Investing in 2009: ALL your questions answered

It's been a bad year across asset classes, whether one bought into a commodity or a stock or the stock market.

It was one where the Sensex started off with the market close to 21,000 and before closing, crashed almost 50%. Global markets came off a whole lot as well — which can be a little comforting.

It also came off very sharply for the big stars of 2007. Real estate is one of the biggest losers this time around. Metals, infrastructure, everything that had the sheen of gold to it in 2007 has come off this time around, which is why we are doing it a bit differently towards the end of the year.

Here's a guide on what you should prepare yourself for in 2009, whatever be the space you want to look for. If you want to look at a mutual fund or you want to look at the equity market or with commodities or a call on home loans or any kind of loan next year, what should you expect from rates? CNBC-TV18’s Managing Editor Udayan Mukherjee answers.

Here is a verbatim transcript of Udayan Mukherjee's exclusive interview on CNBC-TV18's show Classroom. Also watch the accompanying video.

Q: This has really been a full-blown bear market that many young people including myself have not seen in the past. The question is: what does one expect going into 2009?
Mukherjee: It is a difficult question to answer because at the start of the year a lot of people put forward a lot of opinions. Twelve months is almost like an eternity in the kind of world that we live in. So, the one caveat before I answer that to the best of my ability is: you must at every point reassess the situation. So, whoever you follow in the market, you cannot get stuck to one piece of opinion, which was given on December 31 or thereabouts and say that was the call for the entire full year because the best of analysts will go wrong. There will be twists and turns along the way and the thing about equities is that people change their opinions as they should at every interval depending on how the world is evolving and so should you as an investor.

You cannot be stuck with a predisposition of being bullish or bearish that you took at the start of this year. Having said that, you've put 12 months of utter bearishness behind you in 2008. Therefore to go into 2009, you’ve got to keep the history in mind that. Yes, you may be in a bear market but you've already put behind 12 months of it into stock prices.


So, there could be wild fluctuations and the one thing that could actually play out at some point or starting some point in 2009 is the market gets into some kind of a trading range, which we haven’t seen in 2008. It has been one big drift down.

So, in 2009, if history is any indication you could start to get into some kind of a trading range. I have no idea, not the foggiest notion of what that trading range could be. It could be 7,000-12,000; it could be 10,000-15,000. So, there is no saying what that range will be. But as an investor, what pays if you look back into the couple of times I have seen these ranges play out is: you approach some kind of a trading attitude or disposition to the market, which is you don’t want to get wedded into stocks. You say every time there is panic and the market goes down to maybe those sub-10,000 levels then you buy and play for those rallies because at some point you get those bear market rallies maybe to 11,000-13,000. At that point you take your profits once again.

So, my approach in 2009 till the market tells you that it has begun trending once again, which it has not at the end of 2008, is to try and take away 15-20% whenever the market is giving you and then preserve your gunpowder for a better day.

Q: What about the less active investors? The problem with this year is not the fact that people who invested or got into the market this year were suffering. It is the people who have been holding for many years via mutual funds also came out with very deep cuts. What happens to those kinds of longer-term investors?
Mukherjee: If you are a mutual fund investor and you have that predisposition that you would buy when the markets are down and you would hold for two-five years and make a lot of money. The prudent approach from an equity mutual fund investor's point of view, then, would be to buy at low levels for the market.

So, the one thing that you have to tell yourself is: you cannot time the market perfectly, but you know that the market in 2008 had gone and visited 7,500. So, you keep that as a ballpark figure saying those are the lows. I will buy close to the lows.

The risk for that kind of assessment is that the market runs away from you and does not get back to sub-10,000 levels. So, I may start at 9,000 and buy all the way till 7,000 or below wherever the market goes. But at least I have that cushion of safety at around those kinds of levels and I do not chase prices above 11,000-12,000 and then commit money. So, as a mutual fund investor — not a trader — buy low should be the mantra of 2009. Every three or six months you get those periodic dips and that is the time to deploy money and wait for a couple of years after that.

Q: One thing that worked for the better part of this year was playing it through the fixed income route. Because of what's been happening in the macro-environment though, is that a good plan for 2009?
Mukherjee: The interesting thing is that people did well to hide in the fixed deposit or fixed income in 2008. 2009 will be not such an easy decision for two reasons. One is that fixed deposits will start getting you less and less. The tax rates will probably remain the same but those days of 10.5-11% fixed deposit are probably not going to exist in 2009. Now fixed deposit rates will keep coming down in 2009. My own assessment is that by the time we are done with the year, one is probably talking 8% FD or something like that. It could be 50-75 basis points here or there but if it is indeed 8% then you’re talking three percentage points lower on FD — 8% FD return meaning post tax one is talking closer to may be 5.5-6%. Now you are already at 6% virtually, how much lower will the benchmark yield go — 5-5%? But you will probably in the last bit of that government security rally with maybe not too much to go. The easy money has been made in that fall of the yield from 10% to 6%. So you would want to reassess how you’d want to structure yourself. You could still get reasonable returns from fixed income mutual funds but the party to a large extent has played itself out and may be the end of the party gong is about to go.

Here are expert opinions on 2009 and what you should be prepared for:
Atul Suri, Trader: Identify a trend from a good 50-day moving average. Identify the weak sector, very often the most fancied sector becomes the weakest. We’ve seen it in the 2000 slump and we see it now. In that, look for those restless losses that are tending to fall or go down much before the market goes into things. That helps you to really identify stocks and that is really what you can go out and short.

Jyotivardhan Jaipuria, Head of Research, DSP Merrill Lynch: Ultimately what as an investor you are bothered about is the profit growth rather than the sales growth because you don’t want somebody to keep having huge sales growth, which is very unprofitable.

Dr. CK Narayan, ICICI Securities: This is more from a money management perspective; you can have any kind of stop. But then it should be meaningful to the amount of money that you have. There is no point in having a 5-15% stop because it will blow you out in three trades and all your money is gone. So, have it realistic aligned to the capital, make it 1-2% at the most, so that you will be alive to take more trades and hopefully make more profits.

Nilesh Shah, MD & CEO, Envision Capital: What we have seen over the last few weeks is that the commodity cycle seems to have got busted. Commodity prices across the board are virtually at a four- to six-year lows. I This really bodes well for India because India is a net consumer and a net importer of commodities. What this will do is it will reduce input costs for companies, it will therefore improve their profitability and inevitably lead to lower prices for the consumer, which in turn would lead to increased demand over a period of time. So, I think commodity prices have significant implications and the recent correction in commodity prices really augurs very well for an economy like India.

Here's is a CNBC-TV18's Anichya Shah on bear market lessons to be learned from 2008. And before.

We have seen about 25 bear markets including this one since the 1870s. [US Federal Reserve Chairman] Ben Bernanke's predecessor Alan Greenspan has called this the worst financial crisis in the last 50 years. So what are the key takeaways from this entire global meltdown?

The biggest mistake investors made was saying that this time it is different. It usually never is. Remember Benjamin Graham once said that Wall Street is a place where people learn nothing and forget everything. Make sure that does not happen because the villains change but the outcome remains the same.

Leverage is okay but only to the amount and the extent that one can afford to lose completely because the risk reward ratio does act as a double-edged sword.

Avoid catching a falling knife. That was the biggest mistake a lot of investors made after the January sell-off. To quote trading great Jesse Livermore, he said: never add onto a losing bet.

Bear markets like bull markets are cyclical. They do take their time but patience is a virtue in such markets.

To quote Warren Buffet on the next one: look at market fluctuations as your friend rather than your enemy. Profit from the folly rather than participate in it.

Do not fear this 50% sell-off and look for opportunities. Having said that, traditional valuation tools like price-to-earnings, price/earnings-to-growth or PEG, EV/EBIDTA may not work effectively in a bear market when the earnings component is not known. Core balance sheet stripping is the only way to go.

New stars and sectors emerge from each bear market going into a new bull market. So don't fall in love with your old investment ideas. Remember to narrow your portfolio down to few core and key stocks because it is very difficult to track a very large falling portfolio.

Wall Street is always right and it usually always does lead to the Main Street. Lastly, use this time of the bear market to update your skills, go back to school, read a few books, do some bottom-up analysis so that you profit from the next bull market.

Here is an interview with CNBC-TV18’s Associate Editor - Financial Markets Latha Venkatesh on macro trends to watch out for in 2009.
Q: We saw this trend developing towards the end of the year. Can one expect significantly lower rates and also yields going into 2009? What is your sense?

Latha: Inflation can dip fairly sharply. Remember in August 2008, inflation was as high as 12.6% largely because crude was at USD 147 per barrel. When you do year-on-year comparisons, chances are next year we will not only get down to 1% but perhaps even get a couple of negative numbers. That cannot be ruled out. So, inflation pushing down interest rates is always there.

The other factor will be risk aversion. One should see banks continuing to be a little wary of lending to corporates liberally because the downturn is still playing out. There are still people who are using capacity less than they did in the previous few months and that will not go away in a hurry. We will see that pain getting extended into the first quarter of 2009. So, when there is risk aversion, where will people put money? They will put their money into government bonds.

Also the government and the RBI will perhaps have to take a couple of more steps. They have the headroom in terms of inflation; they can take a couple of steps in terms of cutting down the reverse repo rates. The call is already getting louder. So, to expect the reverse repo to go to 4.5% in January and perhaps to 4% in April looks like a given.

