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

Central Depository Services (India) Limited (or CDSL), a 50.05% subsidiary of the Bombay Stock Exchange (BSE), has launched its initial public offer (IPO) from June 19 in the price band of Rs. 145-149 a share. The company is expected to raise Rs. 524 crore in this issue and the same will remain open for the next two days only to close on June 21.

This IPO is actually an offer for sale by some of CDSL’s existing shareholders, BSE, State Bank of India (SBI), Bank of Baroda and The Calcutta Stock Exchange, and that is why, the company is not going to get any money for any of its expansion plans or to retire any of its debt. Its other shareholders, HDFC Bank, Standard Chartered Bank, Canara Bank, Bank of India and Union Bank of India, are not selling any stake in this IPO.

CDSL derives its revenues from a multiple sources – issuer charges, transaction charges, IPO/corporate action charges, ECAS charges, e-voting charges, user facility charges, and many other services. It also earns a large part of its revenues from its investments in tax-free bonds and debt mutual funds.  

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. 145-149 per share and no discount is getting offered to the retail investors.

Size & Objective of the Issue – CDSL will issue around 3.52 crore shares in this issue at Rs. 149  a share to raise Rs. 524 crore from the investors. Out of this amount, the company plans to use crore for repayment/prepayment of some of its loans and redemption/early redemption of its NCDs, 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 – CDSL on Friday finalised allocation of approximately  crore shares to the anchor investors @ Rs. 149 per share for Rs.  crore. Some of these anchor investors include Abu Dhabi Investment Authority, FIL Investments (Mauritius) Limited, Goldman Sachs India Limited, SBI Magnum Tax Gain, ICICI Prudential Dividend Yield Equity Fund and ICICI Prudential Value Fund – Series 6.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 100 shares and in multiples of 100 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,900 at the upper end of the price band and Rs. 14,500 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 100 shares @ Rs. 149 i.e. a maximum investment of Rs. 1,93,700. At Rs. 145 a share also, you can apply for 13 lots only, thus making it Rs. 1,88,500.

Listing – The shares of the company will get listed only on the National Stock Exchange (NSE), as the Bombay Stock Exchange (BSE) holds a majority shareholding in the company pre-IPO and as per the SEBI regulations, a stock exchange and its subsidiaries cannot get listed on its own exchange. The listing will happen within 6 working days after the issue gets closed on 21st June. June 30th 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 June 29, 2017

Initiation of Refunds – On or about June 29, 2017

Credit of equity shares to investors’ demat accounts – On or about June 29, 2017

Commencement of Trading on the NSE/BSE – On or about June 30, 2017

Financials of CDSL

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

Comparison of CDSL & NSDL

Should you invest in CDSL IPO @ Rs. 149?

At Rs. 149 a share, CDSL IPO is priced at 18 times its FY 2016-17 earnings and 2.92 times its net worth as on March 31, 2017, which seems fairly valued to me. In terms of market share, CDSL has been an outperformer, despite NSDL being a dominant player as far as use of technology is concerned. But, that is something CDSL has been doing at the cost of operating revenues and/or margins. It has grown at a steady pace all these years, but I would call it a dull show as the company has not been able to grow its revenues, profits and margins in line with its growth in market share.

Going forward, the business is expected to grow rapidly as the market sentiment has changed dramatically in the last 5-6 months and is expected to remain buoyant going forward as well. But, as the SEBI regulations limits extraordinary price changes by these depositories, I expect CDSL to grow at a relatively moderate pace only. No fireworks are expected in its operating revenues going forward and thus, would advise investing in it just for the listing gains only and not for medium to long-term wealth creation.

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

AU Small Finance Bank Limited is all set to enter the primary markets by launching its initial public offer (IPO) from today. It will be a sub Rs. 2,000 crore issue in the price band of Rs. 355-358. Existing shareholders will dilute their current shareholding in this IPO and no fresh shares will be issued during the offer period.

The issue represents 18.79% of the post issue paid-up share capital of the company and as always, will remain open for three days to close on June 30th.

