IPO/NFO – Page 4

IRB Infra’s InvIT IPO Review – Subscribe or Not @ Rs. 100-102?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

After a gap of almost three years when the Modi government took over in May 2014 and the markets went euphoric about reforms and economic recovery, Indian stock markets have breached their previous highs and there are no signs of any fatigue in this rally so far.

However, investors are nervous to invest in stocks or mutual funds at these levels. Many of them carry a view that markets are overheated right now and there is a bubble building up which could burst anytime in the near future. So, they are either waiting for the markets to have a healthy correction, or seeking newer avenues to park their money lying idle in their bank accounts.

InvIT (or Infrastructure Investment Trust) from IRB Infrastructure could be one such avenue investors are looking for. IRB has launched the IPO of its InvIT fund and as it is first of its kind, there is a big curiosity among individual investors about how it works and what is the return they can expect out of it.

What are InvITs and where your money will be invested?

Structurally, InvITs are similar to Mutual Funds, as they would have a trustee, a sponsor, an investment manager and a project manager. However, InvITs are practically similar to ETFs or Exchange Traded Funds. Like ETFs, InvITs will also get listed and traded on the stock exchanges and the investors will be allotted units of the same against their investments. InvITs are investors’ pooled investments in infrastructure projects.

While other InvITs might have a different structure, IRB’s InvIT will function as a Special Purpose Vehicle (SPV) and will have a bundle of six operational toll-collecting road projects of IRB covering 3,635 lane kms of highways across five Indian states – Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu.

Issue Details of IRB InvIT

Price Band – IRB has fixed its price band to be Rs. 100-102 per unit.

Minimum Investment – Investors are required to apply for a minimum of 10,000 units of this fund i.e. Rs. 10,20,000 or Rs. 10.20 lakh.

Trading Lot Size – These units will trade in the lots of 5,000 units.

Size & Objective of the Issue – IRB InvIT plans to raise Rs. 4,300 crore via a fresh issue of its units, and its existing investors will sell additional 3.48 crore units in the price band of Rs. 100-102. There will also be a greenshoe option of up to 25% of the issue size. These proceeds will be utilised to pay off high cost debt of each of these Project SPVs. Average cost of debt for these SPVs is around 10.75% and this IPO will reduce their debt burden and interest cost substantially.

Allocation to Individual Investors – 25% of the issue size is reserved for the non-institutional investors. Rest 75% is for the institutional investors, including FPIs, insurance companies, mutual funds etc.

Anchor Investors – InvIT on Tuesday finalised allocation of approximately 20.53 crore units to the anchor investors @ Rs. 102 per unit for Rs. 2,094.47 crore. Some of these anchor investors include Government of Singapore, Monetary Authority of Singapore, Platinum International Fund, Platinum Asia Fund, BNP Paribas Arbitrage, Birla Sun Life Trustee Company, HDFC Standard Life Insurance, Schroder Asian Asset Income Fund, Deutsche Global Infrastructure Fund.

Listing – These units will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 12 working days after the issue gets closed on 5th May.

Sources of Return for Investors

Dividend Income – The InvIT Regulations provide that not less than 90% of net distributable cash flows of each Project SPV are required to be distributed to the Trust in proportion of its holding in each of the Project SPVs. Further, not less than 90% of net distributable cash flows of the Trust shall be distributed to the Unitholders. Although such distributions are required to be declared and made not less than once every six months in every financial year, InvIT’s management wants to distribute it once every quarter.

Dividend yield is expected to be in the range of 10-12% based on the estimates made by the management and some of the analysts. Such cash flows as dividend would be tax-free for the investors.

Capital Appreciation – Though you should not expect equity kind of capital appreciation or volatility in returns with this fund, it is quite possible to have capital gains/losses in case of high/low demand for these units, especially from the institutional investors.

Tax Treatment of InvIT Investments

Dividend Income distributed by the Trust is exempt in the hands of the unitholders.

Long Term Capital Gains (LTCG) would be applicable if the units are held for more than 3 years and it would be exempt from tax provided STT has been paid on sale of such units.

Short Term Capital Gains (STCG) would be applicable if the units are sold before completion of 3 years and it would be calculated at 15% provided STT has been paid on sale of such units.

Interest Income paid, if any, would be taxable in the hands of the unitholders.

Projected Financials of IRB’s InvIT Projects

(Note: All figures in Rs. Crore)

Should you invest in IRB’s InvIT IPO at Rs. 100-102?

Firstly, investing in this IPO depends on your profile as an investor. It is not for those investors who have only Rs. 15-20 lakh or even less to invest across all their financial holdings. As it is widely recommended not to put all your eggs in one basket, you should strictly avoid investing a major portion of your savings in this fund. To invest in this kind of fund, you either need to have a complete understanding of how this fund would generate returns for you and what are the risks involved in it, or you should have a portfolio of assets worth at least Rs. 1 crore or so in order to diversify your investments. In other words, it is strictly not for the risk averse investors and also for those who have limited sources of income.

Secondly, despite of the fact that it is a first of such kind of funds and returns are uncertain with it, institutional investors are gung ho about this fund. Anchor investors have already put in a big chunk of money in it on Tuesday, and more such big investors are in a queue to lap it up during this IPO period. Liquidity could be one such reason for this kind of demand, but at the same time it seems that they are not ignoring its fundamentals as well.

As the dividend received from this fund is tax-exempt for the institutional investors, a lot of interest is there from the foreign portfolio investors (FPIs), pension funds, retirement funds, insurance companies and even domestic mutual funds. While Birla Sun Life Mutual Fund has invested in this fund as an Anchor Investor for some of its hybrid funds, Birla Sun Life Insurance and HDFC Standard Life Insurance have also invested in it.

Such a high interest from these institutional investors makes me believe that this kind of interest would be there post its listing as well, which could fetch its IPO investors a decent premium on their investments.

Moreover, in today’s scenario in which interest rates have bottomed out for a foreseeable period of time and bond yields have started moving up in a gradual manner, it seems it would be a dull period going forward for the conservative investors looking for healthy returns out of fixed deposits, debt funds, NCDs/tax-free bonds etc. If interest rates keep going up in this manner, market-linked debt investments would either earn a low single digit or even negative returns for you in the next 6-12 months. In such a scenario, 10%+ returns with a favourable tax treatment would look quite superior in comparison.

As there are a few positives with this fund, there are some negatives as well. Firstly, the projected financials in the table above are based on certain assumptions, like expected traffic volume, toll rates, operation and maintenance costs, amortization, debt repayments etc. which reflects current expectations and views regarding future events. Some unfavourable events might result in lower than expected revenues or higher than expected expenditures. Cash flow visibility is not so reliable in such cases.

Moreover, some unfavourable tax treatment or any major policy change might substantially hamper toll revenues of these projects. This is a big risk as far as investment returns are concerned.