There are some who will expect it to come down even earlier. If that is the case then how do bonds react? You are going to see a goodish amount of money going into bonds. The 10-year yield, which is now at 6% or thereabouts, can easily go towards the 5% mark. If the repo rate goes to 4%, then actually piercing the 5% is also not ruled out and all this could happen even as early as in the first quarter.

Thereafter there could be some pressure because in the first quarter of FY10, there will be a huge amount of bond announcements by the government. We know that the government’s revenues will not pick up in the first quarter of next year. Revenues will still continue to be under pressure. But expenditure will be big. Fiscal expansion is very much on the cards. So, you are going to see a huge amount of government borrowing. With that kind of bonds coming into the market, perhaps the fall in bond yields will be arrested.

What could also arrest the fall in bond yields is later on in the year, if corporate borrowing picks up, which it will at least for AAA companies and then for AA companies, borrowing can pick up. Then there is definitely tightness in the money. You can therefore see the 10-year yield perhaps falling to 5%, maybe even lower some people think. But by the end of 2009, you will perhaps see it climbing back towards the 5.5% or maybe even the 6% mark.

So, basically that is the kind of curve that you can expect in the bond markets.

Here, now, is CNBC-TV18’s Commodities Editor Manisha Gupta on what to expect from that space.

If there is anything that has looked as dramatic as the fall in our market, it has been the way crude has performed. Everybody was a bull on crude going into this year. Till the middle of the year, it looked like crude could touch completely phenomenal levels. But that has come off, and it has come off for many other commodities as well.

Commodities have taken a hit, but they have not died because all commodity bull runs have an average life of 15-18 years. The latest bull run that we have seen starting from 2001 really may have many more years to go.

Specifically on crude, it may have seen a bottom for now – USD 40 per barrel has held – and maybe you might see USD 40 breaching for the time being. But for most part of 2009, USD 40-USD 75 per barrel is where you might see crude prices trading within, because we have seen supplies cut down quite drastically. Most of the oil refineries and oil rigs also have cut down their production. So, you might be in for a supply shock for most part of 2009, the second half for sure, and that is when you would see support coming for prices. USD 40 per barrel or below should be a good strategy to start accumulating in crude.

The best commodity or the performer for 2009 really is gold because we have seen inflation concerns already starting to build-up. The various bailouts that we have seen from various central governments may lead to inflation and also to huge fiscal deficits and that would support buying in gold.

Also the US dollar weakness translates into buying in gold. Apart from that, lower interest rates from various central banks would give really less competition to gold. The immediate support for gold is at USD 750 per ounce on the lower side. USD 1,000 may easily be breached, which is the high that we saw in 2008. This is one area where your portfolio diversification really needs some judgement.

Base metals is another sector that has seen record highs in 2008. But at this point most of them are trading below their cost of production. This is one sector that may take longer time to come around. I think by mid-2009, you would be looking at selling in this sector because supplies are at multi-year highs, and demand is still not coming in, whether it is the industrial, manufacturing, auto, housing. All these sectors have done very badly in most of the developing countries, and demand is still nowhere to be seen.

So, it would be only by August or September 2009 where you would see some recovery in demand and some turnaround in prices. Till then, it is not such a good idea to buy base metals. So, shorting is the strategy that you can go ahead with in base metals.

Vivek Law, National Editor, CNBC-TV18 on personal finance cues for 2009.

2008 was a forgettable year for most people when it comes to their savings and investments. Is 2009 going to be better? What does every individual need to do as far as 2009 is concerned? There are two-three points here. The two silver linings that I see happening is that inflation seems to have been tamed. We are already in single-digit now for quite a few weeks. That trend is expected to continue. So, yes, that much less being eaten out of your savings/investment gives you a little more breathing space to an investor.

The second point is, we are likely to see far better returns on debt instruments both from the mutual fund route or directly and that is largely because we are going to see interest rates coming down. As you know, it is inversely proportional. The kind of returns that you get when interest rates fall, your returns go up. In 2008, we did see interest rates go up and therefore even the debt funds or the debt schemes were not able to deliver as much as they would have normally. We’ve already seen the cycle turning. A lot of debt funds are giving fairly decent returns at this point.

One of the instruments that a lot of the people park their money in, which was the Fixed Maturity Plan or FMP, till October happened, huge redemptions happened, Sebi tightened norms. My sense is 2009 is not going to be the year for FMPs. We are unlikely to see too many of them even being launched.

As far as debt mutual funds are concerned, it may be one good place to look at because over the next year, chances are that you are going to get pretty decent returns there. A fair amount of security because if you are looking at a gilt fund or a good balanced fund, that could perhaps also be a strong kicker.

I would imagine that there would be need for looking at some more asset classes in your portfolio. Property could be another good bet because over the last year or so, most investors have been sitting on the fence in anticipation of prices falling. The general sense is that there has already been 15-25% correction in certain markets; certain others are likely to see a correction in the first quarter perhaps of the coming year. Therefore property may be one more place, which you had actually put on hold, with interest rates going down as well, maybe one more area to look at.

So, while 2008 hasn’t been a great year, 2009 holds a lot of promise. But of course it is going to be even more imperative from hereon, as 2008 has taught us that you cannot just sit on your money, you just can not expend any energy in looking at it. It is imperative because in times such as this, you really not to be actively relooking at your portfolio, at your asset allocation, and that is going to be the way forward in 2009.

Source: Moneycontrol.com

Mkts may be hit in January

The benchmark indices witnessed selling pressure throughout the session amid volatility. The Nifty went closer to the 2,900 mark but did not break that level. It closed with a loss of 51.80 points or 1.74% at 2916.85 after touching an intraday low of 2,900.45. The Sensex hovered around the 9,600 level for a major part of the day; it hit a low of 9,502.53 before ending the day at 9,568.72 down 118.03 points or 1.22% from previous close.

 

Even as trade continues to be volatile, experts are mixed on the forecast for the market’s short- and long-term courses. However, one thing is unanimous - the January results would be bad but they might have been priced in till now. Pressure on the markets, the experts added, would be seen once the results actually come out.

Pullback rally over?

Nitin Raheja, CIO, Rada Advisors, says the maximum the Nifty could have gone on the upside was 3,200. "Post that, it was always very difficult to justify valuations. As we get into January, one might see a pullback again broadly back to 3,000 levels in the short term depending on the new stimulus package," he said, adding, "However, once the [January quarter] results start pouring in, the markets will come under pressure again."

Impact of January earnings

Portfolio Manager PN Vijay feels any positive surprises — if there are any in the first place — could come from the construction companies and PSU banks. "Many of them have nice contracts and the market generally feels all construction companies are in trouble," he said. "PSU banks don’t have any great non-performing assets (NPAs) to worry about."

 

Vijay added that generally the earnings would be bad but the market might have discounted those. "Having said that, when the results do actually come out, there could be a bit of a jolt."

Short-term market course 

On how could the market pan out over the next couple of trading sessions, Gaurav Ranade of Edelweiss Securities, said, "2,860 for me is a good technical level and the Nifty is still in an intermediate bull trend. The likelihood of seeing a pullback rally from this point onwards especially above 2,960 levels is good." He said the Nifty reached an overbought state at 3,110 — which it reached in the recent rally — "and we also saw a double top being formed. So on the upside, I would say that 3,110 levels would be a very strong resistance."

 

Talking about the January course, Nitin Raheja feels the Nifty would find support at its October low and sees it trade ranged between 2,500 and 3,200. "However, having said that, it would depend on fund flows — [if the flow is outward] we could even breach the lows."

 

PN Vijay is, however, more optimistic on the next two months. "I think we will have tremendous momentum coming into the next two weeks because the sense is that India is slowly coming out of the woods," he said. "Increasingly, there is good news on the macro economic front. If the stimulus packages start kicking into the system — even as it will take a bit of time — we should be seeing firm trading." Vijay, though, said the market course in the short term could also boil down to foreign institutional investor (FII) selling. "Throughout December, FII selling has been rather muted, which is why we had a very strong rally."

 

Forecast for 2009

Vijay said the Nifty would not retest the lows of 2,600–2,700 and would start consolidating first. He added that how far the Nifty goes up after consolidation would depend on how US’s economy pans out and how effective its President-elect Barack Obama is in stemming the rot. "Going forward though, I feel we should build from this Nifty 3,000 level quite nicely."

Source: Moneycontrol.com

GPSC defers IPO plan (Gujarat State Petroleum Corporation)

Gujarat State Petroleum Corporation (GSPC) has put on hold its proposed initial public offer due to choppy market conditions, and will instead raise debt to part finance the gas development plan of its deepwater Krishna-Godavari block, Managing Director D.J. Pandian said today.

"We are not looking at the IPO right now. It may come at a later stage, probably closer to gas production from our KG Basin block. We will now raise the money through debt to part fund our investments," Pandian said.

GSPC was planning to mop up around $1 bln through its proposed IPO, in which the Gujarat government would have divested 10-15% of its holding in the company.

GSPC had already appointed five merchant bankers--DSP Merill Lynch, JM Financial, Citibank, Kotak Mahindra Capital Co. and SBI Caps--as advisors to the proposed public offer.

Pandian said the company will invest over 50 bln rupees more in developing the gas field in KG-OSN-2001/3 block in the KG Basin.

"We have already invested 20 bln rupees in the block and will invest at least another 50 bln rupees for beginning gas production," he said, reports Newswire 18.

Source: Moneycontrol.com

Sebi extends IPO validity period to 1 year

Market regulator Sebi (Securities and Exchange Board of India) has extended the IPO validity period to one year in its board meeting. Sebi Chairman CB Bhave said companies can use IPO funds only after allotment of shares. There will be no exits provided in debt funds. Shareholders with demat will get rights share in demat form. There will also be no early exit on close-ended MF schemes.