Before we analyse it further and take a decision to invest in it or not, let us first check out some other details of this IPO:

Price Band – The company has fixed its price band to be between Rs. 355-358 per share and no discount is getting offered to the retail investors.

Size & Objective of the Issue – As this is an offer for sale by its existing shareholders, the company will not receive any proceeds from this issue. These selling shareholders include its founders Sanjay Agarwal, Jyoti Agarwal, Shakuntala Agarwal and Chiranji Lal Agarwal, Redwood Investment Ltd, International Finance Corporation (IFC), Ourea Holdings Limited, Kedaara Capital Alternate Investment Fund, Labh Investments and MYS Holdings. These shareholders will sell around 5.34 crore shares in this issue at Rs. 358 a share to raise Rs. 1,913 crore from the investors.

Retail Allocation – The company has reserved 10 lakhs shares for its employees. Post that allocation, 35% of the net 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 – The company has decided not to offer any discount to the retail investors.

Anchor Investors – The company today finalised allocation of approximately 1.57 crore shares to the anchor investors @ Rs. 358 per share for Rs. 563 crore. Some of these anchor investors include Nomura Singapore, Merrill Lynch Markets Singapore, Government of Singapore, Kuwait Investment Authority Fund 225, Nomura Funds Ireland India Equity Fund, HSBC Global Investment Fund – Indian Equity, Jupiter South Asia Investment Company – South Asia Access Fund, Amansa Holdings, Pacific Horizon Investment Trust, DB International (Asia), Eastbridge Capital Master Fund, Indus India Fund (Mauritius) and Steadview Capital Mauritius.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 41 shares and in multiples of 41 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,678 at the upper end of the price band and Rs. 14,555 at the lower end of the price band.

Maximum Investment – Rs. 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 41 shares @ Rs. 358 i.e. a maximum investment of Rs. 1,90,814. At Rs. 355 a share, your maximum investment would fall to Rs. 1,89,215.

Listing – The shares of the company will get listed on both the stock exchanges, National Stock Exchange (NSE), as well as Bombay Stock Exchange (BSE). The listing will happen within 6 working days after the issue gets closed on June 30. July 10th 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 July 5, 2017

Initiation of Refunds – On or about July 6, 2017

Credit of equity shares to investors’ demat accounts – On or about July 7, 2017

Commencement of Trading on the NSE/BSE – On or about July 10, 2017

Financials of AU Small Finance Bank

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

Peer Comparison

Should you invest in this IPO at Rs. 355-358?

At Rs. 358 a share, it seems that AU Small Finance Bank IPO is steeply priced. The company reported an EPS of Rs. 11.74 in FY 2016-17, excluding an exceptional gain of Rs. 18.62 a share on account of its sale of housing finance portfolio. The company has a book value of Rs. 70.34 a share as on March 31, 2017. At Rs. 358, the stock would be valued at 30.49 times its reported EPS for the previous financial year and 5.09 times its book value as on March 31, 2017. Companies with exceptional managements and proven track record warrant such valuations.

Equitas and Ujjivan are the other small finance banks which are currently listed on the stock exchanges. Valuations-wise, both these companies are reasonably priced as compared to AU. While Equitas is currently trading at 2.29 times its FY 2016-17 book value of Rs. 66.03 a share and 32.19 times its reported EPS of Rs. 4.69, Ujjivan trades at 2.03 times its book value and 17.48 times its reported EPS in the same period. Though there are certain significant factors which favour AU over Equitas, Ujjivan and some other banking and non-banking organisations, I still feel the company should have priced its IPO at least 15-20% lower than its current price band.   

Moreover, 53.78% of the company’s gross AUM belongs to the state of Rajasthan. Any significant social, political or economic disruption, or a natural calamity or civil disruption, or changes in the policies of the state or local governments of this region or the Government of India, could disrupt its business operations and require it to incur significant expenditure and/or change its business strategies. High concentration of its loan portfolio is a big risk to its prospective investors.

