Koutons Retail IPO subscribed 30x

Apparel maker Koutons Retail India has been received overhelming response from investors, especially qualified institutional investors (QIBs). A 35.24 lakh issue has received bids for 10.41 crore shares, which includes bids for 39.12 crore shares at cut off price.

Public issue was subscribed 29.54 times, as per data available on NSE, at 2 pm.

The company had entered capital market with an initial public offer of 35.24 lakh equity shares in the band of Rs 370-415 a share. The offer will constitute 11.54% of the post-issue capital.

The company is planning to raise at around Rs 130.39 crore to Rs 146.25 crore in lower and higher end of price band, respectively.

Proceeds will be utilised for setting up exclusive brand outlets of the company at the cost of Rs 41.2 crore, establishment of new integrated manufacturing facility (Rs 30.18 cr). The company is also going to purchase plant and machinery to increase finishing and manufacturing capacity (Rs 10 cr) and improve Information technology network (Rs 5.57 cr).

JM Financial Consultant Pvt Ltd is the book running lead manager to the issue.

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CCCL issue subscribed 52 times

The initial public offering (IPO) of Consolidated Construction Consortium (CCCL), a provider of integrated turn-key construction services, has been given a good support from investors. Realty stocks has been surging high in last three days, that might be the reason for getting good subscription numbers.

Public issue received bids for 19.34 crore shares, including bids for 26.33 crore shares at cut off price. It was subscribed 52.29 times, as per NSE website.

The company had entered capital market with an initial public offer (IPO) of 37,00,000 equity shares of Rs 10 each for cash at a price to be decided through a 100% book building process. The price band is between Rs 460 and Rs 510 per equity share.

The company will be raised Rs 170.20 crore at lower end of price band and Rs 188.70 crore at higher end.

The equity shares are proposed to be listed on the National Stock Exchange of India and the Bombay Stock Exchange. The issue would constitute 10.01% of the post-issue paid up capital of the company.

The objects of the issue are to finance the acquisition of construction infrastructure, investment in subsidiaries, expenditures towards skill and management development centre, repayment of loans and expenditure for general corporate purposes.

The book running lead managers to the issue are Enam Securities Private Limited and Kotak Mahindra Capital Company Limited while the co-book running lead manager is Spark Capital Advisors (India) Private Limited. Karvy Computershare Pvt Ltd is the registrar to the issue.

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Grey Market Premium

Circuit Systems : 4 to 5

Dhanus Tech : 80 to 90

Consolidated Constructions : 130 to 150

Koutons India : 85 to 90

Kaveri Seeds : 6 to 8

Allied Computers : 1 to 1.50

Power Grid corporation : 19 to 20

Magnum Ventures : 1 to 2

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Koutons Retail IPO bids start today

Apparel maker Koutons Retail India is open for subscription with an initial public offer of 35.24 lakh equity shares in the band of Rs 370-415 a share. Public offer closes on September 21, 2007. The offer will constitute 11.54% of the post-issue capital.

The company is planning to raise at around Rs 130.39 crore to Rs 146.25 crore in lower and higher end of price band, respectively.

Proceeds will be utilised for setting up exclusive brand outlets of the company at the cost of Rs 41.2 crore, establishment of new integrated manufacturing facility (Rs 30.18 cr). The company is also going to purchase plant and machinery to increase finishing and manufacturing capacity (Rs 10 cr) and improve Information technology network (Rs 5.57 cr).

Koutons manufactures and retails of Men’s wear under brand name “Koutons” and “Charlie Outlaw” and has network of 674 exclusive brand outlets accross in India ( as on Feb 2007).

For the year ended March 2007, it has reported net sales of Rs 264.86 crore and profit after tax of Rs 23.96 crore.

JM Financial Consultant Pvt Ltd is the book running lead manager to the issue.

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CCCL IPO opens for subscription

Consolidated Construction Consortium (CCCL), a provider of integrated turn-key construction services in the industrial, commercial, infrastructure and residential sectors of the construction industry, is open for subscription with an initial public offer (IPO) of 37,00,000 equity shares of Rs 10 each for cash at a price to be decided through a 100% book building process.

The issue will close for subscription on September 21, 2007. The company has fixed the price band between Rs 460 and Rs 510 per equity share.