Source: Moneycontrol.com

SBI Life to list in 18-24 months

State Bank of India, or SBI, is concerned about the bank's asset quality, reports CNBC-TV18, quoting Newswire18. “There is no concentration of risk on the bank's books.“

SBI said it is not shying from lending, but wants proper risk assessment. It needs long-term funds to lend to infrastructure.

The bank said it plans to list SBI Life in 18-24 months, and will sell 5-10% of the same. "Shareholder bonus is not an issue, and the bank will do so if permitted."

SBI said it will decide on further mergers and acquisitions once the merger with State Bank of Saurashtra is completed.

The public sector bank said it sees more bad loans from small and medium enterprises.

Meanwhile, Reserve Bank of India or RBI said the banks' safety and health is of utmost importance. Its risk-weight cuts will release 70 bps capital to SBI.

Source: Moneycontrol.com

SEBI serves notices to 2 for IPO allotment manipulation

Two persons accused of manipulating allotment of IPO shares meant for retail investors have been directed to disgorge more than Rs 1 crore, and have also been barred from accessing the securities market for a certain period of time.

Both these persons had been restrained from accessing the markets by an ad interim ex-parte order of SEBI in April 2006. SEBI had issued show cause notices to them.

SEBI’s order on Monday directed Mr Dhaval Mehta described as a key operator who engineered multiple IPO applications and retail category shares in the IPO of Suzlon Energy Ltd and IDFC Ltd has been asked to disgorge Rs 72 lakh; he has also been barred from transacting in the securities market for another five years.

Ms Himani Patel a key operator and financier in the IPO of Suzlon Energy, has been asked to disgorge Rs 33.5 lakh and barred from accessing the securities market for an additional period of four years, reports The Hindu Business Line.

Source: Moneycontrol.com

Alkali Metals - Mysterious Bounce

The games never end on small cap IPOs and this is not different. This could be called a mockery of public issue as only 19 shareholders were allotted 75% of the total equity size of Alkali Metals, and only 1 among them was allotted 35% of the total equity size. Closer look at the allotment details will reveal that Mavi Investment Fund was the only QIB applied for the issue and was allotted 35% of the issue. Important to mention that there is no lock-in period for Mavi Investment, Investors should remember that Mavi Investment has been active in small-cap IPOs in the past as well.

It was not a smooth sailing for Alkali Metal to gets its IPO through as the co has to extend dates and lower price band. Also, ICRA rated IPO grade 2 which suggest below average fundamentals. All these leaves bad taste in the mouth for most of the investors. Retail investors should remain away from these kind of IPOs as the gains could fizzle out with the blink of an eyes as seen in the past.

19 shareholders hold 75% of total equity issue

Mavi Investment: 9.12 lakh shares

Bodies Corporate: 10 hold 6.8 lakh shares

Individual shareholders holding shares capital excess of Rs 1 lakh shares: 8 hold 2.8 lakh shares

About Alkali Metals issue and allotment

Issue size: 25.5 lakh shares

Issue received 1,315 applications resulting in 1.02 times subscription

1 application was allotted 35% of total equity issue (hold 9% stake)

Mavi Investment Fund was allotted 35% of total equity issue

Mavi Investment Fund shares are not locked in

Mavi Investment Fund is a sub-account of M.M. Warburg Bank (SCHWEIZ) AG and has been active in small-cap IPOs

MM Warburg & CO KGaA is the 2nd largest independent private bank in Germany. The equity capital of the bank is entirely owned by private individuals.

Subscription

QIB: 1 application, subscribed 0.72 times

Non Institutional Investors: 57 applications, subscribed 3 times

Retail: 1257 applications, subscribed 0.55 times

No application from MFs

Other details of IPO

Company extended last date of issue by 5 days and reduced price band from Rs 90-105 to Rs 86-103

ICRA had assigned IPO grade 2 indicating below average fundamentals

Raised Rs 26.26 crore

By: By Varinder Bansal, CNBC-TV18

Alkali Metals: Ends with 68.35% premium

Alkali Metals closed at Rs 173. 4 on the NSE, at a huge premium of 68.35% to its issue price of Rs 103.

On the NSE, the share touched an intraday high of Rs 179 and intraday low of Rs 99. The total traded quantity was 1,06,70,652 shares and turnover was Rs 16855.36 lakh.

On the BSE, the share closed at Rs 173.15 at a premium of 68.11%. On BSE its intraday high was at Rs 179.3 and intraday low was at Rs 90. The total traded quantity was 1,03,16,125 shares

The share had listed at Rs 99 on the NSE against the issue price of Rs 103 at a discount of 3.88% whereas on the BSE the share had opened at Rs 90 at a discount of 12.62% to its issue price.

The company is in the business of manufacturing a range of fine chemicals, based on related chemistry.

The company had come out with a public issue of 25,50,000 equity shares of Rs 10 each, which was subscribed 1.03 times.

Source: Moneycontrol.com

Mkts bounce back on Samvat 2065; Nifty above 2650

The market has snapped four-day losing streak and has bounced back sharply on the day of Samvat 2065. Pullback rally is seen in realty, metal, capital goods, power, banking and oil stocks. Midcap and small cap stocks are following the same trend.

At 6:15 pm, the Sensex rose 545 points to 9,054 and the Nifty gained 159 points to 2,684. CNX Midcap jumped 176 points to 3,436.

Reliance Industries, Bharti, SBI, L&T, Unitech, Hindalco, Suzlon Energy and Reliance Infrastructure were major gainers.

European markets are trading higher. FTSE Index rose 4.03% to 4,010. CAC and DAX gained 2.93% and 8.99% to 3,157 and 4,724, respectively.

The Dow Jones Futures surged 4.58% to 8,378 and the Nasdaq Futures gained 4.17% at 1,210.

Asian markets ended sharply higher. Hang Seng was up by 14.35%. Nikkei surged 6.41%. Straits Times and Kospi rose 4.14% and 5.57%, respectively. Shanghai jumped 2.81% and Taiwan was up 0.76%. However, Jakarta lost 4.72%.

Crude is trading around USD 64.69 to a barrel on the NYMEX.

Source: Moneycontrol.com

Power PSU issues only after markets stabilise

The Government will consider the follow-on public issue for thermal power major NTPC Ltd and the proposed initial public offering for state-owned hydro power firm NHPC Ltd as and when the market conditions improve.

“There’s no cash crunch now, once the market conditions are conducive they will (NTPC) go for the follow-on public issue.

“NTPC’s follow-on public offer and NHPC’s initial public offer will come when the market conditions are conducive,” Power Secretary, Mr Anil Razdan, told reporters here on the sidelines of the India Energy Congress 2008.

NHPC had earlier scheduled the launch of its proposed public float during mid-October to raise fresh equity to the tune of over Rs 1,600 crore, besides premium.

Last year, the company was forced to shelve its IPO plans as the requisite number of independent directors had not been appointed on its Board.

Funds for Expansion
Meanwhile, NTPC has said it plans to raise up to Rs 4,500 crore from domestic as well as international markets for meeting its expansion plans in the current financial year.

“We plan to raise about Rs 2,000 crore in FY09 through private placement of bonds, and, up to $500 million (about Rs 2,450 crore) through overseas loans,” NTPC Chairman and Managing Director, Mr R.S. Sharma, said at the sidelines of the same conference.

The company also plans to raise Rs 2,000 crore from the domestic market through private placement of bonds.

The company aims to increase its capacity to 31,000 MW in 2008-09, from 29,000 MW currently, Mr Sharma said. He also said the company is looking to acquire coal mines in South Africa, Mozambique and Australia.

Speaking earlier at the event, the Power Secretary said the Centre will set up a target for speedy implementation of hydro power projects.

“The target will have special focus on the North-Eastern (NE) region as it has 40 per cent of India’s total hydro potential,” Mr Razdan said. Coal Secretary, Mr H.C. Gupta, who was also present at the event, said the Coal Ministry is looking at step up domestic coal production before the end of the current Five Year Plan period (2007-2012).

The Coal Ministry’s decision is in response to the its receiving frequent requests for supply of coal for thermal power plants which has resulted in the need for upward revision of domestic coal production, Mr Gupta added, reports The Hindu Business Line.

Source: Moneycontrol.com

Syngene listing not now

The market meltdown has put paid to one more listing plan for now: that of Biocon’s custom research subsidiary, Syngene International.

“We will not list Syngene this fiscal. It would be suicidal,” Biocon’s CMD, Ms Kiran Mazumdar-Shaw, emphatically told a news conference on Thursday. Biocon had planned to tap the capital market for Syngene during this fiscal.

Syngene’s numbers, she said, caused concern last quarter but it has now bounced back with 21 per cent growth over the last quarter and nine per cent year on year. The company has a cash reserve of Rs 355 crore from the sale of its enzymes business last year, reports The Hindu Business Line.

Source: Moneycontrol.com

Alkali Metals IPO subscribed fully

The IPO of Alkali Metals has received bids for 26,24,700 shares as against issue size of 25,50,000 shares and is subscribed 1.03 times, as per NSE website. The issue had opened on October 7, 2008.

The company’s public issue of 25,50,000 equity shares in the price band of Rs 90 to Rs 105 per equity share was scheduled to close on October 10, 2008 but was extended to October 15, 2008 due to adverse market conditions. The price band was also revised to 86 to Rs 103 per equity share.

