Category: IPO/NFO

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

Despite being a big issue, ICICI Prudential Life IPO sailed through quite comfortably yesterday. Post this IPO, ICICI Bank has been able to successfully raise Rs. 6,057 crore from its stake sale in ICICI Pru Life. Not only it got subscribed comfortably, the issue got oversubscription to the tune of 10.48 times its issue size. That is the kind of liquidity the equity and debt markets are dealing with these days.

Spotting such an opportunity to comfortably raise money from the investors, HPL Electric & Power Limited is launching its IPO for subscription from today. The company plans to raise Rs. 310 crore from its share sale to the prospective investors. The issue would remain open for three working days and you will have time till 5 p.m. on 26th of September to invest in this IPO.

Price Band & Size of the Issue –  HPL Electric has fixed its price band to be between Rs. 175-202 per share and no discount will be given to the retail investors. With this price band, HPL targets to raise Rs. 361 crore in this issue and the stake to be offloaded would depend on the allotment price fixed by the management after the issue gets closed.

If the issue gets a good response from the investors and the company fixes its allotment price to be Rs. 202 a share, the company will issue 1,78,71,287 shares to the investors. However, if the company decides to fix the allotment price at Rs. 175 due to a poor response or any other reason, in that case it will have to issue 2,06,28,571 shares to raise Rs. 361 crore.

Objective of the Issue – HPL currently carries an outstanding debt of around Rs. 590 crore and it plans to pay off around Rs. 130 crore debt out of the issue proceeds. A further Rs. 180 crore HPL plans to use for the working capital purposes.

Retail Allocation – 35% of the issue size has been reserved for the retail individual investors (RIIs) i.e. 62.55 lakh shares out of 1.79 crore shares or 72.2 lakh shares out of 2.06 crore shares. 15% of the issue is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Bid Lot Size & Minimum Investment – Minimum bid quantity of this issue has been fixed at 70 shares and in the multiples of 70 shares thereafter. That would result in a minimum investment of Rs. 12,250 at the lower end of the price band and Rs. 14,140 at the upper end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). So, to be categorised as a retail investor, you can apply for a maximum of 14 lots of 70 shares @ Rs. 202 i.e. a maximum investment of Rs. 1,97,960. However, at Rs. 175 per share, you can apply for 16 lots of 70 shares, thus making it Rs. 1,96,000. Investors opting for the “Cut-Off Price” option would be able to apply for a maximum of 14 lots of 70 shares.

Listing – HPL will get its shares 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 26th September. October 4th is the tentative date for its listing.

Here is the list of all the important dates relevant for this issue:

Issue Opening Date – September 22, 2016

Issue Closing Date – September 26, 2016

Finalisation of Basis of Allotment – On or about September 29, 2016

Initiation of Refunds – On or about September 30, 2016

Credit of equity shares to investors’ demat accounts – On or about October 3, 2016

Commencement of Trading on the NSE/BSE – On or about October 4, 2016

Financials of HPL Electric & Power Limited

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

Should you subscribe to HPL Electric & Power IPO?

HPL reported a growth of 6.60% in its revenues during FY 2015-16, up from Rs. 1,051.85 crore to 1,121.25 crore. It recorded a 12.24% jump in its EBITDA, from Rs. 130.08 crore to Rs. 146 crore and 5.78% growth in its profit after tax (net profit), from Rs. 34.62 crore to Rs. 36.62 crore. Looking at the kind of growth it has been reporting in the past few years, it is not up to my satisfaction and doesn’t push me to invest in this company.

Moreover, HPL recorded an EPS of Rs. 7.89 during the last financial year. At Rs. 202, the company would trade at a P/E ratio of 25.60 its trailing 12 month earnings. However, in a falling interest rate environment, with a reduced outstanding debt, and its 97.15% subsidiary, Himachal Energy’s financials getting incorporated, HPL should be able to generate an EPS in the range of Rs. 9.5-10. This would make HPL trade at a slightly comfortable P/E ratio of around 20-21 times its FY17 EPS.

Moreover, this industry in which HPL is operating is getting extremely competitive and requires a dynamic management to take on some of the disruptive forces and take care of the technological changes. Considering its financials and other valuation parameters, the issue seems expensive and unattractive to me in the present scenario.

However, post this IPO and incorporating Himachal Energy’s financials with itself, HPL will have an opportunity to make its balance sheet look less stretched and also turn around the business dynamics in its favour. How efficiently it is implemented would be worth a wait before one should make an investment with the company.

Despite its estimated valuations to be slightly reasonable, I would recommend the investors to avoid this IPO at this point in time and wait for at least 2-3 quarters more for the company to deliver an improved financial performance.

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

As the sentiment in the stock market has improved considerably, we are seeing a flood of new initial public offers (IPOs) getting launched. These issues, big or small, are getting lapped up in huge numbers. No IPO has been able to satisfy the appetite of retail investors fully and they are getting left disappointed with no allotment or only one lot getting allotted.

To tap these favourable market conditions, ICICI Bank has decided to sell its 12.63% stake in ICICI Prudential Life Insurance Co. Ltd. and get it listed on the stock exchanges. ICICI Bank will sell around 18.13 crore shares in ICICI Pru Life through its initial public offer (IPO) at an expected price of Rs. 334, thus amounting to Rs. 6,057 crore. This will be the biggest IPO since Coal India’s Rs. 15,200 crore IPO in October 2010 and as it is a big issue, one can expect a better allotment this time around.

But, how good is the company, how is it valued and if it is worth investing in this big IPO either for long term wealth creation or short term quick gains? Before we come to any conclusions, let us quickly take a look at its salient features first.

Price Band – ICICI Life has fixed its price band to be between Rs. 300-334 per share and no discount will be given to the retail investors or ICICI Bank’s existing shareholders.

Size & Objective of the Issue – As mentioned above, ICICI Bank will sell its 12.63% stake in ICICI Life i.e. 18,13,41,058 shares at a price between Rs. 300 to 334 a share. At the upper cap of this price band, ICICI Life will be able to raise Rs. 6,057  crore from this issue. As it is an OFS and no fresh shares will be issued, ICICI Life will not get any proceeds from this IPO.