All in all, if you have confidence in the management of IRB Infra and its InvIT fund and also in the fundamentals of the Indian economy and its growth story, and if you think the current government would lead India out of its past regulatory problems and environmental issues, then you should definitely invest in this IPO. However, if you think otherwise, that infrastructure projects will keep struggling the way they have been in the past 8-10 years, and the government will not be able to resolve the structural issues these infrastructure projects have been facing for all these years, then you should completely avoid this IPO.

I expect a strong institutional appetite for this fund and that should result in a healthy listing gain for it. If the sentiment remains buoyant, short term investors would do well to book profits on listing. Medium to long term investors should keep a close eye on its fundamentals. Any negative deviation from its projected financials should be analysed critically and appropriate action should be taken.

CPSE ETF FFO 2 Allotment Status & Listing

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

After receiving subscription to the tune of around Rs. 9,200 crore and successfully raising Rs. 2,500 crore out of it, Reliance Mutual Fund today made the allotment of units for its third tranche of CPSE ETF or Exchange Traded Fund. The further fund offer (FFO), which got opened for subscription on March 15 and closed on March 17, received a good response from the Anchor Investors as well as Non-Anchor Investors, including retail investors.

Units Allotted @ Rs. 26.8504 Per Unit – Retail applicants, who submitted applications for Rs. 2 lakh worth of CPSE ETF FFO 2 units, have been allotted 5,503 units @ Rs. 26.8504 per unit. That translates into an allotment worth Rs. 1,47,758 as against Rs. 2 lakh investment i.e. 73.88% allotment. Rest of the investment amount will be refunded by Reliance Mutual Fund to the investors directly in their respective bank accounts which are linked to their demat accounts.

Balance amount on account of fractional FFO 2 units would have been refunded to the investors’ bank accounts linked to their demat accounts.

Gain of 4.13% – As compared to today’s closing price of Rs. 27.96 on the NSE, allotment @ Rs. 26.8504 would translate to a gain of Rs. 4.13%, including the discount of 3.5% offered by the government to its investors. Its last tranche in January 2017 provided a return of 9.26%, including 5% discount, before listing on the stock exchanges. Though 4.13% return is not even 50% what investors could earn in tranche 2, it is still a decent listing gain in a short period of investment.

CPSE ETF Allotment Link – Here is the link to check the allotment status against your application submitted during the offer period – Allotment Status of CPSE ETF FFO 2. You can check the allotment status of your investment in this ETF by entering your application number or PAN number or DP ID – Client ID.

Contact Karvy Computershare on 1800 3454 001 for Allotment Issues or Queries – If you have not received any message or mail regarding its allotment and if it is not there in your demat account as well, you can contact the Registrar, Karvy Computershare on 1800 3454 001 or Reliance Mutual Fund on 1800 300 11111.

NSE & BSE Codes for CPSE ETF – You can easily track the current market price of this ETF by visiting any of these links of NSE or BSE:

NSE Link of CPSE ETF – Symbol – CPSEETF, ISIN – INF457M01133

BSE Link of CPSE ETF – Security ID – CPSEETF, Security Code – 538057, ISIN – INF457M01133

Listing on March 28 – Units of this CPSE ETF will be admitted for listing and trading on the stock exchanges effective today i.e. March 28. Here are the listing circulars of this ETF posted on the NSE and BSE:

NSE Listing Circular

BSE Listing Circular

If you have any more info about its allotment or any query regarding CPSE ETF or this FFO, please share it here. I’ll try to respond to it as soon as possible.

Reliance MF CPSE ETF Further Fund Offer (FFO) 2 – March 2017 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

CPSE ETF issued by Reliance Mutual Fund in January this year has already given around 10% returns to its investors and is currently trading at Rs. 27.70 a unit on the stock exchanges. The issue received subscriptions worth Rs. 13,726 crore and the government garnered its targeted amount of Rs. 6,000 crore. Buoyed by these high subscription numbers, the government has decided to launch the third tranche of CPSE ETF this year itself.

The issue is getting launched for the Anchor Investors from today, March 14. For the Non-Anchor Investors, including Retail Investors, Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs), the issue will open from Wednesday, March 15. It will remain open for these four days to close on Friday, March 17. However, the issue size is much smaller at Rs. 2,500 crore, which I think would be insufficient to cater to the retail investors demand this time around.

Going by the time taken by Reliance AMC to list the units of its second tranche, I think this time it would take it even shorter time to do that. I expect the units to get allotted and listed on or before March 27.

CPSE Nifty Index – It is one of the indices of the National Stock Exchange (NSE) carrying 10 public sector undertakings (PSUs) in which the central government has more than 55% stake and these companies have more than Rs. 1,000 crore in market capitalisation. All these companies are profitable and are either Maharatnas or Navratnas.

CPSE Index Composition as on February 28, 2017 & February 28, 2014

CPSE Index Composition as on February 28, 2017 & Trade Data as on March 10, 2017

CPSE ETF or Central Public Sector Enterprises Exchange Traded Fund – This ETF got launched in March 2014 by Goldman Sachs Asset Management Company and listed in April 2014 on the stock exchanges. While the retail investors got its units allotted at Rs. 17.45, it quickly touched a high of Rs. 29.82 in less than 2 months in May 2014 when there was a euphoria after Mr. Modi took charge to serve this big nation as the PM. It is currently trading at Rs. 27.70 a unit and likely to touch its new highs very soon.

Features of CPSE ETF Further Fund Offer (FFO)

High Dividend Yield & Reasonable Valuations – All these listed CPSEs mentioned in the table above are profitable and pay relatively higher dividends on a regular basis. High dividend yield stocks have historically carried lower volatility in returns. So, you can expect a relatively stable performance from these stocks. Moreover, with years of underperformance, I think these CPSEs are set for a rerating going forward.

3.5% Discount for Investors – To attract more and more investors, the government is offering a discount of 3.5% on their investments. This 3.5% discount will be calculated on the “FFO 2 Reference Market Price” of the underlying shares of the Nifty CPSE Index and will be passed on to the CPSE ETF by the government of India.

Reference Market Price/NAV – As mentioned above, CPSE ETF is currently trading at Rs. 27.70 on the stock exchanges. This is also its reference market price or NAV. As the investors get allotment and FFO units get listed on the stock exchanges, market price of each unit of this ETF will be linked to the Nifty CPSE Index and its returns would be quite close to the returns generated by the CPSE Index.

Investment Objective – The scheme intends to generate returns that closely correspond to the total returns generated by the Nifty CPSE Index, by investing in the securities which are constituents of the Nifty CPSE Index in the same proportion as in the index. However, the performance of the scheme may differ from that of the Nifty CPSE Index due to tracking error, scheme expenses and the initial discount of 3.5%.

No Loyalty Units/Bonus in FFO 2 – Like its previous tranche, no loyalty/bonus units will be issued in this issue as well. With a reduced discount of 3.5% this time as against 5% in the previous issue, nobody could have expected of any such loyalty units.

Maximum Amount to be Raised – This ETF would target to raise Rs. 2,500 crore during this 4-day offer period. However, in case of oversubscription in the non-anchor investors category, partial allotment will be made to the investors.