The IPO had received bids for 8,63,070 shares as against issue size of 25,50,000 shares and got subscribed 0.34 times, as per NSE website, till October 10.

The company is in the business of manufacturing a range of fine chemicals, based on related chemistry.

It proposes to utilize the net proceeds of the issue to part finance its expansion plan involving setting up of an Active Pharmaceutical Ingredients (API) plant at Jawaharlal Nehru Pharma City at Parawada, located 25 kms from Visakhapatnam, with an installed capacity of 672 MTPA.

The Pharma City is being developed by Andhra Pradesh Industrial Infrastructure Corporation Limited (APIIC) in joint venture with M/s.Ramky Group (the developer) through a SPV called Ramky Pharma City (India) Limited, from whom Alkali Metals has acquired 16.42 acres of land.

Source: Moneycontrol.com

20 Microns to list on Oct 6

20 Microns will list on the bourses with its equity shares on October 6, 2008. The isssue price has been fixed at Rs 55 per share. The public issue of 43,50,632 equity shares of Rs 10 each was subscribed 4.29 times.

The company intended to utilize the proceeds of the fresh issue in the IPO towards the current ongoing expansion plans of the manufacturing capacities at various locations, invest in the sub-micron particle sizes required by end-market and general corporate purposes.

Source: Moneycontrol.com

Lehman bond holders may lose $100 bn

Bondholders of the beleaguered Lehman Brothers may lose USD 110 billion (about Rs five lakh crore) on account of decline in the asset-value of the fourth-largest investment bank in the US, media reports say.

The value of the bonds of Lehman Brothers witnessed a major fall after the investment bank filed for bankruptcy protection, the Financial Times report said adding, "further losses on its derivatives positions, which are still being unwound, could leave even less on the table for bond investors."

According to the ‘FT’ report, Loomis Sayles Vice-Chairman Dan Fuss has said, "I don't know how this will play out for bondholders, but I doubt if its going to be good."

Loomis Sayles has a small holding in Lehman bonds.

The losses would have a far-reaching effect on ordinary investors, ‘FT’ said as Lehman bonds were widely held by investors such as pension funds and mutual funds. Meanwhile, those who sold protection against a default or Lehman bankruptcy will possibly recover 18 cents on the dollar when the contracts settle in a complicated auction October 10, the report added.

Before Lehman filed for bankruptcy, its 110 billion- dollar of senior bonds were quoted around 95 cents on the dollar. Bond prices then plunged to 35 cents a week ago. They are now trading at about 18 cents to the dollar. Quoting Kathleen Shanley of Gimme Credit, an analyst from a credit research firm, ‘FT’ said, "Lehman bonds are trading in the high teens, which reflects the bankruptcy filing, in which a large number of creditors are competing for a shrinking pool of assets of uncertain value".

Last week, Lehman inked a deal to sell the North American investment banking business to Barclays for 1.75 billion dollar. "Even though approval of the deal was rushed through court, lawyers for Lehman Brothers said asset values then dropped to 47.4 billion dollar from about 70 billion dollar," the report said.

In its bankruptcy filing, Lehman listed total debts of USD 613 billion, making it the largest ever US bankruptcy with USD 128 billion in debt securities, including USD 110.69 billion unsecured debt, USD 17.6 billion in unsecured, subordinated obligations, the media report said. Further, FT quoted creditors as saying that Lehman can be involved in the government's plan to set up a 700 billion-dollar fund to buy distressed mortgage assets.

So far, there had been no formal discussions among the creditors about this, said a person involved in the bankruptcy case.

Source: financialexpress.com

BSNL union feedback positive on IPO: Telecom Min

 Telecom Ministry says that BSNL union feedback is positive on IPO, but has some reservations, reports CNBC-TV18

Source: Moneycontrol.com

Without an IPO, it would not be a growth story: Avesthagen

Dr Villoo Morawala-Patell, plant biologist and PhD from the University of Louis Pasteur, set out to harvest her science at the marketplace on an unusual platter of agriculture, nutrition and medicine.

Her Bangalore-based company, Avesthagen Ltd, is singly or jointly developing unique, scientifically proven, plant products for modern malaises: cancer and metabolic disorders; crackers and bars to ward off diabetes, heart diseases and obesity; TB-detecting biochips, even bioplastic. Some global who’s-who keep it company; $40 million worth funds have come in from private equities – the Tata and Godrej groups. As infrastructure, production and market demands soar, the 600-people-strong Avesthagen has felt the need for fresh capital – hazarded at Rs 200-250 crore – and is on the verge of going public. Dr Patell, its Chairperson and Managing Director, speaks about her IPO, business strategy and a grand health plan. Excerpts:

You are about to tap the capital market. What could you tell us about it at this stage? You are said to hold around 35 per cent stake.

The public issue is in aggressive movement. My stake is something like 32 per cent. Of course, there will be equal dilution across the board. I cannot discuss more than that.

Why a public issue?

I have to brave the IPO or I can’t reach the market!

[Without an IPO,] It would not be a growth story. I don’t want to wait 20-25 years for the company to become big. By 2015, we have to establish as a sizeable company that is playing globally from here. I want to compete with the best in the world. Amgen and Genentech were great science-led biotech companies and took on big pharma. That is how we need to do it.

[The IPO] is for infrastructure, manufacturing and people. If an acquisition comes up and accelerates our product and market development, we would look at it. Primarily it is to finish off the manufacturing, start global marketing; for our new [Rs 160-crore] campus; for the second phase of biopharma manufacturing and expansion of the seeds business. The market looks bleak. Public issues have been pulled back. Aren’t you apprehensive?

I’m excited by today’s market, which is the market for Avesthagen to enter. Whether I fail or win is not [the issue]. We have designed the model for the new world. I’m not afraid, I’m prepared for the consequences.

Food, farming, pharmaceuticals: which is the real Avesthagen?

Life sciences conglomerates like Johnson & Johnson, Novartis, Pfizer also have a whole play into agriculture, pharma and nutrition. If in the ’60s and the ‘70s chemistry was in all these areas, Avesthagen is attempting a biology model.

Actually ours a holistic model taking care of the entire spectrum of human life and health. Our Science and Innovation group works on medicinal plants, food plants, bacteria, mammalian cell lines and human biodiversity. There is a big area of creativity that will result in different types of products for today, tomorrow and the day after. In biopharma. we are looking at [proteins to fight] cancer, autoimmune disorders and ageing. The ultimate goal of our two main projects [Biopharma and Bionutrition] is to integrate agriculture with health.

How close to the market are the products?

The first [pharma] pipeline is of biosimilars. With Cipla, we have created a pipeline of eight. Four molecules have been cleared by the RPGM [the regulatory panel for genetically modified products] and two will be entering pre-clinical trials shortly.

The first product will be out by the end of 2009 and two a year will follow. The second pipeline is AvesthaGenome [a Rs 120-crore project on the Parsi community’s genealogy] which will have new proteins, with new entities feeding it. We are partnering with French company ShigaMediX on [a vaccine for] TB and the human papilloma virus [that causes cervical cancer.]

What would be your manufacturing strategy?

We have positioned ourselves for the global biosimilars market by buying a German company [contract manufacturer Siegfried Biologics] and by building a 200-litre cGMP facility here.

We will make the manufacturing happen in areas where we will buy out or lease out. Except for the biopharma facility which we are building, because there aren’t such facilities in the world. Where is the missing link?

We need marketing muscle. We will have to build it ourselves except where we are partners – as with Cipla or Danone. All our products are sitting in fancy stores. I was thinking of the kirana store and the masses.

We may also look at totally novel ways of marketing. To be sitting on mainstream shelves, you have to create a niche or advertise like mad. There may be smarter ways of doing it, like Hutch or Google did.

If I brand and market them properly, each of my ingredients will potentially become a $200-300-million product in the next five years. We should have a way of taking technology quickly to the consumer. We recently launched avesthawellbeing.com. You can order online for [herbal ingredient] TeeStar; or for Amlapure . I want to integrate the whole predictive-preventive-personalised range online.

You have around a dozen collaborations. Have you found the right fit?

We are looking for new alliances. In each category, we will build newer collaborations at different levels.

The coming in of big partners like Nestle and Danone validated our model. . Most of these companies wanted to attach to us pretty early-for access to new products, ; technology, lab, ideas. Where the products would be ready in 3-5 years, we are with Danone, Vilmorin & Cie, Biomerieux, Godrej and Cipla.

With Danone, we are doing two products including R&D, clinicals and co-branding; and in yoghurt. We delivered eight molecules for diabetes to Nestle.

All the [nutritional] actives are ready to be licensed. It’s to be worked out [among] three to four big international companies, reports The Hindu Business Line.

Source: Moneycontrol.com

CARE assigns IPO Grade 2/5 to Gemini Engi-Fab

CARE has come out with a research report on Gemini Engi-Fab. It has assigned IPO Grade 2/5 to the company's IPO. GEFL proposes an IPO of 55,00,000 equity shares of face value of Rs 10 each, at a price which will be determined through the book building process.

CARE's report on Gemini Engi-Fab's IPO: 

CARE has assigned ‘CARE IPO Grade 2’ to the proposed (Initial Public Offer) IPO of Gemini Engi–Fab Limited (GEFL). CARE IPO Grade 2 indicates below average fundamentals. CARE assigns IPO grades on a scale of Grade 5 to Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. CARE’s IPO grading is an opinion on the relative assessment of the fundamentals of that issuer. GEFL proposes an IPO of 55,00,000 equity shares of face value of Rs 10 each, at a price which will be determined through the book building process.

