| First, the price band between Rs 16 and Rs 19 per share is a considerably scaled down version of the rumoured Rs 40 issue price. |
| At the higher end of the band, the issue is priced at 11 times diluted post-issue FY04 earnings. That seems cheap when compared to the company's growth rates in the past. In FY03, revenues had jumped 99 per cent while profit before tax (PBT) rose 82 per cent. In FY04, revenues grew even faster by 171 per cent, while PBT soared 289 per cent. The caveat, however, is that those growth rates may not sustain. |
| Indiabulls is primarily in the equity broking business, which saw a big jump in trading volumes last year, especially with the explosion of the derivatives market. |
| Combined cash and derivatives volumes on the NSE had jumped 205 per cent in FY04 compared to a rise of 223 per cent for Indiabulls. Trading volumes have now stabilised at lower levels compared to the peak reached earlier in the year. |
| Unless the company grows through acquisitions, growth through the equity market will be less spectacular. The company's other businesses are currently too small (less than 1 per cent of FY04 sales) to drive growth in the near future. |
| Also, profit attributable to equity shareholders will be hit in FY05 because of an issue of preference shares earlier this year. The annual preference dividend works out to over 28 per cent of the FY04 net profit, and this has hit the June quarter EPS. |
| (This is a revised version of an earlier item on the subject) |
| Zinc prices |
| In a scenario where inputs costs for steel making have spiralled, softening zinc prices have brought some respite for galvanised steel makers. In the last couple of months international zinc prices have slipped by almost $45 - $50 per tonne, to $965 per tonne. |
| Besides, the 5 per cent import duty reduction has also reduced the procurement costs by around Rs 3,000 - Rs 3,500 per tonne. Domestic zinc prices, net of excise, are current at around Rs 56,000 - Rs 58,000 per tonne, down from around Rs 63,000 - Rs 65,000 per tonne in June. |
| Lower zinc prices have led to a decline of Rs 100 in production costs for galvanising steel. Firms like SAI, Tata Steel, Jisco, Ispat Bhushan Steel and Uttam Steel, who use zinc for galvanising, are direct beneficiaries of the price reduction. |
| Meanwhile paints sector, dye casting and chemicals sector will also see a rise in their margins as they use a considerable quantity of zinc. |
| Asian forex reserves |
| India is not the only country in Asia whose foreign exchange reserves have shown a dip lately. As the table shows, several other countries in the region have also seen a fall in their forex reserves. |
| Hong Kong's reserves, for example, showed a dip of $2.5 billion between June and July; Indonesia's reserves have declined by $1.6 billion between May and June; while Singapore's forex reserves fell by $1.3 billion between June and July. India's reserves were lower by $1.8 billion in the month to August 13. |
| On the other hand, South Korea's, Taiwan's, Thailand's and Malaysia's reserves have continued to increase. China's reserves data is published quarterly, so the September data will show whether its reserves have fallen. Till recently, most Asian central banks actively bought dollars to keep the pressure off its currency. |
| But with a decline in dollar inflows, the pressure is now in the opposite direction, and central banks are selling their dollar hoards in an effort to check too rapid a depreciation of their currencies. Hence the decline in forex reserves. |
| The situation is markedly different from the beginning of the calendar year, when Asian forex reserves were rising rapidly. Back home, with continuing FII inflows (albeit at a much slower pace) and keeping in view the fact that remittances and software exports make up a large part of inflows, there shouldn't be much pressure on forex reserves. |
| With contributions from Mobis Philipose and Mansi Kapur |
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