Keynote Capitals has come out with report on Shriram EPC IPO. The firm has recommended subscribing to the issue with a long term view.
Shriram EPC, one of the leading service providers of integrated design, engineering, procurement, construction and project management services for renewable energy projects, process and metallurgical plants and municipal services sector projects throughout India and one of India’s leading 250 KW wind turbine generator manufacturers, has opened for subscription with its initial public offering (IPO) of 5,000,000 equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process.
The price band is between Rs 290 and Rs 330 per equity share. The issue will close for subscription on February 1, 2008.
Keynote Capitals report on Shriram EPC IPO
Recommendation - Subscribe with a long term view
* Shriram EPC (SEPC) is a leading provider of integrated design, EPC and project management services for renewable energy projects, process and metallurgical plants and municipal services.
* The JVs with Leitwind BV, Netherlands for wind turbine generators (WTGs), Hamon BV, Netherlands for Cooling towers and Air pollution control systems and other JVs give access to technological know-how, project management skills and helps build strong client relationships.
* 41% of the IPO proceeds will be utilized for equity investments in the subsidiary and associate companies. While no fresh capex is being planned in SEPC, these investments will help consolidate and bring operations of these respective companies under SEPC’s fold.
* The revenue and PAT grew @ CAGR 138% and 287% respectively during FY04-07 reflecting aggression on the part of the management, as also the base effect.
* We believe the healthy order book of Rs22.8Bn will translate into revenues and earnings growth over the next 3 years. We expect revenues and PAT to grow @ CAGR of 70.8% and 74.3% respectively during FY08-10, on the back of the healthy order book and higher revenues from Mega-watt and Kilo-watt class WTGs.
* The investment concerns include low pricing power resulting in poor EBITDA margins and high level of receivables and order execution risks.
* The IPO is priced at 49.1x FY08E, 25.1x FY09E and 16.2x FY10E earnings. We note the relatively small size and very short track record vis-à-vis peers. While we believe it is expensive vis-à-vis WTG/EPC peers like Gamesa, Suzlon Energy and Indowind Energy we are of the view that it can be a good play on combined potential of the EPC / WTG sectors, especially given the global institutional appetite for the renewable energy segment. We therefore recommend investing with a long term perspective.
Investment Concerns
* The business is in early stages and is yet to achieve significant scalability.
* Order execution risks
* Top 10 clients contributed 85.2% of revenues in H1FY08.
* Dependence on JVs with international players Viz, Leitwind, Hamon Group, Orient
Green Power, etc.
Source: Moneycontrol.com
Showing posts with label Keynote Capitals report. Show all posts
Showing posts with label Keynote Capitals report. Show all posts
Wednesday, January 30, 2008
Tuesday, December 11, 2007
Subscribe to Brigade with long term view
Keynote Capitals has come out with research report on Brigade Enterprises IPO. The firm has recommended subscribing with a long term view.
Brigade Enterprises, a Bangalore-based real estate company focusing on the development of residential, commercial and hospitality properties, has opened for subscription with an initial public offering of 16,624,720 equity shares of Rs 10 each for cash, at a price to be decided through the 100% book building process.
The issue will close for subscription on December 13, 2007. The price band is between Rs 351 and Rs 390 per equity share.
Keynote Capitals report on Brigade Enterprises IPO
Recommendation - Subscribe with a long term view
* Brigade Enterprises (BEL), a Bangalore-based real estate company, is focused on development of residential, commercial and hospitality properties in South India.
* It is one of the early developers to introduce the innovative concept of lifestyle enclaves in Bangalore. Lifestyle enclaves provide all facilities along with basic accommodation. This segment is likely to contribute to major revenues, going forward.
* Its land bank of 403 acres, spread across 7 cities in South India, translates into a developable area of 44mn sq. ft. due to FSI benefit. The land bank will increase to 445.3 acres post-IPO, through acquisition of additional land in Bangalore and Kerala. However, it would still be much smaller vis-à-vis players like Puravankara Projects and Kolte-Patil Developers.
* Order book of ongoing projects of 12.5mn sq. ft. of developable area is likely to get completed by FY09. The breakup of its order book is as follows: 59% residential, 35% commercial and 6% hospitality projects.