The grading factors in promoters’ experience in fabrication and engineering industry, long track record in operations,  favourable industry scenario for fabrication and salvaging of equipment, multi-product capability of company, strong growth in order book, good profitability margins in past financial years, sanctioning of term loan by the bankers for the proposed expansion project and expected  improvement in technical capabilities of the company post expansion .

However, the grading is constrained by GEFL’s relatively small size of operations, dependence on IPO proceeds for the proposed project completion, unorganized and highly competitive industry in which the company operates, moderate corporate governance practices, low entry barriers, dependence on few customers and limited experience of management in executing large projects. The grading is also constrained by risks associated with proposed deployment of funds from the IPO in setting up new manufacturing units.

“Gemini Engi-Fab Private Limited” was incorporated as a private limited company on January 12, 1998 and later converted into a public limited company “Gemini Engi-Fab Limited” (GEFL) in January 2007. Promoted by the members of the Panchal family, the company is in the business of manufacturing and salvaging of process equipment through fabrication for various process industries. GEFL manufactures spares, channel heads, tube sheets and tube bundles for refineries. It also manufactures heat exchangers for refineries and dairy plants, pressure vessels, storage vessels, tanks, heat exchangers, distillation and absorption columns. The company has also entered into salvaging of equipment in 2006-07.

The company currently has a weight handling capacity of 27 tonnes. The existing workshop of the company is located at Umbergaon in Valsad and it proposes to build a new workshop near its existing facilities with higher technical capabilities so as to move up the value chain.

The proceeds from the proposed issue of shares are intended to be deployed for setting up a new manufacturing workshop at Umbergaon, meeting working capital requirements, general corporate purposes and issue expenses. As per the organizational structure of GEFL, Mr. Dalpatram J. Panchal, Chairman & Executive Director, is supported by a team of senior executives headed by Mr. Rakesh Panchal, Managing Director of GEFL.

The company has three legal cases pending against it as on July 07, 2008. They include a case in relation to payment of back wages of Rs.1.84 lakh, another case in relation to transfer of duty paid goods from one industrial plot to another owned by GEFL without the permission of Central Excise Authorities and the third case of compounding applications filed by GEFL with the Company Law Board (CLB) in relation to non increment of paid-up capital upto one lakh and non appointment of company secretary during the period October 2007 to February 2008.

With an increase in the manufacturing facility and due to manufacturing of specialized equipment, salvaging and trading operations during the period FY 2005-08, the company has reported a CAGR of 74.21% for the above period. In future, the demand for the fabrication and salvaging from various sectors is likely to provide good growth opportunities to the company therefore, the growth projected and the margins expected appear reasonable considering the track record of the company. Post IPO, the company will be moving up the value chain and competing against established players.

Source: Moneycontrol.com

Softline mulls IPO to fund expansion

Softline Software Services is set to expand its operations in India and some markets overseas. Engaged in sale of software products for the last 17 years, Softline last year forayed into software services. The company is considering an IPO to partly fund its expansion.

The founder, Chairman and Chief Technology Officer, Softline, Mr Hasnain Ali Khan, told Business Line that the company is also in the process of launching some more products later this year in the accounting, enterprise resource planning and warehouse management areas. Last fiscal, the company closed with revenues of Rs 40 crore and expects a growth of over 50 per cent this fiscal. “To part fund the company expansion plan, we are in the process of finalising plans to raise about Rs 100 crore through an IPO by June 2009,” Mr Khan said.

The proceeds of the IPO are aimed at creating a larger campus in Hyderabad and also meet the company expansion plans in new overseas markets and for marketing requirements. The company operates out of 18 centres, of them 4 are located in India at Hyderabad, Mumbai, Delhi and Bangalore. It has 500 employees, of whom 200 are overseas , especially West Asia.

Last year, the company entered Singapore and Malaysia and added a US centre, with the objective of providing services to compliment the company products designed mainly for small and medium enterprises, reports The Hindu Business Line.

Source: Moneycontrol.com

GSPC IPO likely by Jan; plans to raise $1 Bn

GSPC is likely to come out with an IPO by January 2009 and is planning to raise USD 1 billion through this IPO, reports CNBC-TV18 quoting NewsWire18.

The company may divest up to 15% stake in IPO.

GSPC is a parent company of listed Gujarat State Petronet.

Source: Moneycontrol.com

Oil India public offer plans on track

The stock market volatility is unlikely to defer public sector undertaking Oil India Ltd’s (OIL) initial public offer (IPO) schedule of November. Sources said while the price band for the proposed IPO is expected to be in place by third week of October, the company’s IPO is likely to hit the market on November 10.

However, an eye is being kept on the market, industry sources told Business Line adding that "OIL has strong fundamentals and we don’t expect any change in IPO plans."

STAKE SALE

OIL has already filed its draft prospectus with SEBI for an IPO of up to 2.64 crore equity shares to raise over Rs 1,500 crore. Besides, the company has also entered into an understanding with PSU oil marketing companies – Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation – for selling 10 per cent equity stake in the ratio of 2:1:1, respectively.

The OMCs will acquire the stake at a price equivalent to the issue price of the equity shares that are proposed to be offered by OIL to the public in accordance with the book building method.

OIL had got the Cabinet nod for fresh equity of 10 per cent of its paid-up capital through IPO along with a proposal of issuing additional one per cent of its paid-up capital to the employees of the company. Disinvestment of 10 per cent in favour of State-owned OMCs, coupled with an IPO is expected to reduce the effective Government stake in the company to about 78 per cent from the existing 98.13 per cent.

DOWNSTREAM ACTIVITIES

The IPO proceeds are expected to be used for exploration and development activities and diversification of existing business to downstream. However, it will not be used to fund existing or future participation, investment activities in Iran, Sudan, Myanmar or any other countries or persons that are subject to economic sanctions imposed by the US Government and administered by the US Export Administration Regulation and Office of Foreign Assets Control of the US Treasury Department.

This is mainly due to advice from the lead bankers JM Financial Consultants, Morgan Stanley India Company, Citigroup Global Markets and HSBC Securities and Capital Markets, sources said.

The company's current annual crude oil production is 3.5 million tonne showing a growth of 13 per cent, and natural gas production is 6.80 mmscmd. The production amounted to approximately 10 per cent and seven per cent of India’s total production of crude oil and natural gas respectively, reports The Hindu Business Line.

Source: Moneycontrol.com

S Kumar's retail arm to list by Sept-end

Brandhouse Retail, the retail division of S Kumar's is likely to be listed by September end or early October. Shareholders will receive one share of Brandhouse Retail for five shares of S Kumar's. At a conservative PE of 15-18 times, the price would work out to Rs 75-80 per share. S Kumar's has fallen from Rs 105 to Rs 65 after the demerger of S Kumar's. Earnings do not include Brandhouse Retail's numbers.

Promoters hold less than 50% in the company.

The shares have already been transferred to shareholders' account. This delay in listing is because FII holding has reached 30%. FIIs are allowed to hold 24% in multi-brand retailing. The company has deducted 6% proportional holding from FIIs and shifted it to a trust. About 6% will be held by an appointed trustee and will be sold in the open market within six months of listing.

Source: Moneycontrol.com

SEBI Interim Order in IPO scam

SEBI has confirmed the directions in the interim order passed in 2006 against Mr Dushyant Natwarlal Dalal and Puloma Dushyant Dalal in the matter of irregularity in IPOs in 2003-05. No direction was issued against Rasila Natwarlal and Natwarlal Thakordas as they were no longer alive and in respect of the demat account of the two deceased persons it was directed they would remain frozen till the passing of the final order in this case, since the said account were found to b e jointly held with Mr Dushyant Dalal, reports The Hindu Business Line.

Source: Moneycontrol.com

20 Microns IPO ends with 4.29 times subscription

Receives bids for 1.86 crore shares

The initial public offer of 20 Microns ended with 4.29 times subscription. The issue received bids for 1.86 crore shares, in which 1.33 crore bids were at the cut off price.

The qualified institutional buyers (QIBs) category was subscribed 0.90 times, The non institutional investors category was subscribed 1.97 times and the retail portion was subscribed 10.58 times.

The public issue of 43,50,632 equity shares of Rs 10 each, was in the price band of Rs 50-55 per share.

Through this IPO, the company plans to raise around Rs 9 crore to fund its expansion. Meanwhile, Gujarat Venture Capital Fund, which currently holds 43% stake in the company, will offload a part of its holding, reducing it to 19% of the post-issue equity.

The company intends to utilise the proceeds of the issue towards the current ongoing expansion plans of the manufacturing capacities at various locations, invest in the sub-micron particle sizes required by end-market and general corporate purposes.

The issue had been graded by the Credit Analysis and Research Limited (CARE) and has been assigned the IPO Grade 3, indicating Average Fundamentals. The equity shares are proposed to be listed on Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE).

Source: CapitalMarket.com

Avoid Chemcel Biotech IPO: SPA Securities

SPA Securities has come out with a research report on Chemcel Biotech's IPO. It has recommended investors to ignore the issue.

Chemcel Biotech has opened for subscription with its initial public offering (IPO) of 1,54,00,000 equity shares of Rs 10 each. The issue will close on September 12, 2008. The issue price is Rs 16.

