Jaypee Infratech IPO: Why the Dull Response?

At 5:45 PM on 29th April, the first day of Jaypee Infratech’s IPO, the issue was subscribed only 0.84 times. This was in stark contrast to the bullishness of several brokerages and analysts, and the heavyweight nature of Jaypee Infratech’s main promoter Jaiprakash Associates. Many were expecting oversubscription by at least a few times.

There are several probable reasons for the dull investor response on the first day, and why it may continue.

Firstly, though Jaypee Infratech was presented as an infrastructure company in its name and core activity, investors seem to have realized that it is not a pure play on the lucrative infrastructure sector, but heavily dependent on real estate development. The more than half contribution expected from the real estate segment is probably weighing down this IPO, as most of the recent realty IPOs have ended up in loss for the investors.

Secondly, investors seem to be worried over the business environment of Uttar Pradesh (UP), the Indian state in which the Jaypee Infratech’s core project, the Yamuna Expressway is coming up. Not regarded as an industrially progressive state like Maharashtra, Gujarat, or Tamil Nadu, this also seems to have weighed down on this IPO. Even worse, while some of the UP locations where Jaypee Infratech will get to develop real estate are having an oversupply of residential space, some others have not much demand for branded housing, and almost nil demand for commercial space.

The longer gestation period of the project also means that Jaypee Infratech will continue to have negative cash flow for many more quarters, if not years.

Still, of the 2500 crore of IPO proceeds, nearly 1650 crore wouldn’t come to Jaypee Infratech, as it will go directly to Jaiprakash Associates which is diluting its stake in the smaller firm.

At the same time, such factors have not prevented the company from fully pricing the IPO. Some analysts point that at the upper end of the price band, that is at Rs. 117, Jaypee Infratech will have a P/E of 24, which is more than fair for the company, and doesn’t leave much money on the table for retail investors.

Another major concern of investors seems to be that Jaypee Infratech is a one-project company and as such any socio-political or economic delays can not only stall the project, but stall the entire company. One such probable high-risk is the public’s aversion towards toll collection by build-operate-transfer (BOT) projects, which will be the mainstay of Jaypee Infratech.

Though the Yamuna Expressway project is now ahead of schedule, mainly due to the Group’s good execution capabilities, the fact that it will be a money earner only on full completion and commencement of the toll is a bit worrying.

However, the track-record of the promoters is a plus for this IPO as Jaypee Infratech’s main promoter Jaiprakash Associates is a major listed company that is a constituent of the country’s major stock indices like Sensex and Nifty. Jaypee Infratech is the subsidiary of another listed group entity, Jaiprakash Power Ventures.

For those looking only at price-performance, however, these Jaypee Group scrips haven’t been of much benefit as they have lagged both their peer group stocks as well as the indices, for the past several months. Investors might be fearing that Jaypee Infratech too may enter the same lacklustre trajectory once it is listed.

Tharoor Out, Modi Fired, IPL ‘Saved’, But What About BCCI, Betting, & Match Fixing?

Subhash Chandra must be a happy man. One innocent wedding rumour in DNA, and the IPL castle of cards comes down swiftly. Too bad that it tripped a naïve Tharoor, but too good that it took down Modi with it.

Also Read: 10 Questions Shashi Tharoor Must Answer to Come Clean

BCCI had been that unfair to Chandra’s Zee. Despite winning the telecast rights fair and square thrice, BCCI had rejected Zee’s tender, prompting the otherwise prudent billionaire to hastily create an alternative, the forgettable Indian Cricket League (ICL).

But really ICL was not a bad idea at all. But Chandra hadn’t counted on the might of that special muscle called the official muscle. Not only was BCCI the only official power, but it was the only power to determine who can be the official power. When it decided that Lalit Modi’s baby, IPL, can be official, it became so. Last week when it decided this was not to be, the (now fat) baby remained official, but Modi went through the window.

Now what will Chandra do? Time is fit for reviving ICL. During his last public outburst, Punit Goenka had complained that BCCI was threatening even the advertisers of ICL. Now is the time a court case against such threats will get patient ears.

But who will head such a reinvented ICL? Hey, isn’t the world’s Best Twenty20 Commissioner available? If the Congress bigwigs are not willing to upset the applecart by going all out against Pawar and NCP, Modi should survive as a legally available and hireable CEO.