Retail Allocation – 35% of the issue size, after 10% reservation for ICICI Bank shareholders, is reserved for the retail individual investors (RIIs) i.e. 5.71 crore shares out of 16.32 crore shares, 15% is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Reservations for ICICI Bank’s Shareholders – ICICI Life has reserved 10% of its shares on offer i.e. approximately 1.81 crore shares for the existing shareholders of ICICI Bank. Such shareholders will be allotted ICICI Life shares out of such reserved 1.81 crore shares.

No Discount for Retail Investors or ICICI Bank Shareholders – Though there is 35% and 10% reservation for the retail investors and ICICI Bank shareholders respectively, no discount will be given to any of such categories of investors.

Anchor Investors – Out of 16.32 crore net issue size, ICICI Life has already roped in some big anchor investors for 30% of its net issue size i.e. 48.96 lakh shares. These investors have agreed to pay Rs. 334 for their subscription, thus amounting to Rs. 1,635 crore. Some big anchor investors include Morgan Stanley Mauritius, Government of Singapore, UTI Trustee Co., SBI Trustee Co., Birla Sun Life Trustee Co., L&T Mutual Fund, Nomura India Investment Fund and Goldman Sachs (Singapore).

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 44 shares and in multiples of 44 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,696 at the upper end of the price band and Rs. 13,200 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 44 shares @ Rs. 334 i.e. a maximum investment of Rs. 1,91,048. However, at Rs. 300 per share, you can apply for 15 lots of 44 shares, thus making it Rs. 1,98,000. Investors opting for the “Cut-Off Price” option can apply for a maximum of 13 lots of 44 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 21st September. September 29th is the tentative date for such listing.

Here are some of the important dates to consider for this IPO:

Issue Opening Date – September 19, 2016

Issue Closing Date – September 21, 2016

Finalisation of Basis of Allotment – On or about September 26, 2016

Initiation of Refunds – On or about September 27, 2016

Credit of equity shares to investors’ demat accounts – On or about September 28, 2016

Commencement of Trading on the NSE/BSE – On or about September 29, 2016

Financials of ICICI Prudential Life Insurance

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

Comparison of the five largest private sector life insurers

Should you invest in ICICI Prudential Life IPO @ Rs. 334 a share?

This IPO doesn’t excite me at all. First of all, I am not a great fan of the way life insurance companies carry out their businesses here in India and probably outside India as well. I think life insurance business should have nothing to do with one’s investments and insurance & investments should strictly be carried out separately.

Investors have hardly made any money with life insurance companies in the first 5 years of their investments. High commissions, high operating expenses and complicated fee & expense structures have always resulted in relatively lower returns for insurance plans. Also, there is no clarity how life insurance companies will expand their reach and operations going forward.

Moreover, this IPO seems steeply overpriced to me. Presently, it is valuing ICICI Life at 29 times based on its FY 2016 earnings. With ICICI Life showing a very dismal growth in its profits in the last 4-5 years, buying its shares at 29 times would be highly unjustifiable.

ICICI Life is a JV between ICICI Bank, holding 67.52% stake and Prudential Corp. Holdings Ltd. (PCHL), holding 25.83% stake. ICICI Bank sold its 4% stake in ICICI Life to Wipro Chairman Azim Premji’s Hasham Traders on November 27, 2015 at Rs. 226.34 per share. Can anybody explain me what has changed in the last 9-10 months to make ICICI Bank seek a 47.57% premium from the general public and other investors?

ICICI Bank reported a profit after tax (PAT) of Rs. 101.80 billion in FY 2015-16 and Rs. 122.47 billion in FY 2014-15. On the other hand, ICICI Life reported PAT of 16.53 billion in FY 2015-16 and Rs. 16.40 billion in FY 2014-15, which is less than 20% of ICICI Bank’s PAT in both these financial years.

At Rs. 334 a share, ICICI Life would be valued at Rs. 47,957 crore and that makes ICICI Bank’s 67.52% stake worth Rs. 32,381 crore. However, at Rs. 267.35 a share, ICICI Bank itself is valued at Rs. 1,55,533 crore. Interestingly, ICICI Bank had a market cap of Rs. 1,05,153 crore when it made its 52-week low early this year on February 26. It clearly shows it is just a turnaround in the investors’ sentiment which has made ICICI Bank seek higher valuations for ICICI Life. Its fundamentals remain intact based on which it doesn’t make any sense for me to invest in ICICI Life at 29 times its FY 2015-16 EPS.

Comparing these financials and giving it a consideration that ICICI Bank is a much bigger company having many other profitable subsidiaries other than ICICI Life, I find no justification for me to assign such a steep valuation to ICICI Life. I would give this issue a miss and advise my clients as well to avoid it.

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

A couple of years ago when the US economy was not doing well, Indian IT sector was booming. Brokerage houses and IT analysts were upgrading IT companies like HCL Technologies, Tech Mahindra, TCS etc. and raising their price targets after every review of quarterly results. But, as the US economy has started to recover, the fortunes of these companies have taken a complete U-turn.

Most of these companies are seeing a cut in the spending budgets of their clients and slower ramp-ups in few of their clients across different verticals. Uncertainty due to Brexit is also a cause of worry for these companies.

Amid these uncertainties and a worrisome slowdown, L&T Limited, the parent company of L&T Technology Services (L&T Tech), has decided to sell its 10.2% stake in L&T Tech and get it listed on the stock exchanges. This offer for sale (OFS) has already started and will get closed on September 15.

This initial public offer (IPO) comprises of an offer for sale of 1.04 crore shares of Rs. 2 each to the investors. L&T Limited, holding 100% stake in L&T Tech, will be selling all of these 1.04 crore shares in this IPO. This constitutes 10.2% of L&T Tech’s post-offer paid-up equity share capital.