Minimum/Maximum Investment Size – Individual investors can invest in the scheme with a minimum investment amount of Rs. 5,000 and there is no upper limit on the investment amount. However, retail investors investing upto Rs. 2 lakhs will be given preference in allotment in case there is an oversubscription.

Allotment & Listing – As per the offer document, units of this ETF will get allotted within 15 days from the closing date of the issue and listing on the NSE and BSE will happen within 5 days from the date of allotment. However, I expect the allotment and listing to happen a lot sooner than these indicative times.

Demat Account Mandatory – Investors need to have a demat account to apply for CPSE ETF. Applications without relevant demat account details are liable to get rejected.

Tax Saving u/s. 80CCG – Budget 2017 has proposed to end the benefits of Rajiv Gandhi Equity Savings Scheme (or RGESS) and tax exemption u/s. 80CCG from FY 2017-18. However, as this exemption is still available for the current financial year, this could be one of the last options we have to avail this tax exemption. CPSE ETF FFO 2 is in compliance with the provisions of Rajiv Gandhi Equity Savings Scheme and thus qualifies for a tax exemption of up to Rs. 25,000 under section 80CCG.

You need to fulfill two most important conditions to avail this tax exemption – one, your gross total income should not exceed Rs. 12 lakh in the current financial year and two, you must be a first time investor in equities. As maintained earlier as well, it is quite difficult to satisfy both these conditions simultaneously. Hence, only a few people would be able to qualify for it.

Lock-In Period with Tax Exemption – Investors, who seek tax exemption u/s. 80CCG, will be subject to a lock-in period of 3 years – 1 year of fixed lock-in and 2 years of flexible lock-in. The fixed lock-in period will start from the date of your investment in the current financial year and will end on March 31st next year i.e. 2018.

The flexible lock-in period will be of two years, beginning immediately after the end of the fixed lock-in period i.e. beginning April 1, 2018 till March 31, 2020.

No Tax Benefit Availed – No Lock-In Period – Investors who do not avail any tax benefit out of this ETF, would not be subject to any lock-in period. They can sell their units whenever they want.

Entry & Exit Load – This scheme is not subject to any entry load or any exit load.

Categories of Investors & Allocation Ratio

Anchor Investors – Maximum 30% of Rs. 2,500 Crore i.e. Rs. 750 Crore will be allocated to the anchor investors.

Retail Individual Investors – After the anchor book gets over on March 14, retail individual investors are allowed to take up all of the remaining portion of this FFO i.e. Rs. 1,750 crore.

Qualified Institutional Buyers (QIBs) & Non-Institutional Investors (NIIs) – QIBs and NIIs will have nothing reserved for them in this FFO. They will be allotted units only if the subscription numbers of the retail investors and/or anchor investors fall short of their reserved quotas.

Should you invest in Reliance CPSE ETF FFO 2?

This is what I had to say in January when the second tranche of this CPSE ETF got launched:

While many factors have turned in favour of these CPSEs and in a way the CPSE ETF investors and we also have a reasonably strong government at the centre with a clear majority, I think we are yet to have desirable results for our investments. I think there is still a lot of scope of making these companies truly competent and add a significant value to their stakeholders. I strongly feel that it is not the job of the government to run many of these businesses and hence most of these companies should be sold to the private players strategically.

This government has recently taken a decision to sell its 26% stake in BEML, after which the government’s stake will come down to 28%. I think it is a great move by the government and I strongly wish to see many such decisions get taken after the upcoming elections in five states. If this government succeeds in increasing the pace of reforms in the last two years, then I think it would not be difficult for these CPSEs to generate 50-100% returns for their investors in the next 2-3 years.

Election outcome in Uttar Pradesh and Uttarakhand is likely to work as a shot in the arm for the NDA government as well as for the stock markets. I think these are one of the best times for the Modi government to take desirable actions to take this country to the next levels. With a majority in Rajya Sabha going ahead, the government will have a free hand to carry out and implement some of the long awaited economic reforms, including the land acquisition bill, bankruptcy and insolvency code, real estate bill, labour law reforms and strategic divestment in PSUs.

As mentioned above, strategic divestment in some of the CPSEs would be one of the top priorities of the government going ahead. If carried out in an efficient manner, I think we can expect high returns from these companies and CPSE ETF in the next 2-3 years.

Even with a lower discount of 3.5%, it makes sense to invest in this ETF. But, not for listing gains this time around. I think with a gap up opening of stock markets on Tuesday, our markets would enter an uncharted territory and probably an overheated zone of valuations. With such a euphoria around, investors with a shorter investment horizon could face a volatility in returns. So, I would advise investors to invest in this ETF only with a medium to long term horizon in mind.

Application Form – CPSE ETF FFO

For any further info or to invest in the CPSE ETF Further Fund Offer (FFO), you can contact us on +91-9811797407 or mail me at skukreja@investitude.co.in

Avenue Supermarts (DMart) IPO Review – Subscribe or Not @ Rs. 294-299?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Avenue Supermarts Limited, which operates a chain of 118 supermarkets under the brand name ‘DMart’ primarily in the Western, Southern and Central India, is all set to enter the primary markets and has launched its initial public offer (IPO) from today i.e. March 8. The company wants to raise Rs. 1,870 crore from the issue in the price band of Rs. 294-299.

At the upper end of the price band i.e. Rs. 299 a share, the company will issue approximately 6.25 crore shares representing 10.02% of the post issue paid-up capital. Ace investor Radhakishan Damani and his family members presently own 91.36% stake in the company, but they are not selling any stake in this IPO. As always, the issue will remain open for three working days to close on March 10.

Before we take a decision to invest in this issue or not, let us first check out the salient features of this IPO:

Price Band – The company has fixed its price band to be between Rs. 294-299 per share and no discount will be offered to the retail investors.

Size & Objective of the Issue – Avenue Supermarts will issue around 6.25 crore shares in this issue at Rs. 299 a share to raise Rs. 1,870 crore from the investors. Out of this amount, the company plans to use Rs. 1,080 crore for repayment/prepayment of some of its loans and redemption/early redemption of its NCDs, Rs. 366.60 crore for the construction and purchase of fit outs for its new stores and the remaining proceeds for general corporate purposes.

Retail Allocation – 35% of the issue size is reserved for the retail individual investors (RIIs), 15% is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

No Discount for Retail Investors – As mentioned above also, the company has decided not to offer any discount to the retail investors.

Anchor Investors – Avenue yesterday finalised allocation of approximately 1.88 crore shares to the anchor investors @ Rs. 299 per share for Rs. 561 crore. Some of these anchor investors include Smallcap World Fund, New World Fund, Government Pension Global Fund, General Atlantic Singapore Fund, FIL Investments Mauritius, First State Indian Subcontinent Fund, Fidelity International Discovery Fund, Franklin Templeton Investment Funds, Government of Singapore, Wasatch Emerging India Fund, Goldman Sachs India Fund, HSBC India Equity Mother Fund, JP Morgan India Smaller Companies Fund, Nomura India Stock Mother Fund, Acacia Banyan Partners and T Rowe Price New Asia Fund.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 50 shares and in multiples of 50 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,950 at the upper end of the price band and Rs. 14,700 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 50 shares @ Rs. 299 i.e. a maximum investment of Rs. 1,94,350. At Rs. 294 a share also, you can apply for 13 lots only, thus making it Rs. 1,91,100.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on 8th March. March 21st is the tentative date for its listing.