And seriously, for all the brickbats he received, there is no doubt Lalit Modi will remain the most productive Cricket Commissioner ever.

If you didn’t like the way he did his business, that is your problem, not his. KK Modi explained this succinctly. His younger son too has this style of functioning, says Modi. In other words, it was, and is, the Modi way of doing business.

Never mind that this style was which that brought down this once-highflying business family’s name from among peers like the Tatas and Birlas. Too clever, too aggressive, and too secretive, the Modi clan flourished during the Licence Raj, but started floundering after the liberalization drive of the 90s. Many Modis became blacklisted by the bankers, who thronged to serve the cunning-yet-neat entrepreneurs of the new India, the Ambanis, the Murthys, and of course, the Tatas who excelled in reinventing themselves for the times.

But who cares? Not the least the Modis. Just KK Modi’s empire is worth more than 3500 crore. So, what if you can’t write software, drill oil, or create a Nano? There will always be evergreen businesses like cigarettes, and new opportunities like Fashion TV and online lotteries. All of them perfectly legal, if not that respectable.

Alembic shares shot up around 5% when Chirayu Amin was made the new Commissioner. What for? Is the theoretically super-efficient market determining that somehow the pharma company will gain from its CMD becoming the IPL Commissioner? Remember, it is the same market that punished the bluest blue-chips like TCS & Reliance for coming up with very good results, just a few days back! So much for the theory that the market takes into account everything.

John Paulson definitely was one man who didn’t believe that the markets were super efficient. ‘The Man Who Made Too Much’ is already the eye of the new financial storm crashing stock-markets around the world. But sadly, the crisis itself is not named after him, but on Goldman Sachs. Because, yet again, you find the typical new-age entrepreneur – unbelievably cunning yet unbelievably difficult to legally pin down.

The good man he is, Chirayu Amin is learnt to be averse to after-match IPL parties and cheerleaders, as they are anti-Indian. BCCI seems to have finally concluded that girls lifting their legs to reveal their crotches was not really an innovation, but used to be always there in Mumbai, along some suburban lines, and was called whoring, not cheerleading.

In any case, it is great that Modi’s original innovation of after-match parties will come to an end. After the arrest of Madhuri ‘Spy’ Gupta, nobody can be blamed for suspecting that Pakistan had invented and implemented the IPL parties to finish off our youthful blood like Yuvaraj and Dhoni. Such was their ardour off-ground says those who attended Modi’s parties by paying Rs. 50,000 a night or Rs. 22 lakhs for all nights.

Anyway, no need really for the parties. If Bhajii can hug and lift off Nita Ambani on ground, the after-parties are really an overkill.

Dhoni and Gary Kirsten, meanwhile, have also turned suave diplomats. Clearly respecting the newfound powers of BossCCI, they took the ‘What Fatigue’ line before boarding for the World Cup. But expect fatigue to return as the all important reason, if and when India gets thrown out of the tournament. Of course, we can blame that too on Modi.

Anyway, the best advice for Indian cricket came from an unexpected source, Bal Thackeray. He wanted BCCI to select a former player like Gavaskar or Shastri to replace Modi. Coming from him, the advice had his untainted love for the native Mumbaikar written all over it, but he does have a point, with most of the national cricketing associations that make up the ICC having former celebrity players as their Chairman or CEO.

In contrast, what has Sharad Pawar, Arun Jaitley, & Farooq Abdullah got to do with cricket? Another storm is brewing regarding free equity to the tune of 5-10% given by all IPL franchisees to political and administrative powers-that-be of Indian Cricket.

Indian Cricket is now a too dangerous place for even them as the betting saga behind IPL unveils fully. The madly betting segment among the cricket enthusiasts is now mad at how the bookies turned the tables on those who bet for CSK’s win in the final. Investigating agencies, according to some sources, have gathered evidence that this round of IPL has produced $11 billion in betting money from the 60 matches, each of them doctored in favour of the bookies. And believe it or not, there seems to be evidence that the massive betting league was masterminded from Karachi by none other than D.

Jaypee Infratech IPO: Risks Balancing Out Rewards?

Jaypee Infratech, a group company of Jaypee Group, which is about to go for its IPO can be a rewarding opportunity for investors, if not for some peculiar downsides.