Here are some of the salient features of this IPO:

Retail Allocation – 35% of the issue size is reserved for the retail individual investors (RIIs) i.e. 36.4 lakh shares out of 1.04 crore shares on offer, 15% is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

Price Band – L&T Tech has fixed its price band to be between Rs. 850-860 per share and no discount will be there for the retail investors.

Anchor Investors – L&T has already sold 30% of its shares on offer i.e. 31.2 lakh shares, to 19 Anchor Investors at Rs. 860 per share. This amounts to Rs. 268.32 crore in the offer. These investors include Sundaram Mutual Fund, Copthall Mauritius Investment, DSP BlackRock, HDFC Trustee Company, Canara Robeco Mutual Fund and ICICI Prudential Life Insurance, FIL Investments (Mauritius), BlackRock India Equities (Mauritius) and Parvest Equity World Emerging among others.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 16 shares and in multiples of 16 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 13,760 at the upper end of the price band and Rs. 13,600 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 14 lots of 16 shares in this IPO i.e. a maximum investment of Rs. 1,92,640.

Objective of the Issue – At the upper range of its price band, L&T will be able to raise Rs. 894.40 crore from this issue. As it is an OFS and no fresh shares will be issued, L&T Tech will not get any proceeds from this IPO.

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 15th September.

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

Finalisation of Basis of Allotment – On or about September 20, 2016

Initiation of Refunds – On or about September 21, 2016

Credit of equity shares to investors’ demat accounts – On or about September 22, 2016

Commencement of Trading on the NSE/BSE – On or about September 23, 2016

Financial of L&T Technology Services

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

Peer Comparison

Key Customers – BMW, Calsonic Kansai, Caterpillar, Danaher, Eaton, Intel, John Deere, P&G, Rockwell Automation, Scania, Shell and UTC are L&T Tech’s key customers and partners across different segments.

Should you invest in L&T Tech IPO?

Poor listing of L&T Infotech and a subdued sentiment prevailing in the IT sector have made analysts and investors cautious about this IPO. L&T Tech’s offer price band seems to be stretched when you compare its valuations with some of its listed peers and L&T Infotech as well. But, you need to give it a consideration that L&T Tech is a younger player of the niche segment it is operating in, with an experienced management.

L&T’s management has a deep understanding of the businesses it is servicing through L&T Tech. That is what makes this company command a premium over L&T Infotech and other peers in this segment. The only concern I have is the valuation L&T is demanding for its stake sale. At Rs. 850-860 a share, I think it is slightly on a higher side. However, you should expect this company to perform well going forward and also consider investing in it once listed.

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 prolonged period of lull in the IPO market, sentiment has been gradually improving towards these fresh issues of shares in the last one year or so. A large number of companies have hit the primary markets this year and most of them have remained successful in rewarding their shareholders with healthy listing gains as well as maintaining those gains.

In this series of IPOs, RBL Bank, formerly known as Ratnakar Bank Limited, has also hit the dalal street to get itself listed on the stock exchanges and raise approximately Rs. 1,213 crore from the investors. The issue has already got opened on Friday, August 19th and will remain open for two more days to close on August 23rd.

What’s on Offer?

This initial public offer (IPO) comprises of a sale of approximately 5.39 crore shares to the investors. It is a mix of fresh issue of approximately 3.7 crore shares by the bank and an offer for sale of 1.69 crore shares, primarily by Beacon India Private Equity Fund, GPE (India) Ltd., Elephant India Finance Private Limited, Gaja Trustee Company Private Limited and Capvent India Private Equity Fund.

35% of the issue size is reserved for the retail individual investors (RIIs) i.e. approximately 1.89 crore shares out of 5.39 crore shares on offer, 15% is reserved for the non-institutional investors and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

RBL Bank has fixed its price band to be between Rs. 224-225 per share. There is no discount for the retail investors though. Here are other salient features of this IPO:

Anchor Investors – Anchor Investors have already subscribed around 1.62 crore shares at Rs. 225 per share, thus investing Rs. 364 crore in the offer. Anchor investors include Merrill Lynch Capital Markets Singapore, Goldman Sachs India Fund, Government Pension Fund Global, FIL Investments Mauritius, GMO Emerging Domestic Opportunities Fund, Auburn Limited, HSBC Global Investments Fund, Reliance Capital, HDFC Prudence Fund, SBI Mutual Fund and Nomura Funds Ireland among others.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 65 shares and in multiples of 65 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,625 at the upper end of the price band and Rs. 14,560 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 65 shares in this IPO i.e. a maximum investment of Rs. 1,90,125.

Objective of the Issue – RBL will raise Rs. 832.50 crore from this issue and the company plans to use the proceeds to augment its Tier-I capital base, lending book and investment portfolio and to comply with RBI’s Basel III norms and other guidelines. RBL also wants to enhance its visibility and brand name among its existing and potential customers with this listing.

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 23rd August. Here are the important dates after the issue gets closed:

Finalisation of Basis of Allotment – On or about August 26, 2016

Initiation of Refunds – On or about August 29, 2016

Credit of equity shares to investors’ demat accounts – On or about August 30, 2016

Commencement of Trading on the NSE/BSE – On or about August 31, 2016

Financials of the Company

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

For the financial year ended March 31, 2016, RBL Bank reported total income of Rs. 3,234.85 crore as compared to Rs. 532.22 crore it reported during financial year 2011-12, registering a growth of 57.02% CAGR during this period. The company reported profit after tax (PAT) of Rs. 292.49 crore for the financial year ended March 31, 2016 as against Rs. 65.10 crore for the financial year ended March 31, 2012, posting a growth of 45.59% CAGR.

Bank’s net interest margins (NIMs) were 2.68% in FY 2013-14, which improved to 3.01% in FY 2014-15, but declined to 2.96% during the last financial year. Asset quality has deteriorated somewhat, but given the market scenario, it is well within investors’ comfort zone.

Should You Subscribe or Not?