* Going forward, the main concern would be the timely execution of the order book. In order to ensure timely execution, BEL has tied up with reputed contractors to whom the construction activities are outsourced.
* 91% of the IPO proceeds shall be utilized to construct and develop ongoing and forthcoming projects. Rest of the proceeds will be for acquiring additional land.
* BEL has managed to grow topline and bottomline at a CAGR of 70.2% and 88.1% respectively. EBITDA margin expansion from 18.4% in FY04 to 32.1% in FY07.
* It follows the strategy of selling residential property and leasing non-residential property. This in our view gives more visibility to the revenue streams, as the company will generate revenues from both selling and leasing properties. 40% of the developable area of ongoing projects will generate revenues from lease rentals.
* It plans to expand in other tier 1 and tier 2 cities in India which will help de-risk its business model. Going forward, it plans to develop an SEZ too.
* It has an accounting policy of recognizing revenues on percentage of completion method, as the aggregate of the profits earned on the projects completed/under completion and the value of construction work done during the period.
* We compared BEL with Kolte-Patil and Puravankara, the real estate companies which recently went public. Following are our comments
very low land bank compared to Kolte-Patil, Puravankara and other listed real estate players.
In spite of Bangalore being an IT city, BEL’s revenues from IT parks is too minimal.
higher tax provision of 32% compared with Kolte-Patil of 22.8% and Puravankara
of 11.8% in FY07.
very low PAT margins of 17.4% (Kolte-Patil 36.3% and Puravankara 31.3% in FY07), because of higher interest expenditure and tax provisions.
The debt equity ratio is on par; however, post-issue, the debt-equity ratio would be 2.06.
BEL has a price/NPV of 0.99x per share compared to peers – Puravankara 1.06x and Kolte-Patil 0.77x.
* IPO valuation at 41.5xFY08E and 20.2xFY09E is in line with peers (Sobha developers at 19.4xFY09E, Kolte-Patil at 6.9xFY09E and Parsvanth developers at 7xFY09E). NPV valuation is Rs 394 per share, translating into price/ NPV mutiple of 0.99x. We recommend subscribing with a long term view.
Concerns
* 74.6% of the land bank located in Bangalore which exposes them to single city risk.
* Compared to other real estate players, it has got a very small land bank. Going forward, if it plans to increase the same, it will have to incur high costs to acquire quality space.
* Timely execution of the ongoing and forthcoming projects is a concern.
* It has a mixed strategy of selling residential real estate properties as well as leasing commercial properties. A decision to lease rather than sell any property would reduce cash flows in the short term and increase the number of periods over which cash would be recovered from such properties.
* Increasing cost of construction materials like steel, cement, etc is likely to affect margins.
Source: Moneycontrol.com
Brigade Enterprises, a Bangalore-based real estate company focusing on the development of residential, commercial and hospitality properties, has opened for subscription with an initial public offering of 16,624,720 equity shares of Rs 10 each for cash, at a price to be decided through the 100% book building process.
The issue will close for subscription on December 13, 2007. The price band is between Rs 351 and Rs 390 per equity share.
Keynote Capitals report on Brigade Enterprises IPO
Recommendation - Subscribe with a long term view
* Brigade Enterprises (BEL), a Bangalore-based real estate company, is focused on development of residential, commercial and hospitality properties in South India.
* It is one of the early developers to introduce the innovative concept of lifestyle enclaves in Bangalore. Lifestyle enclaves provide all facilities along with basic accommodation. This segment is likely to contribute to major revenues, going forward.
* Its land bank of 403 acres, spread across 7 cities in South India, translates into a developable area of 44mn sq. ft. due to FSI benefit. The land bank will increase to 445.3 acres post-IPO, through acquisition of additional land in Bangalore and Kerala. However, it would still be much smaller vis-à-vis players like Puravankara Projects and Kolte-Patil Developers.
* Order book of ongoing projects of 12.5mn sq. ft. of developable area is likely to get completed by FY09. The breakup of its order book is as follows: 59% residential, 35% commercial and 6% hospitality projects.
* Going forward, the main concern would be the timely execution of the order book. In order to ensure timely execution, BEL has tied up with reputed contractors to whom the construction activities are outsourced.
