Issue Subscribed over 13 times – Retail subscription 2.99 times

Engineers India Limited which had launched its FPO was well received. The issue opened on Tuesday the 27th of July and closed on Thursday the 29th of July for QIB’s and for the other investors on Friday the 30th of July. The issue was subscribed 13.36 times. This type of subscription is indicative of the well received price in the minds of investors of all categories.

I believe a discount to market price which leaves money on the table for investors is better and if it helps in reviving the interest of investors, particularly the retail sector it should certainly be done. In case of EIL the price band was announced as Rs 270-290 when the previous day’s closing price was Rs 337.65 implying a discount of almost 14% at the top end of the price band. The proper pricing has ensured that the interest is huge and because there is such interest one will not see a selling spree when these shares are listed. I would like to congratulate the efforts of the Divestment Ministry in bringing about a price band which has revived the interest in FPO’s from Institutional and retail investors.

Let’s hope the proper pricing experience in EIL will be used going forward where the twin objective of ensuring mass participation and making investors earn something is achieved. A healthy capital market particularly the primary market is of utmost importance if the objective of 25% public holding is to be achieved.

The details of the subscription are as follows: –

Engineers India Limited launched its Follow on Public Offer which opened on Tuesday the 27th of July and closes today for HNI’s, Retail and employees. It closed yesterday for the QIB category which was subscribed 23.43 times.

The new option for IPO gives retail and HNI’s an additional day after the issue closes for QIB’s to take a call on whether to apply or not for an issue. This is an excellent move and would be of immense help to retail investors who would now get an opportunity to study the demand and then take a call whether they should apply in the IPO or not.

In the case of Engineers India it is a ZERO RISK game. The QIB portion is subscribed 23.43 times. The price band is Rs 270-290. The final price would be Rs 290 looking at the subscription. The discount of 5% to retail investors makes their allotment price Rs 275.50. The closing price yesterday on BSE of Engineers India was Rs 329.65. The difference between closing price and top end of the price band is Rs 39.65 is more than 13%. The strength in the share can also be judged from the fact that though the price band was announced on Monday morning by way of an advertisement in newspapers when the previous close was Rs 337.65, the net loss over four days of trading has been a mere 8 Rs.

Coming to the issue itself Engineers India Limited is one of India’s leading engineering consultancy company providing design, engineering, procurement, construction and integrated management services and project implementation on a turnkey basis. The company was set up in 1965 by the Government of India jointly with Bechtel International Corporation to provide consultancy services in the hydrocarbon sector. Two years later it became a wholly owned GOI company. The initial investment was Rs 25 lacs in the company.

The company has had a very successful track record and has given six bonus issues so far. An investment of 100 shares has now with bonus issues become 64,800 shares. EIL went public in 1997 and an investment in EIL at that time of 100 shares has become 900 shares now and considering the split in shares to a face value of Rs 5 becomes 1800 shares. Clearly there is wealth creation for shareholders.

Coming straight to the financials of the company, the income of the company has grown from Rs 887.63 crs in March 2008 to Rs 1773.61 crs in March 2009 and to Rs 2196.96 crs in March 2010. Its profits after tax in the same period have grown from Rs 199.26 crs to Rs 349.52 crs and finally in March 2010 to Rs 444.34 crs. For the first quarter ended June 2010 the total income was Rs 635 crs and its PAT was Rs 114.56 crs. The current order book as of 31st March 2010 is over rd 6300 crs and with an average completion time of 24 to 30 months the company has sufficient order visibility in the next two years.

The EPS for the year ended March 2010 was Rs 13.18 and for the first quarter was Rs 3.40. If one is to calculate the price earnings multiple at the top end of the price band which will in all likelihood be Rs 290, the share is being offered at 22 times its FY10 earnings and 21.32 times its first quarter FY11 earnings on an annualised basis.

I believe this is a great opportunity to invest and there should be decent returns for investors. Retail investors should not be surprised if this issue is subscribed around 3 times as well. The QIB portion is oversubscribed 23.43 times, which is a record in any FPO, the share price differential is holding and the waiting period from today is roughly 2 weeks. The divestment would increase the public float but the holding would be wide spread because of the over subscription.

SEBI Disclaimer: – I intend to subscribe to the above issue.