Jaypee Infratech’s promoters are well experienced in India’s capital markets, already having two listed group companies. Of these, Jaiprakash Associates (JP Associates) is a constituent of the country’s leading indices, the BSE’s Sensex and NSE’s Nifty. The other listed entity, Jaiprakash Power Ventures is a relatively minor player, not part of any NSE index, though part of the wider BSE 200.

Also Read: Jaypee Infratech IPO - Why the Dull Response?

The company going for the IPO now, Jaypee Infratech, is a subsidiary of Jaypee Power Ventures, though its activity has nothing to do with power generation or transmission. Jaypee Power Ventures and its subsidiary Jaypee Infratech both have Jaiprakash Associates as its main promoter. The current IPO involves both stake sale by JP Associates and issue of new equity by Jaypee Infratech.

Jaypee Group is a diversified conglomerate with interests in cement, hydropower, infrastructure, and a few other related fields. It is the leading private sector player in hydroelectric power projects, and one among the top-three in cement manufacturing.

Though Jaypee Infratech’s name would indicate it to be a pure play infrastructure company, it is not exactly that, with more than half the revenues expected from its real estate development division. One peculiar aspect of Jaypee Infratech is that it is a one-project company. Originally, it was an SPV of Jaiprakash Associates floated to bag the Yamuna (Taj) Expressway Project. Later, it was made a subsidiary of Jaiprakash Power Ventures.

But this one project, Yamuna Expressway is rather huge in its scope. Designed as a new connection between Greater Noida and Agra, the 165 km six-lane project won’t seem like much compared with projects like the Golden Quadrilateral, but the scope of the project is that it is a dual purpose one. It will not only aim at reducing the distance and travelling time between the country’s capital city of New Delhi and the country’s most visited tourist destination, the Taj Mahal, but will try to create a sizeable commercial cum residential corridor along its entire stretch.

The construction of the expressway is now on and is expected to be operational by early 2011. A build-operate-transfer project compensated on toll collection, the company’s estimates put the annual toll as starting from Rs. 800 crore in 2011-12 and progressing through Rs. 1200 crore to peak at Rs. 3000 crore by 2015-16. Jaypee Infratech also claims that the toll collection would continue for the next 36 years. Such lucrative features accorded to the company are supposedly due to the capital expenditure of the project which is in excess of Rs. 10,000 crore.

However, the heavy and long-lasting toll is likely to stir up a social and political controversy when the expressway goes operational with much depending on who is ruling at the Centre and the various affected state administrations.

Another risk the company is probable to face is the real estate component of this project. Jaypee Infra will get to develop along the expressway five land parcels each amounting to 1250 acres. Though the company is valuing returns from these assets as high, the ground reality of residential and commercial projects in yet-to-be-developed pockets of land is not that promising. Jaypee Infratech is also not an experienced or recognized brand in the housing sector of the region, which is dominated by the likes of DLF & Unitech.

CARE has assigned to Jaypee Infratech an IPO rating of 3, which means average fundamentals only. The IPO which runs from April 29 to May 4 will have a price band of Rs. 102 to Rs. 117.

Though an established player in the capital markets, there are indications that the implementation of this mega project has been taxing the Jaypee Group a bit. Both its already listed entities, Jaiprakash Associates and Jaiprakash Power Ventures, have failed to appreciate much, compared with the main indices, even in this bull run. Maybe this is one reason why Jaypee Infratech has scaled down its collection targets for this IPO from earlier projections.

Still, at around Rs. 2500 crore, this would be one of the most challenging IPOs in the current market. To better its prospects, Jaypee Infratech is reserving 10% of the IPO for non-promoter shareholders of Jaypee Power Ventures on a competitive basis. As a last-ditch effort to make the IPO sail through somehow, retail investors are being offered a 5% discount to the offer price. However, it remains to be seen how much this will help in the retail segment as smaller investors fed up with the range-bound secondary markets are expecting nothing short of a miracle on the listing day.

SJVN IPO: Do Strengths Beat Weaknesses?

At around Rs. 30, this is a value buy for the long haul, but will the SJVN management be able to do enough so as not to fall into the rut that NHPC and JP Associates find themselves in?

