Will primary market revive?

GUEST COLUMN/ TORCH-LIGHT

It seems the market is set to see another round of IPOs. Given that Tata Consultancy Services (TCS) is going to hit the market with what should be the biggest private sector IPO hitherto, it will just be a matter of time before other 'wannabes' jump into the fray.

Let's zoom in on the public issues of NDTV and Vishal Exports that were made just before the electoral results sent the markets into a downward vertical tailspin.

NDTV entered the market on April 21, 2004, with a book-building public issue and an offer for sale of its equity shares. The face value of NDTV's shares is Rs 4, and they were offered at Rs 70 per equity share. The aggregate sum sought to be raised was Rs 109 crore and NDTV's shares have since been listed at the BSE and the NSE.

NDTV is a prominent broadcaster and producer of news and current affairs programmes. Earlier it used to produce programmes for Star TV. In April 2003, NDTV launched its own news channels - NDTV 24X7 (English) and NDTV India (Hindi).

The plus points of the company include its promoter's brand equity and its growing market share in the vital and intensely competitive Hindi language segment. In the English language segment, it ranks well above the rest of the pack. A part of the issue proceeds was proposed to be used to extinguish debt which should have an immediate impact on its bottomline. The self-estimated fund requirement of the company also included an allocation of Rs 15 crore for 'general corporate purposes'.

NDTV's efforts to provide viewers with qualitatively different content could yield it a big 'payback' when the paid subscription driven CAS or DTH system is inevitably introduced. On the flip side, the company's fortunes, like those of most of its contemporaries, seem overly advertisement-driven at this point in time.

Given that there is a proliferation of news and current affairs television channels, especially in the Hindi language segment where NDTV is more vulnerable, it is clear that considerable innovativeness will be called for to survive and thrive.

The capital expenditure incurred in launching and running the two channels has put the company in the red during FY04, although the company's financial record prior to FY04 was quite satisfactory. Considering FY03 figures, the historical P/E of 15 at the time of its IPO matched that of its high-profile media contemporaries, though it must be noted that providing content and broadcasting are different. Hence, to try and evaluate the pricing based on traditional financial parameters could yield inaccurate conclusions. Yet, on the basis of a one-to-one evaluation and project costs, NDTV appears costlier than its closest contemporary, TV Today, was at the time of its IPO a couple of months before.

Nevertheless, there is no mistaking the fact that the Indian media sector is still at a nascent stage and better managed and innovative companies like NDTV could inevitably play a large role as it matures. Hence, this is a stock in which investors will need to display a fair amount patience and understanding, rather than punting on overnight gains.

The last IPO to hit the market before the lull was that of Vishal Exports Overseas (VEOL), which forayed into the market on April 29, 2004, with an offer for sale of 60 lakh equity shares of Rs 5 each priced at a premium of Rs 40 per share aggregating Rs 27 crore. VEOL's shares have been listed at the NSE. The offer for sale was made by the promoter group, which divested 25 per cent of the company's equity in favour of the public.

VEOL is engaged in the business of importing and exporting various commodities. Its exports range from soyabean meal to frozen foods and garments, while its imports include vitamins, chemicals, edible oils and precious metals.

The company's bottomline has steadily grown from Rs 3.06 crore in FY94-95 to Rs 20.94 crore for the seven-month period upto October 2003. The company's margins have been declining over the last three years, though there has been a rebound in the first seven months of FY04.

On the flip side, VEOL has ventured into the unrelated business of wind generation and made some other investments in subsidiaries, which are yet to commence commercial operations. Whereas the wind generation project could yield fair returns in the years to come, as of now, there is bound to be some apprehension about it.

The fluctuating rupee does not impact the company significantly given that it is both an importer as well as an exporter. However, the phasing out of Section 80 HC of the Income-Tax Act, which provided it a tax exemption cover on export turnover, will certainly impact VEOL's bottomline.

Clearly, the fundamentals of the company were shaky and the offer price of Rs 45 was steep. That fact is borne out by its current market price of around Rs 33, though to be fair, it is not the only stock to have tanked in the last three months. Even NDTV's share price of Rs 83, although satisfactory, is a far cry from those heady listing days of its contemporary and prime competitor, TV Today.

Well, all that is now in the past and with a new season of IPOs expected to open shortly, it would make good sense for investors to get selective about the companies they choose to invest in.

(The author heads Lotus Knowlwealth, Mumbai, and can be contacted at ceolotus@hotmail.com.
Disclosure: He has no outstanding interest in the companies discussed here.)