Thank god the week ended as it was one hell of a crazy one. It all began with the BSESENSEX gaining 600 points on Monday and ended with it losing 500 points on Friday. Net result for the week was a loss of 131.14 points or 0.40% to close at 33,176 points. NIFTY lost 31.70 points or 0.31% to close at 10,195.15 points.
Dow Jones lost 388.23 points or 1.84% to close at 24,946.51 points. Developments in the US and utterances by Trump are keeping markets globally on tenterhooks. Trade wars are likely to break out sooner than later and would engulf all and sundry. These wars could be more dangerous than one imagines.
March futures expire on Thursday the 22nd of March and currently it appears that the bears have the advantage. The series at 10,195.15 points is down 187.55 points or 1.84%. With the kind of volatility being witnessed it should be easy for the bears to pull of the series quite comfortably.
The week gone by saw the issue from Bharat Dynamics Limited subscribed 1.3 times. QIB portion was subscribed 1.5 times while the HNI portion remain undersubscribed at 0.50 times. Retail portion was subscribed 1.41 times. The interesting thing in the retail subscription was the 11k odd applications were for an average of over 13 lots clearly indicating that retail has applied for roughly the 2 lac amount. They knew that the response would not be overwhelming.
The week ahead is full of issues from the primary market. One wonders why so many at the end of the year? The answer is simple. It is the benefit of long term capital gains tax that would be applicable for the private equity investors and promoters with effect from 1st April. This is notwithstanding the fact that benefit of indexation has been extended to unlisted equity.
The issue from Bandhan is on and would close on Monday. The issue is subscribed 0.88 times and would see the HNI demand coming in on Monday in a big way. The interest rates have moved up on leverage to 6% with a margin payment of 3%. This would make the cost of funding at about Rs 0.43 per time per share for the leveraged investor. The issue is expensive but looking at the massive response from the anchor investors the same would see HNI’s lapping up the issue. Secondly the funding would be centred around this issue and would therefore see disproportionate interest compared to other issues.
The second issue which has opened and is due for closing on Tuesday the 20th of March is from Hindustan Aeronautics Limited, the PSU which makes fighter aircraft and helicopters. The issue has a price band of Rs 1,215 to 1,240 with a discount of Rs 25 for retail and employees. The issue size is 3.41 cr shares. The price earnings multiple based on March 2017 numbers is 16.64 to 16.99 times, its EPS of Rs 73. The one big issue in the case of HAL is that though they have just won an order of 320 aircraft for Tejas, at the proposed ramp-up of capacity from 8 aircraft to 16 that the company is planning, it would still take 20 years to execute the order. This could be a big negative for the company for the star Defence PSU of the government. Secondly the issue would see a muted response from HNI’s as the issue would not be funded by NBFC’s.
The third issue is from auto component maker Sandhar Technologies Limited which opens on Monday the 19th of March and closes on Wednesday the 21st of March. The issue consists of a fresh issue of Rs 300 crs and an offer for sale of 64 lakh shares in a price band of Rs 327-332. Based on annual results for March 2017, the PE multiple is a steep 42.69-43.34. If one were to look at half year September 2017 results and annualise the EPS of Rs 6.69, the price earning multiple reduces significantly to 24.43 -24.81 times. These higher earnings is as a result of plants which recently came into production having reached critical mass and achieved cash breakeven or better.
The fourth issue is from defence PSU, Mishra Dhatu Nigam Limited or ‘MIDHANI’. The company is a niche player and makes titanium and super alloys for the aerospace and space programs and supplies to defence and power plants. The company is issuing 4.87 cr shares in a price band of Rs 87-90 with a discount of Rs 3 for retail and employees. The company had earned an EPS of Rs 6.74 for the year ended March 2017. The company proposes to begin manufacturing at Rohtak, ‘kavach’ or bulletproof jackets and armament steel for vehicles and tanks to make them that much safer from attacks. The company has a large number of niche customers in HAL, Bharat Dynamics and ISRO amongst others.
The fifth issue is a small one from Karda Construction which is a builder from Nasik in Maharashtra. The company is tapping the markets with its fresh issue for 43 lac shares in a price band of Rs 175-180. The price earnings multiple based on March 2017 numbers is a stiff 21.79-22.42 based on earnings of Rs 8.03. Considering that Nasik is a tier-2 city, valuations look expensive.
The sixth and final issue for the week is from ICICI Securities Limited which is offering for sale 7.72 cr shares in a price band of Rs 519-520. The earnings for the year ended March 2017 were at Rs 10.48 which puts the price band at 49.4-49.5 times. The earnings for the first nine months ended December 2017 were at Rs 12.39 which if annualised comes to Rs 16.52. The PE multiple at these earnings is 31.41 to 31.47. The company is promoted by a bank and therefore unlike its peers in the broking fraternity does not have a NBFC arm. The NBFC arm of brokers like Edelweiss, Motilal Oswal and IIFL have large incomes from lending against shares, margin funding and also IPO financing. ICICI Securiites has begun margin trading and may push this product going forward. Their digital platform ‘ICICI Direct.COM is a market leader and enjoys premium status with their three in one account which includes trading, Savings account and Demat Account.
ICICI Bank would be trying to do the unheard of if they are able to complete the process of allocation for the issue within the current financial year. The issue would close on Monday and applications would be banked on Tuesday which leaves just one working day for final certificates to be collected. Thursday and Friday are trading holidays and even though the exchange maybe willing to cooperate and finalise the allotment, the challenge would be coordinating all the banks involved.
With a spate of issues and three of them being big ticket size, liquidity would be at a premium. Markets would be under pressure and expiry alone could provide relief in the new series. Use sharp dips to build long positions.