The prospects of the power sector, especially in rapidly growing economies like China & India, is generally considered to be bullish. In this backdrop, several state-owned and private power companies in India had floated their IPOs during 2007-08, 2008-09, and to a lesser extent in 2009-10. Continuing in this trend is Shimla headquartered PSU Satluj Jal Vidyut Nigam Ltd’s IPO starting on April 29 2010.

Investors have always been divided over the possible returns from investing in power IPOs, as they are relatively new entities in the country’s capital market.

While many of the power companies that floated IPOs during the past couple of years were new players with no completed projects then – like Reliance Power and Indiabulls Power – SJVN is an established player in the industry. Though it has only one completed project, the Nathpa Jhakri Hydroelectric Power Station (NJPC) in Himachal Pradesh, it is rather huge, even by the standards of mega power projects. While hydroelectric projects are classified as mega starting from 500 MW of installed capacity, the underground NJPC project is around three times this, having 1500 MW capacity. In fact, at these levels it is comparable to mega thermal power plants.

Secondly, unlike many power companies that went for their IPOs, SJVN is already a regularly profit making entity. For the nine months ended December 2009, it registered Rs. 775.37 crore in profits on an income of Rs. 1510 crore, and in this context is comparable to Government’s other hydroelectric company, the National Hydro Power Corporation (NHPC).

SJVN is also on a significant expansion spree, geographically, capacity wise, capex wise, and technology wise. The company which currently has an authorized share capital of Rs. 7000 crore needs around Rs. 29,000 crore for the full expansion. Out of this, the first target is to raise around Rs. 15,000 to Rs. 16,000 crore to take the capacity from the present 1500 MW to 6500 MW. SJVN has already transformed itself from a one-project company to a multi-project one with another 10 hydroelectric projects in different stages of planning and execution in different north and eastern states. It has even gone abroad with one hydroelectric project in Nepal and two in Bhutan.

The prospects for hydroelectric power is significant in India with the country estimated to have utilized only 20% of its full hydroelectric potential. Worldwide, while 24 countries meet 90% of their power requirement using hydroelectric power, another 66 countries meet 50% of their requirement through hydro generation.

From being a pure hydroelectric player, SJVN is also diversifying into green technologies like solar and wind power, which enjoy good prospects in the coming decades.

The pricing of SJVN’s IPO is around Rs. 30, and there is no doubt that it comes across as reasonable for both retail and institutional investors. Still, the downsides should also be considered before deciding on a buy.

Looking from the company’s standpoint, the main disadvantage from this IPO is that the Rs. 1200 crore it hopes to collect from the primary market will fully go to the major shareholder Government of India and won’t come into meeting the financial requirements of SJVN. This is because this IPO is pure disinvestment and does not involve issue of new equity. Currently, Government of India (GoI) holds 74.50% equity and Government of Himachal Pradesh holds the remaining 25.50%. Only a 10.03% stake of GoI is being disinvested now, so that it comes down to 64.47%, post-Issue.

However, on the upside, this pure disinvestment will enable the company to get itself listed and thus get its value unlocked. From investors’ standpoint, there is also the upside of avoiding equity dilution.

But with no money coming in to service the current debt, it will be left for SJVN to do it from profits and internal accruals, which in turn can strain its bottom-line. However, being funded by the likes of World Bank, a syndicate of European banks, and domestic majors like LIC, Power Finance Corporation, and Rural Electric Corporation, the company is confident of retiring debt on schedule and garnering capital for further expansion.

Power projects have longer gestation periods, hydroelectric projects more so, and that is thought of as the main reason why scrips like NHPC and JP Associates have been lacklustre performers until now. This can hit SJVN too, and it should take good efforts from the management not to fall in this rut. Investors should anyway be prepared for a long haul, where this value-buy should deliver handsomely.

SJVN is headed by its Chairman & Managing Director HK Sharma, an award-winning bureaucrat noted for his turnaround skills.

The other risk for hydroelectric projects viz. destruction of environment, villages, and livelihoods due to submersion, is something that SJVN has been attending to properly until now.

Kunnath, Creators of Musli Power X-Tra, Bags French Innovation Award

Kochi, India, based Kunnath Pharmaceuticals, the firm behind the herbal formulation Musli Power X-Tra that has managed to get a buzz as well as controversies around it recently, has informed that it has been selected for an international innovation award by a management association based in Paris, France. Awardees including Kunnath Pharma were selected by a jury from over 850 international nominations received this year.