SPA Securities' report on Chemcel Biotech's IPO:

Investment Positives:

Foray into bio-diesel industry: The current business of the company is cyclical in nature & the management feels that the growth in the next few years in the agrochemical business will be ~3-5% only. Also to mitigate the impact of the cyclical nature of the business, CBL intends to foray into bio-diesel industry which has good growth potential going forward. AP is the largest pesticide market: Andhra Pradesh is the largest pesticide market in India. CBL has a strong network of 18 distributors, 350 direct dealers & 550 retailers.

Investment Concerns:

Revenues from bio-diesel will come in FY 11: Though the sale of bio-diesel will start by Sept’09, but the total revenue contribution will be seen in FY11. Seasonality of the business: CBL currently records 70% of their revenues during Oct-Mar. Low capacity utilization: CBL’s capacity utilization stood at 30% for FY08. This is quite low given the fact that they have been in the industry for over a decade. CBL believes that post the IPO when once the working capital requirement is met; this shall go up to 70-75%.

Valuation:-

The stock is available at a P/E of 34x on its FY08 EPS of Re.0.47. Even on the EPS of FY11E, the stock is priced at a P/E of 12x. This appears to be very expensive in comparison to the peer group which is available at a P/E range of 4-7x based on FY08 EPS. The low capacity utilization is mainly due to high working capital required by the company and CBL being a small company is looking for funds in order to enhance their capacity utilization. The growth rate in the agrochemical business is expected to be low. The expensive valuation makes the issue less attractive for investment even though the fact that CBL is planning for diversification in the business in order to maintain its growth rate. Hence, we recommend to ignore the issue.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

20 Microns IPO subscribed 0.82 times on day 3

Receives bids for 35.51 lakh shares

The initial public offer of 20 Microns was subscribed 0.82 times on the third day of its opening. The issue received bids for 35.51 lakh shares, in which 11.79 lakh bids were at the cut off price.

The public issue of 43,50,632 equity shares of Rs 10 each, is in the price band of Rs 50-55 per share. The issue closes 11 September 2008.

Through this IPO, the company plans to raise around Rs 9 crore to fund its expansion. Meanwhile, Gujarat Venture Capital Fund, which currently holds 43% stake in the company, will offload a part of its holding, reducing it to 19% of the post-issue equity.

The company intends to utilise the proceeds of the issue towards the current ongoing expansion plans of the manufacturing capacities at various locations, invest in the sub-micron particle sizes required by end-market and general corporate purposes.

The issue had been graded by the Credit Analysis and Research Limited (CARE) and has been assigned the IPO Grade 3, indicating Average Fundamentals. The equity shares are proposed to be listed on Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE).

Source: CapitalMarket.com

Avoid Chemcel Biotech IPO: Hem

Hem Securities has come out with a research report on Chemcel Biotech's IPO. It has recommended investors to ignore the issue.

Chemcel Biotech has opened for subscription with its initial public offering (IPO) of 1,54,00,000 million equity shares of Rs 10 each. The issue will close on September 12, 2008. The issue price is Rs 16.

Hem Securities' report on Chemcel Biotech's IPO:
Company’s distribution network consists of distributors and dealers through out the coastal region of Andhra Pradesh. Company has more than 18 distributors who help it in selling its products to end users through the chain of more than 350 dealers and 550 retailers. Company hold regular farmers meets at different places to educate and disseminate new methods of the plant protection with the help of its techno commercial marketing sales staff, dealers and distributors. With the help company’s distribution network & marketing team, company keep itself updated about the occurrence of a particular pest. Based on this information and experience, company reschedules its production and distribution. Company has established 24 depots wherein it maintain adequate stocks to make its products available at short notices. This strategy helps company in selling its products effectively.

Company has 34 products in its product portfolio which consists of different kind of insecticides and pesticides. Company manufactures various formulations comprising of liquids, granules and powder formulations. Company’s products are available in various sizes of packaging catering to the needs of small, marginal and large farmers. Company’s product range covers most of the crops and majority of plant infections that are grown in this region. Company provides end to end plant protection solutions to farmers through its distributors. Company’s product range helps it in attracting large distributors of agrochemicals to become its distributors.

Company faces substantial competition due to technological advances by competitors, such as other pesticide companies, agro-chemical and biotechnology companies. Also, if a competitor introduces a successful product, it could take years for company to develop a product, which could have a material adverse effect on company’s business, results of operations and financial condition as some of company’s competitors are large Indian companies or subsidiaries of multi-national companies that have, significantly greater resources than those available with company.

Agro chemical industry requires high working capital due to its seasonal nature and long credit period given to dealers and farmers. Thus, high inventories during off-season period and high receivables during poor monsoon put further pressure on working capital requirement.

Valuation:-
The company at a price of Rs 16 per share will have the p/e multiple of 33.85 on post issue eps of 0.47(Basis PAT FY’08). The company being the small player in agrochemical industry is exposed to the risk of heavy competition from other players in the same industry. The company on the one hand, is posting lower profit margins in comparison to its peers while on the other hand the high receivables of the company are detrimental to the financial performance of the company. The company’s higher equity base also lead to lower earning per share post issue and thus makes the issue expensive at present level. Hence, we recommend investor to ignore the issue.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Source: Moneycontrol.com

20 Microns IPO subscribed 0.36 times on day 2

Receives bids for 5.60 lakh shares

The initial public offer of 20 Microns was subscribed 0.36 times on the second day of its opening. The issue received bids for 15.60 lakh shares, in which 4.60 lakh bids were at the cut off price.

The public issue of 43,50,632 equity shares of Rs 10 each, is in the price band of Rs 50-55 per share. The issue closes 11 September 2008.

Through this IPO, the company plans to raise around Rs 9 crore to fund its expansion. Meanwhile, Gujarat Venture Capital Fund, which currently holds 43% stake in the company, will offload a part of its holding, reducing it to 19% of the post-issue equity.

The company intends to utilise the proceeds of the issue towards the current ongoing expansion plans of the manufacturing capacities at various locations, invest in the sub-micron particle sizes required by end-market and general corporate purposes.

The issue had been graded by the Credit Analysis and Research Limited (CARE) and has been assigned the IPO Grade 3, indicating Average Fundamentals. The equity shares are proposed to be listed on Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE).

Source: Capitalmarket.com

Neutral report on 20 Microns IPO: Anand Rathi

Anand Rathi Securities has come out with a research report on 20 Microns' IPO. It has given a neutral rating to the issue.

20 Microns will open for subscription on September 8, 2008 with its public issue of 43,50,632 Equity shares of Rs 10. The price band has been fixed at Rs 50-55. The issue will close on September 11, 2008.

Anand Rathi Securities' report on 20 Microns' IPO:

20ML is a multi-product company which helps to protect it from reductions in demand for any one product type.

20ML’s mining resources and plants are strategically located in the states of Rajasthan, Gujarat, and Tamil Nadu. The manufacturing units of the company are well connected with national - highways and railways which helps the company in reaching to its customers economically.

20ML’s implementation of business planning tools, focus on technical support, field coaching and constant evaluation of product knowledge and training has helped in improving effectiveness and field force productivity. Customer segmentation has also helped to sharpen the focus on its key customers.

A demand under the Central Excise Act to the tune of Rs 107.29 million if decided against the company will adversely affect the financial conditions and the business of operations of the company.

Out of the total issue proceeds (at higher end of price band) of Rs 239.28 million, the offer for sale is Rs 147.16 million and thus the company will be receiving only Rs 92.12 million.

20ML faces competition from unorganized sector whose costs are lower due to exemption from excise duty. The players in the unorganized sector change their formulations to absorb some of the cheaper ground material to lower their cost of production and in turn reducing their pricing. Thus 20ML may be forced to reduce the prices of its offerings and services, which may reduce its revenues and margins and/or decrease its market share, which would adversely affect the business operations of the company.

Valuation:-

At the price of Rs50-55, the issue is priced at 13.6x-15x its FY08 EPS of Rs3.68 and at 15.4x-17.0x its FY08 FDEPS of Rs3.2. On comparison with its established peers which are comparatively larger in size, 20ML appears expensive. Taking into account the valuation and considering the risks associated with the investment concerns cited above, We are NEUTRAL to the issue

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Banks gear up for new IPO payment facility

Eleven banks participated in the mock test carried out by the Bombay Stock Exchange (BSE) for the new IPO payment facility recently permitted by SEBI.

The first IPO in which the facility will be used is that of 20 Microns, which opens on Monday.

This facility, called the Application Supported by Blocked Amounts (ASBA), allows banks to block IPO application money in the applicant’s bank account till the time of allotment of shares. Only that amount proportionate to the share allotment will be transferred from the account.

The markets regulator has said that ASBA will be operationalised from Monday. . This coincides with the opening of the IPO of 20 Microns, the first issue in which the ASBA process will be used by investors.

Interface tested

“BSE has successfully tested its interface with 11 banks for participation in the ASBA (Application Supported by Blocked Amounts) process,” said a BSE news release.

The 11 banks that participated in the mock test were Bank of Baroda, Corporation Bank, HDFC Bank, ICICI Bank, IDBI Bank, Indus Ind Bank, Kotak Bank, Punjab National Bank, State Bank of India, SBBJ and Union Bank.

The exchange is in the process of testing the interface with other banks that have evinced interest in participating in the ASBA process, BSE said. Using this interface, the banks participating in the IPO process would be able to upload the bids with respect to their customers, into the electronic book of the BSE, reports The Hindu Business Line.

Source: Moneycontrol.com

IPO market may witness slowdown

Uncertain market conditions may dampen the growth of domestic IPO market as increasing number of foreign funds are shying away from investing here and companies are postponing their fund raising plans through primary market, says a study.

