The current year has seen some strong listing gains for the (IPO) that has caught investor attention and also prompted companies to push their issues. The week ahead will see atleast four IPOs hit the market. Here is an analysis of these issues.
Syncom is in the business of manufacturing and marketing pharmaceutical formulations and this it does under its own brand name. Primarily the company operates in four product segments ? generics, over the counter, ethical and herbal. It also does contract manufacturing for other pharmaceutical formulations, neutraceutical products, food supplements and cosmetics for companies such as Lupin and Piramal Healthcare.
With a price band of around Rs 65-75, the company intends to raise around *** crore and this will be used to fund its manufacturing unit at Indore and also manage working capital requirements. The dynamics of the domestic formulations business look attractive. However, bigger players dominate the scenario and the company will have to make its presence by developing its brands and distribution network. The company currently has a manufacturing facility in Dehradun and has seen revenues grow by over 40% in the past two years. This augurs well for investors. The ability of the management to maintain this growth rate will be tested as it expands and faces competition.
A significant concern for the analysts at the moment is that the company sources its revenues from a few set of clients. The top ten clients account for more than 69% of its revenues. And here, it is the working capital management that is the real concern. Its working capital cycle has increased to 198 days in 2008-09 from 153 days in the previous year. And, over 57% of the total debtors exceeded six months. Moreover, a large chunk of equity money (typically long term) would be used to fund working capital requirements (short term) does ring well. Also, the price band of Rs 65-75, the offer is priced at 23-26 times its estimated 2009-10 earnings per share and is seen to be a tad expensive for a small sized pharmaceutical company, say analysts.
Quite after the success of Godrej Properties, Vascon Engineers issue hits th market with an asset-light model. The company would be developing real estate projects by using the joint development model and limiting its risks in the real estate business. It would also leverage ts skills in the construction business to develop projects with various partners.
The company also has strengths in the engineering and construction (EPC) businesses. And has seen revenues expanded at 54% on a compounded basis for the past three years and earnings by 35 % over the same period. Consolidated revenues for FY-09 stood at Rs 519 crore. And this sets a sound track record for the company. The company plans to raise Rs 180-200 crore for construction activities with the price band being around Rs 165-185.
Vascon?s real estate development business comprises the development of residential and office complexes, as well as shopping malls, multiplexes, hospitality properties, IT parks and other buildings directly or indirectly through subsidiaries or the other entities. Its ongoing and forthcoming projects are spread over seven states in India.
As of December 31, 2009, the company and the its partners had completed an aggregate of 42 real estate development projects, with an aggregate saleable area of over 4.99 million square feet. In addition, it has sold land and land development rights aggregating 2.04 million square feet in saleable area. The company and along with its partners are in the process of developing an additional 51 ongoing and forthcoming real estate projects, with an aggregate saleable area of over 55.36 million square feet.
However, the major concern for analysts is the fact that the company would derive most of its revenues from related parties. Around 37.6% or Rs 1,215 crore of its order backlog of Rs 3,227 crore are contracts from external customers and the rest are for its own real estate development. And this creates a risk for investors. Moreover, the company has a Pune dominated portfolio and this also creates a concentration risk .Hence, the price band Rs 165-185 looks expensive.
Aqua Logistics
Aqua Logistic (ALL) is a company that is engaged in freight forwarding services with agents and provides end-to-end solution . The company delivers specific logistic requirements to different industry verticals such as power, heavy engineering, pharmaceutical, telecom, retail, sports andevents.
The management holds that India’s India’s emergence as a global outsourcing hub would see trade grow at an compounded rate of f 8-10% over the next five years and this will create a tremendous scope for logistics.
However, nalysts reckon that ALL has been in the low-margin freight forwarding business since 1999 and has since not scaled up its operations or achieved sectoral diversification, the way some of its peers have managed. They point out to the fact that the company revenues worth Rs213 crore in 2008-09 with most of it coming from the multimodal trasport or the MTO segment.
?Lack of presence in the entire Logistic value chain and low global exposure in the MTO Segment compared to its peers will prevent ALL to offer 3PL customised services to the large MNCs and expose it to the unorganised MTO market which is rife with competition and low on margins,? say analysts at Angel Broking.
To provide value-added services as well as diversify its portfolio, in 2007, ALL ventured into the high-margin project cargo and contract logistics segment. During 2008-09 and the first half of the current fiscal, ALL derived around 10% of its income from this segment.
The company intends to scale up these segments and expects to garner 20% revenue contribution over the next two-three years. On the macro front, the Eleventh Five- Year Plan has earmarked a substantial $500 billion for the infrastructure sector,which will lend a boost to the logistics segment pertaining to the project cargo.
The company has been on high growth trajectory since the last three years due to its low base. However, this may not be the case going forward especially in the MTO Segment. The company intends to raise around Rs 150 crore from the issue and the price band is set at Rs 220 and Rs 230. Even here, analysts reckon that the offer price is aggressive when compared to its peers in the industry.
Thangamayil Jewellery (TJL), a retail jewellery chain in Tamil Nadu is approaching the capital market with its small sized IPO. With a price band of Rs 70-75 the company intends to raise around Rs 28.75 crore.
Predominantly, the company has its operations in Tamil Nadu and is an established player in the
Madurai jewellery market. The company expanded its operations to Karaikudi, Rajapalayam and Ramanathapuram markets in 2008-09. And, the sales stood at Rs 246.8 crore in 2008-09, a jump of 10% over the previous year. However, at the moment it remains a state sized player only. The company intends to expand its operations in seven more cities with Rs 22 crore from the issue proceeds.
Overall sales and earnings have been growing at a rapid clip. Sales registered a 71% compounded growth rate while net earnings grew by 72% over the the past three years. The company managed a net profit margin of around 3% in financial year 2008-09. Sales for the first half of 2000-10 stood at Rs 209 crore, while net profits were at Rs 7.9 crore, and the company saw an improvement in margins..
Going ahead the company is likely to face margin pressure as it will have to invest in brand building exercises. Analysts reckon that the company also has a business mix that could be risky. About 15 % of its sales come from recycled jewellery on which margins are lower.
This was, however, due to fall in selling expenditure, now set to rise as TJL begins the brand-building exercise. With a larger store network, hike in depreciation is also likely. TJL’s practice of trading some of its gold inventory could expose the company to losses on the price front, when there is little cushion to handle price risks.
Also TJL depends on gold jewellery with 97% of its revenues coming in from that segment. Idustry experts reckon that it will have to diversify its offerings as it grows as diamond studded jewllery is also steadily eating into the market.
The current offer of the company is seen as being reasonable and in line with peer valuations with a 6.3 times price earnings for the 2009-10 earnings. However, the company is seen as a regional player with limited earnings growth.