The award giver, Otherways Management Association Club (OMAC), is a member of noted international management organizations like American Management Association and American Marketing Association. Founder and Managing Director of Kunnath Pharmaceuticals, KC Abraham, will attend the award ceremony scheduled on 12th July 2010 at Hotel Le Meridien Etoile, Paris.

The award is officially titled ‘The New Era Award for Technology, Quality, & Innovation’. Speaking to Seasonal Magazine on the development, KC Abraham said, “It is heartening to know that the efforts of Kunnath in fostering modern herbal extraction technologies, product efficacy and quality, and above all, innovation were recognized by an international body. Our flagship product, Musli Power X-Tra’s success is largely based on these three values.”

Earlier in this year, Abraham had won an award for entrepreneurship given off by Indian President, Pratibha Patil at the Presidential Palace, Rashtrapati Bhawan.

KC Abraham, a first generation entrepreneur from the picturesque Indian state of Kerala, started out as a farmer and was forced into entrepreneurship when a huge crop of ‘safed musli’ (a herb thought to reverse erectile dysfunction) found no takers. He experimented many formulations with safed musli for efficacy and finally hit upon the formula for Musli Power X-Tra, which has nine different herbal extracts and minerals.

Musli Power X-Tra was dogged with controversies from its start, but Kunnath has been able to survive most of them till now. Detractors of the medicine, that include some of the drug regulators of a few Indian states, have repeatedly tested samples of Musli Power X-Tra for traces of allopathic molecules, but has so far failed to unearth any. Even recently, the formulation was found to test negative for Sildenafil and Tadalafil, the active ingredients of Viagra and Cialis, as well as synthetic steroids.

Abraham, however, has a curious take on such inquiries. “It is the efficacy of Musli Power X-Tra that is making them suspicious.”

Meanwhile, the sale of the drug has grown systematically, with it being available across many countries, and drug approvals sought by Kunnath in many more.

Another controversy regarding the herbal drug has been that it was first marketed as a medicine for male impotency, then also for female sexual dysfunction, then for male and female infertility, and now also for general health and vitality. While detractors say this is only to dodge stricter regulations for selling sexual remedies and to increase the target market, Kunnath maintains that it was originally intended for male impotency, and that they too had stumbled upon the wider uses over a course of three years. Says Abraham, “One clue to the riddle is that in Ayurveda, sexual health can only be bettered by bettering overall health.”

Coal India IPO: Sector Hot, Company Expanding, But Will the IPO Deliver?

Globally, coal is kindling again.

It seems the news of coal’s death was heavily exaggerated. Even while solar and wind power continue to make inroads, there is no doubt that massive and robust power generation systems are still coal powered.

In India too, the situation is no different, with its power sector – the second fastest growing in the world after China’s – guzzling up coal like never before. The country’s state owned virtual monopoly in the sector, Coal India Ltd, is also back to normal with all its subsidiaries back from red, and profit after tax rising by 300%. Enjoying the top-rated Navaratna status in India, this public sector unit is still the world’s largest coal producer.

On many such counts, the time seems ripe for Coal India to go for its IPO. The plan is to offer just 10% of the company to public, but which - due to the high valuation the company enjoys - will result in it being India’s largest IPO till date, ahead of companies like Reliance Industries, ONGC, TCS, DLF, and Reliance Power.

On the downside, India has lately developed two problems with coal, one being the quality of coal produced, and secondly the logistics involved in meeting the heavy demand.

To overcome the first obstacle, the Indian Government has created a new Coal Policy that puts pressure on Coal India to unfailingly source better quality coal, even if it is by taking stakes in international mines. The first such partnerships are getting readied by Coal India by planning stakes in Peabody and Rio Tinto.

On the logistics front, the company is waging a long-drawn battle with state-owned Indian Railways for better rake allocation. Another of Coal India’s risks is that it is employee heavy. Coal India is the country’s largest employer, being home to 4 lakh employees. But the company is steadily working to rationalize this huge number, and the 10% stake sale through IPO will include 1% to this employee base, which is expected to create windfall profits for them if everything goes as expected, and act as a voluntary retirement benefit.

Current Chairman Partha S Bhattacharyya has been a Coal India veteran, and has been noted for a few turnarounds in some of Coal India’s subsidiaries.