Here are some other important dates after the issue gets closed:

Finalisation of Basis of Allotment – On or about March 16, 2017

Initiation of Refunds – On or about March 17, 2017

Credit of equity shares to investors’ demat accounts – On or about March 20, 2017

Commencement of Trading on the NSE/BSE – On or about March 21, 2017

Financials of Avenue Supermats Limited

Note: Figures are in Rs. Crore, except per share data, figures in billions & percentage figures

Peer Comparison – Avenue Supermarts, Future Retail & Trent (Westside)

Should you invest in Avenue Supermarts @ Rs. 299 a share?

What I like about this company is that it operates most of its stores predominantly on an ownership model. The company usually buys land for its stores, builds them and operates these stores rather than taking premises on rentals. This way the company is not required to pay rentals for most of its stores and thereby saves a huge amount it would have to shell out on paying rentals for its leased premises. Its biggest competitors, Future Retail and Reliance Retail, operate most of their stores from leased premises and thereby pay a hefty amount in rentals.

Moreover, the company procures its goods directly from the vendors and manufacturers, thereby eliminating the costs of middlemen. The company also focuses on minimising inventory build-up through product assortment.

At its expected issue price of Rs. 299, Avenue Supermarts will have an enterprise value of close to Rs. 19,300 crore. Based on its annualised EBITDA of around Rs. 1,060 crore, it will be valued at an EV/EBITDA of 18.21 times. Its listed peer Future Retail currently trades at an EV/EBITDA of 24.5 times, which makes this issue relatively more attractive.

At Rs. 299 a share, the company is valued at 32.5 times its expected FY 16 annualised earnings and 8.81 times its net worth. These valuations are not cheap. But, then the way the company has been growing and its profitability and margins have improved in a healthy manner over all these years, the issue doesn’t seem expensive from medium to long term perspective. As the sentiment is positive for the issue as well as for the stock markets, it looks extremely safe and attractive from listing gains point of view as well.

However, undue exuberance is the only thing I am worried about in this IPO. Investors are underinvested in the stock markets right now. A sharp recovery in the stock markets post demonetisation gloom has left all of us surprised. Most investors are still sitting on the sidelines waiting for the markets to correct. They are grossly disappointed with their less than potential investment in stocks. Cash balances are huge, but opportunities are limited for that cash to get deployed.

In this case, though the company is highly efficient and the issue is good, but then it is made out by the brokers and analysts that it would be a multibagger stock on the listing day itself. That is why I expect a huge oversubscription for this issue. That might result in some kind of euphoria as the stock gets listed on the stock exchanges. I would advise the investors to not feel euphoric about it and take this opportunity to book their profits on the listing day itself. However, everything else is fine with this issue and I would advise my clients and other investors to subscribe to it.

Music Broadcast Limited (MBL) IPO Review – Subscribe or Not @ Rs. 324-333?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Stock markets are trading at 52-week highs and very close to their lifetime highs. Investors are getting impatient and hunting for new opportunities to invest their money. To tap these favourable market conditions, Music Broadcast Limited (MBL), which runs FM radio stations Radio City and Radio Mantra across 37 Indian cities, has decided to raise Rs. 400 crore from investors and get itself listed on the stock exchanges. MBL is an 89.40% subsidiary of Jagran Prakashan Limited (JPL).

Its initial public offer (IPO), which opened yesterday i.e. March 6, is a combination of fresh issue of shares worth Rs. 400 crore and a simultaneous sale of 26.59 lakh shares by the members of its promoter group, thus making it a Rs. 489 crore issue. The issue will remain open for two more days to close on March 8 and the company is targeting March 17 to start trading on the exchanges.

Before we take a decision to invest in this issue or not, let us quickly check some of the main features of this IPO:

Price Band – MBL has fixed its price band to be between Rs. 324-333 per share and no discount has been offered to the retail investors.

Size & Objective of the Issue – As mentioned above, MBL is targeting to raise Rs. 400 crore from this IPO, while its existing shareholders are selling 26,58,518 shares. So, at Rs. 333 a share, it would turn out to be a Rs. 489 crore IPO. Out of Rs. 400 crore, MBL plans to use Rs. 200 crore for the payment of maturity proceeds against its listed NCDs, Rs. 82.74 crore towards early redemption of NCDs issued to JPL, Rs. 15.50 crore towards repayment of inter-corporate deposits (ICDs) of JPL and the remaining proceeds for general corporate purposes.

No Discount for Retail Investors – MBL has decided not to offer any discount to the retail investors.

Anchor Investors – MBL has already sold approximately 44.01 lakh to the anchor investors @ Rs. 333 a share. These investors have bought shares worth Rs. 146.56 crore. These anchor investors include HSBC India Equity Mother Fund, Nomura Funds Ireland – India Equity Fund, Franklin India Smaller Companies Fund, Morgan Stanley Mauritius, Pictet Country (Mauritius), HDFC Prudence Fund, ICICI Prudential Midcap Fund, HDFC Standard Life Insurance, SBI Life Insurance, Birla SL Insurance and India Midcap (Mauritius).

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 45 shares and in multiples of 45 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,985 at the upper end of the price band and Rs. 14,580 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 45 shares @ Rs. 333 i.e. a maximum investment of Rs. 1,94,805. At Rs. 324 per share as well, you can apply only for 13 lots of 45 shares, thus making it Rs. 1,89,540.

Here are some other important dates after the issue gets closed:

Finalisation of Basis of Allotment – On or about March 14, 2017

Initiation of Refunds – March 15, 2017

Credit of equity shares to investors’ demat accounts – On or about March 16, 2017

Commencement of Trading on the NSE/BSE – On or about March 17, 2017

Financial of Music Broadcast Limited

Note: Figures are in Rs. Crore, except per share data & percentage figures

Financials of ENIL – Entertainment Network (India) Limited

Note: Figures are in Rs. Crore, except per share data & percentage figures

Should you invest in MBL IPO @ Rs. 333 a share?

Comparing MBL’s financials with that of ENIL makes this IPO look reasonably valued at a P/E ratio of 25.23 times its annualised EPS for the current financial year as against ENIL’s expected EPS of Rs. 11.51 and 72.77 PE ratio. At Rs. 333 a share, MBL will have an enterprise value of close to Rs. 1,900 crore. Based on its annualised EBITDA of Rs. 91 crore, it will be valued at an EV/EBITDA of 21 times. ENIL currently has a market cap of Rs. 3,993 crore and based on its annualised EBITDA of Rs. 116 crore, it will be valued at 34.5 times EV/EBITDA. These valuations make MBL look attractively valued at Rs. 333 a share.