* 91% of the IPO proceeds shall be utilized to construct and develop ongoing and forthcoming projects. Rest of the proceeds will be for acquiring additional land.
* BEL has managed to grow topline and bottomline at a CAGR of 70.2% and 88.1% respectively. EBITDA margin expansion from 18.4% in FY04 to 32.1% in FY07.
* It follows the strategy of selling residential property and leasing non-residential property. This in our view gives more visibility to the revenue streams, as the company will generate revenues from both selling and leasing properties. 40% of the developable area of ongoing projects will generate revenues from lease rentals.
* It plans to expand in other tier 1 and tier 2 cities in India which will help de-risk its business model. Going forward, it plans to develop an SEZ too.
* It has an accounting policy of recognizing revenues on percentage of completion method, as the aggregate of the profits earned on the projects completed/under completion and the value of construction work done during the period.
* We compared BEL with Kolte-Patil and Puravankara, the real estate companies which recently went public. Following are our comments
very low land bank compared to Kolte-Patil, Puravankara and other listed real estate players.
In spite of Bangalore being an IT city, BEL’s revenues from IT parks is too minimal.
higher tax provision of 32% compared with Kolte-Patil of 22.8% and Puravankara
of 11.8% in FY07.
very low PAT margins of 17.4% (Kolte-Patil 36.3% and Puravankara 31.3% in FY07), because of higher interest expenditure and tax provisions.
The debt equity ratio is on par; however, post-issue, the debt-equity ratio would be 2.06.
BEL has a price/NPV of 0.99x per share compared to peers – Puravankara 1.06x and Kolte-Patil 0.77x.
* IPO valuation at 41.5xFY08E and 20.2xFY09E is in line with peers (Sobha developers at 19.4xFY09E, Kolte-Patil at 6.9xFY09E and Parsvanth developers at 7xFY09E). NPV valuation is Rs 394 per share, translating into price/ NPV mutiple of 0.99x. We recommend subscribing with a long term view.
Concerns
* 74.6% of the land bank located in Bangalore which exposes them to single city risk.
* Compared to other real estate players, it has got a very small land bank. Going forward, if it plans to increase the same, it will have to incur high costs to acquire quality space.
* Timely execution of the ongoing and forthcoming projects is a concern.
* It has a mixed strategy of selling residential real estate properties as well as leasing commercial properties. A decision to lease rather than sell any property would reduce cash flows in the short term and increase the number of periods over which cash would be recovered from such properties.
* Increasing cost of construction materials like steel, cement, etc is likely to affect margins.
Source: Moneycontrol.com
Monday, November 19, 2007
Subscribe to Kolte-Patil with medium term view
Keynote Capitals has come out with report on Kolte-Patil Developers IPO. They have recommended to subscribe to the issue with medium term view.
Kolte-Patil Developers, a real estate developer in India, has opened for subscription with an initial public offering (IPO) of 19,000,836 equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process.
The issue will close on November 22, 2007. The price band has been fixed between Rs 125 and Rs 145 per equity share.
Keynote Capitals report on Kolte-Patil Developers IPO
Recommendation - Subscribe with a medium term view
* Kolte-Patil Developers (KPDL) is a real estate developer, having presence mainly in the cities of Pune and Bangalore. It has a diversified project portfolio across residential properties, townships, commercial properties, IT parks etc. Has an experienced management team.
* Land reserves of around 54.5mn sq ft. Of this, approx. 39mn sq ft represents expected saleable area. However, land owned and land over which it has sole development rights aggregates to 57.7% of land bank, which is on the lower side vis-à-vis developers like Omaxe (76.2%) and IVR Prime Urban (73%) (source: respective RHPs).
* Its JVs provide it with the ability to capitalise on bigger opportunities, raise funding via the equity and debt routes and undertake large-scale development projects.
* On account of the increase in sales of IT premises in FY07, topline and bottomline grew at a CAGR of 174.1% and 486.8% during FY05-07 respectively on standalone basis.
* Diversification of its project portfolio and expansion into emerging local markets like Hyderabad, Chennai, Nasik, Goa, Nagpur, Aurangabad and Mysore will help derisk its business model.
