Virgo Engineers Limited – IPO

Business of Virgo Engineers Limited


Virgo Engineers is in the business of manufacturing automated and manual valves. These valves are used in industries such as oil and gas, manufacturing and process industries for the purpose of flow control. The company was founded in 1987 and the promoters have a rich experience in the industry, the combined experience of the two promoters is about 65 years. Virgo engineers has offices in India, USA, Dubai, UK and Malaysia. The manufacturing facilities are in India and Italy.
Virgo Engineers has about 244 customers and as of November 30 2007 were executing 624 orders in all with an order book of Rs.3776.21 million.


Financials of Virgo Engineers


The total income has risen from Rs.537.92 million to Rs. Rs.3105.67 million in the last five years but the significant revenue jump has been from fiscal 2006 to 2007 when the income rose from Rs. 1649.31 million to Rs.3105.67 million.
The profit after tax for Virgo Engineers has also risen well in the last five years from Rs.21.21 million in fiscal 2003 to Rs.487.76 million in the last fiscal. This figure however has substantially grown in the last couple of fiscals from Rs.44.26 million in 2005 to Rs.297.19 million in 2006 and to Rs.487.76 million in the past fiscal.
The EPS for the last fiscal was Rs.5.25 and for fiscal 2006 and fiscal 2005 it was Rs.1.90 and Rs.1.56 respectively. 


Objective of the Issue


Virgo Engineers is raising money in order to expand its existing manufacturing facility, set up a manufacturing facility in Coimbatore, prepay certain existing debt and for working capital requirements and to invest in its Italian subsidiary.   


Key Risks


The key risks that Virgo Engineers face is that there revenues are concentrated among a few customers such that the top customer contributes 9.13% of the revenues and the top ten contribute 29.81% of the revenues in fiscal 2007. This factor coupled with the competitive nature of the business where there are several vendors who supply the same products and the fact that the customers do not have long term contractual obligation pose a risk to the business.




While the company has got a good and healthy order book the financials have only started to increase rapidly especially in the last year or so. In such a scenario the IPO would only merit an attention if the P/E multiples are reasonable and not as high as a regular blue chip may demand.

Sejal Architectural Limited – IPO

Business of Sejal Architectural Glass Limited

Sejal Architectural Glass is in the business of processing glass with facilities for insulating, toughened, laminated and decorative glasses. The company’s plant is at Dadar and it commenced operations in 2000-01. The company currently processes and markets glass and as a step towards backward integration now plans to set up a manufacturing facility for float glass.

Some of the well known customers of Sejal Architectural Glass are Reliance, L&T and the glass has been used in Bangalore International Airport, Inorbit Mall and Mumbai airport among others. The company also has a trading division which trades in various in house brands as well as other manufacturer products and deals in tiles, sanitary ware, mirrors, glass etc.

The demand drivers for float glass are the real estate sector, malls and shopping complexes, hospitality industry, SEZs and automobile sector. One can see that the company operates in a sector which feeds other growth sectors which are growing right now due to the rising GDP and the fast growing economy. 

Financials of Sejal Architectural Glass

The sales of the company have risen from Rs.1717.07 lakhs in the year 2003 to Rs. 3935.68 lakhs in the year ended 31st March 2007. The profit after tax for the same period has risen from Rs. 15.07 lakhs to Rs.276.33 lakhs. Growth in both the topline and the bottom line has been steady throughout the last five years.

The EPS for the year 2006-07 was Rs.3.11, Rs.2.88 the year before that and Rs. 3.33 in the year 2004-05.

Objects of the Issue

The IPO of Sejal Architectural Glass looks at raising money for backward integration by way of setting a manufacturing plant for float glass. The installed capacity for this plant would be 200,750 MT and would be set up at Bharuch district in Gujarat.


The company is in an attractive sector with a decent financial record albeit one which is not long. If the issue is priced moderately and the promoters leave something on the table for the investors this could be a good company to look at for the longer term.

When is the right time to sell?