However, there are two factors to consider here. Firstly, ENIL’s financial performance has been notably bad in the current financial year. We all know such ups and downs are part of a company’s business fortunes. As there is no other listed company to make a comparison, I think ENIL’s bad financial performance should not be taken as a great comfort factor for MBL’s valuations. Secondly, Price to Book Value (P/BV) of MBL in double digits and its PE ratio of 25 times based on current year’s projected EPS of Rs. 13-14 also makes it not so attractive to me.

Moreover, Radio business is expected to get more and more competitive in the coming months and years. Entry of new players in an already competitive space might have an adverse impact on existing players’ financial performance going forward, including MBL.

Given an expected high subscription from the retail investors and slightly higher valuations, I would personally give it a miss for my investments and explore other better opportunities post the poll outcome in UP and other states on 11th March.

CPSE ETF FFO Allotment Status

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Reliance Mutual Fund has made the allotment of units under its further fund offer (FFO) of CPSE Exchange Traded Fund (ETF) today and there is a good news for the retail investors. Firstly, full allotment has been made to each and every successful retail applicant applying up to Rs. 2 lakh worth of these units. Though Reliance Mutual Fund has not officially announced the retail subscription numbers for this FFO, it can be safely assumed that retail subscription was less than Rs. 4,200 crore as 100% allotment has been made to all the retail applicants.

Secondly, against an application of Rs. 2 lakh, Reliance MF has allotted 7,932 units of CPSE ETF and at today’s closing price of Rs. 27.55, your investment would be valued at Rs. 2,18,526.60 i.e. an immediate gain of 9.26%. This 9.26% return includes 5% discount offered by the government to the investors of this fund offer.

You might also get some small amount credited to your bank account as refund due to allotment of FFO units in whole numbers. Balance amount on account of fractional FFO units will be refunded to your bank account linked to your demat account.

Moreover, as these units have been allotted in less than 10 working days and well before February 1, the big day on which Budget 2017 would be presented in the parliament, it has given you an opportunity to sell your units well before this big event and completely avoid the expected budget day volatility due to which some investors were reluctant to invest in this FFO.

However, if the government decides to sell its stake in some of these companies, either partially or fully, or make the managements of these companies more accountable towards their shareholders, I think there is a great scope of capital appreciation with this ETF. So, I would advise long-term investors to hold on to their investments for at least a couple of years more and reap the benefits of a rebound in the fortunes of these companies.

If you had also applied for these CPSE ETF units in this FFO, but are yet to get any allotment intimation on your mobile or e-mail, you can contact the Registrar, Karvy Computershare on 1800 3454 001 or Reliance Mutual Fund on 1800 300 11111. If I get any link to check the allotment status by entering one’s PAN number or application number or DP ID – Client ID, I’ll paste that link here in this post itself.

If you have any more info about its allotment or any query regarding CPSE ETF or this FFO, please share it here so that more and more investors get benefit out of it.

BSE IPO Review @ Rs. 805-806 – Subscribe or Not?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Asia’s oldest stock exchange, Bombay Stock Exchange or BSE, is coming out with its Initial Public Offer (IPO) of Rs. 1,243 crore from today. The issue comprises of an offer for sale of around 1.54 crore shares by its existing shareholders in a price band of Rs. 805-806. Like all other IPOs, this issue will also remain open for three days to close on January 25.

Before we analyse some of its fundamental attributes, let us have a take a look at some of the salient features of this IPO:

Price Band – BSE has fixed its price band in a very tight range to be between Rs. 805-806 per share and no discount or special preference will be given to the retail investors.

Size & Objective of the Issue – This issue is an Offer for Sale (OFS) by some of the BSE’s existing shareholders and thus no fresh issue of shares is involved. Singapore Exchange, Quantum (M) Limited, Atticus Mauritius Limited, GKFF Ventures, Caldwell India, Acacia Banyan Partners and Bajaj Holding and Investment are a few of the 302 shareholders selling their stakes in this offer either fully or partially.

These shareholders will sell approximately 1.54 crore shares and raise around Rs. 1,243 crore in this offer at Rs. 806 per share. These shares represent 28.26% of the total outstanding shares of BSE.

Retail Allocation – 35% of the issue size is reserved for the retail individual investors (RIIs) i.e. approximately 54 lakh shares out of 1.54 crore shares. 15% of the issue size is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

No Discount for Retail Investors – BSE has decided not to offer any discount or any other special treatment for the retail investors in this IPO.

Anchor Investors – Out of 1.54 crore shares to be issued, BSE has already issued around 46 lakh shares to some of the big anchor investors at Rs. 806 per share. Investment form these investors would amount to Rs. 373 crore. These investors include Smallcap World Fund, ICICI Prudential Mutual Fund, Goldman Sachs India, HDFC Trustee Company, Reliance Trustee Company, FIL Investments (Mauritius) and Kuwait Investment Authority Fund, among others.

Bid Lot Size & Minimum Investment – Investors in this offer need to bid for a minimum of 18 shares and in multiples of 18 shares thereafter. So, you as a retail investor would be required to invest a minimum of Rs. 14,508 at the upper end of the price band and Rs. 14,490 at the lower end of the price band.

Maximum Investment for Retail Investors – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 18 shares @ Rs. 806 i.e. a maximum investment of Rs. 1,88,604 or @ Rs. 805 i.e. a minimum investment of Rs. 1,88,370. Investors opting for the “Cut-Off Price” option should apply for a maximum of 13 lots of 18 shares.

Listing – As BSE itself is a stock exchange, as per SEBI regulations, it cannot go ahead and list itself on its exchange. So, it will have to get itself listed on the National Stock Exchange (NSE). Allotment and listing will happen within 6 working days after the issue gets closed on January 25. These shares are expected to list on February 3 on the stock exchanges.

Here are some of the important dates for this IPO:

Issue Opens – On January 23, 2017

Issue Closes – On January 25, 2017

Finalisation of Basis of Allotment – On or about January 31, 2017

Initiation of Refunds – On or about February 1, 2017

Credit of equity shares to investors’ demat accounts – On or about February 2, 2017

Commencement of Trading on the NSE – On or about February 3, 2017

Financials of BSE Limited

BSE has four sources of revenues — Securities Services, Services to Corporates, Data Dissemination Fees and Income from Investments and Deposits. As you can check from the table below, around 39% of BSE’s total revenues in the first six months of the current financial year have come from its securities services, 29% from investment income and 21% from services to corporates. Rest of its revenues are derived as data dissemination fees.

Note: Figures are in Rs. Crore, except per share data & percentage figures

BSE reported an EPS of Rs. 19.22 for the period ending September 30, 2016 and on an annualised EPS of Rs. 38.44, this issue is valued at 20.97 times at the upper end of its price band. As per the SEBI regulations, BSE is required to reduce its stake in CDSL from 50.05% to 24% and whenever that happens, it would result in a one-time healthy jump in its EPS. If you consider that, this issue would look less expensive to you.