10 Questions Shashi Tharoor Must Answer to Come Clean

As the verbal spat between Shashi Tharoor and Lalit Modi intensifies on the Kochi IPL cricket team, and both their professional fates hang in balance, here are ten questions for the Minister to come clean. For the IPL Commissioner, it would take a hundred questions.

1. You say your sole aim was to bring an IPL team to Kerala. If so, had you taken into confidence the Kerala Chief Minister, the Kochi MP, the Kerala Cricket Association, or at least your senior Cabinet colleagues from Kerala on your initiative?

2. If you can recall, when did you meet Sunanda Pushkar for the first time? You have mentioned that your acquaintance with her is recent, maybe just months old. If so, was she a friend before her IPL interest was known to you, or is it that your common interest of winning an IPL bid brought you together for the first time?

3. If you keep aside Vivek Venugopal’s 1% paid equity, all other investors including the 75% paid ones and the 25% free ones like Sunanda Pushkar are from outside the state or outside the country. If you acted for Kerala, why didn’t it ever occur to you to stitch together a group of high-profile Keralite or Non-Resident Keralite businessmen?

4. You maintain that your only role here is of mentoring. What exactly is this role? Is it identifying and coaxing wealthy businessmen for investing in this, and identifying your friends and friends’ friends for sweat equity? What was the pitch for all of them – was it that this bid would be backed by Shashi Tharoor?

5. You also maintain that your office of Minister of State for External Affairs was never misused. But isn’t the very act of putting your name behind a bid, amounting to throwing your weight around as a Minister? Isn’t it very clear that you threw your weight around as Minister to get things done – both to gather this odd community of investors / benefactors, and to barge into this coterie called IPL?

6. How will you react if it was ultimately proved that covert UAE money is behind this deal to win Kochi, at four times that of what Mukesh Ambani paid for Mumbai, and at a sum even an aggressive business house like the Adanis was unwilling to part with?

7. If you knew Lalit Modi was not the most honest sports manager around, why did you choose to deal with him? Almost every other person in the trade has a problem with Modi. Why didn’t you divulge Modi’s tactics before? Or is it like Modi was ok as long as he was ok with your interests?

8. Who authorized you to act on Kochi’s behalf, and to ‘sell’ Kochi in a way? If a city is this valuable in a national sports franchise arrangement, you surely can’t act without permission, isn’t it? What makes you so confident that only you can act for the benefit of Kochi in this game?

9. Is Sunanda Pushkar an Indian citizen? What is her qualification / experience in sports franchising? What is the exact service that she rendered in this bid?

10. Who christened the setup as Rendezvous?

Also Read: Tharoor Out, Modi Fired, IPL ‘Saved’, But What About BCCI, Betting, & Match Fixing?

Neptune IPO: Invest or Avoid?

The profile of Neptune Developers and that of their Mumbai projects signal that their Rs. 495 crore IPO is worth considering. But this new generation Mumbai developer’s books are complex and will require equally complex analysis to arrive at the answer to that crucial question – invest or avoid.

Firstly, Neptune has still not disclosed the share price at which the Piramal Group PE realty fund IndiaREIT took stake in the company a few years back.

Secondly, the company has a subsidiary Neptune Realtors Private Ltd, which is building ‘Evolution’, its largest commercial project near Bandra Kurla Complex, and in which Neptune Developers want to increase stake using a part of the IPO proceeds. And to complicate matters further, NRPL has four classes of shares presently – Class A, B, C, & D, with IndiaREIT having a 30% stake in this subsidiary too.

But such cross-holdings are nothing new to the realty sector, with sector leaders like DLF and Unitech juggling their projects and investments across tens or even hundreds of companies.

Much will depend on at what rate Neptune will be offering their equity, with some analysts estimating the fair price at Rs. 155 to Rs. 163.

Neptune Developers has seven ongoing projects including residential and commercial, with a total saleable area of around 65 lakh sq ft and another proposed project with a developable area of 7.66 lakh sq ft. The company seems to enjoy good margins with a net profit of Rs. 9.16 crore on a total income of Rs. 15.92 crore for the last financial year.

This developer with only three completed projects to its credit, however, has a debt of nearly Rs. 320 crore.

Neptune’s main promoters are Nayan Bheda and Sachin Deshmukh, both in their late 30s, and who were earlier with city based unlisted developer Nirmal Lifestyle.