Ever since the new management team has taken over the operations of the bank in FY 2011-12, its financials have been consistently improving over this period of four years or so. The bank has shown a consistently high and healthy growth in its operational performance, despite the industry facing a tough time in growing their businesses and keeping their asset quality problems in check. RBL has done both these job fairly well during this period.

At Rs. 225 per share, the bank is valued at a price to book value (P/BV) of 2.45 times and price to earnings (P/E) of 23.44 times. If the bank is able to grow its EPS by 40% this year as well, then its offer price of Rs. 225 per share would look distinctly attractive at an estimated P/E ratio of 16.74 times and P/BV ratio of around 1.95 times.

As the market sentiment is fairly positive at this point in time, this IPO looks extremely attractive from listing gains point of view. Also, if the bank is able to successfully grow its lending book and keep a check on its asset quality in a similar manner as it has been, I think this bank has a potential to easily provide more than 50% returns in the next 12-24 months. However, the investors should keep a close eye on its growth numbers with a bigger base and also its asset quality metrics. Any slowdown in growth or deterioration in asset quality should warrant a change in the long term strategy of investors.

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

The government has just announced its decision to sell its 10% stake in Indian Oil Corporation (IOC) through Offer for Sale (OFS) route. OFS will take place on the stock exchanges on Monday i.e. August 24th and will have approximately 24.28 crore shares for sale to the investors.

Here is the link to the Notice of Offer for Sale issued by the Ministry of Petroleum & Natural Gas to the stock exchanges. 20% of the shares on sale will be reserved for the retail investors and they will get a 5% discount as well on the allotment price or the ‘Cut-Off’ price, whichever is higher.

IOC Offer for Sale Details

• Issue Type: Offer for Sale (OFS)
• OFS Opens & Closes: Monday, August 24, 2015
• OFS Bidding Time: 9:15 a.m. to 3:30 p.m.
• Floor Price: Rs. 387 a share
• No. of Shares Offered: 24,27,95,248 Equity Shares
• Lot Size: 1 Equity Share
• Minimum Issue Size: Rs. 9,302 Crore
• Proposed Listing: NSE and BSE
• National Stock Exchange (NSE) LIVE OFS Link
• Bombay Stock Exchange (BSE) LIVE OFS Link

Floor Price – The government has fixed Rs. 387 as the floor price for each IOC share in the OFS. IOC’s stock price fell by 0.72% on Friday to close at Rs. 394.85 on the National Stock Exchange (NSE). So, the floor price of Rs. 387 has been fixed at a discount of 1.99% to its market price, which would fetch a minimum of Rs. 9,302 crore to the government.

Shares on Sale – The government currently has 68.57% stake in IOC. After this OFS, the stake will come down to 58.57%. A total of 24,27,95,248 shares will be sold by the government in this OFS, out of which 20% shares i.e. 4,85,59,050 shares will be reserved for the retail investors investing up to Rs. 2 lakh.

20% of OFS & 5% Discount for the Retail Investors – Unlike Dredging OFS, in which the government was expecting a muted response from the retail investors and hence offered only 10% OFS shares to them, 20% of the shares offered in this OFS have been reserved for the retail investors. Again, the government will give a discount of 5% to the retail investors. This discount will be given to them on the price at which the retail investors successfully bid in the OFS or the cut-off price set by the government, whichever is higher.

Brokerage – Unlike IPOs, stock brokers levy brokerage charges on these OFS transactions. These charges are normally higher than the rate of brokerage investors pay on their routine transactions. So, if the allotment price is fixed at say Rs. 390, the retail investors will get it at Rs. 370.50 a share plus applicable brokerage charges and taxes thereon. So, the retail investors should consider these charges in their overall cost of acquisition.

Cut-Off Option – Made compulsory by SEBI recently and introduced with the PFC OFS, the ‘CUT-OFF’ price option will be there in this OFS as well. But, in the absence of an upper price cap, I think this option is of no use in increasing your chances of getting allotment. I think SEBI should introduce an upper price cap for the retail bidders in these OFS or some other innovative method of bidding should be worked upon.

Only a Single Day OFS – IOC OFS will remain open for a single day only and that too, during the trading hours of the stock exchanges i.e. between 9:15 a.m. and 3:30 p.m. If successful, you’ll get the shares credited in your demat account by Tuesday.

Bidding will start on the stock exchanges at 9:15 a.m. on Monday and you can check the LIVE bidding status on the websites of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

How does an OFS process work?

If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll respond to it as soon as possible.

How to invest?

You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get your bid placed through telephonic confirmation.

Fundamentals of IOC

For the financial year ended March 31, 2015, IOC reported net revenues of Rs. 449,509 crore as against Rs. 488,345 crore for the year ended March 31, 2014. The company reported profit after tax (PAT) of Rs. 3,754 crore for the financial year ended March 31, 2015 as against Rs. 5,946 crore for the financial year ended March 31, 2014.

In the current financial year, the company is expected to see a turnaround in its financial performance due to falling crude prices, reduced subsidies and most importantly, flexibility in setting retail prices of petrol & diesel. The company is expected to report a very healthy EBITDA of Rs. 23,449 crore as against Rs. 10,536 crore it reported in the previous financial year.

At Rs. 394.45, the stock is currently trading at 12.2 times its estimated EPS of Rs. 32.4 for FY 2015-16 and 1.2 times its estimated book value of Rs. 320.8.

Should you invest in this OFS?

Firstly, I think this is one of the best times for the government to sell its stake in oil marketing companies (OMCs) like IOC, BPCL and HPCL. Global crude prices are down and down beyond almost all of our expectations. If crude prices stay below $60-65/barrel levels for a meaningful period of time and the government remains committed about keeping petrol/diesel prices market-driven and reducing subsidies beyond current levels, then I think IOC is attractively valued at these levels and could potentially reward its shareholders with 20-30% returns in the next 9-12 months time.

But, a sharp reversal in crude prices or unfavourable decision making with respect to the retail prices of diesel, petrol, LPG, kerosene or subsidy sharing could pose risks to its stock performance.

What is the Best Strategy to successfully get IOC shares allotted and also make some reasonable profits?