* Its accounting practice of recognising revenues and expenses only in the period in which the project is completed leads to volatility of revenues.
* On the basis of its project implementation schedule, we estimate sales revenues to grow at 51.4% CAGR during FY07-09. We expect a modest 10.7% bottomline growth in FY08, followed by a 70.5% growth in FY09, as a number of projects are likely to get completed in that year. We expect a slight impact on EBITDA margin and accordingly expect net profit to grow at a 37.4% CAGR during FY07-09.
* Tax provision of 22.8% of PBT for FY07 is comparable with that of peers Parsvnath (24.7%), IVR Prime (34%) and DS Kulkarni (14%).
* Concentration of approx. 92% of land reserves in and around Pune is both a positive (due to the IT/BPO backed real estate boom in Pune) and a concern (over-exposure to a single city).
* The IPO valuation, at 11.8x FY08E and 6.9x FY09E earnings is in line with that of peers (Parsvnath Developers at 6.1x FY09E, D.S. Kulkarni Developers at 6.2x FY09E and Akruti Nirman at 11.1x FY09E). Our NPV valuation is in the broad range of Rs187 - 258 per share, translating into a price/NPV multiple of 0.56 - 0.77x.We recommend subscribing to the IPO with a medium term view.
Concerns
* Approx. 92% of the projects portfolio is concentrated in and around Pune.
* Revenue for long-term projects is recognized in the year in which the sale is completed. Therefore, there may be long lead time in the development of a project leading to earnings volatility.
Source: Moneycontrol.com
Kolte-Patil Developers, a real estate developer in India, has opened for subscription with an initial public offering (IPO) of 19,000,836 equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process.
The issue will close on November 22, 2007. The price band has been fixed between Rs 125 and Rs 145 per equity share.
Keynote Capitals report on Kolte-Patil Developers IPO
Recommendation - Subscribe with a medium term view
* Kolte-Patil Developers (KPDL) is a real estate developer, having presence mainly in the cities of Pune and Bangalore. It has a diversified project portfolio across residential properties, townships, commercial properties, IT parks etc. Has an experienced management team.
* Land reserves of around 54.5mn sq ft. Of this, approx. 39mn sq ft represents expected saleable area. However, land owned and land over which it has sole development rights aggregates to 57.7% of land bank, which is on the lower side vis-à-vis developers like Omaxe (76.2%) and IVR Prime Urban (73%) (source: respective RHPs).
* Its JVs provide it with the ability to capitalise on bigger opportunities, raise funding via the equity and debt routes and undertake large-scale development projects.
* On account of the increase in sales of IT premises in FY07, topline and bottomline grew at a CAGR of 174.1% and 486.8% during FY05-07 respectively on standalone basis.
* Diversification of its project portfolio and expansion into emerging local markets like Hyderabad, Chennai, Nasik, Goa, Nagpur, Aurangabad and Mysore will help derisk its business model.
* Its accounting practice of recognising revenues and expenses only in the period in which the project is completed leads to volatility of revenues.
* On the basis of its project implementation schedule, we estimate sales revenues to grow at 51.4% CAGR during FY07-09. We expect a modest 10.7% bottomline growth in FY08, followed by a 70.5% growth in FY09, as a number of projects are likely to get completed in that year. We expect a slight impact on EBITDA margin and accordingly expect net profit to grow at a 37.4% CAGR during FY07-09.
* Tax provision of 22.8% of PBT for FY07 is comparable with that of peers Parsvnath (24.7%), IVR Prime (34%) and DS Kulkarni (14%).
* Concentration of approx. 92% of land reserves in and around Pune is both a positive (due to the IT/BPO backed real estate boom in Pune) and a concern (over-exposure to a single city).
* The IPO valuation, at 11.8x FY08E and 6.9x FY09E earnings is in line with that of peers (Parsvnath Developers at 6.1x FY09E, D.S. Kulkarni Developers at 6.2x FY09E and Akruti Nirman at 11.1x FY09E). Our NPV valuation is in the broad range of Rs187 - 258 per share, translating into a price/NPV multiple of 0.56 - 0.77x.We recommend subscribing to the IPO with a medium term view.
