The week gone by was tough on the markets and we refused to respond to global cues particularly Dow Jones. While the Dow gained 796.68 points or 3.14% to close at 25,334.74 points, BSESENSEX lost 739.80 points or 2.72% to close at 33,307.14 points. We also made a new low during the week, breaking the one made on 6th February post the budget. This sure is a cautionary signal and should not be ignored. NIFTY lost 231.50 points or 2.26% to close at 10,226.85 points.
In primary market news shares of H G Infra Engineering Limited listed on Friday and survived a scare, Shares which were issued at Rs 270 managed to close at just around the issue price at Rs 270.05.
The coming week is going to see two issues opening for subscription. The first is the defence sector PSU Bharat Dynamics Limited which opens for subscription on Tuesday the 13th of March and closes on Thursday the 15th of March. The offer for sale of 2.24 cr shares would be in a price band of Rs 413-428 and there would be a discount of Rs 10 for retail and eligible employees. The issue is valued in a price band of 19.15 to 19.84 times its March 2017 earnings of Rs 21.57. The company manufactures missiles for the armed forces and is an approved supplier of DRDO and uses the technology provided by them.
The second issue is from micro finance and now a universal bank, Bandhan Bank. The company is tapping the markets with its simultaneous issue, comprising of a fresh component of 9.76 cr shares and an offer for sale of 1.40 cr shares. The total issue of 11.92 cr shares is at a price band of Rs 370-375 and is being issued at a price earnings multiple of 31.75 to 32.19 times based on its nine-month earnings of Rs 8.74 annualised for the year. The company had earned Rs 10.15 for the year ended March 2017 and the same on an annualised basis would be Rs 11.65 for the year ended March 2018. The price to book is a massive 7.59 times its NAV of Rs 49.35. The issue is certainly expensive and the company believes this is the price one is asking for their business model of being a microfinance bank. The market cap of Bandhan at the issue price would be higher than every other PSU bank except State Bank of India. One needs to look at the prospects of the bank and its business model very carefully before giving it such valuations.
One would be wondering why a spate of issues in the last fortnight of the financial year? Very clearly there is one angle that market participants would normally not think of. The Union Budget introduced long term capital gains tax from 1st April 2018 and grandfathered the same based on highest prices as of 31st January 2018. What it did not do is for unlisted entities. This effectively means that companies who are not listed would have to pay long term capital gains tax beyond 31st March and hence issues which have an offer for sale component either form the promoter or the private equity investor have suddenly realised the importance of 31st March.
While two issues are opening during the week, another six to ten are expected to have their roadshows during the week. The object is to beat the deadline and complete the issue before the financial year ends. The pressure on markets would increase and funding is likely to be at a premium being yearend. It is also likely that funding is done for just a couple of issues and not the whole bunch.
Some of the companies whose roadshows are slated for the week include auto component maker Sandhar Technologies, PSU special alloy maker Mishra Dhatu Nigam and aircraft maker HAL. There are many in the waiting list and would happen in the next 2 to four days.
It would be a mad rush and interesting to watch how many make it.
