Markets were on an upward march last week and gained 0.94% on the BSESENSEX and 0.70% on the NIFTY. The number that was the highlight of the week was 0.58% and not one not two bus as many as four indices gained 0.58%. They were the BSE100, BSE200, BSE500 and BSESMALLCAP. It’s a strange coincidence that four indices gained the exact similar percentage. Besides the coincidence there is no other relevance but in the last ten years such an incidence does not come to mind.
Three of the five phases of polls in Bihar are over and the final phase would be completed on the 5th of November with counting on the 8th of November. This is a date which the market is looking at very crucially. There are two scenarios likely with which one will unfold being decided in the course of the next 3-4 days. October futures expire this Thursday and currently the bulls are in complete command with a gain of 426.95 points or 5.43% over the previous month’s level. They may in the first scenario press home the advantage and with favourable environment push the market to cross the 8600-8700 hurdle on the NIFTY and poise it for a breakout post the election results. In this case if something goes wrong then they have a higher level from which to sell. In the second scenario the possibility is that the market trundles along and then depending upon the election results, takes off or corrects itself in a mild manner. I believe the first option is a better one.
AK57 is a primary market site and since inception and even before there has never been an issue as perplexing and confusing as Interglobe Aviation Limited the company which owns the airline Indigo. The quantum of offer for sale from the promoters was changed after the IPO RHP was filed. The company had to issue a corrigendum for the same. The promoters of the company chose not to attend their road shows. Whether this smacks of arrogance or overconfidence would be a debatable point. Their level of greed has crossed new heights and has probably reached the ultimate. Companies issuing bonus shares to promoters or existing shareholders is a well-known thing and accepted in the capital markets and Interglobe was no exception. They have in June 2015 issued a bonus issue of 9 shares for every share held. This company announced a dividend of over 3500% as interim dividend for the first quarter of financial year 2015-16 after issuing a dividend of some 3000% for the financial year 2014-15. In the process the company as on 30th June 2015 had a negative net worth.
To add insult to injury the dividend distribution tax on the above dividend would have been paid by the company in the July-September quarter and this would be from the profits of the publicly listed company. In other words rather than leaving something on the table for investors, the promoters of Interglobe have left a bill on the table for the investors to pay. It sure shows the height of greed of promoters.
The management of the company tried to downplay the issue by stating that it was a technical issue and happened as on a given day but the message it sends to investors is just not correct. The promoters who would continue to hold a large and controlling stake in the company even post the issue have literally brought the companies reserves to a trickle in satisfying their greed. Well legally nothing on earth stops them from doing it but investors should take note and understand that airline companies distributing dividends of 3500% is unheard of and going forward whether they will be amply rewarded by way of dividends or not is a million dollar question. In an apparent damage control exercise the promoters of the company met members of the media but it is not clear whether it was just one media house or all the leading media houses. I believe the whole exercise was a little too late and the company should have been better prepared in the first place.
The mega issue is likely to receive its support from QIB’s and that too mainly from FII’s while the retail and HNI buckets would struggle.
The second issue is from “F&F” player S H Kelkar and Company Limited which is tapping the capital markets with its fresh issue for Rs 210 crs and an offer for sale of 1.31 cr shares totalling about Rs 500 crs. The price band is Rs 173-180. The company is ninety years old and is in the business of flavours and fragrances supplying to multinational FMCG companies in India and abroad. Its competition is from the MNC companies who have their Indian subsidiaries and SHK is the leading Indian player which has its roots in ‘Amchi Mumbai’ in Girgaum, then Dadar and now Mulund.
The fresh issue is to pay of the existing debt of Rs 172 crs and this would make the company debt free. The capex for the company has been completed some time ago and the present capacity is more than enough for the company to raise its production over three fold. To maintain secrecy of its recipes which are critical for its success and that of its clients it has robotic lines for the mixing of its ingredients. This ensures complete secrecy and acts as a moat for the company in a highly competitive environment where customers normally have a long term relationship. A case in point is ‘Cinthol’ where SHK has been supplying the perfume for over 50 years to Godrej.
Valuation is a perception and when one looks at the profits for the first quarter of FY2016 on an annualized basis the same is Rs 82.64 crs. The profit for the year ended March 2015 was Rs 64.38 crs. Based on the existing equity of 13.29 cr shares the EPS for the year ended March 2015 was Rs 4.84 while it would be Rs 6.21 for the current annualised numbers FY16. This would mean a PE of 28.98 times at the upper end of the price band of Rs 180.
Coffee Day Enterprises is expected to list shortly and the fate of mega issues hereafter could be decided by the success or otherwise of that issue. Till then if in doubt play just the secondary market and leave the primary for the time being.
