Bank on performance

GUEST COLUMN: TORCH-LIGHT

At a time when India's financial capital was reeling under the impact of unprecedented rains, two companies, which had completed successful IPOs, got listed.

The first, IL&FS Investsmart is from the fast growing financial services sector while the second, Sri Ramrupai Balaji Steel (SRBSL) is from the blow hot-blow cold steel sector.

IL&FS Investsmart entered the market on July 4, 2005, with a book-built public offer comprising 11.4 million equity shares of face value of Rs 10 each.

Of these, 2.6 million shares comprised an offer for sale while the rest comprised a fresh issue. The price band was Rs 110-125 per share, translating into a maximum issue size of Rs 1,425 million.

Investsmart's shares were recently listed at the NSE and the BSE at around Rs 200 before cooling off to around Rs 175 where it currently stands. The proceeds from the IPO have been earmarked for upgrading technology, expanding operations and branch network, investing in subsidiaries, and augmenting long-term working capital.

Investsmart enjoys diversified revenue streams on the back of its involvement across key financial segmental activities. It boasts of a sound parentage (IL&FS) and its performance record thus far has been satisfactory.

No one can deny the fact that fortunes of financial services companies like Investsmart are linked to those of the stock market. While Investsmart's strong retail distribution network across India is a definite plus, it will need to compete effectively with private banks that offer 'one-stop shops' on the broking front.

The issue of 'one-stop shops' cropped up during my discussion with senior officials of Investsmart and IndiaBulls recently. They insisted that banks like ICICI bank and HDFC Bank which offer not only broking facilities, but banking and demat services as well under the same roof do not derive any significant advantage.

Perhaps not, but will the scenario become different once we move to the T+1 settlement system and investors get more savvy and time conscious? Time will tell.

Talking about positives for Investsmart, the company is well placed in terms of funds to capitalise on the emerging opportunities in the fast-growing domestic financial services sector. If it plays its cards well, there is adequate scope for it to grow, which in turn could translate into a healthier stock valuation.

Meanwhile, SRBSL entered the market on July 8, 2005, with a book-built public issue, comprising 20 million equity shares of face value of Rs 10 each. The price band for its IPO was Rs 20-22 per share, translating into a maximum issue size of Rs 440 million.

SRBSL's shares were recently listed at the NSE and the BSE and the scrip currently quotes at around Rs 24. Proceeds from the IPO have been earmarked for part-financing the company's integrated steel plant, phase one of which has already been commissioned.

The total project cost has been estimated at Rs 2,850 million and the facilities to manufacture sponge and pig iron have already been commissioned. On the anvil are facilities to manufacture MS billets, a coal washery and a 40 mw captive power plant.

The 40 mw captive power plant is scheduled for completion in November 2006 and is expected to drive revenues. The integrated nature of SRBSL's steel plant should facilitate better competitive flexibility. Its advantage of being in a mineral rich region in eastern India is further buttressed by the slew of fiscal incentives provided by the West Bengal government.

However, there are some concerns, including the possibility of a time and cost overrun and rapidly increasing capacities in the segment. Then, SRBSL has group companies engaged in the same segment, though a consolidation in the form of a merger could prove beneficial both for the company's business and scrip.

Notwithstanding the fact that the steel sector has lost some of its sheen at the bourses following global price volatility, SRBSL is worth watching as it has enough potential. Of course, just as the proof of the pudding lies in its eating, it is performance that will translate this potential into a smarter stock price.

Incidentally, during a recent meeting, the top officials of the company spoke highly of the new-found industry-friendly approach of the Left Front-led government in West Bengal. I couldn't but help ponder over the difference in approach of the Left at the Centre and in the state.

Could it be that they are now seeking redemption for ruining one of India's most industrially progressive states over the last three decades? If so, there is still hope that they will see light at the end of the disinvestment tunnel.

(The author heads Lotus Knowlwealth, Mumbai, and can be contacted at ceolotus@hotmail.com .)