Firstly, you should analyse the fundamentals of the company. Based on your analysis, you should decide whether you want to bid for its shares or not. If you decide to go for it, then you should consider the fact that IOC OFS issue is relatively a bigger issue as compared to the earlier ones. I don’t think it will get as bumper a response as REC or PFC or Dredging OFS got. So, the retail investors should not remain in a hurry in placing their bids at too high a price, like beyond Rs. 400 or above.

Best strategy is to wait till as late as possible to analyse the bids at various price points, IOC’s stock price movement during the day and place your bids accordingly. If the retail quota does not get fully subscribed by 3 p.m. or so, then it is best to place your bids checking the ‘Cut-Off’ price option.

In case of a healthy subscription, I think bidding between Rs. 392 and Rs. 397 could be the best strategy for the keen bidders. But, let me be clear that it will not ensure IOC’s stock price from falling below Rs. 380 in Tuesday’s trading session, which could happen due to profit booking or the number of sellers outnumbering the number of buyers by a huge margin.

To be on a positive side, a genuinely good response to the OFS and some noticeable improvement in the market sentiment globally could push its price up in the days to come.

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 successfully selling its stake in REC and PFC in the current financial year, the government will be divesting its 5% stake in Dredging Corporation through an Offer for Sale (OFS) and raise approximately Rs. 53.21 crore from the investors. It is a relatively smaller issue and would result in the government raising a minimum of Rs. 53-54 crore from the investors.

• Issue Opens & Closes: Friday, August 21, 2015
• OFS Bidding Time: 9:15 a.m. till 3:30 p.m.
• Issue Type: Offer for Sale (OFS)
• Floor Price: Rs. 382
• Lot Size: 1 Equity Share
• No. of Shares Offered: 14,00,000 Equity Shares
• Minimum Issue Size: Rs. 53.21 Crore
• Proposed Listing: NSE and BSE
• National Stock Exchange (NSE) LIVE OFS Link
• Bombay Stock Exchange (BSE) LIVE OFS Link

Shares on Sale – The government currently has 78.56% stake in Dredging. After this OFS of government’s 5% holding, the stake will come down to 73.56%. A total of 14,00,000 shares will be sold by the government in this OFS, out of which only 10% shares i.e. 1,40,000 shares will be reserved for the retail investors investing up to Rs. 2 lakh.

Floor Price – The government made the announcement for this OFS on Wednesday. Its stock price fell by 4.53% on Thursday to close at Rs. 387.65 on the National Stock Exchange (NSE). The government has set Rs. 382 as the floor price for this OFS, a discount of 1.46% to its closing market price.

10% of OFS & 5% Discount for the Retail Investors – Unlike PFC OFS, in which 20% of the shares offered were reserved for the retail investors, this OFS will have only 10% shares on offer reserved for the retail investors. Also, as always the government has once again decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the retail investors successfully bid in the OFS or the cut-off price set by the government, whichever is higher.

Brokerage – Unlike IPOs, stock brokers levy brokerage charges on these OFS transactions. These charges are normally higher than the rate of brokerage investors pay on their routine transactions. So, if the allotment price is fixed at say Rs. 382, the retail investors will get it at Rs. 362.90 a share plus applicable brokerage charges and taxes thereon. So, the retail investors should consider these charges in their overall cost of acquisition.

Cut-Off Option – Made compulsory by SEBI recently and introduced with the PFC OFS, the “CUT-OFF” price option will be there in this OFS as well. But, in the absence of an upper price cap, I think this option is of no use in increasing your chances of getting allotment. I think SEBI should introduce an upper price cap for the retail bidders in these OFS or some other innovative method of bidding should be worked upon.

Only a Single Day OFS – Dredging OFS will will remain open for a single day only and that too, during the trading hours of the stock exchanges i.e. between 9:15 a.m. and 3:30 p.m. If successful, you’ll get the shares credited in your demat account by Monday.

Bidding will start on the stock exchanges at 9:15 a.m. today and you can check the LIVE bidding status here on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE).

How does an OFS process work?

If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.

How to invest?

You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get your bid placed through telephonic confirmation.

Should you invest in Dredging OFS?

As the sentiment has turned bearish and the price gap between the floor price and the closing market price being very small, Dredging OFS does not offer reasonable margin of safety to the retail investors. I think with the sentiment for equity investments down, it is better for the retail investors to wait for the stock price to correct to Rs. 320-350 range before taking a plunge.

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

Pharma sector stocks have been rising on the bourses for the last one year or so. Some stocks have given more than 50% returns in the last 9-12 months. Boosted by a recovery in the US and the European markets, these companies have reported good sales and profit growth. Investors have also given a big thumbs up to these companies resulting in huge gains.

But, the last 10-15 days have been troublesome for these stocks. A few days back, Sun Pharma issued a profit warning resulting in a selloff in its own stocks as well as other pharma stocks as well, followed by a disappointing quarterly performance by Lupin Limited. These two events have shaken the investors’ confidence in the sector.

Just when the sentiment has turned negative for the sector and for the markets as well, Syngene International, a 83.6% subsidiary of Biocon Limited, has come out with its initial public offer (IPO). The issue consists of an offer for sale by the company’s promoter Biocon Limited. Biocon plans to sell its 11% stake in this IPO selling 2.2 crore shares in the price band of Rs. 240-250, thus raising Rs. 550 crore from the primary markets. The issue got opened yesterday and will get closed tomorrow.

About Syngene Limited

Incorporated in 1993 and headquartered in Bengaluru, India, Syngene is a 83.6% subsidiary of Biocon Limited. The company is one of the leading contract research organisations (CRO), offering a suite of integrated, end-to-end discovery and development services for novel molecular entities (NMEs) across industrial sectors, including pharmaceutical, biotechnology, agrochemicals, consumer health, animal health, cosmetic and nutrition companies.

