of range.
  • Retail applicants can apply accordingly.

Report Date: 24th March ’12

  • Offering: Price Range Rs 90-106, available  from Mar 22-27
  • Opinion: Government dependent,  long term outlook poor , Avoid

NBCC – Description and Profile

  • National Building Construction Co is owned by GoI /Ministry of Urban Dev.
  • It provides Project Management Consultancy (PMC) for civil construction projects for Central and State Govt, civil infrastructure for power sector and real estate. Nationwide spread of projects address sectors like Hospitals (customer ESIC), Education Institutes, roads, irrigation, border fencing, etc.
  • FY11 Revenues were Rs 3,127 crores, with Net Profit 140 cr and EPS 15.6. The net worth is 728 cr and it has an order book of over ~10,000 cr. Dividend yield is about 3-4% at current IPO pricing.
  • However NBCC is a small PSU as it is a Nodal agency that essentially subcontracts work to contractors like L&T, Ramky Infra, etc. Here NBCC has back to back payments to contractors  so that payments from customers are disbursed less margins. So debt is zero. Free cash on the books is 450 cr (35/share).
  • NBCC has maintained ROE and ROCE of about 20% & 33%, in the last 3 years.

Key Strengths of NBCC and IPO offer

  • The 3 years revenue visibility due to the order book is fine, and debt is zero.
  • All India presence, with some international operations starting up too.
  • The construction /infrastructure sectors are in a boom phase with terrific multi decade growth. The Indian government has placed infrastructure spending at a high importance, per Budgets/ Plans.
  • A number of government depts are comfortable dealing with a PSU, and place their orders with NBCC.
  • A discount of 5% on the Offer Price is being offered to Retail Bidders

Key Weaknesses of NBCC and IPO offer

  • As a nodal Agency, NBCC itself does not possess project execution capabilities.
  • The quality of output of NBCC is dependent upon subcontractors. In this current competitive phase for construction, top firms are ready to work for NBCC. Once these pressures ease up in the next 2-3 years, the quality will fall.
  • In the medium term current subcontractors will themselves take up projects directly from govt departments, and NBCC will lose business.
  • NBCC can be compared/ benchmarked against a number of firms. In Building construction, private sector firms are available at PEs ranging from 2-20 times with only larger high profile firms going over 6 times. In Civil Construction sector, large firms are in a range of 6-20 times, with the average at 14 times. Many firms in this sector are available cheaper than NBCC, offering ownership of a better business operation.

Strategic Thoughts around this IPO

  • My worry is whether the good-looking NBCC financials will hold up once it is a listed firm. The QoQ requirements of transparency of a listed firm are challenging, particularly for a govt department run PSU.
  • Why does the government need to do an IPO for NBCC? This Nodal agency for construction should continue doing its good work for government departments. Why should the unsuspecting public be offered ownership in this business? (One rumour is that the Indian Government is testing waters before larger IPOs. This firm is then a bad choice in my opinion).
  • In the 60s, the Indian government owned/ nationalized firms like Banks, LIC, SAIL, BHEL, BEL, Indian Railways etc. so that they can manage them and invest large amounts in new capacity (no one else could). Today the Indian government suffers from a monopolistic, legacy oriented thinking, and a mistrust of the private sector.
  • In these modern times, private operators are far more efficient, capable and technologically advanced than PSUs in the same sector. Private sector can invest in heavy industry. The government should in fact vacate from sectors where private sector can do a better job. NBCC is clearly in one such sector.
  • NBCC has a poor competitive position in the industry. In the next 5-10 years, it will lose its relevance, unless it learns to compete against the private sector firms, and execute projects end to end.
  • See my reports of other firms in this space – BGR Energy Systems and A Roads and Highways Developer (please Subscribe to receive this)

IPO Offering Outline:

  • Offer is of 1.2 crore equity shares for 10% of the firm’s equity, in price range Rs 90-106, available from Mar 22-27th.
  • At the upper end, this values the firm at P/E of 6.8 times, and it will collect 127 crores, and the market cap of the firm will be 1200 crores.
  • Rating agency CARE has assigned a grade 4/5 to the IPO.
  • As on 24th Mar, the issue is 23% subscribed, primarily by Domestic Institutions. One hopes this firm is not another one headed for LIC :-)

Opinion, Outlook and Recommendation

  • NBCC IPO is not for the long term investor
  • It is of course possible that NBCC may offer a listing pop.
  • Conservative investors looking for PSU firms and safety for next 1-2 years may like to Subscribe. Interested investors should watch the subscription numbers on 26 Mar and take their decision.
  • And check back on this website www.jainmatrix.com for updates :-)

Public Reports

For the benefit of my readers, I will share public reports on this IPO by brokers. Note that their opinions may be different from mine :-)

No   Report Link Opinion
1 Aditya Birla Money Link Subscribe for Short Term Gains
2 Hem Securities  Link Subscribe for limited upside
3 Edelweiss Subscribe
4 Swastika Investmart Link Subscribe for the long term
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Disclaimer:

Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it. And vice versa.

These reports and documents have been prepared by JainMatrix Investments Ltd. They are not to be copied, reused or made available to others without prior permission of JainMatrix Investments. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com

Also see: https://jainmatrix.wordpress.com/disclaimer/