Saturday, November 29, 2014

Upcoming IPO: Is Monte Carlo going to be Lovable?

Woolen and cotton garments manufacturer Monte Carlo Fashions Ltd (MCFL) is entering the capital market with its initial public offering of nearly 54.33 lakh equity shares of Rs 10 each in price band of Rs 630 to Rs 645 per share. In the price band, the issue will lead to Rs 342 crore -350 crore being mobilized. The issue will constitute 25% of the post-issue paid up capital.

The issue will open on 3 December 2014 and will close on 5 December 2014. Although the IPO has not been graded by any credit rating agency, that’s no reason for investors to look away from this IPO. MCFL is backed by private equity firm Samara Capital which invested Rs 175 crore in the company in tranches nearly two years ago. This investment gave Samara Capital a stake of 18.5% in the company valued at Rs 945 crore. With the listing, the valuation is expected to go up to Rs 1,400 crore, translating into a cool 48% gain over two years. Still, Samara Capital would retain 11% stake in Monte Carlo after part exiting the investment. The remaining shares are being offered by promoters while the company will not get any funds from the issue. Monte Carlo is a well-known brand and clearly, Samara Capital sees more upside to its investment. This is quite a big indicator about the company’s prospects.

At the lower end of the price range, the stock will be valued at little less than 25 times its earnings in the trailing 12 months. This is not inexpensive but nowhere close to “stretched” levels, especially in the absence of any listed direct competitor. While several clothing companies are listed on the bourses, it is important to highlight that Monte Carlo is a niche “product” company. Unlike generic brands which seem to have taken inspiration from Kardashian family, Monte Carlo has a specific image in a specific product category which has served it well. Actually strong brand image and rich margins put it closer to Lovable Lingerie and Page Industries, even though these companies are in totally different product categories. As we look at Lovable Lingerie’s 36.5 price earnings ratio, Monte Carlo may very well look a discounted play. Page Industries too trades at a lofty valuation of 60.9 times its annual earnings. Both peers have a double digit net margin – a metric where they find company in Monte Carlo.    

The company has not yet announced participation of any anchor investor but given the positives, some of the well-known names in the market might be interested in anchoring the ship. The book running lead managers for the IPO are SBI Capital, Axis Capital, Edelweiss and Religare Capital Markets. The company plans to focus to expanding reach in the southern and western parts of India where it is relatively weak. 

Thursday, December 6, 2012

Just how valuable BSE is? ...USD1 billion it says


Three cheers to Bombay Stock Exchange (BSE) which is planning to come up with an IPO next year. The exchange has selected 14 banks including Bank of America Merrill Lynch, JPMorgan, Barclays Capital, and UBS for its IPO planned during the first-half of 2013. This is certainly not the first bourse to get listed but it is also not commonplace to find exchanges seeking public money. To be fair, public money comes with a lot of strings attached including increased public scrutiny and higher pressure to maintain corporate governance. Now this is arguably a difficult task in this line of business, it is therefore intriguing what prompted BSE to get a public listing. The exchange is not short of cash for sure.

Multi Commodity Exchange (MCX) is already listed and has a market capitalization of nearly INR78.81 billion (USD1.44 billion). Incidentally, BSE is also seeking a valuation in excess of USD1 billion, according to chief executive Ashishkumar Chauhan. Arms of Indian banks Kotak Mahindra Bank and ICICI Bank are also among the lead managers of the planned IPO, Chauhn said adding, "The process is on. We are targeting a launch in the first half of next year.”

Founded in 1875, the BSE, formerly known as Bombay Stock Exchange Ltd, has long considered an IPO. India's capital markets regulator in April approved listing of local stock exchanges, subject to some conditions.

BSE claims it is the world's No. 1 exchange in terms of listed members, with about 5,000 companies listed on it. At some point in time, it used to be the largest exchange in terms of trading volumes as well; however, opaqueness in its dealings and a resistance in adopting new technology pushed it behind National Stock Exchange which was founded in 1993.

Frankfurt-based Deutsche Boerse and the Singapore Exchange own a 5 per cent stake each in BSE, whose Sensex remains the benchmark stock index alongside the rival NSE's Nifty. Equity participation by Deutsche Boerse and Singapore Exchange may be the reason behind the IPO as it would offer an exit route to these investors.

Sunday, December 26, 2010

Indian government cuts import duty on rubber to 7.5%

The Indian government has reduced the import duty on natural rubber to 7.5% from 20%, reports the Economic Times.  The duty cut will be implemented for shipments up to 40,000 tonnes till 31 March 2011, to boost domestic supply and put a check on rocketing rubber prices that touched record INR207 (US$4.5, 27 December 2010) per kg.