Not long ago I had written about when is the right time to sell, at that time the market was peaking and there were quite a few stocks that were overvalued or were at least at a price that was ‘sellable’. For investors who had sold stocks at that time, right now with the blood shed in the market there are quite a few good stocks which are trading at prices which are there all time lows and because fundamentally nothing has changed in these companies they can be bought at these prices. However if investors didn’t sell at that time then there is still time for them to sell but this time unfortunately not for the reason of booking profits as was the case when I wrote the last piece but for the purpose of cutting losses.
The key at times such as this when there are heavy falls and investors end up losing a lot of money is to sit back and take stock of your portfolio. Essentially you would be able to categorise your stocks into three categories. First category stocks would be the ones that are fundamentally sound, nothing has changed in their business model and growth projections and are companies that have been in the business for years together, these are your standard blue chips. There is absolutely no sense in getting rid of these stocks in panic. These are companies that have lasted for years and are more than likely to bounce back. The second category are mid-caps and small-caps which have also done well in the past few years but don’t have a stellar track record like the blue chips or haven’t been long enough. If these have been bought by an investor at recent times and at very high prices (high P/E multiples relative to their growth rates) you may want to look at selling these stocks and cut your losses. These stocks have a tendency to be very volatile and may dent your portfolio in a matter of a few trading sessions. However if these are stocks which have been with you for a long period of time bought at decent prices, then you may want to hold on to them if nothing in their business or money making model has fundamentally changed. One such stock in my own portfolio is Dewan Housing Finance, not exactly a blue chip but a sound company which has done well over the years and which was bought at reasonable price about an year ago. I would hold on to this stock as nothing that would affect its earning ability has changed and the stock should bounce back as sanity is restored in the market. The third category is of stocks which had been bought purely on tips and the names of which you yourself had heard for the first time and which have no financial track record only promises. Get rid of them as soon as possible and cut your losses. Buying stocks without research and only on tips is the worst thing that any investor can do and better to learn from that mistake than to hold on to such stocks and make more losses. 

There would however be sure to be a few investors who had sold stocks at that time and are sitting on some cash. They could buy some bargain picks which are going around in the market right now.

One such stock which is in my portfolio right now is Infosys which has taken quite a beating and is trading at its all time low. At P/E multiples which are lower than its own guidance for the next year and certainly much lower than the P/E that it has enjoyed in the last few years or the growth rate in the last few years. The guidance for the next year is decent, the third quarter results of most IT stocks have been good and so far there has been no specific talk of slashing IT budget even though there has been a lot said about the US recession. Given this scenario Infosys looks a decent bet right now. 



Manshu Verma

Nu Tek India Limited – IPO

Business of Nu Tek India Limited

Nu Tek is a telecom infrastructure services provider company which offers infrastructure rollout solutions for both fixed and mobile telecommunications network. Nu Tek offers services to telecom equipment manufacturers, telecom operators as well as third party infrastructure leasing companies. Nu Tek undertakes turnkey projects providing management expertise and installation for telecom sites. Nu Tek has site offices and facilities located in all the major cities and have executed projects in all of the 23 telecom circles. Some of the major clients of Nu Tek are Nokia Siemens Pvt Ltd., Ericsson Ltd., Motorola India Ltd., Tata Teleservices Ltd., Reliance Communications, Bharti Airtel, Idea Cellular, VSNL and Essar Ltd.

While the company has an impressing client list it is also dependent on a few customers for most of its revenues, the top customer contributes 57% of its revenues and the top 5 customers contribute 83% of revenues in FY 2007.

Financials of Nu Tek India Ltd.

The sales for Nu Tek have grown steadily in the past few years. From Rs. 181.03 million in the year ending March 2003, it grew to Rs.638.04 million for the year ending March 2007, it was Rs.485.63 the year before and the Income in the past five years has never shown a decline. The profit after tax has also shown a steady growth in the same period and stood at Rs.134.24 million in the past year.

