Performance of Newly Listed Shares as on 4th August 2017

Name Date of listing Issue Price closing price closing price % gain loss change over
04th August 28th July over week lssue price
IRB INVIT 18th May 102.00 97.89 98.04 -0.15 -4.03
HUDCO Limited 19th May 60.00 80.05 83.40 -5.58 33.42
PSP Projects Limited 29th May 210.00 329.60 302.55 12.88 56.95
India Grid 6th June 100.00 97.50 97.03 0.47 -2.50
Tejas Networks Limited 27th June 257.00 349.55 333.35 6.30 36.01
Eris Lifesciences Limted 29th June 603.00 568.40 609.45 -6.81 -5.74
CDSL 30th June 149.00 311.70 373.55 -41.51 109.19
GTPL Hathway Limited 4th July 170.00 142.30 156.35 -8.26 -16.29
AU Small Fianance Bank Limited 10th July 358.00 553.60 587.85 -9.57 54.64

Cochin Shipyard records subscription while markets survive rate cut

Markets have a mind of their own there is no doubt. After RBI announced a rate cut of 25 basis points on expected lines and with a 5-1 verdict, markets began to correct. The correction lasted a mere couple of days and by weekend on Friday they were back to their winning ways scoring gains all over again. The markets are richly valued no doubt but the excess liquidity ensures that at every correction there are enough buyers.

The IPO from Cochin Shipyard had huge success and received subscription which is very noteworthy. This time of fund mobilisation has happened only after Coal India which was an issue over ten times in size of Cochin Shipyard. While Coal India was to raise Rs 15,500 crs, Cochin Shipyard was for a mere Rs 1,468 crs. The total amount raised was a staggering Rs 1.11 lac crs. The issue saw the QIB portion subscribed 63.52 times, HNI portion subscribed 288.87 times and Retail portion subscribed 8.51 times. The company received a total of 20.75 lac applications which is a new record bettering the previous one also from a PSU company, HUDCO which received 20.13 lakh applications.

Seeing the kind of subscriptions from the retail which is really taking to the markets through primary issues and also mutual funds, it’s time to revisit the various buckets that the IPO has been divided into.

It is now an open secret which even the chaiwala on Dalal Street knows that the HNI applies only through borrowed money. Why should he be allowed to bid for one time the whole issue when oversubscription in his category is not allowed to be shifted to the QIB category? He is only interested in doing this large an application so that unless the issue is subscribed in the HNI category by over 100 times the margin at which money is lent does not reduce. Without that comfort he is not interested in the issue. When one sees the total subscription by HNI’s and the number of people who have applied it invariably is less than the number of times that the issue is subscribed.

Further it is this category of people who play the grey or premium market and are not conducive for a healthy state in the primary market. With the regulator cracking down on the contentious P-Note market, why action is not taken here beats me. By not allowing the HNI to bid for more than the bucket size almost all problems would be solved. The regulator must attempt giving this a try and solve the problems of this hyped demand and rampant price rigging in the primary market which is not justifiable and sustainable.

Markets are looking tired but refuse to correct or consolidate. Who blinks first the markets or the investor only time will tell.

Early signs of cracks appearing – Book profits

The markets continued to make new highs and NIFTY crossed the magical level of 10k.This week the market gave signs that the momentum is stalling and a larger correction is in the offing sooner than later. The BSESENSEX gained 280.99 points or 0.88% to close at 32,309.88 points while NIFTY gained 99.25 points or 1% to close at 10,014.50 points. The broader market too registered gains of between 0.90% and 1.00%.

NIFTY futures for July expired with decent gains of 516.45 points or 5.43%. Bulls were seen struggling on expiry day in the last hour and were unable to press home the advantage. This gave an indication of things to come and markets were slightly weaker on Friday. The midcap and smallcap segments have been seeing profit taking for the last couple of days and it is likely to continue in the coming week as well.

RBI meets for its bi-monthly policy review meet this Tuesday and Wednesday the 1st and 2nd of August where it is widely believed that there would be a rate cut. Inflation has never been so soft and benign and this is the best chance for a rate cut. The optimists are hoping not only for a rate cut but an over optimistic cut of 50 basis points. Whether it would happen or not one is not sure but going forward rate cuts would not be easy with the Fed deciding to shrink its balance sheet and maintain a tight interest rate regime. In such a scenario interest rates may not soften in India going forward post this cut.

There are two IPO’s in the coming week. The first is from Cochin Shipyard which is raising roughly Rs 1,470 crs through a simultaneous offer for sale by the government of India and a fresh issue of 339.84 lakh shares in a price band of Rs 424-432. There is a discount of Rs 21 for retail and employees. The issue is being offered at an attractive multiple of 15-16 times its FY March 2017 earnings. The company is building India’s first indigenous Aircraft carrier. Newspaper reports and the CAG peg the cost of the same at roughly 3 billion dollars. The company has billed so far Rs 7,000 crs for the ship and roughly Rs 12,000-13,000 crs would be billed over the next four or five years. Even though this is majorly to be bought out there is a handling fee which would be earned by the dockyard.

Besides the shipyard, the company is in two more verticals which are ship repair and training and laboratory services. Ship repair is a very high margin business and the company is expanding its activities by adding a new repair facility and also building a new dry dock. The new facility will sufficiently ramp up the capability and capacity of handling substantially larger ships and vessels and make Cochin shipyard a preferred vendor for new ship and repair facility.

Going forward I am sure that the government with its make in India initiative would order further aircraft carriers from Cochin shipyard rather than buying older ones and then refurbishing them. The issue is a must subscribe.

The second issue is from Security and Intelligence Services (India) Limited. The company is tapping the capital markets with its simultaneous offer for sale and fresh issue to raise Rs 775-779 crs in a price band of Rs 805-815. The PE of the issue is a staggering 61.78 times to 62.55 times based on consolidated earnings for the year ended March 2017. The company earns over 86% of its total revenues from security services and is primarily based in India and Australia. Its operation in Australia is bigger than India which 60% of the revenues from security services coming from Australia and 40% coming from India. Its net margin is just under 2%. The valuation at which the shares are being offered leave little or no scope for appreciation for the investor. Further the retail portion is a mere 10% of the issue size and makes allotment that much more difficult.

With both issues back to back, it makes sense to just apply for Cochin Shipyard and ignore the second.

With RBI policy due on Wednesday and markets showing early signs of cracking, keep on the sidelines and book profits.

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