It has also been reported that the natural rubber import beyond 31 March 2010 will attract a duty of 20% or INR20 (US$0.4) per kg, whichever is lower. “The government has addressed the long-standing request of the industry. This should have happened long back when prices in domestic market were higher than international market,” said Rajiv Budhraja, director general of New-Delhi (India)-based Automotive Tyre Manufacturers’ Association.

The Indian tire industry had been seeking a cut in the 20% customs duty on natural rubber, which is double that for tire imports. Looking at the price position, rubber and availability of rubber and the increased demand for tires, it would be interesting to see how much benefit the duty cut will provide to the tire industry in the short term. “Domestic prices will remain stable despite duty cut as they are lower than international market,” told George Valy, president of The Indian Rubber Dealers Federation to Reuters. Valy further added,  that “Indian tire makers will start imports once international prices fall below domestic level. Then they will benefit from lower duty.”

However, availability is one of the largest constraints in India which would certainly help in bringing in more rubber.  The limit of 40,000 tonnes of imports up till March 2010 seems too little and would be consumed by the industry before that. India is expected to produce around 850,000 tonnes of natural rubber in 2010-11, down 4.8% from an earlier estimate, after heavy unseasonal rains affected tapping. The country consumes nearly one million tonnes of rubber annually, split roughly halfway between the tire and non-tire industries.


Tuesday, November 3, 2009

Apple, Google and Buffett

What is similar between Apple, Google and Buffett?

Nothing at the first glance, dig a bit deeper and one comes across multibagger personalities. All of them are in different businesses rarely encountering others as competitors but I can’t help myself imagining the ever upwards sales and profit charts for these companies (Berkshire Hathaway in case of Buffett). All three of them share some common traits.

Core business

Apple and Google excelled in their initial businesses of computer hardware and internet search. None of them were the first entrants (a number of mainframe makers were present when Apple started) but harnessed the potential of being ‘not so late’ entrants.

Buffett, on his part can easily find a place in the list of all time great investors on the basis of his early investment in Coke and Gillette. It was the firm belief in the value investing ideals that he refused to invest in any of the dot coms. Needless to say, Buffett had the last laugh.

Diversification

Apple has always been great with software but has never played the ‘software alone’ card till now. Rather, the company has always focused on the combination of hardware and software. Not paying heed to the naysayers for entering into the portable music player industry, Apple took on the challenge and created a profitable niche for iPod in the industry dominated by the likes of Sony and Philips.

Google saw a logical stagnation in its income merely being a search engine and providing contextual text advertisement along with search results. The company thus widened the scope of its contextual advertising by diversifying into email and acquiring YouTube.

The Oracle of Omaha officially says that he prefers to invest in the businesses he understands. But he has repeatedly made investments which defies the logic. Latest in the list is the investment in Chinese battery maker, BYD. The investment is something which even Charlie Munger claims Buffett wouldn’t have done five years ago. Buffett learns. Now Buffett and Berkshire Hathaway have the clout to earn US$1bn profit on such investment in less than a year

Reinvent

It is interesting to note how Apple reinvented itself after losing its first mover advantage in GUI based operating system to Microsoft. First notebooks and then mp3 players, the company created new markets. Latest feather in the cap for the company is the surging sales of its smart phone, iPhone. Again, Apple took on the industry leaders including Nokia, Sony and BlackBerry. A dip into the latest regulatory filing of Apple will tell us that the company books more sales by selling phones and music players overtaking the traditional Mac business.

Google has now become an internet powerhouse offering web search, video hosting, web browser and maps. Bill Gates is surely threatened by the idea of a Google developed operating system. However, apart from the internet, Google has many other offerings. The company is at the forefront of changing the electricity consumption pattern. Google recently showcased a power monitoring system which puts more options in the hands of users by providing consumption details every 15 minutes.
Google’s variety of the products stems from the fact that the company officially earmarks some hours every week in which employees are encouraged to pursue projects of their interest.

Markets have revisited the theory of value investing after every stock market collapse to find a self assured Buffett. It doesn’t happen so often that the chief of an investment firm of the size of Berkshire Hathaway keeps US$30bn in cash earning nothing on it but finally walks all the way to bank with investments in firms such as Goldman Sachs, Harley Davidson and Wells Fargo at favorable terms. In the hindsight, it appears that Buffett seldom deviates from the value investing principles while the rest of market goes too far ultimately resulting in a crash landing.