MCX is the only other listed exchange here in India and it is currently trading at around 32 times its estimated FY 2017-18 earnings. However, MCX is a growing exchange and commands leadership in the commodities derivatives market with close to 90% market share. That is why it would be unfair to offer such a high price multiple to BSE.

While BSE’s market share in the equity derivatives segment is less than 1%, it has been declining steadily in the equity cash segment as well and currently stands at 13.37%. It has resorted to liquidity enhancement initiatives in the past in order to attract brokers to trade more on its platform, but that has not resulted in a sustained gain in market share for the exchange.

Market Share of NSE and BSE in Equity Cash Segment – Rs. 000 million

At Rs. 806 a share, I think BSE’s valuation is not greatly expensive and if the market sentiment remains positive post budget, it should ideally get listed at a premium. But, the issues with the exchange are fundamental in nature. Why is it that the exchange is losing market share to the NSE in the equity cash segment and why has it failed to retain its market share in the derivatives segment after its liquidity enhancement initiatives got discontinued?

Also, though the exchange is not going to get any cash out of this IPO, but are there any plans the management is working on to utilise the cash the exchange currently has in order to increase its revenues and profitability on a sustainable basis? If you look at the growth in its revenues and profits in the last 4-5 years, it seems every effort made by the exchange to increase its market share and add value to the shareholders has failed to do so.

I think as a risk taker you can apply to this IPO and expect some listing gains. But, in the long run, I think the exchange will have to work very hard on its strategy to gain market share on a sustainable basis. Investors can hold on to their shares till the time NSE comes out with its IPO and gets its shares listed on the BSE. But post that, they need to push BSE’s management to do it differently this time to gain a sustainable market share.

CPSE ETF FFO – How to Apply / Invest & Other FAQs

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Further Fund Offer (FFO) of the government’s CPSE ETF is getting open for subscription for retail investors from today. But, many retail investors are still finding it difficult to apply for it as they do not have demat accounts which is a must to apply for this ETF. Though it is difficult to get a demat account opened in such a short period of time, investors can still explore the option of getting one opened.

There are some other important queries as well which I would like to address in this post so that you are able to invest in this ETF starting today. When I posted my article on this FFO on Monday, TCB had some queries which did not get addressed in that post. Here are all his queries and I’ll have some more FAQs after addressing these.

1) Allotment is on first come first serve basis or not?

Allotment will be made on a proportionate basis as it is done in case of equity IPOs and not on a first-come first-served basis. In case of oversubscription, efforts will be made to allot 5,000 units to each of the retail investors.

2) Can multiple applications be put in this issue?

Yes, you can submit multiple applications. But, to be considered a retail investor and get preference in allotment over other investors, the sum of all your applications should not exceed Rs. 2 lakhs.

3) Is it mandatory to apply only through cheque and not ASBA?

ASBA facility is not there in this offer. So, you need to submit a cheque or a DD along with the application form or invest online through your broker’s trading platform to apply for this ETF.

4) Is it necessary to issue cheque from same bank account which is linked to demat?

No, it is not mandatory to use the cheque of the same bank account which is linked to your demat and trading account. You can use any bank account to make the payment. However, third party payments are not allowed.

5) Is it necessary for applicant to be KYC compliant for mutual funds?

Yes, the applicant is required to be KYC compliant in order to invest in this scheme.

6) If an applicant is not KYC compliant, can he submit KYC form with necessary documents along with the application form of this ETF?

Yes, you can submit your KYC form along with a photograph and the required documents i.e. PAN card copy and address proof copy, along with the application form.

7) If I apply for Rs. 4 lakhs and allotted only Rs. 1.5 lakhs worth of units due to oversubscription, will I be considered as a retail investor and get 5% discount?

If you apply for more than Rs. 2 lakhs, you’ll still be entitled to a 5% discount. But, your investor category will depend on your application amount and preference will be given to the retail investors.

8) Given that high likelihood that this will get oversubscribed, and with a sort of desire / guarantee to give 5000 units to each retail investor, is it not prudent to apply for 5000 units only rather than blocking Rs. 2 lakh in FFO application?

As per the offer document, in case of oversubscription, retail investors would get at least 5000 units of CPSE ETF allotted. So, if you apply for Rs. 2 lakh worth of its units and the issue gets oversubscribed, then you will not get full allotment. So, if you expect the issue to get oversubscribed, then it is better to apply for 5,000 units only so that you get high allotment.

9) What will happen on listing day? Can it go below allotment price and how much listing gain we can expect?

Market-linked investments can move either way of the return matrix. So, the returns of this ETF could also turn negative if stock prices of its constituents fall after you get its units allotted. But, a 5% discount provides some kind of cushion in such a scenario.

Moreover, one should not invest in this ETF only for its listing gains. In the event of unfavourable listing, you might have to sell your units at a loss or keep holding it for a longer time than actually planned for.

10) I don’t have a demat account, but I want to apply for this ETF. Is it mandatory to have a demat account to apply for this FFO? Can I apply for it like I apply for any other mutual fund?

Demat account is mandatory to apply for this ETF. Without a demat account, your application won’t go through and it is liable to get rejected.

11) What will the tax treatment in case of capital gains – short term (STCG) and long term (LTCG)?

Taxation for this ETF will be like that of equity shares or equity mutual funds. LTCG will be tax exempt and STCG will be taxed at 15%.

12) Can we buy this ETF directly from the markets? If yes, what would be the difference between FFO and direct market purchase?

Yes, you can buy this CPSE ETF from the stock markets through your equity trading account. The only difference is that you will not get the 5% discount offered by the government to the investors for subscribing to this ETF in FFO.

13) What is the difference between FFO and actively managed mutual funds already available in the market and whose portfolio contains same stocks?

Actively managed funds, having the same stocks, can increase or decrease their proportion of investment in each of these stocks. They have no obligation to follow & alter their portfolio as per the Nifty CPSE Index. Whereas CPSE ETF has to follow the CPSE Index. Moreover, you will get 5% discount only with this FFO and not with other mutual funds.

14) How do I invest or where can I submit my application?

Physical Application – You can submit your physical application at the Investor Service Centers (ISCs) of Reliance Mutual Fund and Karvy Computershare branches.

Additionally, KRA compliant individual investors can use the below mentioned online modes to apply for this ETF:

(i) Reliance Mutual Fund website

(ii) Reliance Mobile App

(iii) NSE MFSS

(iv) BSE StAR MF

(v) NMF II Platform of NSE

(vi) e-ETF under web based NSE e-IPO platform

(vii) MF Utility

15) Is there any lock-in period for this investment?

There is no lock-in period applicable to those investors who do not avail any tax benefit u/s 80CCG out of this ETF. They would be free to sell their units any time they desire to do so.

