India Infoline:Funds to grow

Orient Global picks up 6.5% for Rs 555 crore

India Infoline is selling a 6.5 per cent stake in the company for Rs 555 crore (approximately $ 141 million) through a fresh issue of preferential shares. The buyer is Orient Global, a Singapore-based private investment firm.

The shares are being issued at Rs 1500 each, which is at a 2.3 per cent discount to its current market price. Orient Global will also invest another Rs 197 crore ($ 50 million) for a 10 per cent stake in India Infoline's insurance distribution subsidiary.

The company plans to utilise the funds in the insurance subsidiary to strengthen its distribution and service network, while the money in the parent company will go towards working capital requirements and increasing the net worth.

In November, Orient Global made an investment of Rs 300 crore (around $ 76.7 million) to acquire a 22.5 per cent stake in India Infoline's consumer finance subsidiary that gives personal and auto loans.

Another subsidiary is into home loans and plans to target segments, which may carry higher risks, but which could fetch higher returns, earning it a spread of about 7-8 per cent.

Given that a leverage of anywhere between five to eight times the capital is possible, it will translate into a headroom of up to Rs 1,500-2,400 crore worth of debt for the firm's consumer finance business.

In Q2 FY08, India Infoline posted a top line of Rs 195.3 crore, up 146 per cent y-o-y. So far, the equity brokerage business has been the main growth driver. The insurance brokerage business also is a high yield business with operating margins of around 40 per cent .

The stock price has risen six-fold from its 52-week low of Rs 255 in March this year, to nearly Rs 1,600 this week. At around 65 times its annualised FY08 earning per share of about Rs 25, growth in India Infoline's earnings appears to be factored into the valuation.

Nagarjuna Const: Strong order-book

The Nagarjuna Construction stock has risen by 60 per cent since September. That's because the company has been bagging fairly big orders. Last week alone, the firm has picked up two orders (one each from power and water-related segments) worth Rs 307 crore.

On Monday, the company received a road construction order worth Rs 570 crore from the government of Oman, which is to be executed within 18 months. With this order, the company's unexecuted order book stands at Rs 9,574 crore or 3.24 times its FY07 consolidated revenues of Rs 2952 crore.

Given that road projects typically earn operating margins of between 7-10 per cent, the latest order could add about Rs 57 crore to operating profits in a best case scenario.

What's also interesting is that Nagarjuna has been consciously diversifying into other areas in the construction space such as airports, water, irrigation, power, oil &gas and metals, which will help it to grow the order book.

Two months back, the company had picked up various projects in these segments including a Rs 1,100-crore order, in a consortium with POSCO E&C, from Steel Authority of India. Since these projects earn operating margins that are in the region of 14 per cent, it should help improve Nagarjuna's overall margins.

The company has grown its revenues from Rs 438.7 crore in FY02 to 2,952 crore in FY07, at a rate of 46.41 per cent annually. At the current price of Rs 339, the stock trades at 42 times its FY08 and 26 times estimated earnings in FY09 and appears to be expensive.

With contribution from Niren Shah and Jitendra Kumar Gupta