The company will be raised Rs 170.20 crore at lower end of price band and Rs 188.70 crore at higher end.

The equity shares are proposed to be listed on the National Stock Exchange of India and the Bombay Stock Exchange. The issue would constitute 10.01% of the post-issue paid up capital of the company. This issue has been assigned IPO grade 3 by ICRA.

The objects of the issue are to finance the acquisition of construction infrastructure, investment in subsidiaries, expenditures towards skill and management development centre, repayment of loans and expenditure for general corporate purposes.

The total value of its order book as on July 31, 2007, is Rs 20,495.68 million. These projects include industrial structures, IT parks, commercial building, airport terminal buildings, hotel, hospitals and educational institutions

The book running lead managers to the issue are Enam Securities Private Limited and Kotak Mahindra Capital Company Limited while the co-book running lead manager is Spark Capital Advisors (India) Private Limited. Karvy Computershare Pvt Ltd is the registrar to the issue.

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Grey Market Premium

Power Grid Corporation : 18 to 19
Dhanus Technologies : 90 to 100
Koutons Retail : 60 to 65
Circuit Systems (India) Ltd. : 4 to 4.5
Consolidated Construction : 100 to 110
Magnum Venture : 2.5 to 3
Kaveri Seeds : 6 to 8

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Koutons Retail India IPO

Issue price / Floor Price (Rs) 370-415
Issue opens 18-Sep-07
Issue closes 21-Sep-07
Listing on BSE,NSE

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Koutons Retail - Invest

An investment with a one-year perspective can be considered in the initial public offer (IPO) of Koutons Retail India (KRIL). KRIL is a player in the menswear segment with a network of stores mainly in northern and western India. The offer proceeds will help the company expand its retail network.

The price band of Rs 370-Rs 415 values the company at 33-36 times its 2006-07 earnings per share, on an expanded equity base.

KRIL’s premium pricing appears to factor in higher growth rates compared to domestic apparel majors such as Raymond, Zodiac Clothing and Kewal Kiran Clothing. The latter trade at price-earnings multiples of 15-20 based on trailing earnings.

However, KRIL’s performance over the last couple of years and its proposed expansion plans provide some justification for the higher growth expectation.

The expensive valuation for the offer, however, does not provide a margin of safety in the event of disappointing performance. This makes it suitable only for investors with a high risk appetite.

Massive retail ramp up

KRIL sells menswear under the brands “Koutons” and “Charlie Outlaw” targeted at customers in the 22-45 and 14-25 age groups respectively. The company has grown its brands by setting up a chain of exclusive outlets across the country. Opening exclusive outlets to improve brand visibility and enhance margins is a strategy that most branded retailers such as Raymond, Provogue and Madura Garments have pursued.

However, at their early stages, most players, particularly regional ones, prefer to distribute their products through national chain stores and multi-brand outlets. This practice allows branded players to improve their reach without bearing the risk of unsold inventory.

Going by its performance, however, KRIL’s strategy of relying mainly on exclusive branded outlets operated by franchisees, appears to have worked. From 75 stores in 2005, the chain of stores expanded to 687 by March 2007. Revenues have grown at a scorching pace from Rs 60 crore to Rs 400 crore over the same period. With operating margins also improving significantly over this period to about 17 per cent, profits have grown at an even faster pace.
Further expansion

The company plans to further expand its reach with the offer proceeds. About Rs 40 crore of the fresh issue proceeds will be deployed in setting up 140 stores over the next two years. The stores will be leased by the company but operated either by the company or franchisees.

The offer document does not mention the exact timeline for these stores to become operational. It has tied up retail space for 75 such outlets, most of them in malls, which is likely to add about 1 lakh square feet of retail space to the existing 8 lakh. Though the remaining proceeds will go towards setting up an integrated facility, this will not result in any capacity expansion.

However, a significant ramp up in revenues is likely this fiscal, given that KRIL has already added about 300 stores or 3 lakh square feet to its retail network since March 2007. Having significantly expanded its manufacturing facilities recently, it is also well-placed to feed the additional stores and introduce product lines. It proposes to introduce separate lines for women and children.

Risky model

Despite the high growth trajectory so far, the business model carries high risks. One, there is a high dependence on franchisees to expand the retail network.