Syngene’s service offerings in discovery and development cover multiple domains across small molecules, large molecules, antibody-drug conjugates (ADC) and oligonucleotides. Its integrated discovery and development platforms help organisations conduct discovery, development and pilot manufacturing under one roof with a distinctive economic advantage. The company intends to forward integrate into commercial-scale manufacturing of NMEs.

The company has several long-term relationships and multi-year contracts with its clients, including three long-duration multi-disciplinary partnerships, each with a dedicated research centre, with three of the world’s leading global healthcare organisations Bristol-Myers Squibb, Abbott Laboratories (Singapore) Pte. Ltd. and Baxter International, Inc.

What’s on Offer?

Syngene has fixed its price band to be between Rs. 240-250 per share. There is no discount for the retail investors. The issue is a complete offer for sale of shares by its promoter, Biocon Limited. Syngene will not receive any proceeds in this offer.

The offer comprises of a sale of approximately 2.2 crore shares to the investors. 35% of the issue size is reserved for the retail individual investors. At Rs. 250 per share, Biocon is expected to raise approximately Rs. 550 crore.

Anchor Investors – Syngene issued approximately 60 lakh shares to the Anchor Investors, namely GIC, Goldman Sachs, Morgan Stanley, Deutsche Bank etc., at Rs. 250 per share, thereby raising Rs. 150 crore.

Bid Lot Size – Investors need to bid for a minimum of 60 shares and in multiples of 60 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 15,000 at the upper end of the price band and Rs. 14,400 at the lower end of the price band.

Objective of the Issue – There is no fresh issue of equity shares by Syngene in this IPO. The funds raised by the sale of shares in this offer will not go to the company. The primary objectives of the offer are to achieve the benefits of listing and carry out the share sale by the promoter Biocon. Funds mobilized will be utilized for the capex planned by Biocon for developing its biosimilars and enhancing the manufacturing capacities.

Listing – The shares of the company will get listed on both the exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Financials of the Company

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

For the financial year ended March 31, 2015, Syngene reported total revenue of Rs.  871.6 crore as against Rs. 707.7 crore for the year ended March 31, 2014. The company reported profit after tax (PAT) of Rs. 175 crore for the financial year ended March 31, 2015 as against Rs. 134.8 crore for the financial year ended March 31, 2014.

The company reported EBITDA margin of 33.59% for the period ended December 31, 2015, 31.45% for the year ended March 31, 2014 and 31.16% for the year ended March 31, 2013.

Should You Subscribe or Not?

Syngene has been performing consistently well in an uncertain business environment and contributing significantly to its parent Biocon. The company is seeking a valuation of 28.6 times its FY15 earnings, which seems to me on a slightly higher side. I think for a consistently growing company with strong fundamentals, a strong promoter group, efficient management and a talented team of qualified scientists, these valuations are reasonably justified. I expect its stock price to list at a premium of 20-30% and to double from its expected allotment price of Rs. 250 in the next 2-3 years time.

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

Power Finance Corporation (PFC) Offer for Sale (OFS) will take place today on the stock exchanges. The government has set its floor price as Rs. 254 per share and would likely raise around Rs. 1,700 crore in this OFS. Retail investors, investing Rs. 2 lakh or less in this OFS, will get 5% discount on the allotment price. Yesterday, I had posted the details of today’s OFS. In order to understand the OFS process, you can check this link – Offer for Sale Process.

OFS is like an auction in which the bidders are usually required to revise their bid prices in order to emerge as the successful bidders at the highest bid prices. But, unlike an auction, OFS process is still very complicated for the retail investors to understand and it is very difficult for them to track the indicative price on a real-time basis and revise their bid prices accordingly in order to successfully get the share allotted in these OFS.

Cut-Off Price Option Introduced – To overcome this problem, SEBI last month made it mandatory for companies to provide the option to retail investors to place their bids at the “CUT-OFF” price in addition to placing their price bids. PFC OFS would be the first OFS after such a change has been implemented by SEBI.

So, for the first time in an OFS, you’ll find the option to bid at the Cut-Off price and need not continuously follow the indicative price and revise your bid price. Whatever price is fixed by the government as the cut-off price, the successful retail bidders will get the shares allotted at that price. But, there is still a catch here for the retail investors and the catch is how the cut-off price will be determined by the government.

In an IPO or FPO, there is a price band – an upper price and a lower price. At or between these two prices, the cut-off price is set by the promoters or the selling shareholders. So, the investors know in advance the upper limit & the lower limit of the allotment price.

But, here in an OFS, there is only one price which gets disclosed by the promoters or the selling shareholders and that is the floor price i.e. Rs. 254 per share in the PFC OFS. There is no upper price limit at which the retail bidders would get a confirmed allotment and there is no method by which they could guesstimate it. In today’s PFC OFS, the government will fix the cut-off price for the retail investors only after the OFS gets over and in case of huge oversubscription, the price could go higher even beyond one’s comfort levels.

Taking the example of the REC OFS, the issue got oversubscribed to the tune of 5.5 times in the retail investors’ category and the allotment price got fixed at Rs. 331.75 and beyond. So, all those bidders who placed their bids at Rs. 331.75 or higher got the REC shares allotted. Now, in case of PFC OFS, suppose the Cut-Off price gets fixed at an exceptionally higher price of Rs. 261.25 i.e. Rs. 275 less 5% discount, which is higher than your estimated cut-off price, in that case you’ll have no option but to have the shares allotted at Rs. 261.25.

Allotment Method with “Cut-Off” Price Option

As per the information available on the NSE website – “Sellers may provide retail investors option to bid at “cut-off”, where the allocation to retail investors shall be made based on the cut-off price determined in the non-retail category.”

“Bidding at “cut-off” ensures that the retail investor will get allotment where the allotted quantity will depend upon the demand at various price points.”

So, unlike an IPO/FPO, there is a risk of an unexpectedly higher cut-off price in an OFS and the retail investors should remain mentally prepared for a higher allotment price before they decide to bid in PFC OFS.