However investors need to bear in mind that the EPS of the company has been far from stable and the EPS in the past three years has been Rs.11.13 for the year ended March 2007, Rs.4.50 for the year ended March 2006 and Rs.363.90 for the year ended March 2005. In this regard while the investor looks at the price band and tries to figure out whether the issue is at a decent P/E multiple or not bear in mind that if you are looking at weighted average figures for past three years then they may not be the best way to judge the right price. The diluted EPS for the period ending September 30 2007 is Rs.5.51.

Objects of the Issue

The primary goals of the IPO are raising funds for capital expenditure, overseas acquisitions and augmenting long term working capital requirements. The capital expenditure is planned on equipments, vehicles and laptops and is earmarked at a sum of Rs. 235.79 million. While Nu Tek has not reveled their target acquisition company in their prospectus they have earmarked a sum of Rs. 210 million for overseas acquisitions. The chunk of the IPO proceeds at Rs. 440 million has been earmarked for augmenting working capital requirements.   

Jaiprakash Power Ventures – IPO

Business of Jaiprakash Power Ventures

Jaiprakash Power is in the business of planning, developing and implementing power projects in India. The company was formed in 1995 and is part of the Jaypee group. Jaiprakash power currently operates the largest hydro electric power plant in the country which is a 400 MW run-of-the-river hydroelectric power plant on the river Alaknanda in Chamoli district of Uttarakhand and was commissioned in 2006 October.


Apart from this Jaiprakash power is implementing a 1000 MW coal fired power plant in Madhya Pradesh which is expected to become operational in 2012.

Financials of Jaiprakash Power Ventures

Since there is only one plant that became operational last year there is not a lot of financial history that can be analysed. The revenue figures for the year ending March 2007 were Rs. 2165.91 million and the same for the six months ending 30th September 2007 were Rs.2427.95 million. The profit after tax for the two corresponding periods were Rs.717.77 million and Rs.1326.80 million respectively. The EPS for the year ending March 31 2007 was Rs.1.51.

Objects of the Issue

There are three main purposes that for which the funds raised from this proceeding have been earmarked. The first one is to finance the equity component of the upcoming project in Madhya Pradesh which would entail a sum of Rs.15,000 million. Apart from this Jaiprakash associates plans to use the fund proceeds for subscribing to the shares of two companies which will would be involved in executing power projects. The first of them is Jaypee Karcham Hydro Corporation Limited in which Jaiprakash will acquire a 55.36% equity stake and which is engaged in Karcham Wangtoo 1000 MW hydro – electric power project.
The second company is Jaypee Powergrid Limited which will engage in the transmission system of the Karcham Wangtoo project. The stake in this company would be for Rs.690 million for 23%. The project would be commissioned in 2011.


The company operates in a growth industry and one which has got a special focus from the government in its plans also. The hydro power generation model itself is also insulated from the vagaries of rising raw material costs as the chief raw material is water and most of the company’s projects are in the north eastern region which are blessed with good water flow. The association with Jaypee group is a big plus however the very short history of the company itself is a dampener. If the issue is priced reasonably and P/E multiples reflect that the company is not charging as much as old and established power companies this IPO may well be worth the money for the long term investor. 

Bang Overseas Limited – IPO

Business of Bang Overseas Limited

Bang Overseas was incorporated in the year 1992 and is in the business of fashion fabrics and ready to wear requirements in apparel, retail and textile segment. The company has evolved from trading in textiles in its early days and then moving to conceptualizing, designing and outsourcing of fashion fabrics from countries like Turkey, Portugal, Mauritius and other European countries.  Bang Overseas also has a seasonal fabric collection in textiles branded as “Bodywaves” which is marketed through their own distribution and sales channel. The company also launched ready to wear men’s garments under the brand name of “Thomas Scott” in the year 2002 and in the year 2005 started their first apparel manufacturing unit in Bangalore and since then have started a second apparel manufacturing unit as well. The capacity of these units right now is 720,000 and 540,000 units per annum. And the products are sold through company owned retail outlets as well as stores like Shopper’s Stop, Globus and others.  Going forward the strategic focus for Bang Overseas would be expansion of manufacturing facilities with a proposed manufacturing unit in Bangalore with a capacity of 600,000 pieces per month, expanding the retail outlets from 12 to 100 spread across India and expansion of product range by entering into women wear in the casual as well as formal categories. On top of this the company also plans to enter into accessories like sunglasses, belts, time wear, fashion jewellery and fragrances.