Second, KRIL’s ability to transform its brands “Koutons” and “Charlie Outlaw” from regional- to national-level brands is yet to be demonstrated, despite its large retail network. The retailer tends to rely on heavy discounting to push products.

Seen in this light, the company’s ability to maintain its price-line and implement its stated strategy of targeting the premium segment, could face challenges. Selling expenses have been on a rising trend and now account for almost 25 per cent of sales, as the company increases expenditure towards brand-building.

The offer is open from September 18-21. About 35 lakh shares are on offer, of which 9 lakh shares are an offer for sale by the promoters. The lead manager is JM Financial.

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Consolidated Construction Consortium - Invest

Investors can subscribe to the initial public offer of Consolidated Construction Consortium (CCC), an integrated construction services company.

Bright growth prospects, backed by demand for quality construction contractors, strong management bandwidth and an order-book that lends visibility to earnings growth over the next couple of years are positives for this offer.

At the offer price of Rs 460-510, the price-earnings multiple is 14-16 times the company’s estimated consolidated earnings for FY-09 on an expanded equity base.

This valuation is comparable to its nearest peer B. L. Kashyap and Sons.

At the offer price band, the market capitalisation of the company’s stock on listing would be Rs 1,700-1,900 crore.
Profile and objectives

CCC undertakes turnkey building contracts for corporates, infrastructure and realty players and the Government. The company cannot be termed as an infrastructure or real-estate player and can be better defined as a pure construction company that offers a wider range of services. The company has clients in sectors such as IT, manufacturing, retailing and education. The offer proceeds (Rs 170-190 crore) are to be primarily used for acquiring construction equipment and for investments in subsidiaries, which provide allied construction services.
Lesser risks

The profile of CCC inspires confidence as it is primarily into a business with lesser risks and uncertainties than are typically associated with infrastructure and real-estate players. For instance, the company does not face risks related to buying or developing land or any slowdown in the infrastructure order-flow from the Government.

No doubt, the margins for a pure construction player may not be as lucrative as the others in the industry.

However, higher volume of business could make up for this. Infrastructure and real estate companies are holding huge orders that need to be executed and the likes of CCC are likely to benefit from this. CCC could also benefit from higher corporate capital expenditure outlays.

The demand for CCC’s service is reflected in a compounded growth of 75 per cent and 125 per cent in its sales and net profits respectively over the last three years. The company’s order-book of Rs 2,200 crore as of August 2007 is over 2.5 times its sales for FY-07.
Well-structured

CCC’s diversification in terms of business, client mix and geography points to a well thought out model to mitigate risks.

One, although CCC’s current order-book is concentrated in the South (92.5 per cent), it has been making headway in States such as Rajasthan, Himachal Pradesh and Delhi.

Two, in terms of client mix, the company has a healthy variation of clients from various sectors with almost 40 per cent of them turning in for repeat orders. Three, the service/product mix, although tilted towards core construction, has a healthy sprinkle of mechanical and engineering services and interiors (through subsidiaries) to the extent of 17 per cent.

With the company further investing in its subsidiaries, the allied services offered by it is likely to emerge as value-adds for improving the operating profit margin, which is now 8 per cent.

Four, the company does not depend so much on business from the Government (which is about 16 per cent of order-book), thus reducing the risk of any slowdown or stoppage in projects due to delays.

Five, fixed price contracts at about 15 per cent of current orders means that the rest of the projects are likely to enjoy price pass through for any raw material hikes.

We do however, see challenges arising from the company’s plans to build a food processing Special Economic Zone through a subsidiary. We have not factored in the same in our valuations due to lack of visibility.

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Consolidated Construction Consortium IPO

Issue price / Floor Price (Rs) 460-510
Issue opens 18-Sep-07
Issue closes 21-Sep-07
Listing on BSE,NSE

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Power Grid Corp fixes issue price at Rs 52 per share

India’s principal power transmission company and Mini-Ratna Category-I public sector undertaking, Power Grid Corporation of India has fixed the issue price at Rs 52 (the upper end of the price band of Rs 44-52) for its initial public offering (IPO) of 573,932,895 equity shares of Rs 10 each for cash at a price that was decided through a 100% book building process.