Concerns
* Approx. 92% of the projects portfolio is concentrated in and around Pune.
* Revenue for long-term projects is recognized in the year in which the sale is completed. Therefore, there may be long lead time in the development of a project leading to earnings volatility.
Source: Moneycontrol.com
Saturday, November 17, 2007
Subscribe to Edelweiss with medium term view
Keynote Capitals has come out with report on Edelweiss Capital IPO. The firm has advised to subscribe the issue with medium term view.
Edelweiss Capital, a diversified financial services company, has opened for subscription with its initial public offering (IPO) of 8,386,147 equity shares of Rs 5 each for cash, at a price to be decided through a 100% book building process.
The issue will close close on November 20, 2007. The price band is between Rs 725 and Rs 825 per equity share of face value Rs 5.
Keynote Capitals report on Edelweiss Capital IPO
Recommendation - Subscribe with a medium term view
* Edelweiss Capital (ECL) is a diversified financial services company in India offering services to corporate, institutional and high-net-worth clients. It operates from 43 offices in 19 Indian cities. Strong, professional management.
* It operates through various subsidiaries to offer a wide spectrum of services. Impressive track record since inception in 1995. Topline and bottomline grew at a CAGR of 130% and 142% respectively during FY04-07.
* Bottomline growth mainly on account of expanding EBITDA margin, up from 46.3% in FY04 to 52.6% in FY07. Higher margin attributable to revenues from proprietary trading, institutional clients and investment banking. Its investment banking division has been scaling up operations, successfully lead managed IPOs of MIC Electronics, Meghmani Organics, C & C Construction etc.
* The IPO is aimed primarily at meeting margin money requirements indicating strong growth in the clientele base.
* ECL’s cash balance as of August 2007 stood at Rs 994 crore. In spite of the huge cash on its books, it is raising money primarily to have adequate liquidity and also for prepayment of loan of Rs 105 crore.
* When compared with peers MOFSL and Religare (which went public recently), across a few key parameters, ECL comes across as a mixed bag.
* EBITDA margin superior vis-à-vis that of MOFSL and Religare (32% and 37% respectively).
* MOFSL and Religare have presence in both institutional and retail segments. ECL, however, does not have much presence in the retail segment.
* ROE declined from 42.8% in FY05 to 18.8% in FY07 due to the expansion in net worth, attributable to the issue of preference share capital. However, in spite of this, ROE is on par with that of MOFSL and Religare.
* Broking income constituted 58.4% of ECL’s FY07 revenues; vis-à-vis 87% and 50%% for MOFSL and
Religare respectively. For ECL, income from arbitrage and trading constituted as much as 31% of FY07 revenues. We find the bias towards arbitrage and trading revenues to be a matter of concern.
* Lower leverage and higher interest coverage than that of Religare (however, ECL’s interest cost has increased substantially during the period of 5 months to August 31, 2007, due to sharp increase in debt.
* Reduction in promoter/group stake to just 35%, post-IPO is also a concern.
* Pre-IPO placements to Galleon Special Opportunities Master Fund, Sequoia Capital India and promoters in August, 2007 @ Rs514/517 per share, the last reflecting a discount of 60% to the IPO cap price.
* In line with expected growth in operations, we expect topline and bottomline growth CAGR of 70.3% each during FY07-09. As per our estimates, ECL’s IPO valuation (36.8xFY08E and 21.3x FY09E) is somewhere in between that of MOFSL (39.7xFY08E and 28.4xFY09E) and Religare (22.6xFY08E and 14.4xFY09E). However, in view of strong promoter background and brand equity, we recommend subscribing with a medium term view.
Investment Concerns
* Downturns or disruptions in securities markets could reduce transaction volumes, causing a decline in business. Revenues from operations arise largely during bullish phase in equity market which is not a consistent phenomenon.
* The subsidiary ESL was barred by securities regulators from dealing in securities of certain Indian companies in the past. ECL derives significant business from ESL, any effect in its operations shall affect the consolidated numbers.
* The subsidiary Edelweiss Capital USA LLC is into losses to the tune of Rs 0.09 crore as of August 31, 2007.
* Asset management, investment advisory, financing and wealth management are new businesses in which ECL has recently forayed. It does not have lot of experience in this field.