Apart from valuations, I think it is the market sentiment towards these small finance banks, other NBFCs and public sector banks (PSBs) at the time of its listing on or about July 10th which is going to play a major role as if the company lists at a premium to its offer price or at a discount. Some of the recent developments, like farm loan waiver in big states like Uttar Pradesh, Maharashtra, Punjab and Madhya Pradesh, have resulted in a sentimental setback for these small finance banks as well as PSBs.

All in all, I would personally avoid this IPO at these valuations and wait for a healthy correction in its price post-listing before making any significant investment in it. Investors would do well to consider some other reasonably priced small finance bank to put their money as compared to AU Small Finance Bank.

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

Central Depository Services (India) Limited (or CDSL), a 50.05% subsidiary of the Bombay Stock Exchange (BSE), has launched its initial public offer (IPO) from June 19 in the price band of Rs. 145-149 a share. The company is expected to raise Rs. 524 crore in this issue and the same will remain open for the next two days only to close on June 21.

This IPO is actually an offer for sale by some of CDSL’s existing shareholders, BSE, State Bank of India (SBI), Bank of Baroda and The Calcutta Stock Exchange, and that is why, the company is not going to get any money for any of its expansion plans or to retire any of its debt. Its other shareholders, HDFC Bank, Standard Chartered Bank, Canara Bank, Bank of India and Union Bank of India, are not selling any stake in this IPO.

CDSL derives its revenues from a multiple sources – issuer charges, transaction charges, IPO/corporate action charges, ECAS charges, e-voting charges, user facility charges, and many other services. It also earns a large part of its revenues from its investments in tax-free bonds and debt mutual funds.  

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. 145-149 per share and no discount is getting offered to the retail investors.

Size & Objective of the Issue – CDSL will issue around 3.52 crore shares in this issue at Rs. 149  a share to raise Rs. 524 crore from the investors. Out of this amount, the company plans to use crore for repayment/prepayment of some of its loans and redemption/early redemption of its NCDs, 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 – CDSL on Friday finalised allocation of approximately  crore shares to the anchor investors @ Rs. 149 per share for Rs.  crore. Some of these anchor investors include Abu Dhabi Investment Authority, FIL Investments (Mauritius) Limited, Goldman Sachs India Limited, SBI Magnum Tax Gain, ICICI Prudential Dividend Yield Equity Fund and ICICI Prudential Value Fund – Series 6.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 100 shares and in multiples of 100 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,900 at the upper end of the price band and Rs. 14,500 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 100 shares @ Rs. 149 i.e. a maximum investment of Rs. 1,93,700. At Rs. 145 a share also, you can apply for 13 lots only, thus making it Rs. 1,88,500.

Listing – The shares of the company will get listed only on the National Stock Exchange (NSE), as the Bombay Stock Exchange (BSE) holds a majority shareholding in the company pre-IPO and as per the SEBI regulations, a stock exchange and its subsidiaries cannot get listed on its own exchange. The listing will happen within 6 working days after the issue gets closed on 21st June. June 30th 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 June 29, 2017

Initiation of Refunds – On or about June 29, 2017

Credit of equity shares to investors’ demat accounts – On or about June 29, 2017

Commencement of Trading on the NSE/BSE – On or about June 30, 2017

Financials of CDSL

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

Comparison of CDSL & NSDL

Should you invest in CDSL IPO @ Rs. 149?

Last year on October 14, BSE sold approximately 43.36 lakh shares in CDSL to LIC at Rs. 78.93 a share, at a price to earnings multiple of less than 10 times. I fail to understand what dramatically has changed in the company to seek a 89% premium to its last transaction price in just 8 months from then. Whether the last transaction was cheaply executed, or the current valuations are expensive, it is something we, the investors, need to evaluate.

At Rs. 149 a share, CDSL IPO is priced at 18 times its FY 2016-17 earnings and 2.92 times its net worth as on March 31, 2017, which seems fairly valued to me. In terms of market share, CDSL has been an outperformer, despite NSDL being a dominant player as far as use of technology is concerned. But, that is something CDSL has been doing at the cost of operating revenues and/or margins. It has grown at a steady pace all these years, but I would call it a dull show as the company has not been able to grow its revenues, profits and margins in line with its growth in market share.