The issue closed on September 13, 2007, and it was subscribed 64.82 times. The qualified institutional bidders (QIBs) portion was subscribed around 115.90 times; the non-institutional investors portion was subscribed around 40.34 times while the retail investors portion was subscribed around 6.77 times and employees was subscribed 2.66 times.

The issue comprised a fresh issue of up to 382,621,930 equity shares by the company and an offer for sale of up to 191,310,965 equity Shares by The President Of India acting through The Ministry Of Power, Government of India. The issue comprised a net issue to the public of up to 559,954,895 equity shares and a reservation of up to 13,978,000 equity shares for subscription by employees of the company.

The issue constitutes approximately 13.64% of the fully diluted post- issue capital of the Company. After the Issue, the Government of India, through the Ministry of Power will continue to hold 86.36% of the diluted post-issue paid-up equity capital of the company.

The equity shares of the company are proposed to be listed on the BSE and NSE.

The book running lead managers to the issue are: Kotak Mahindra Capital Company Limited, Citigroup Global Markets India Private Limited and Enam Securities Private Limited.

Power Grid Corporation of India owns and operates most of India’s interstate and inter-regional electric power transmission system. In that capacity, as at June 30, 2007 the company owned and operated 61,875 circuit kilometres of electrical transmission lines and 106 electrical substations. In Fiscal 2007, the Company transmitted approximately 298 billion units of electricity, representing approximately 45% of all the power generated in India.

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Stock Picks for the week

Motherson Sumi System
Research: Merrill Lynch
Rating: Buy
CMP: Rs 96

Merrill Lynch initiates coverage on Motherson Sumi Systems (MSSL) with a ‘buy’ rating due to the following reasons: (1) 23%+ compounded annual growth rate (CAGR) in EPS during FY07-FY10E and sustainability of 20%+ earnings growth over a longer period; (2) 560 bps expansion in return on equity capital (RoCE); and (3) new business ventures.

Expansion of the rubber components business following the recent acquisition of Empire Rubber in Australia and beginning of commercial production of mobile phone plastics parts business in H2 FY08 are the key growth drivers, apart from the 22% CAGR in wiring harness revenues. There is significant possibility of earnings surprise on account of: (1) management guidance of 43% CAGR in earnings being significantly higher than expectations; and (2) likely benefit of 18% fall in copper prices in the next six quarters, compared to Merrill Lynch’s assumption of flat prices. The stock is trading at 11.97x FY09E EV/EBITDA — a discount of 15% and 31%, respectively, compared to Mico and Cummins India, despite better growth prospects and good track record. At management-guided EPS of Rs 9.8 in FY10E, the stock trades at 9.7x earnings.

Sesa Goa
Research: Buy
Rating: Goldman Sachs
CMP: Rs 2,111

GOLDMAN Sachs initiates coverage on Sesa Goa with a ‘buy’ rating. Sesa Goa is India’s largest exporter of iron ore in the private sector and is a direct play on iron ore price negotiations. With sustained tightness in the iron ore market, it will be a direct beneficiary of higher iron ore prices. High margins, attractive returns, debt-free balance sheet, strong free cash flow generation and cash pile of Rs 220 per share are added positives. The non-iron ore businesses will benefit due to a robust outlook on pig iron and met coke prices. Reining in logistics costs will remain a key focus area. Additionally, after the completion of the ongoing open offer, the new promoters, Vedanta Resources, may deploy surplus cash reserves. Sesa Goa is likely to deliver 40% earnings CAGR over FY07-FY09E on the back of a bullish iron ore price outlook and modest volume growth. Potential announcements on strategic use of the cash pile or expansion plans, post completion of the open offer by Vedanta Resources, can provide upside triggers. At 2.8x one-year forward EV/EBITDA — which is at a 50% discount to global mining companies — the stock is attractively valued.

Tata Motors
Research: Citigroup
Rating: Buy
CMP: Rs 694

Citigroup has put a ‘buy’ recommended on Tata Motors. The management guidance points to a modest revival in truck sales in H2 FY08E, which implies that overall sales for FY08 will be flat or may register modest growth. Truck operators’ profitability remains healthy, despite rise in interest rates. Freight rates continue to remain stable. The company will deploy Rs 8,000 crore over the next three years to launch new platforms in passenger cars and trucks.