However, investors who seek tax exemption u/s 80CCG, will be subject to a lock-in period of 3 years – 1 year of fixed lock-in and 2 years of flexible lock-in. The fixed lock-in period will start from the date of your investment in the current financial year and will end on March 31 next year i.e. 2018. The flexible lock-in period will be of two years, beginning immediately after the end of the fixed lock-in period i.e. beginning April 1, 2018 till March 31, 2020.

If you have any more queries regarding your investment in this ETF, please share it here, I’ll try to answer it as soon as possible.

Application Form – CPSE ETF FFO

For any further info or to invest in the CPSE ETF Further Fund Offer (FFO), you can contact us on +91-9811797407 or mail me at skukreja@investitude.co.in

CPSE ETF Further Fund Offer (FFO) – January 2017 Issue

Reliance MF CPSE ETF Further Fund Offer (FFO) 2 – March 2017 Issue – Click Here

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

In an attempt to meet its disinvestment target for the current financial year 2016-17, the government of India has decided to launch one more tranche of the CPSE ETF to raise Rs. 6,000 crore by selling its partial stakes in some of the listed public sector undertakings (PSUs). The first tranche of the CPSE ETF got launched during the tenure of the UPA government in March 2014 and it successfully raised Rs. 3,000 crore from various investors. This second tranche is getting launched this week on January 17 and would remain open for four days only to close on January 20.

While January 17 subscription is reserved for the Anchor Investors, retail investors and other non-anchor investors would be able to submit their applications starting January 18. Once successfully allotted, its units are expected to get listed on the stock exchanges on or before February 10.

CPSE Index Composition as on December 30, 2016 & February 28, 2014

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CPSE Index Composition as on December 30, 2016 & Trade Data as on January 13, 2017

picture-3

CPSE ETF or Central Public Sector Enterprises Exchange Traded Fund – This ETF got launched in March 2014 by Goldman Sachs Asset Management Company and listed in April 2014 on the stock exchanges. While the retail investors got its units allotted at Rs. 17.45, it quickly touched a high of Rs. 29.82 in less than 2 months in May 2014 when there was a euphoria after Mr. Modi took charge to serve this big nation as the PM. However, even after more than two and a half years, this ETF has not been able to cross its previous highs made during that euphoric period and is currently trading at Rs. 26.87 a unit.

FFO Opening & Closing Dates – For Anchor Investors, this fund will open for subscription from January 17 and for non-anchor investors i.e. retail investors, QIBs and non-institutional investors, subscription will start from January 18. This FFO will remain open for four days only to close on January 20.

Features of CPSE ETF Further Fund Offer (FFO)

High Dividend Yield & Reasonable Valuations – All the constituents of the CPSE Index are profitable and pay reasonably high dividends on a regular basis. Though high dividend yield does not guarantee positive returns, but it reduces volatility in returns as downside in their market prices gets fairly limited. Moreover, I think these CPSEs are trading at reasonably fair valuations and bold reforms, if taken post elections, could result in unlocking value for their shareholders.

5% Discount for Investors – Like most public offers of government companies, this FFO will also offer a 5% discount to the retail investors as well as other categories of investors. This 5% discount will be calculated on the “FFO Reference Market Price” of the underlying shares of the Nifty CPSE Index and will be passed on to the CPSE ETF by the government of India.

Reference Market Price/NAV – As mentioned above, CPSE ETF is currently trading at Rs. 26.87 on the stock exchanges. This is also its reference market price or NAV. As the investors get allotment and FFO units get listed on the stock exchanges, market price of each unit of this ETF will be linked to the Nifty CPSE Index and its returns would be quite close to the returns generated by the CPSE Index. Investors will get their units allotted post an adjustment of 5% discount offered by the government to CPSE ETF for buying the underlying CPSE Index shares.

Unlike NFO, No Loyalty Units in FFO – Retail investors in April 2015 received 1 additional unit as bonus against their investment of 15 units of CPSE ETF, as a reward for being loyal to this scheme for one full year from the date of allotment. However, the current scheme does not offer any such loyalty units this time around and that makes it slightly unattractive to me.

Minimum/Maximum Amount to be Raised – This ETF would target to raise Rs. 6,000 crore during this 4-day offer period, including the green-shoe option to retain Rs. 1,500 crore over and above the base target of Rs. 4,500 crore. However, in case of oversubscription beyond Rs. 6,000 crore, partial allotment will be made to the investors.

Minimum/Maximum Investment Size – Individual investors can invest in the scheme with a minimum investment amount of Rs. 5,000 and there is no upper limit on the investment amount. However, in order to get preference in allotment as a retail investor, you need to keep your investment amount capped at Rs. 2 lakhs.

Demat Account Mandatory – As this is an exchange traded fund, the units of the scheme will be available only in the dematerialized/electronic form. So, you need to mandatorily have a demat account to apply for its units. Applications without relevant demat account details are liable to get rejected.

Tax Saving u/s. 80CCG – This FFO is in compliance with the provisions of Rajiv Gandhi Equity Savings Scheme (RGESS) and thus qualifies for a tax exemption of up to Rs. 25,000 under section 80CCG. However, most of the investors would find it difficult to fulfill its two most important conditions to avail this tax exemption. These two conditions are – one, your gross total income should not exceed Rs. 12 lakh in the current financial year and two, you must be a first time investor in equities. Though it is quite difficult to satisfy both these conditions together, people who fulfil both these conditions can avail tax exemption u/s 80CCG by making an investment of up to Rs. 50,000.

The flexible lock-in period will be of two years, beginning immediately after the end of the fixed lock-in period i.e. beginning April 1, 2018 till March 31, 2020.

No Tax Benefit Availed – No Lock-In Period – Investors who do not avail any tax benefit out of this ETF, would be free to sell their holdings any time they desire to do so. There is no lock-in period applicable to those investors. However, in order to avail long term capital gain tax exemption, it is advisable to hold on to your investments for at least one year.

Entry & Exit Load – You are not required to pay any entry load or exit load with this fund.

Categories of Investors & Allocation Ratio

Anchor Investors – Maximum 30% of Rs. 6,000 Crore i.e. Rs. 1,800 Crore will be allocated to the anchor investors.

Retail Individual Investors – After the anchor book gets over on January 17, retail individual investors are allowed to take up all of the remaining portion of this FFO whatever remains left out of Rs. 6,000 crore i.e. 70% of Rs. 6,000 Crore i.e. Rs. 4,200 Crore + under-subscribed portion of Anchor Investors.

Qualified Institutional Buyers (QIBs) & Non-Institutional Investors (NIIs) – QIBs and NIIs will have nothing reserved for them in this FFO. They will be allotted units of this FFO only if the subscription numbers of the retail investors and/or anchor investors fall short of their reserved quota.

Fund Manager – There has been no change in the fund manager of this ETF. As it was the case with this ETF at the time of its NFO, its 36-year old fund manager Payal Kaipunjal, who is an MBA from Wellingkar Institute of Management and also a Financial Risk Manager (FRM) from GARP University, will continue managing this ETF with further infusion of funds. She has a total experience of 12 years and worked with Benchmark Asset Management Company and then Goldman Sachs India before it got acquired by Reliance AMC in 2016.