* There are conflicts of interest within promoter and promoter group. They have equity interests in other entities namely Ivy Financial Services Pvt Ltd and E Cap Partners.
Source: Moneycontrol.com
Edelweiss Capital, a diversified financial services company, has opened for subscription with its initial public offering (IPO) of 8,386,147 equity shares of Rs 5 each for cash, at a price to be decided through a 100% book building process.
The issue will close close on November 20, 2007. The price band is between Rs 725 and Rs 825 per equity share of face value Rs 5.
Keynote Capitals report on Edelweiss Capital IPO
Recommendation - Subscribe with a medium term view
* Edelweiss Capital (ECL) is a diversified financial services company in India offering services to corporate, institutional and high-net-worth clients. It operates from 43 offices in 19 Indian cities. Strong, professional management.
* It operates through various subsidiaries to offer a wide spectrum of services. Impressive track record since inception in 1995. Topline and bottomline grew at a CAGR of 130% and 142% respectively during FY04-07.
* Bottomline growth mainly on account of expanding EBITDA margin, up from 46.3% in FY04 to 52.6% in FY07. Higher margin attributable to revenues from proprietary trading, institutional clients and investment banking. Its investment banking division has been scaling up operations, successfully lead managed IPOs of MIC Electronics, Meghmani Organics, C & C Construction etc.
* The IPO is aimed primarily at meeting margin money requirements indicating strong growth in the clientele base.
* ECL’s cash balance as of August 2007 stood at Rs 994 crore. In spite of the huge cash on its books, it is raising money primarily to have adequate liquidity and also for prepayment of loan of Rs 105 crore.
* When compared with peers MOFSL and Religare (which went public recently), across a few key parameters, ECL comes across as a mixed bag.
* EBITDA margin superior vis-à-vis that of MOFSL and Religare (32% and 37% respectively).
* MOFSL and Religare have presence in both institutional and retail segments. ECL, however, does not have much presence in the retail segment.
* ROE declined from 42.8% in FY05 to 18.8% in FY07 due to the expansion in net worth, attributable to the issue of preference share capital. However, in spite of this, ROE is on par with that of MOFSL and Religare.
* Broking income constituted 58.4% of ECL’s FY07 revenues; vis-à-vis 87% and 50%% for MOFSL and
Religare respectively. For ECL, income from arbitrage and trading constituted as much as 31% of FY07 revenues. We find the bias towards arbitrage and trading revenues to be a matter of concern.
* Lower leverage and higher interest coverage than that of Religare (however, ECL’s interest cost has increased substantially during the period of 5 months to August 31, 2007, due to sharp increase in debt.
* Reduction in promoter/group stake to just 35%, post-IPO is also a concern.
* Pre-IPO placements to Galleon Special Opportunities Master Fund, Sequoia Capital India and promoters in August, 2007 @ Rs514/517 per share, the last reflecting a discount of 60% to the IPO cap price.
* In line with expected growth in operations, we expect topline and bottomline growth CAGR of 70.3% each during FY07-09. As per our estimates, ECL’s IPO valuation (36.8xFY08E and 21.3x FY09E) is somewhere in between that of MOFSL (39.7xFY08E and 28.4xFY09E) and Religare (22.6xFY08E and 14.4xFY09E). However, in view of strong promoter background and brand equity, we recommend subscribing with a medium term view.
Investment Concerns
* Downturns or disruptions in securities markets could reduce transaction volumes, causing a decline in business. Revenues from operations arise largely during bullish phase in equity market which is not a consistent phenomenon.
* The subsidiary ESL was barred by securities regulators from dealing in securities of certain Indian companies in the past. ECL derives significant business from ESL, any effect in its operations shall affect the consolidated numbers.
* The subsidiary Edelweiss Capital USA LLC is into losses to the tune of Rs 0.09 crore as of August 31, 2007.
* Asset management, investment advisory, financing and wealth management are new businesses in which ECL has recently forayed. It does not have lot of experience in this field.
* There are conflicts of interest within promoter and promoter group. They have equity interests in other entities namely Ivy Financial Services Pvt Ltd and E Cap Partners.
Source: Moneycontrol.com
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