There is one more method of share allotment which the government could adopt and that is by fixing the indicative price as the cut-off price, giving 5% discount to the retail investors on this cut-off price and allotting at least one lot to every successful retail bidder. I think this would be a good method of allotment so that every retail investor gets a confirmed allotment and the cut-off price gets fixed very close to the indicative price.

As it is for the first time that cut-off price option has been introduced, it is very difficult to know how exactly the government is going to calculate the cut-off price and do the allotment. Let’s wait & watch how it pans out.

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

What seemed to be an easy task for the Finance Minister Arun Jaitley at the start of the current financial year is getting more and more difficult now and if the government is not able to get the land bill passed and the GST introduced with effect from its much anticipated date of April 1, 2016, the task will become next to impossible to achieve. I am talking about the government’s target of raising Rs. 41,000 crore through disinvestment of minority stakes in Central Public Sector Enterprises (CPSEs) and Rs. 28,500 crore by selling its controlling stakes.

Investors were carrying high hopes that one way or the other, the Modi government will be able to do something to get the land bill passed and the GST bill introduced in the Monsoon session of parliament. But, with the first four consecutive days of the current session getting washed out, it doesn’t seem that the Modi government wants to use its muscle power to overcome the current logjam created by the opposition.

But, the government is still trying to do whatever little it could to bridge the gap of where it stands right now and where it wants to reach. This time the idea is to sell its 5% stake in Power Finance Corporation (PFC) and the method of selling this stake will be the same which was used to sell the 5% stake in REC i.e. Offer for Sale (OFS) on the stock exchanges.

Power Finance Corporation (PFC) is also one of its Navratnas, like Rural Electrification Corporation (REC) and both the companies are in the similar lines of businesses i.e. power financing business.

The government will be selling its 5% stake in the company i.e. 6,60,02,035 shares at Rs. 254 a share as the floor price. With 5% discount for the retail investors, the government will be able to raise a minimum of Rs. 1,660 crore from this share sale. Currently, the government holds about 72.8% stake in the company, which will come down to 67.8% post this OFS.

Before we check out the factors affecting our decision to invest in this OFS, let us first check the basic details of this offer.

Shares on Sale – The government has decided to reduce its 72.8% stake in PFC to 67.8%, thus cutting its holding in the company by 5%. A total of 6,60,02,035 shares will be sold by the government in this offer for sale, out of which 20% shares i.e. 1,32,00,407 shares will be reserved for the retail investors investing up to Rs. 2 lakh.

Offer Price – Yesterday, when the markets got closed for trading, the share price of PFC closed at Rs. 259.55 on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The government has set Rs. 254 as the floor price for this OFS, a discount of 2.14% to its closing market price.

5% Discount for the Retail Investors – The government has once again decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the retail investors successfully bid in the OFS or the cut-off price set by the government, whichever is higher.

Brokerage – Unlike IPOs, stock brokers levy brokerage charges on these OFS transactions. These charges are normally higher than the rate of brokerage investors pay on their routine transactions. So, if the allotment price is fixed at say Rs. 255, the retail investors will get it at Rs. 242.25 a share plus applicable brokerage charges and statutory taxes thereon. So, the retail investors should consider these charges in their overall cost of acquisition.

Cut-Off Option Introduced – This would be the biggest highlight of this OFS. Long demanded by the retail investors, SEBI recently made it mandatory for the companies to provide the option to place their bids at the “CUT-OFF” price.

As observed during the OFS of Rural Electrification Corporation (REC), OFS process is still very complicated for the retail investors. They just cannot keep changing their bid prices in order to increase their chances of successfully getting these shares allotted. They still require either proper guidance or the option to bid at the cut-off price. So, this time around, their demand has been fulfilled. Now, they will not be required to change their bids as the indicative price goes up or down. But, it would be interesting to observe how the shares would get allotted among the successful retail bidders.

Only a Single Day OFS – As always happen in an OFS, PFC OFS will remain open for a single day only and that too, during the trading hours of the stock exchanges i.e. between 9:15 a.m. and 3:30 p.m. You’ll get to know the status of your bids by Monday evening itself and if successful, you’ll get the shares allotted by the designated stock exchange on T+1 basis.

As the bidding gets started on the stock exchanges at 9:15 a.m. on July 27, you can check the LIVE bidding status here on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE).

How does an OFS process work? – Offer for Sale Process

If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.

How to invest?

You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get your bid placed through telephonic confirmation.

Should you invest in this OFS?

This is what I had to say during the REC OFS – “Power sector is one of the key drivers for a country’s rapid economic growth and poverty alleviation. Approximately 30% of India’s population do not have access to this basic amenity called electricity. For the past many many years, India’s power sector has been paralyzed with one issue or the other.

Poor financial condition of the state electricity boards (SEBs), unreasonable poll promises made by our politicians during elections, coal shortages due to scams/litigations or high import prices, poorly drafted laws of land acquisition, policy paralysis, shortage of funds or equipments for new capacities are some of the reasons due to which India’s power sector has shown an extremely poor growth.

However, the government is committed to provide electricity to all households over the next few years. Keeping that in mind, the government has recently taken many initiatives, including transparent & competitive auctions of coal mines, implementing gas price pooling policy, encouraging Coal India to meet its production targets etc. It makes me feel that the government is doing an excellent job at the ground level and it should start reflecting in growth numbers very soon.

With the government moving in the right direction, an efficient minister heading the power ministry and the interest rates heading downwards, I think India’s power sector should do extremely well in the next 3-5 years. The need of the hour is not to mix politics with economics. Unnecessarily giving subsidies to people who can comfortably afford power makes no sense to me. I think the state governments should focus on making their electricity boards (SEBs) and power generation & distribution companies more efficient rather than subsidizing our electricity bills.”

What I mentioned in my REC OFS review, I stick to it and feel there is a huge potential in India’s power sector. However, there are a couple of macroeconomic concerns. Firstly, China is slowing down considerably and secondly, India’s corporate profitability is also not showing any sign of a turnaround with some key reforms pending due to parliamentary hiccups.

