| Assess before you apply |
| Jitendra Kumar Gupta / Mumbai September 24, 2010, 0:54 IST |
The buoyancy in the secondary market is acting as a boon for companies looking to raise funds through the IPO (initial public offer) route. In September alone, 13 companies have hit the market and are likely to raise about Rs 3,500 crore — more than the funds raised in the entire May-August period through nine IPOs.
Also, the IPOs in the current month are an interesting mix of companies across sectors. There are some unique plays like waste water management company Va Tech Wabag, renewable energy concern Orient Green Power and the Indian subsidiary of the London-listed film production and distribution company, Eros International Media.
Read on to know more about the prospects of the four IPOs which are currently open:
Orient Green Power Company
Promoted by Shriram EPC, Orient Green Power Company has a power generating capacity of 213 Mw (both wind- and biomass-based). It has drawn up ambitious plans to emerge as a large player in the renewable power space. It aims to grow its capacity five-fold to 1,050 Mw by 2012-13. To fund its expansion plan and repay debt, the company has come out with an IPO of Rs 900 crore.
| AMBITIOUS PLANS | ||||
| in mw | Wind Power | Biomass Power | Hydro Power | Total Capacity |
| FY10 | 172.53 | 40.50 | - | 213.03 |
| 2HFY11 | 75.00 | 57.50 | - | 345.53 |
| 1HFY12 | 201.00 | 43.50 | - | 590.03 |
| 2HFY12 | 174.00 | 43.50 | 15.00 | 822.53 |
| 1HFY13 | 103.50 | 34.00 | - | 960.03 |
| 2HFY13 | 89.50 | - | - | 1049.53 |
| Capacity expansion schedule | ||||
Profit boost
For its existing capacities, the company has off-take arrangements at tariffs in the Rs 3.9-4.8 per unit range. However, it is looking to sell about 300 Mw, or 50 per cent of incremental capacity, on merchant basis where current tariffs are higher.
| ISSUE DETAILS | |
| Price (Rs ) | 47-55 |
| Size (Rs cr) | 900 |
| Opened on | 21-Sep |
| Closes on | 24-Sep |
| Crisil grading | 4/5 |
| * excluding Green shoe option of 3.38 crore shares | |
This should boost its profitability, considering that there is virtually no cost for generating power from wind (over 75 per cent of Orient’s future capacity), while it cost about Rs 3.5-4 per unit in the case of biomass.
Additionally, states have a regulatory obligation to purchase a part (7-10 per cent) of their power requirements from renewable sources. Orient can leverage this by way of selling certificates (in the Rs 1.5-3.9 per unit range, which it gets entitled to due to renewable energy) to states that could not fulfil their commitments. This will help boost its RoE (return on equity) to 22-25 per cent against the regulated post-tax RoEs of 15.5 per cent.
| FINANCIALS | ||
| in Rs crore | FY09 | FY10 |
| Sales | 12.1 | 56.2 |
| EBITDA (%) | -35.8 | 12.2 |
| Interest exp | 3.2 | 11.0 |
| Net loss | -8.0 | -12.2 |
| Net worth | 201.7 | 386.2 |
| All figures are consolidated | ||
Turning around
While the past is not inspiring, the company’s revenues are estimated to grow 70-80 per cent annually over the next three years with a likely turnaround (profit of Rs 40 crore in 2010-11) from this year onwards. This is due to economies of scale, new capacities (132 Mw) and improved utilisation. For instance, it produced just 25 Mw last year against a 62-Mw capacity.
This will improve margins as benefits of low feed stock cost (in biomass) – which was higher last year due to drought – will accrue along with Rs 18-20 crore savings in interest costs. The company also intends to repay its Rs 148-crore loan (at an interest rate of 12-18 per cent).
Valuations
While the macro environment is favourable, there are some concerns as well. Apart from the auditors’ qualification on booking of revenues worth Rs 8 crore during FY09-10 on account of carbon credits (which is based on estimates and actual sale has not taken place), analysts say risks on account of project executions exist (as Orient has acquired most of its existing assets).
Positively, assuming things go as planned, Orient’s aggressive capacity addition plans should help report robust growth rates over the next few years. Crisil’s fundamental grading (four out of five) also provides confidence. In terms of pricing, the IPO is fairly valued at a price to estimated 2010-11 book value of 1.6-1.8 times.
Investors with some appetite for risk can subscribe with a long-term perspective.
Cantabil Retail India
Cantabil Retail is in the business of designing, manufacturing, branding and retailing of apparel under the ‘Cantabil’ and ‘La Fanso’ brands. It has 411 stores (141 are owned but managed by franchises) across 19 states in India. Over 80 per cent of its volumes come from men’s wear, with women’s and children’s wear accounting for the rest. It has a strong presence in North India (230 stores), followed by west (113) and aims to expand its presence in the southern and eastern zones.
| ISSUE DETAILS | |
| Price (Rs ) | 127-135 |
| Size (Rs crore) | 105 |
| Opened on | Sept 20 |
| Closes on | Sept 27 |
| ICRA grading | 2/5 |
The company plans to open 180 stores by March 2012, and is also setting up a new integrated manufacturing facility for 4.32 million units in Haryana at a cost of Rs 32 crore. The latter will reduce its dependence on third-party manufacturers (about half of total requirements is outsourced currently) and improve profitability.
| GROWING FAST | ||
| In Rs crore | FY09 | FY10 |
| Sales | 137.3 | 201.8 |
| EBITDA (%) | 11.0 | 15.7 |
| Net profit | 6.2 | 14.7 |
Cantabil’s sales have grown at a compounded annual growth rate (CAGR) of 66 per cent, while earnings grew 71 per cent in the last three years, aided by a strong volume grow