Going forward, the business is expected to grow rapidly as the market sentiment has changed dramatically in the last 5-6 months and is expected to remain buoyant going forward as well. But, as the SEBI regulations limits extraordinary price changes by these depositories, I expect CDSL to grow at a relatively moderate pace only. No fireworks are expected in its operating revenues going forward and thus, I would advise investing in it just for the listing gains only and not for medium to long-term wealth creation.

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 IRB InvIT successfully raising Rs. 4,300 crore from the investors, one more InvIT fund is knocking your doors to raise Rs. 2,250 crore in the price band of Rs. 98-100. This fund is already open for subscription since Wednesday i.e. May 17th and will get closed by today evening.

IRB InvIT got listed on the stock exchanges today and had a very boring first day of listing amid an eventful day in the stock markets. Unlike expectations of some healthy listing gains, IRB InvIT quickly moved into the negative territory and touched a low of Rs. 99.75 before moving up again and finally closing at Rs. 101.80.

IndiGrid InvIT, launched by its sponsor Sterlite Power Grid Venture Limited, is the second such InvIT and here we have certain details about its Initial Public Offer (IPO).

What are InvITs and where your money will be invested?

As mentioned in my last review of IRB InvIT Fund, InvITs are investors’ pooled investments in infrastructure projects. InvITs are similar to mutual funds structurally, 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.

To begin with, IndiGrid InvIT Fund will initially acquire 2 projects – Bhopal Dhule Transmission Company Limited (BDTCL) and Jabalpur Transmission Company Limited (JTCL), from its sponsor – Sterlite Power Grid Ventures Limited. These two projects have a total network of 8 power transmission lines of approximately 1,936 circuit kms and two substations having 6,000 MVA of transformation capacity across 4 states – Madhya Pradesh, Chhattisgarh, Gujarat and Maharashtra.

Pursuant to the “Right of First Offer” (ROFO), IndiGrid InvIT has a right of first offer in respect of eight inter-state power transmission projects, having a transmission network of 21 power transmission lines of approximately 4,831 circuit kms and five substations, with a transformation capacity of 6,630 MVA.

Issue Details of India Grid InvIT Fund

Price Band – India Grid has fixed its price band to be Rs. 98-100 per unit.

Minimum Investment – Investors are required to apply for a minimum of 10,206 units of this fund i.e. Rs. 10,20,600 or Rs. 10.206 lakh.

Trading Lot Size – These units will trade in the lots of 5,103 units.

Size & Objective of the Issue – India Grid plans to raise Rs. 2,250 crore via a fresh issue of its units in the price band of Rs. 98-100. These proceeds will be utilised to provide loans to the existing two projects of this InvIT – BDTCL and JTCL. This loan facility will carry an interest rate of 13% per annum, which could be reset on an annual basis. In turn, BDTCL and JTCL will utilize the proceeds to repay or pre-pay their debt availed from banks and other financial institutions.

Credit Rating – IndiGrid has been given a corporate credit rating ‘AAA/Stable’ by CRISIL, ‘IND AAA’/Stable by India Ratings and “IrAAA” (IR triple A) with stable outlook by ICRA.

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 – IndiGrid on Tuesday finalised allocation of approximately 10.12 crore units to the anchor investors @ Rs. 100 per unit for Rs. 1,012.44 crore. Some of these anchor investors include BNP Paribas Arbitrage, Deutsche Global Infrastructure Fund, Schroders Asian Asset Income Fund, Future Fund Board of Guardians (managed by RREEF America LLC), Reliance Nippon Life Insurance, National Westminster Bank PLC, Discovery Global Opportunity (Mauritius), and Kotak Mahindra Old Mutual Life Insurance, among others.

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 19th May.

Sources of Returns 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. Such distributions are required to be declared and paid to the unitholders at least once every six months in a financial year.

