Tuesday, March 18, 2008

Bear Stearns: Indian Connection

The news that global investment banking and brokerage firm Bear Stearns has been acquired by JPMorgan will go down the memory lane exactly the same way as we remember debacle of Barings Bank in 1995 and Societe General more recently (I believe no one remembers them).

Bear Stearns was sold at a valuation of US$2 per share against market price of US$30 per share. It replicates the situation when Barings Bank was sold for a song to ING Group (£1 to be precise….no billions here).

Probably nobody reading this blog remembers Barings or Nick Leeson, but this time many investors will remember Bear Stearns. Reasoning for this is very simple, Bear Stearns sold shares in Indian markets worth Rs 265 crores in last couple of days. While the amount was not particularly large, bears made sure that Big Bear gets its due share in Indian stock market history. Sensex tumbled by approximately 1000 points. Almost all Bear Stearns shares including Madhucon Projects, Clutch Auto, Dabur Pharma, Indo tech Transformers and Jaiprakash Associates fell flat on the bourses. Retail investors in these stocks were taken by surprise by the abrupt fall in share prices.

India has been historically insulated from global turmoils but now its markets are more linked to international markets (There is no decoupling yet). This time atleast some of the investors will remember the Big Bear.

Tuesday, March 11, 2008

New Listing: REC

Rural Electrification Corporation (REC) listed today at a premium amidst good market sentiments. The stock listed at Rs 126 versus an issue price of Rs 105. The company has made an External Commercial Borrowing (ECB) application with RBI. It earlier said it plans to raise Rs 4,040 crore from ECB route. The company expects to see continued growth of 25-30% and plans to do business of Rs 1.35 lakh crore over the next 5 years.

Wednesday, March 5, 2008

GIPL: Where the angels fear to tread

Gammon Infrastructure Projects Ltd (GIPL) may join the list of withdrawn IPOs due to lack of subscription. GIPL is offering 11.45% of its post-issue paid up capital for a price of Rs 167 to Rs 200 per share. This translates into a range of Rs 276.385 crore to Rs 331 crore. Accordingly the company is valued in the range of Rs 2413.8 crore to Rs 2890.8 crore.

These valuations are difficult to justify by any standards particularly when the stock markets are bleeding. The fact that the company is asking for a Price Earnings (PE) ratio of over 100 based on Estimated FY08 earnings is simply ridiculous. At this time, Infrastructure companies with sound financials like IVRCL Infra are available at a Trailing Twelve Month (TTM) PE ratio of 27. It was only last month when investors saw Infra IPOs like KNR and IRB trading below their issue price.

While the chips are down after the Budget and retail investors shying away from share markets, subscription of the retail portion (30%) looks a distant dream. Qualified Institutional Buyer (QIB) portion (60%) may be fully subscribed.

Tuesday, March 4, 2008

Punj Lloyd: A real gem

Engineering & Construction (E&C) major Punj Lloyd has corrected by 40% from its high of Rs 585 to Rs 350. The stock seems to have fallen out of investor’s radar. Bad news or is it a good news in disguise??? The company needs no introduction but for starters, here is one.

Punj Lloyd is an Indian E&C company catering to the hydrocarbons and civil construction sectors across India, Asia and the Middle East. Its services include laying pipelines, building roads, and constructing refineries and tankages, power plants, and other infrastructure facilities.

Last year, it acquired Sembawang Engineers, which helped it scale up its expertise to upstream oil & gas, airports, jetties and tunneling. The acquisition enabled Punj Lloyd to be pre-qualified for larger and more complex project bids.

For the quarter ended 31 December 2007, the company recorded exceptional one time loss of Rs 68 crores on the back of legacy orders of Sembawang Engineers. However consolidated figures were up by 48% for Net sales and 13% for Profit after tax. Moreover, standalone numbers were inline with profit margins intact.

The company is one of the promoters of Pipavav Shipyard Ltd (PSL) holding 25% equity stake. PSL is proposing to enter capital markets with an IPO in near future.

Punj Lloyd is perhaps the only mid-cap Indian construction company that can give L&T a run for its money. The company has an order backlog of Rs16000 crore, largest after BHEL and L&T and provides visibility of two years' revenues.

It’s not everyday that a company like Punj Lloyd is available at such valuations (TTM PE multiple of 32 at current price). We believe that accumulating the stock at Rs 330 would be a great buy.

Upcoming IPO: Gammon Infrastructure Projects Ltd

Gammon Infrastructure Projects Ltd (GIPL) is entering the capital market with its initial public offering of 16.55 crore equity shares of Rs 10 each in price band of Rs 167 to Rs 200 per share. The issue will constitute 11.45% of the post-issue paid up capital.

The issue will open on 10 March 2008 and close on 13 March 2008. The issue has been graded by Credit Analysis & Research as CARE IPO Grade 4, indicating above average fundamentals.

GIPL is offering part payment facility to retail and non-institutional investors. The amount payable on submission of the bid cum application form is Rs 50 per equity share, with the balance to be paid by the due date.

The company undertakes and develops projects such as roads, bridges, ports, hydroelectric power and biomass power projects on a Public Private Partnership (PPP) basis.

GIPL plans to use the proceeds for investments in its various projects being developed by its subsidiaries in Uttar Pradesh, Maharashtra and Sikkim.