Financials of Bang Overseas Limited

The revenues of Bang Overseas has steadily increased in the past few years and there has been a considerable jump in the last year due to the Bangalore unit becoming active. The total sales for the year ending March 2007 was Rs.966.22 million up from Rs. 446.89 million in the preceding year and for the six months ending Sep 2007 this figure stood at Rs. 650.6 million. The profit after tax corresponding to this was Rs.108.68 million, Rs.21.5 million and Rs.70.38 million respectively.

The EPS for 2006-07 was Rs.11.65, 2005-06 was Rs. 2.39 and 2004-05 was Rs. 0.83 on a consolidated basis. If one takes a weighted average with the weight of the latest years being 3,2 and 1 respectively the EPS comes out to be Rs.6.76 and the P/E multiple comes to 30.62 for a price of Rs. 207. The company is proposing a price band of Rs. 200 – 207.

The Bang Overseas Limited IPO opens at January 28, 2008 and closes on January 31 2008.

IPO Grading Report by CARE for Bang Overseas – 2 out of 5

The IPO has been assigned a rating of 2 on a scale of 1 to 5 with 5 being strong fundamentals and 2 being poor fundamentals. The reason attributed by CARE for this low rating are as follows:

1.       Small size of operation and order dependant and seasonal business.
2.       Recent compliance of corporate governance practices.
3.       Significant portion of revenues coming from trading division
4.       Present focus only on one segment of Men’s apparel and a fairly new and lesser known brand.
5.       Fragment and highly competitive apparel industry in which the company operates.

Some of the positives of the company as indicated by CARE are good track record of the promoters, successful operations of textile business and a growth in revenues as exhibited in the last couple of years. 

PNC Infratech Limited – IPO

Business of PNC Infratech Limited

PNC Infratech Limited was incorporated in 1999 and is headquartered in Agra. The company is in the business of engineering and construction and engages in infrastructure projects like highways, bridges, flyovers and airport runways among others.

PNC Infratech has execute 14 projects till date, out which 12 have been executed independently and 2 with joint ventures with other companies. Right now PNC Infratech is executing 18 projects out of which 15 are being run independently and 3 with JV Partners. The majority of these are in road construction which is valued at Rs.8,947.9 million spread across 13 projects and the remaining 5 projects relate to runway construction in airports summing up to Rs.996.8 million.

The major clients of the company are National Highway Authority of India, Airports Authority of India, Public Works Department, RITES Limited (GOI Enterprise), Military Engineer Services (Ministry of Defence) and Madhya Pradesh Road Development Corporation.

Financials of PNC Infratech Limited

The company has grown decently in the last five years both in terms of top line and bottom line growth. The revenues have increased from Rs.715.3 million in the year ending March 2003 to Rs.2,564.20 million in March 2007. The profit after tax has also grown from Rs.14.46 million to Rs.132.17 million in the given period. The EPS has grown steadily from Rs. 2.39 in Fiscal 2005, Rs.4.32 in Fiscal 2006 to Rs.6.11 in the last fiscal. For the trailing twelve months the EPS has been valued at Rs.12.23.

Objects of the Issue

The IPO is being brought out primarily to raise money to invest in capital equipments, prepayment of debt / advances, equity investments in JV / SPVs for BOT projects and funding working capital requirements.


PNC Infrastructure is in one of the key sectors in the Indian economy where there has been significant growth and is expected to continue in the future as well. The company has done well in the past and that is a good indication of the future. If the issue is not an unreasonable P/E margin for a new issue it should be worth a good bet for the long term investor. 