FIIs and other relevant financial institutions, including retail investors, are gradually withdrawing their subscription from IPOs, given the current situation and are exploring other options such as bonds and mutual funds, a study by industry chamber Assocham said.

"FIIs are pulling out of IPOs because of high inflation, debt and bond market is growing for them phenomenally. The price band of IPO is also no longer attractive for retail investors," Assocham President Sajjan Jindal said.

The domestic stock market barometer Sensex, which touched a high of 21,077.53 points in January, has been witnessing a slump ever since and had plunged the year's low of 12,514.02 points in July.

"Under such circumstances, being optimistic about IPO market would not be realistic as fear factor is becoming more visible and pronounced against the primary market," Jindal added.

Domestic IPO market, which grew consistently at 20 per cent during 2003 to 2007, may expand 8-10 per cent in remaining period of the current fiscal despite vigorous efforts put in by merchant bankers as adverse market sentiments have gained grounds, the study said.

At least 74 companies, who were close to coming out with an IPO and collectively raising about Rs 44,000 crore are now awaiting better times, Assocham said.

Source: Financialexpress.com

RIL in world's 100 most respected cos list

Billionaire Mukesh Ambani-led Reliance Industries has made it to the annual list of world's 100 most respected companies compiled by the Wall Street Journal, topped by US-based healthcare products major Johnson & Johnson.

Ranked 83rd, RIL is the only Indian company on the list, although there are three more companies led by persons of Indian origin -- PepsiCo, ArcelorMittal and Citigroup.

J&J is followed by FMCG giant Procter & Gamble, Japanese auto maker Toyota Motor, legendary investor Warren Buffett-led Berkshire Hathaway and technology giant Apple in the top five positions.

While Berkshire has slipped from its first position last year, J&J has moved up from its second place in 2007 list.

Toyota has retained its third place, while Apple and P&G have improved on their previous year rankings.

Besides, Google (6th), Wal-Mart (7th), Coca-Cola (8th), PepsiCo (9th) and Nestle (10th) also figure among the top-ranked companies.

As part of the fourth annual survey, Wall Street Journal asked money managers to indicate the degree to which they respect or don't the 100 largest publicly traded companies, as measured by total market value.

According to the survey, 74 per cent respondents said they 'highly respect' J&J, 23 per cent said they 'respect', 3 per cent said 'respect somewhat' but none said they 'don't respect' the company making it top-ranked company.

About RIL, 4 per cent considered the company as highly respected, 17 per cent said they 'respect' it, 46 per cent responded saying they 'respect somewhat', while 11 per cent said they 'don't respect' the firm.

Source: Financialexpress.com

Austral Coke & Projects settles with 15% premium

At Rs 225.20 over issue price

Austral Coke and Projects ended at Rs 225.20 on BSE, a 14.89% premium over issue price of Rs 196

The counter saw volumes of 1.88 crore shares on BSE. The stock hit a high of 308.80 and a low of Rs Rs 206.

Austral Coke and Projects debuted today on BSE at Rs 206, a 5.10% premium over its issue price of Rs 196.

The company fixed the issue price at the top end of price band of Rs 164 to Rs 196. The IPO was subscribed 1.65 times. The issue opened on 7 August 2008 and closed on 13 August 2008.

Austral Coke manufactures low ash metallurgical coke. It is also in the business of equipment rental, refractory and textile trading. The company plans to use the IPO proceeds to finance its expansion. It is planning a 1,50,000 tonne per annum LAM coke unit and a 8 megawatt captive power plant through waste heat recovery. The project is coming up at Sindhudurg in Maharashtra.

The company also plans to utilize the funds for acquiring coal mines either in Indian or abroad and retire high cost debt.

Austral Coke had concluded pre-IPO placement of 27.4 lakh shares to Somerset India Fund at Rs 196 per share, aggregating to Rs 53.70 crore.

The company reported net profit of Rs 35.17 crore on sales of Rs 226.66 crore in eleven months period ended February 2008.

Source: Capitalmarket.com

20 Microns Ltd IPO gets 3/5 Grade by CARE

CARE has come out with a research report on 20 Microns. It has assigned IPO Grade 3/5 to the company's IPO. TML proposes an initial public offering of 43,50,632 equity shares (approximately Rs 26.10 crore).

CARE's report on 20 Microns' IPO:

CARE has assigned a ‘CARE IPO Grade 3’ to the proposed IPO of 20 Microns Ltd. (TML). ‘CARE IPO Grade 3’ indicates Average Fundamentals. CARE assigns IPO grades on a scale of Grade 5 to Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. CARE’s IPO grading is an opinion on the fundamentals of the issuer. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of the issuer. TML proposes an initial public offering of 43,50,632 equity shares (approximately Rs 26.10 crore). The objective of the proposed IPO is to partly fund its ongoing expansion projects as well as provide an exit opportunity to Venture Fund, GVFL (Gujarat Venture Capital Fund 1995) which would be offloading 50% of its existing stake in TML.

The grading takes into account TML’s long and established track record in the micronised minerals industry, operating captive mines and geographical spread of its manufacturing facilities in a logistics intensive industry, diversified clientele and voluntary compliance with some of the provisions of clause 49 of the listing agreement since last five years. The grading is constrained by unsatisfactory financial performance in the recent past including availing of CDR (Corporate Debt Restructuring) package, competition from players in the organised as well as unorganised sector, increasing cost of fuel, IPO linked project and modest financial profile as reflected by high overall gearing and moderate profit margins, especially in a rising interest rate scenario. The grading is further constrained by subdued return on net worth and moderate level of EPS.

Baroda-based TML, incorporated in 1987, is one of the largest players in the organised sector of the white minerals industry in India. The micronised minerals produced by TML are used as functional fillers and extenders in paints (43% of sales for FY08 for TML), plastics (27%), paper & ceramics (11%) and other products (19%). The top three products viz. GCC (41%), china clay (24%) and talc (15%) contributed approximately 80% of total sales. Its clientele includes Asian Paints, Akzo Nobel Coatings, ICI Paints, Berger Paints, Pidilite, Finolex Cables, etc.

TML incurred losses in three consecutive years from FY03 to FY05 mainly on account of non-functioning of a major equipment at Bhuj due to earthquake in Gujarat in 2001 and high contracted rates of interest. Consequently, it had to avail CDR package. TML made a formal exit from the CDR in early 2008 by paying re-compensation amount.

TML proposes to expand capacities at its existing four locations and setup a new unit at Haldwani and manufacture higher value-added products at these facilities with particle size upto 0.7 micron. Total cost of project of approximately Rs 20 cr is proposed to be financed by way of project debt-equity ratio of 1:1. Disbursement of project term loan of Rs 10 cr is linked to successful completion of IPO.

The weighted average ROCE and RONW for the last three years were 13.18% and 15.69% respectively. Its EPS has increased gradually to a moderate level of Rs 3.64 per share in FY08. Also, the company has not paid any dividend to its shareholders during the past five years.

Total income of TML grew by 22.74% in FY08 compared to FY07 on account of a growth in manufacturing sales as well as trading sales by 17.5% and 34.1% respectively in value terms. PBILDT and PAT margin were comfortable at 14.08% and 4.22% respectively in FY08. TML’s long-term debt equity ratio remained moderate at 1.06 times. The overall gearing level, despite showing marginal improvement, was high at 1.85 times as on Mar.31, 2008.

Source: Moneycontrol.com

Resurgere Mines & Minerals spurts on debut

Settles at Rs 524.35 on BSE, a 94.20% premium over IPO price of Rs 270

Resurgere Mines & Minerals settled at Rs 524.35 on BSE, a 94.20% premium over initial public offer price of Rs 270. The counter clocked huge volumes of 3.31 crore shares on BSE.

Resurgere Mines & Minerals India debuted at Rs 272.05 on BSE, a marginal premium of 0.75% over its issue price of Rs 270. The stock hit a high and low of Rs 562.80 and Rs 272.05.

The current price of Rs 524.35 discounts its FY 2008 EPS of Rs 23.32, by a PE multiple of 22.48.

The company raised Rs 120 crore rupees through its 44.5 lakh share initial public offer (IPO) in a price band of Rs 263 and Rs 272 a share. The IPO was oversubscribed 1.16 times. The issue price was later fixed at Rs 270 per share. The issue opened for subscription on 11 August 2008 and closed on 13 August 2008.

Resurgere Mines & Minerals India is in the business of extraction, processing and sale of mineral products and exploration and development of mining assets. The product range includes various forms of iron ore such as Lump ore, Size ore, Calibrated Lump ore (CLO) and iron ore fines etc. and bauxite. The company sells all these products domestically except iron ore fines, which the company exports to China.

The company will utilise the proceeds of the initial pubilc offer for purchasing plant and machinery and purchase railway rakes to set up own logistics infrastructure facilities and funding working capital requirements.

The company reported 110.4% spurt in net profit to Rs 66.56 crore on 154.80% surge in net sales to Rs 418.57 crore in the year ended March 2008 over the year ended March 2007.

Source: Capitalmarket.com

Resurgere Mines & Minerals to list on Sept 1

Resurgere Mines & Minerals India, a company engaged in the business of extraction, processing and sale of mineral products and exploration and development of mining assets, will list on the bourses with its equity shares on September 1, 2008. The issue price is Rs 270 per share.

The public issue of 4,450,000 Equity shares of Rs 10 each was subscribed 1.16 times.