The small car remains on schedule and will be launched in mid-CY08 (H1 FY09E). The management has said Tata Motors will start the process of demerging its subsidiaries by end FY08E, but this is still at a nascent stage. Brand, technology and markets are the key decision variables. Cost pressures (steel accounts for 45% of input costs) will continue to affect margins. Cost reduction exercise is nearly complete — the company has achieved Rs 970 crore of its stated Rs 1,000-crore cost-cutting exercise. Hikes in CV prices (~1-1.5%) undertaken in early FY08 will mitigate (but not offset) the impact of cost pressures.

Binani Cement
Research: JP Morgan
Rating: Overweight
CMP: Rs 79

JP Morgan initiates coverage on Binani Cement (BCL) with an ‘overweight’ rating. BCL appears to be at the cusp of aggressive volume growth. Cement production is likely to witness a CAGR of 44% over FY07-09. Increasing volumes, coupled with robust prices (in the current year) should drive 44% EBITDA growth and 40% EPS growth in FY08, as per JP Morgan’s estimates. In FY09, aggressive volume growth is likely to help offset the negative impact of an estimated 6% YoY decline in cement prices. A near 10% CAGR in domestic demand and benefits of consolidation should provide a higher floor to domestic prices, relative to previous cycles. BCL’s valuation looks compelling — the stock is trading at a near 40% valuation discount to mainstream cement players.

IDBI Bank
Research: ICICI Direct
Rating: Outperformer
CMP: Rs 131

ICICI Direct initiates coverage on IDBI Bank with an outperformer rating. IDBI Bank has transformed itself from a development financial institution (DFI) to an active participant in the booming banking and financial services space.

The amalgamation of United Western Bank with IDBI Bank has given the latter the much-needed branch network to enhance its retail presence. This, coupled with unlocking of value in its investments, is expected to lead to a surge in earnings. ICICI Direct expects earnings to witness a CAGR of 19% over FY07-09E to Rs 885 crore. IDBI Bank has a huge investment portfolio of quoted and unquoted equity stocks. It can unlock the value from these stocks and boost its profitability.

The value of the quoted and unquoted equity book is Rs 52 per share of IDBI Bank. The bank is expected to improve its core business gradually with net interest margins (NIMs) expanding from 0.48% in FY06 to 0.74% in FY07 and further to 1.07% by FY09E. At the current price around of Rs 130, the stock is trading at 1.3 its FY09E adjusted book value (ABV) and 10.6x its FY09E EPS of Rs 12.2. Based on a theoretical book value multiple of 0.9x its FY09E ABV, the value of its core banking business comes to Rs 87 per share. Its huge investment portfolio is valued at Rs 52 per share and subsidiaries at Rs 17 per share.

Godavari Chemicals & Fert
Research: IDBI Capital
Rating: Buy
CMP: Rs 129

Godavari Chemicals and Fertilizers — promoted jointly by Andhra Pradesh State Co-operatives (APSC) and the Indian Farm and Fertilizer Co-operative (IFFCO) — is one of the frontline players in the fertiliser segment in the South. It is now a part of Chennai-based Murugappa group, which acquired the stake of the Andhra Pradesh government in the process of disinvestment through Coromandel Fertilizers. Godavari is one of the leading producers of DAP and has a market share of 9% across India, while it has a 73% share in Andhra Pradesh.

During FY07, it increased the sale of traded products like water-soluble fertilisers, micronutrients and G-Sulphur. It has an approximate capacity of 1.2 million metric tones (mt), with a proximity to seaport and good infrastructure. Production during FY07 was highest at 11.35 lakh tonnes, when the average output increased to 72 mt per hour against 65 mt per hour. However, production was hit due to constraints of phosphoric acid supply. The company will expand its capacity by 4.25 lakh mt by June ’09. It has also completed construction of 10,000 mt atmospheric ammonia at Kakinada. Godavari Chemicals has put up a good show for Q1 FY08 with regard to operating and net profits. Its revenue, at Rs 17.3 crore, was down by 35% YoY. PAT was Rs 1.3 crore, against a loss of Rs 40 lakh in the year-ago period. The stock is currently trading at 6x its trailing 12 months EPS of Rs 20.65.

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