Based on management communications, dividend yield from this fund are expected to be in the range of 12-15%. 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.

Financials of IndiGrid InvIT Projects – BDTCL & JTCL

(Note: All figures are in Rs. Crore)

Should you invest in IndiGrid InvIT IPO at Rs. 98-100?

IRB’s InvIT fund got listed on the stock exchanges today. As against an expected listing gain of Rs. 5-8 a unit, it received a muted response from the institutional investors as well as high net worth individual investors and got listed at its issue price of Rs. 102. It touched a high of Rs. 105 and a low of Rs. 99.75 before finally closing at a price of Rs. 101.80 a unit i.e. a very minor discount to the issue price of Rs. 102.

These InvITs are new products in the markets and unlike equities, carry limited scope of high returns in the long run. At the same time, these funds are not as safe as fixed deposits (FDs) or debt mutual funds and carry several kind of risks in the long term. As these funds are expected to generate 10-13% annual returns for their investors, I think individual investors should not go overboard with these InvITs as of now and wait for their quarterly/half yearly performance and payout first before committing their hard earned money.

As compared to IRB’s InvIT fund, projects under IndiGrid InvIT fund carry a longer tenure of 35 years and has more secured income stream due to its long term transmission service agreements (TSAs). As mentioned above, IndiGrid InvIT Fund is expected to acquire 8 more projects out of the remaining 9 projects from its sponsor Sterlite Power Grid over the next few years, which is expected to result in higher cash flows over the next few years.

However, it is not for the short term investors. Patience is key here and only long term investors with an investment horizon of more than 3-5 years should invest in this fund for a risk-reward matrix falling somewhere between debt funds and equity funds.

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

HUDCO IPO is opening today for subscription. I covered the details of this IPO on Friday. Here is the link for some of its general details – HUDCO IPO – May 2017 Issue

So, now comes the turn of the most important aspect of this IPO and that is, whether one should invest in it or not? Let’s begin to analyse it by checking its financials and other aspects.

HUDCO operates in two broad segments – housing finance and urban infrastructure finance. It has a loan portfolio of Rs. 36,385.82 crore as on December 31, 2016, of which 30.86% are housing finance loans and 69.14% are urban infrastructure finance loans. Housing finance loans, which is branded as HUDCO Niwas, is further categorised into social housing – EWS and LIG borrowers being the ultimate beneficiaries, residential real estate – middle-income and high-income group of society being the ultimate beneficiaries, and retail finance.

Under Urban Infrastructure Finance, HUDCO provides loans for projects relating to water supply, roads and transport (including railways and ports), power, emerging sectors including SEZs, industrial infrastructure, gas pipelines, oil terminals and telecom sector projects, and other commercial and social infrastructure.

Financials of HUDCO

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

Should you invest in HUDCO IPO @ Rs. 58 a share?

Personally, I have many reasons to avoid this issue and the most important of them are – size of the issue, growth of the company in the past few years, and an irrational exuberance around this issue. I mean why people want to invest only in the HUDCO IPO today? Even if somebody can convince me about the company’s future growth and the size of the issue being not too small, that’s ok, but I am still very confident that it would get oversubscribed to the tune of at least 15-20 times in the retail investors’ category, which makes allotment highly unpredictable for me. And, even if I get lucky in the lottery system of allotment, I would not get more than 200 shares allotted. And, even if it gets listed at Rs. 90 a share (which I think is highly unjustified), I would make only Rs. 6,000-7,000 on listing. So, I don’t want to get indulged in such kind of mad rush for such a tiny gain. I think it is time to find out some hidden gems, which are not in the market spotlight as of now, but have a good potential to carry higher growth and provide higher returns.  

Pricing in this issue, if not expensive, is not cheap either. At Rs. 60 a share and a discount of Rs. 2 for the retail investors, I think the issue is fairly valued at 17-18 times PE ratio and 1.3 times its book value, and not greatly attractive as the market participants are claiming it to be. As you can check from the table above, the company reported a PAT of Rs. 699.69 crore for FY 2012-13, and that has grown to just Rs. 809.61 crore during FY 2015-16. With a PAT of Rs. 496.86 crore in the nine-month period ending December 31, 2016, it seems the company would report a degrowth in its profits for the previous financial year.