Motilal Oswal Investment Advisors Pvt. Ltd was the BRLM for the Issue and PL Capital Markets Pvt. Ltd and Ashika Capital Ltd were the Co-BRLMs for the Issue. The Equity shares are proposed to be listed on BSE and NSE.

The Company proposes to utilize the net proceeds of the Issue to part finance its plan for purchase of Plant and Machinery valued at Rs 1,285.64 million for setting up of its own extraction and crushing facilities at the mines and purchase of six railway rakes worth Rs 1,163.60 million to set up own logistics infrastructure facilities, besides meeting margin money requirement for working capital.

The Company proposes to part finance the cost through term loans of Rs 860 million to be raised from banks, Rs 430 million through Private Equity funding from Merrill Lynch International and Rs 137.30 million through Pre-IPO allotment. Merrill Lynch International holds 3,000,000 Equity shares, India Business Excellence Fund-I holds 910,000 Equity shares, IL&FS Trust Co. Ltd ( Trustees of Business Excellence Trust-India Business Excellence Fund ) hold 402,500 Equity shares, Mr Motilal Oswal hold 250,000 Equity shares and Mr. Raamdeo Agarwal holds 200,000 Equity Shares in the Company.

Source: Moneycontrol.com

3 banks get SEBI nod for IPO money

Three banks - Corporation bank, Union Bank of India and HDFC bank - have received SEBI nod for offering the new payment facility for IPOs under SEBI’s new scheme where investor application money will not be blocked with the IPO issuer till allotment. It also does away with the refund process.

These three banks can now be part of the Applications Supported by Blocked Amount (ASBA) process.

This process allows for a new mode of payment in IPOs wherein the application money of an investor will remain in an account until the allotment process. After the shares are allotted, only the amount of money required for payment for the allotted number of shares will be debited from the applicants’ accounts. These three banks are eligible to act as Self Certified Syndicate Banks (SCBS) in public issues which open on or after September 1, said a release issued by SEBI today. The respective banks have also announced the select bank branches where this facility will be available from September 1, 2008, reports The Hindu Business Line.

Source: Moneycontrol.com

BSNL IPO issue dropped from board meeting agenda

The Board of state-run BSNL today skipped discussion on its proposed public offer as the company is still trying to make the employees union agree to dilution of equity. However, the ITI-BSNL merger issue, which is also opposed by the union, came up for discussion.

Source: Congoo.com

20 Microns fixes IPO price band at Rs 50-55

20 Microns, a pioneer and leader in the micronised minerals and trend setter in the market for usage of ultrafine minerals for the Paints & Plastic Industries, has fixed the price band between Rs 50 and Rs 55 per equity share for its initial public offering of 43,50,632 equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process. The company filed a red herring prospectus with the Registrar of Companies, Gujarat, at Vadodara, on August 19, 2008.

The issue consists of a fresh issue of 16,75,000 equity shares of Rs 10 each and an offer for sale of 26,75,632 equity shares by Gujarat Venture Capital fund 1995. Up to 2,17,532 equity shares will be reserved for subscription by eligible employees. The issue will constitute 30.81% of the post issue paid up capital of the company. The ussue has been graded by the Credit Analysis & Research (CARE) and has been assigned the IPO Grade 3 indicating Average Fundamentals.

The company intends to utilize the proceeds of the fresh issue in the IPO towards the current ongoing expansion plans of the manufacturing capacities at various locations, invest in the sub-micron particle sizes required by end-market and general corporate purposes.

The equity shares are proposed to be listed on Bombay Stock Exchange Ltd. and National Stock Exchange of India Ltd.

The book running lead manager is Keynote Corporate Services Limited.

Source: Moneycontrol.com

Nu Tek India attracts 4% premium on debut

Settles at Rs 199.30 on BSE compared to IPO price of Rs 192

Nu Tek India settled at Rs 199.30 on BSE, a premium of 3.80% over the IPO price of Rs 192.

On BSE, 1.30 crore shares were traded on the Nu Tek India counter. The stock hit a high of Rs 225 and a low of Rs 194. The stock debuted at Rs 201.10, a premium of 4.73% over the IPO price.

The current price Rs 199.30 discounts, the company's year ended March 2008 EPS of Rs 12.30, by a price earning (PE) multiple of 16.20.

Nu Tek, a telecom infrastructure services provider, had fixed the issue price the top end of the Rs 170 - Rs 192 IPO price band.

Nu Tek India IPO ended on 1 August 2008 with 1.63 times subscription. The issue received bids for 73.49 lakh shares as against 45 lakh shares on offer. The qualified institutional buyers (QIBs) category was subscribed 2 times, the non-institutional investors portion was subscribed 1.78 times and the retail portion was fully subscribed.

Nu Tek India intends to utilise proceeds to meet the cost of capital expenditure, overseas acquisition and augmenting the long term working capital.

The company operates in states like Jharkhand, Orissa, West Bengal, Uttar Pradesh, Punjab, Jammu & Kashmir, and Uttarakhand. It has already started operations in Mumbai, Maharashtra and Goa.

The company provides services pertaining to technical support, operational & maintenance and telecom implementations. It undertakes turn-key projects which constitutes 57% of their business activities.

Nu Tek India reported a net profit of Rs 21.27 crore on revenue of Rs 95.16 crore in year ended March 2008.

Source: CapitalMarket.com

SVPCL to refund IPO application money to investors

SC has rejected SVPCL petition that challenges BSE turning down its IPO. SVPCL will refund application money to investors, reports CNBC-TV18.

The company had entered capital market with a public issue of Rs 34.50 crore through a 100 per cent book-building process between October 22-26, 2007. The price band was at Rs 40-45 per equity share. Its issue just subscribed 1.09 times, as per NSE website data.

BOB Capital Markets Ltd was the book running lead manager for the issue and UTI Securities Ltd is the co-BRLM.

Source: Moneycontrol.com

NHPC IPO to hit market in October

The state-run NHPC's initial public offering of 167 crore equity shares, the largest in Indian history, is likely to open on October 13.

According to the draft schedule drawn for the IPO that may raise around Rs 1,670 crore, the company would list on the Bombay Stock Exchange and National Stock Exchange on November 6.

The IPO would be closed on October 17. NHPC Board had earlier this month approved the IPO together with five per cent disinvestment of government stake and may become the first PSU to go public after Left parties withdrew support from the UPA government.

The Board of the company, which on August 6 filed a revised draft red herring prospectus (DRHP) with SEBI, is likely to decide on a price band for the IPO on September 16 and an Empowered Group of Ministers would approve it on September 19.

NHPC would file the prospectus with SEBI quoting the price band on September 22 and the same would be filed with Registrar of Companies on September 25.

NHPC, which accounts for 3.7 per cent of country's total power generation capacity, targets to double its power generation capacity by 2012 from the present 5,200 MW and has outlined expansion plans worth Rs 28,000 crore.

The IPO would comprise sale of 10 per cent of fresh equity shares and five per cent disinvestment of government equity.

According to the scheme, domestic roadshows for the public offering would begin on September 29, while international roadshows would commence on October 6.

The company board is likely to meet on October 18 to fix an issue price and within two days the EGOM would ratify that.

Source: Financialexpress.com

General insurers may be allowed to tap capital market

The Initial Public Offering (IPO) of Bharat Sanchar Nigam Ltd (BSNL) is expected to take precedence over the capital raising proposals of the public sector general insurance companies.

Sources said that the Government was not opposed to the capital raising plans of the four general insurance companies — New India Assurance Company Ltd, National Insurance Company Ltd, Oriental Insurance Company Ltd and United India Insurance Company Ltd.

The plans are now awaiting amendments to the General Insurance Business (Nationalisation) Act of 1972 and the Insurance Act of 1938.

But clearance for the capital raising efforts is likely only after completion of the Rs 42,000-crore BSNL’s mega IPO. The sources said that the Government’s efforts were to push through with the 10 per cent divestment in BSNL. The BSNL focus was largely driven by the ticket size, the sources said.

The large ticket size would help the Government raise large resources and partly help in complying with the fiscal deficit targets for the current year, estimated at 2.5 per cent of the Gross Domestic Product.

Of smaller size
Raising of resources by general insurers through a combination of capital restructuring and IPOs would, however, be of far smaller magnitude.

The smaller ticket size notwithstanding, the sources said, indications are that the insurers would be permitted to access the domestic capital markets this financial year itself. This was particularly in view of general insurers’ urgency in capital requirements for growing their business.

Besides, general insurers also have pressed the need to reduce reliance on cross border risk capacities for conforming to regulatory solvency margins.

Solvency margin
At present, the regulator’s prescribed solvency margin is 150 per cent. Solvency margin implies the excess of capital and value of assets over the insured liabilities. At present, the PSU general insurers have solvency ratios in excess of two times over their insured liabilities.

However, this was largely in view of the low insurance penetration. The general insurance market is currently about Rs 35,000 crore or about 0.65 per cent of the Gross Domestic Product.

The Asian average is about 3 per cent of the GDP. Stepping it up to Asian levels, the sources said, would require capital infusion.

The combined net worth (paid-up equity + general reserves) of the four PSU insurers is currently about Rs 13,000 crore.

Besides, the sources said, valuation exercises for the four companies are yet to begin. New India Assurance, Oriental Insurance and United India Insurance have hired the Boston Consulting Group as external consultants. National Insurance has appointed PwC as its consultant.

The sources said that the consultants would not be valuing the companies.

But the process for beginning a valuation would be in place even as the amendments to the statutes are completed over the next few months, the sources added, reports The Hindu Business Line.

Source: Moneycontrol.com