Taxes on Mutual Funds in India

Equity oriented mutual funds are those mutual funds which invest more than 65% of their funds in equities. Dividend income received from such mutual funds is exempt from tax for domestic investors. If an investor sells their equity oriented mutual funds then any capital gains on those is also not taxable. But to qualify for this exemption the investor should have sold the mutual funds one year after its purchase.  However Securities Transaction Tax (STT) should be paid on equity oriented mutual funds at 0.25% when the units are sold back to the mutual fund.
For funds other than equity oriented funds the tax of dividend is zero, but long term capital gains i.e. gains on mutual funds sold after a period of one year are taxed at either 10 or 20% depending on whether indexation has been used or not.


UTI Asset Management Company – IPO

Business of UTI Asset Management Company

UTI Asset Management Company provides asset management services through mutual funds, portfolio management services, and managing venture capital and private equity funds. The total assets under management as on 30th September were Rs. 495,418 million and is the second largest mutual fund provider in India. The company’s assets under management have been growing at a 28.6% CAGR from Rs. 138,967 million as of Jan 31 2003 to Rs. 450,026 million as of September 30,2007. However in the same time frame the industry as a whole has been growing at a faster pace of 48.9% CAGR.
The EPS of the company has grown from Rs.5.81 in fiscal 2005 to Rs.13.71 in fiscal 2006 and reduced to Rs. 11.51 in fiscal 2007. Since there are no listed AMCs right now there is no comparison available to determine what could be a reasonable P/E ratio for this company.

Risks faced by UTI Asset Management Company

About 23.3% of the revenues of UTI Asset Management Company last fiscal were derived from SUUTI and in the coming years this is expected to go down in the coming years. The contract itself will expire on January 31 2008, post which it may not be renewed.
UTI Asset Management Company has proposed the termination of its Senior Citizen Unit Plan 1993 which had around 125,000 investors and this step has caused negative publicity and may also lead to legal action which may affect the company adversely. The plan had to be terminated because it became financially unviable.


The savings rate in the country has always been as a percentage of GDP and the RBI has estimated this to be 22.1% of GDP between fiscal years 2000 and 2006 however less than half of this finds its way in fiscal assets with the rest going into physical assets like gold and property. While more and more people are expected to join the bandwagon of mutual fund investors this market is poised to grow and companies operating here should also benefit from the steady in flow of money from domestic investors.  The negative brand publicity that UTI has suffered in the past coupled with the lower than industry growth it has shown in the past does however show that within the sector this company may not be the best performer in the years ahead.

UTI Asset Management Company has proposed the termination of its Senior Citizen Unit Plan 1993 which had around 125,000 investors and this step has caused negative publicity and may also lead to legal action which may affect the company adversely. The plan had to be terminated because it became financially unviable.

Consumption led growth in 2008

For most long term investors the year 2007 would have brought a lot of profits as markets globally reached all time highs and investors made loads of money. The investor confidence seems to be high and most investors are looking forward to another year of good growths and good profits. 

At the year end I glanced at my portfolio to see which are the stocks that gave me maximum profits and which were the ones that bled the portfolio while only Arvind Mills stand as a stock which bled the portfolio, there were a couple of stagnant stocks like Infosys and CREW BOS. Both these were making their earnings from exports and the rupee decline hurt them. The stellar performers were Dewan Housing Finance, Tata Steel, Tata Telecom and a few others which are all gaining from the consumption led gains in the Indian economy. 

That is where the growth seems to be for the coming year as well, with the rupee not likely to gain any time soon and the consumption cycle within the economy not likely to be reversed any time soon the growth would be in stocks which gain from the spending of rupees within the economy and not with the spending of dollars outside the country stated in very crude terms. For example a hotel in Coorg has a much better chance of doing well than a BPO unit, given that both are being managed equally well. 

So if one has to bet on stocks then one is safer with consumption led stocks and not stocks that are driven by export earnings. 

While the focus for me would be on consumption led stocks for the year going forward the stocks that are already there in the portfolio and which are export driven like Infosys would continue to hold their places there. This is because these are sound companies with strong management and a great history behind them. And such are the companies that do well in the long run. 

The best bet are companies with strong management which are in industries which benefit from the consumption led growth. Wish all of you a profitable 2008! 

Manshu Verma