Info Edge: Hope floats

Info Edge listing has turned back the spotlight on dotcoms

Dotcom company Info Edge India got listed on Tuesday at an 85 per cent premium to its issue price. In terms of listing gains (book-building issues since July), Info Edge has bettered Development Credit Bank's 82.7 per cent listing returns. The other two notable listing gains were Tech Mahindra and Action Construction at 51.5 per cent and 48.8 per cent.

Despite the blistering bull market since the lows of June, five of the 14 IPOs are trading lower than their issue price. But among the nine gainers, seven have gained more than 50 per cent on the back of strong financial performance till September 2006.

With the real estate sector turning hot, Atlanta has been the best new listing since June, with its price more than quadrupling as net profit doubled y-o-y in the first half of FY07.

Tech Mahindra's stock price has gone up 224 per cent, with its net profit for the first half has gone up 300 per cent y-o-y. Material handling and construction equipment manufacturer Action Construction Equipment has doubled from its IPO price.

A recent listing, Development Credit Bank, has gained 143 per cent returns as investors return to the banking sector and foreign investors lap up the stock.

Yesterday's listing, Info Edge, being the first Internet company to list in India, sets the stage for other dotcom players, and indicates that there is a huge demand for dotcom IPOs.

Though the Indian dotcoms are late to tap the market compared with their international peers, it has turned out to be a blessing for investors as the riff-raff is decimated.

Today, most dotcoms that will hit the markets will only be survivors with a strong business model and are most likely to be profitable. As far as valuations are concerned, there would be an over-reaction initially, which should come in line with performance over time.

Jain Irrigation: Bumper harvest

Continuing its spree of overseas buyouts, Jain Irrigation has picked up 65 per cent stake in Cascade (revenues of $10 million in FY06), thereby gaining entry into the world's biggest onion dehydration markets.

The all-cash acquisition brings with it clients including Unilever, Nestle, McCormick and Kerry, a capacity of 11,000 (JISL's existing capacity is 15,000), 1250 acres of land and a five per cent share in the US onion dehydration market.

Cascade, which has been facing cash problems and made a loss at the net level in FY06, will issue fresh shares, so that there will be an infusion of funds into the company, which will be used to pay off debt of $6 million, making it debt-free.

The deal is attractively valued if one takes the cash infused into the account. At $4.75 million for 65 per cent stake, the enterprise value works out to around $7.4 million and as such, JISL has paid around 0.8 times revenues and around 0.6 times FY07 estimated revenues of $13 million.

JISL, the management says, proposes to buy out the remaining 35 per cent over the next four to five years.

By working through Cascade and becoming a local supplier, JISL avoids the high import duty of 20-25 per cent. Cascade operates at around 50 per cent of its capacity and, hence, there is considerable room for scaling up operations.

In the September quarter, the company posted a revenue growth of 46 per cent y-o-y at Rs 226 crore. Operating margins expanded by about 180 basis points to 17.7 per cent. At the current price of Rs 362, the stock trades at 24 times estimated FY07 earnings and 17 times FY08 earnings.

The company continues to demonstrate its willingness to grow the business inorganically""in the last couple of years it has made acquisitions worth $30 million, at reasonable valuations, across irrigation, food processing and PVC sheets. So, while valuations are not inexpensive, the potential for growth exists.