Risks

High Exposure to Oil & Gas Sector – CPSE Index has an exposure of approximately 57% to the oil & gas sector, having ONGC, GAIL and Indian Oil as 3 of its top 4 constituents. So, any adverse event for the oil & gas sector might result in a sharp fall in the stock prices of these companies resulting in negative or low returns for the CPSE ETF.

High Exposure to Public Sector Enterprises – Public sector enterprises are often used by the governments to either bridge their fiscal deficit targets or to meet any of their political obligations. Moreover, managements of these companies are often driven by objectives other than value maximisation for shareholders. As their objective of adding value to shareholders gets diluted, it becomes a pain point for the shareholders. So, the investors need to consider this as a big risk for their future returns.

Passive Management – ETFs are passively managed funds and their performance largely depends on the index they track. As CPSE ETF tracks the CPSE Index, its performance will completely hinge on the performance of the constituents of the CPSE Index. So, there is little scope for the fund manager to show her skills in picking high growth stocks and outperform the benchmark index in a significant manner.

Should you invest in this FFO of CPSE ETF?

I covered the NFO of CPSE ETF in March 2014 and recommended investors to invest in it for a few reasons – 5% discount to the investors, loyalty units after holding it for more than a year, depressed valuations of its constituents at that time and most importantly, hope of a strong government at the centre taking bold measures to turnaround these CPSEs and make their managements run them professionally.

Compounded Annualised Returns as on December 30, 2016

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From investors point of view, it would have been great had the government offered issuance of loyalty units in a similar manner as done earlier, but it is still not bad to have a 5% discount. I think running these companies in a professional manner and making their managements accountable for their duty of creating value for their shareholders is much more important than offering loyalty units or any such freebies. I still have high hopes from this government and on the basis of that, I would invest some part of my money in this offer and would advise my clients also to take some exposure to this ETF.

Application Form – CPSE ETF FFO

For any further info or to invest in the CPSE ETF Further Fund Offer (FFO), you can contact us on +91-9811797407 or mail me at skukreja@investitude.co.in

PNB Housing Finance Limited IPO Review – Subscribe or Not @ Rs. 750-775?

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

India’s fifth largest housing finance company and 51% subsidiary of Punjab National Bank (PNB), PNB Housing Finance Limited (PNBHFL) is seeking your investment in its initial public offer (IPO) worth Rs. 3,000 crore. The issue opened for subscription yesterday i.e. October 25 and will close tomorrow on October 27.

Through this IPO, PNB Housing Finance will be diluting 23.37% of its post issue paid-up share capital at the upper end of the price band of Rs. 775, price band being Rs. 750-775. Assuming Rs. 775 to be the issue price, the company will command a market cap of Rs. 12,837 crore at this price.

Here are some of the salient features of this IPO:

Price Band – PNB Housing has fixed its price band to be between Rs. 750-775 per share and no discount has been offered to the retail investors or PNB’s existing shareholders. However, employees of PNB Housing would be entitled to a discount of Rs. 75 per share.

Size & Objective of the Issue – PNB Housing will raise Rs. 3,000 crore from this issue, by issuing 3.87 crore new shares at Rs. 775 or 4 crore shares at Rs. 750 per share. As it is a fresh issue of shares, PNB’s housing existing parents – PNB (51% stake) and Carlyle Group (49% stake) will not get any proceeds from this issue.

Retail Allocation – 35% of the issue size is reserved for the retail individual investors (RIIs) i.e. approximately 1.35 crore shares out of 3.87 crore shares. 15% of the issue size is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Reservations for Employees – PNB Housing has reserved 250,000 shares for its employees. As mentioned above, employees will also be given a discount of Rs. 75 per share, which makes this issue attractive for the employees of the company.

No Discount for Retail Investors or PNB Shareholders – PNB Housing has decided not to offer any discount to the retail investors or even PNB shareholders.

Anchor Investors – Out of 3.87 crore shares to be issued, PNB Housing has already attracted big anchor investors for a sizeable chunk of this issue at Rs. 775 per share. These investors have agreed to buy approximately 1.15 crore shares directly from the company, thus amounting to Rs. 894.19 crore. These investors include Citigroup Global Markets Mauritius, Government of Singapore, Morgan Stanley Mauritius, Government of Singapore, Acacia Banyan Partners and HDFC Trustee Company, among others.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 19 shares and in multiples of 19 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,725 at the upper end of the price band and Rs. 14,250 at the lower end of the price band.

Maximum Investment for Retail Investors – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 19 shares @ Rs. 775 i.e. a maximum investment of Rs. 1,91,425. However, at Rs. 750 per share, you can apply for 14 lots of 19 shares, thus making it Rs. 1,99,500. Investors opting for the “Cut-Off Price” option should apply for a maximum of 13 lots of 19 shares.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on October 27. These shares are expected to list on November 7 on the stock exchanges.

Here are some of the important dates for this IPO:

Issue Opens – On October 25, 2016

Issue Closes – On October 27, 2016

Finalisation of Basis of Allotment – On or about November 2, 2016

Initiation of Refunds – On or about November 3, 2016

Credit of equity shares to investors’ demat accounts – On or about November 4, 2016

Commencement of Trading on the NSE/BSE – On or about November 7, 2016

Financials of PNB Housing Finance Limited

Note: Figures are in Rs. Crore, except per share data & percentage figures

Comparison of the India’s largest housing finance companies

Should you subscribe to PNB Housing IPO @ Rs. 775 a share?

PNB Housing has performed remarkably well in the last 2-3 years. Between March 31, 2014 and March 31, 2016, the company has grown its loan book at a CAGR of 60.19% from Rs. 10,591.21 crore to Rs. 27,177.27 crore and its revenues at a CAGR of 55.23% from Rs. 1,120.32 crore to Rs. 2,699.54 crore. This growth momentum has continued in the first quarter of this fiscal year as well. As on June 30, 2016, its loan book stands at Rs. 30,901 crore and it reported revenues of Rs. 863.44 crore for the quarter.

What is even more remarkable is PNB Housing’s asset quality. The company reported a gross NPA of 0.22% and a net NPA of 0.14% for the fiscal year 2015-16. Though these numbers increased marginally to 0.27% and 0.19% respectively in the quarter ending June 30, 2016, they are still one of the lowest in the housing finance industry.

However, I think it would be very difficult for the company to maintain such kind of high growth momentum going forward. Even if the company is able to maintain a growth rate of 20-30% for the next couple of years with stable asset quality, it would be able to attract a lot of big ticket investments from foreign as well as domestic institutional investors.

From PNB Housing point of view, I think the company has priced its IPO to perfection. Though I think it is not cheap at these valuations, but given a positive sentiment towards housing finance companies and an exceptional growth registered by the company in the past few years, it is expected to list at a premium of up to 10% to its likely issue price of Rs. 775 per share. I think one should subscribe to this IPO for listing as well as short term gains. Long term wealth creation would be possible only if the momentum is maintained.