HUDCO has reported a profit growth of 12.57%, 4.90%, 4.68% and 5.37% from FY 2012-13 to FY 2015-16, but it is still seeking a PE ratio of 17-18 times, which is on a higher side from PEG (Price Earnings over Growth) perspective.

HUDCO’s net interest margins (NIMs) are also seeing a decline in the past few years, from 4.59% in FY 2013-14 and 5.18% in FY 2014-15, it has fallen to 4.11% in FY 2015-16 and 4.26% in the nine-month period post that. Moreover, despite of the fact that the company stopped sanctioning new social housing and residential real estate loans to entities in the private sector in March 2013, its gross NPAs and Net NPAs are still elevated at 6.80% and 1.51% respectively.

There are many public sector companies which offer better growth opportunities and are priced even more attractively as compared to HUDCO. I think there is an unnecessary euphoria around it as it is an IPO. IPOs in such euphoric times have been given such kind of hype in the past as well. But, the investors would do well to keep their heads steady and invest in some of the already listed, professionally managed, reasonably priced companies as compared to HUDCO.

This issue could still earn you some decent listing gain, but that would happen only due to a change in the investors’ sentiment post BJP’s UP poll win and big jump in the indices in the last 3-4 months. But, I want to ask, why do you need to participate in a lottery system in which the probability of getting allotment is too low and the fundamentals of the company are yet to show any signs of improvement?

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

HUDCO IPO Review

 

HUDCO, a wholly-owned Miniratna of the Government of India, is all set to enter the primary markets and will launch its initial public offer (IPO) from the coming Monday i.e. 8th of May. It will be the first divestment candidate of the government for the current fiscal year. The government has fixed its price band to be Rs. 56-60 and it will be able to raise around Rs. 1,210 crore from this issue.

As there is a bank holiday on 10th May, no bidding will happen on this day and the issue will close on Thursday, 11th May.

Here are some of the salient features of this IPO:

Price Band – HUDCO has fixed its price band to be Rs. 56-60 a share and there is a discount of Rs. 2 a share for the retail investors.

Size & Objective of the Issue – This issue is an Offer for Sale (OFS) by the government of India and thus no fresh issue of shares is involved. The government is selling its 10.2% stake in this IPO, post which it will have 89.8% stake.

Retail Allocation – 35% of the issue size is reserved for the retail individual investors (RIIs) i.e.  approximately 7 crore shares out of 20.02 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). Employees will also have the option to apply for its shares during this offer period and around 38.69 lakh shares have been separately reserved for them.

Rs. 2 Discount for Retail Investors & Employees – The government has decided to offer a discount of Rs. 2 per share for the retail investors, as well as the employees of HUDCO in this IPO.

Bid Lot Size & Minimum Investment – Investors in this offer need to bid for a minimum of 200 shares and in multiples of 200 shares thereafter. So, you as a retail investor would be required to invest a minimum of Rs. 11,600 at the upper end of the price band and Rs. 10,800 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 17 lots of 200 shares @ Rs. 58 i.e. a maximum investment of Rs. 1,97,200. So, investors opting for the “Cut-Off Price” option should apply for a maximum of 17 lots of 200 shares @ Rs. 58 per share.

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 11th May. May 19th is the tentative date for its listing.

Here are some of the important dates for this IPO:

Issue Opens – On May 8, 2017

Issue Closes – On May 11, 2017

Finalisation of Basis of Allotment – On or about May 17, 2017

Initiation of Refunds – On or about May 18, 2017

Credit of equity shares to investors’ demat accounts – On or about May 18, 2017

Commencement of Trading on the NSE/BSE – On or about May 19, 2017

Financials of HUDCO

Here is the link to the HUDCO IPO Review

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.

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.