Though I feel the Indian economy and stock markets would do extremely good from a medium to long-term perspective, stock prices would be very volatile in the next couple of months. If the markets go down further from here, I think PFC stock would also fall equally sharply.

Assuming the government to fix its allotment price for the retail investors at Rs. 241.30 per share, the stock is available at approximately 5X its estimated earnings per share (EPS) and 1X its estimated book value (BV) for the current financial year. The company has also managed to generate return on equity (RoE) of 21%. I think this offer for sale is attractively available at Rs. 254 a share and a 5% discount to this price makes it more attractive.

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

Investment sentiment in the markets has changed dramatically in the last 15 days or so, as it is becoming more and more difficult for the Modi government to get its modified land acquisition bill passed in the Rajya Sabha. Investors have started doubting the government’s abilities to get other important economic bills passed, like GST Amendment Bill etc. Stocks, which were looking extremely attractive in the first week of March at higher valuations, have suddenly turned expensive at a relatively lower valuations. This is what a steep fall in stock markets could do to your investment sentiment.

Had this IPO of UFO Moviez came a few days ago, it would have got a welcome high subscription. But, now the investors have turned cautious and the company would find it difficult to attract a large number of retail investors. The company plans to raise approximately Rs. 600 crore in this Initial Public Offer (IPO). The issue got opened today, April 28th and will get closed on April 30th.

About UFO Moviez Limited & its Business

Incorporated in June 2004, UFO Moviez India Limited is a pioneer in satellite-based digital cinema distribution network and in-cinema advertising platform. As on February 28, 2015, UFO’s global network spans 6,626 screens worldwide, including 4,911 screens across India and 1,715 screens across Nepal, the Middle East, Israel, Mexico and the USA.

Since the beginning of its operations, UFO has digitally delivered more than 8,800 movies in India until February 28, 2015. In fiscal year 2014, UFO Moviez digitally delivered more than 1,500 movies in 22 languages to 4,703 screens with aggregate seating capacity of approximately 2.15 million viewers across India.

Revenues of the company are diversified and come from three primary sources, (i) movie producers and distributors, for the secured delivery and screening of their movies, at approximately 52% (ii) advertisers, through in-cinema advertising, at approximately 24% and (iii) exhibitors, through equipment rental and sales for digital cinema equipment, at approximately 24%.

Increasing digitisation in the Indian exhibition sector would be a boon for companies like UFO Moviez. According to media research, Jodha Akbar, which was released in 2008, had a number of analogue prints which was double the number of digital prints. For Rajneeti, released in 2009, digital prints constituted around 60% of the total number of prints created for the movie. Films like Rockstar, Bodyguard and Singham released in 2011 with 70-80% of the total prints in digital format. Dhoom 3, released in 2013, was the first film to go completely digital.

Financials of the Company

For the financial year ended March 31, 2014, total income of the company was Rs.  421.09 crore as against Rs. 337.50 crore for the year ended March 31, 2013. The company reported profit after tax (PAT) of Rs. 46.54 crore for the financial year ended March 31, 2014 as against Rs. 33.39 crore for the financial year ended March 31, 2013.

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

For the nine months ended December 31, 2014, its total income has been Rs. 357.23 crore and it clocked a net profit of Rs. 36.86 crore, resulting in a net profit margin of 10.32%. The company reported EBITDA margin of 33.89% for the nine months ended December 31, 2014, 31.28% for the year ended March 31, 2014 and 31.69% for the year ended March 31, 2013 respectively.

The company expects to report lower advertising revenue and EBITDA for the quarter ended March 31, 2015 as compared to the quarter ended March 31, 2014, primarily due to lower number of new blockbuster movies released during this quarter and also due to the cricket world cup 2015.

Note: Figures are in Rupees, except P/E Ratio & RONW.

What’s on Offer?

UFO Moviez has fixed its price band to be between Rs. 615-625 per share. But, unlike earlier IPOs, there is no discount for the retail investors. The issue is a complete offer for sale of shares by its existing shareholders, 3i Research (Mauritius) Limited and private equity fund, Providence Equity Partners. 3i and Providence are selling close to half of their stakes in the company. UFO Moviez will not receive any proceeds in this offer.

The offer comprises of a sale of approximately 97.09 lakh shares to the investors as the offer gets fully subscribed. 35% of the issue size is reserved for the retail individual investors. At Rs. 625 per share, the selling shareholders are expected to pocket in approximately Rs. 607 crore.

Anchor Investors – UFO Moviez yesterday issued approximately 28.8 lakh shares to the Anchor Investors, namely Reliance Mutual Fund, SBI Mutual Fund, Kotak Mahindra Mutual Fund, Pinebridge Global Funds, Jupiter South Asia, Amundi Funds, Ashmore SICAV and Bharti Axa Life Insurance, at Rs. 625 per share, thereby raising Rs. 180 crore.

Bid Lot Size – Investors need to bid for a minimum of 24 shares and in multiples of 24 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 15,000 at the upper end of the price band and Rs. 14,760 at the lower end of the price band.

Objective of the Issue – As mentioned above as well, the issue is a complete offer for sale of shares by its existing shareholders and the company will not get any proceeds from this sale.

IPO Grading – The company has opted not to get its IPO graded by any credit rating agency. SEBI had made IPO grading voluntary in December 2013.

Listing – The shares of the company will get listed on both the exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

Should You Subscribe or Not?

A unique business model, highly efficient management and dominant presence in high-potential growing businesses make this company a worthy investment. But, at Rs. 625 a share, the company is seeking a valuation multiple of 36 times its annualised earnings for the nine months ending 2014-15, which I think is not worthy considering the digital technology business to be riskier and low incremental growth in FY 2014-15.

The company has grown at a really fast pace in the last 3-4 years, but whether it will be able to grow its revenues and profits at a similar pace or not, it is yet to be seen. There is a scope for listing gains, but at these valuations, the company has left very little scope for the investors to make money post listing gains. I would like to put my money in UFO Moviez at a price below Rs. 500, i.e. at a discount of 20%+ from its expected issue price of Rs. 625.