The week gone by had more action and drama than one expected or could imagine. It all began with a sharp fall on Monday which continued into Tuesday. The loss on the BSESENSEX on these two days was 467 points on Monday and 509 points on Tuesday. Then the recovery began with gains of 304 points on Wednesday and 383 points on Friday. Thursday was a trading holiday on the bourses because of Lord Ganesh making his annual trip to his followers’ homes. The net change on the BSESENSEX was a loss of 299.18 points or 0.79% to close at 38,090.64 points. NIFTY lost 73.90 points or 0.64% to close at 11,515.20 points.
The fall on the first two days of the week broke the low of the previous week and it now is to be seen whether there is enough steam in the market to take it higher than the previous week’s high. The prerequisite of euphoria in the marketplace will ensure that the markets cannot peak out. Whether before they do so, there can be a sell-off, is to be seen.
Monday the 17th of September sees the offer for sale from Ircon International Limited open. The company is part of the Railway ministry and the issue is for 99.05 lac shares in a price band of Rs 470-475. The company had registered revenues of Rs 4,212 crs for the year ended March 2018 and a net profit of Rs 412.59 crs. The EPS for the year ended March 2018 on consolidated basis was Rs 42.13. There is a discount of Rs 10 for retail investors and eligible employees.
The railway is the largest customer for Ircon which has a current order book of Rs 22,406 crs which is roughly six times of current revenues. It enjoys a decent net margin of 9.79% and a return on net worth of 10.98%. The nature of business entails a high mobilisation advance from the railways which remains with Ircon during the period that the order is being executed. This ensures that Ircon does not need capital for executing projects for the railways. Secondly the interest earned on the advance from Railways is credited back to the railways. Because of this, the return on capital employed appears on the lower side as over 80% of the total order book is from the railways. The company has also begun executing hybrid annuity projects where it builds the railway tracks, operates and maintains them for the life of the project. These projects are in subsidiaries and are SPV’s with different states.
Some people on the street are unhappy on the return on capital earned by this company. Its important to note that having a parent like the railways, who gives them significant portion of their orders and helps them with advance for executing the same, does take back the interest earned on the same. This does not affect then margins of the company but has a bearing on the returns on capital. It is difficult to break up the returns on non-railway orders.
The company looks exciting and interesting and looking at the massive railway expansion of network and refurbishing of the same, offers scope for continuity in business with decent returns. It makes sense to invest in the issue from the government.
The Indian Rupee which was under tremendous pressure hit a low of Rs 72.92 before recovering to close at Rs 71.85. Dow Jones gained 238.13 points or 0.91% to close at 26,154.67 points. The government had a cabinet meeting on Friday to take stock of the current economic scenario and has decided to curb non-essential imports. This would send a right signal to the currency markets and hopefully the rupee would stabilise.
The week ahead which is again of four days duration with a holiday on Thursday would be choppy and volatile. It is difficult to predict the intra week moves. Suffice to say that the strategy should remain the same with using dips to buy and rallies to sell.
