IPO week to increase volatility in markets (Opinion)

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Markets continued their volatile way in the four-day trading week gone by. We saw markets opening with a gap on Monday as expected but profit taking followed. The gains continued on Tuesday and Wednesday before the holiday on Thursday. Friday saw markets opening strong but were rattled by savage profit taking which saw more than half the weekly gains being erased. BSESENSEX ended the week with gains of 386.76 points or 0.77 per cent to close at 50,792.08 points, while NIFTY gained 92.85 points or 0.62 per cent to close at 15,030.95 points. The broader markets saw BSE100, BSE200 and BSE500 gain 0.43 per cent, 0.41 per cent and 0.49 per cent respectively.

The Indian Rupee gained 5 paisa or 0.07% to close at Rs 72.78. Dow Jones had a stellar week and hit a new lifetime high on Friday. Dow gained 1,282.34 points or 4.07% to close at 32,778.64 points. The close was just 15 points shy of the lifetime high.

Last week I had talked about the Monday phenomenon and how since the 1st of February each Monday has seen markets opening strong and gain ground. This week I am going to talk about the Friday phenomenon where over the last four weeks markets have lost ground each time on a Friday. NIFTY lost 140 points on Friday the 19th February, 570 points on Friday the 26th of February, 140 points on Friday the 5th of March and 145 points on Friday the 12th of March. Will Monday and Friday continue to perform the same way in the coming week as well?

The week ahead is full of IPO’s and one gets a feeling that promoters and merchant bankers believe it’s now or never.

Anupam Rasayan Limited is tapping the capital markets with its fresh issue for Rs 760 crs in a price band of Rs 553 to 555. The issue has opened on Friday the 12th of March and would close on Tuesday the 16th of March. The company is in the business of custom synthesis and manufacturing of speciality chemicals in India. The company had reported revenues of Rs 539.38 crs for the year ended March 2020 which improved to Rs 563.16 crs for the nine months ended December 2020. When compared with the year ago period, this turnover was Rs 374.5 crs. In terms of profit for the period the same was Rs 52.97 crs for March 2020, Rs 48.09 crs for nine months December 20 and Rs 42.80 crs for the nine months December 2019. The EPS on a fully diluted and restated basis is Rs 6.94 for the year ended March 2020. This translates into a PE band of 79.68-79.97. Certainly, expensive when compared to the peers as listed in the offer document. Considering the fact that the company has already completed its capex and would be utilising the issue proceeds for repaying its debts, it could be presumed that there would be a saving of Rs 55-60 crs on interest repayment itself going forward.

Craftsman Automation Limited is tapping the capital markets with its fresh issue of Rs 150 crs and an offer for sale of 45,21,450 shares in a price band of Rs 1488-1490. The size of the combined issue is between Rs 822-823 crs. The issue opens on Monday the 15th of March and would close on Wednesday the 17th of March. The company is a diversified engineering company having three business verticals. The first is in the automotive space where it makes powertrain and other equipment. The second is automotive aluminium products and third is industrial and engineering which also includes the storage solutions business which is currently small but a fast-growing segment. The revenues for the company were about Rs 1,500 crs for the 12 months ended March 20 of which the split has been as about half from power train, a little over a third from aluminium products and the balance from industrial and engineering. The blended EBITDA was around 30 per cent. The performance in the nine months ended December 2020, were muted with the first quarter being virtually a write off. The revenues were Rs 1,022 crs with blended EBITDA margins about 30 per cent. The company has performed better in the second and third quarter and the trajectory shows and implies that in the year 2021-2022 they should be back on track having encountered the two major crisis of the previous two years namely, the transition of BS IV to BS VI and the effect of covid-19. The company reported an EPS of Rs 20.41 for the year ended March 2020 which was Rs 48.39 for the previous year. The fall was on account of the shift from BS IV to BS VI. At the above EPS, the PE ratio is 72.91-73. The NAV of the company is Rs 355.93 as at 31st December 2020. Going by the headline number the PE looks expensive, but considering the fact that migration from BS IV to BS VI is once in a lifetime, benefit of doubt should be given to Craftsman.

Laxmi Organics Limited is tapping the capital markets with its fresh issue of Rs 300 crs and an offer for sale of Rs 300 crs. The issue opens on Monday the 15th of March and closes on Wednesday the 17th of March. The price band is Rs 129-130. The company is currently in two business verticals where the larger business is the manufacture of Acetyl Intermediates and the second vertical is Speciality intermediates. Of the total Rs 1,530 crs revenue in the year ended March 2020, roughly 60% of revenues were from the acetyl business while 40% were from the speciality intermediates business. The company has acquired the unit of Miteni of Italy who is a leading global player in the fluorochemical space. The plant is in the process of being relocated to Lote Parshuram near Mahad in Maharashtra, and would be commissioned in the second quarter of FY21. Laxmi Organics has earned an EPS of Rs 2.86 for the year ended March 20 which has improved significantly to Rs 2.02 for the half year ended September 2020. There is virtually no seasonality in the chemical industry and typically the two halves of the year are fairly similar in nature. The PE ratio of the company is 45.10 to 45.45 based on full year March 2020 numbers. If one were to annualise the six months results the PE ratio would drop significantly to 31.93-32.17 times. Considering the importance of speciality chemicals and fluorochemicals going forward and the stance being adopted against China where China plus one is becoming a norm, Laxmi Organics is well poised to reap the benefits going forward. It has the new fluorochemicals plant slated for production in less than six months as well as the in-operation Acetyl Intermediate plant scheduled to be integrated into Laxmi by September 21. Investment is warranted in Laxmi considering the present performance and the future of the company.

Suryoday Small Finance Bank Limited is tapping the capital markets with its fresh issue of 81.50 lac shares and an offer for sale of 1.09 cr shares. The price band is Rs 303-305. The issue opens on Wednesday the 17th of March and closes on Friday the 19th of March. The company is a small finance bank and started its journey from the microfinance business. Its current AUM (assets under management) is Rs 4,000 crs. The company is present in 11 states and 2 union territories with the largest exposure being in Maharashtra and Tamil Nadu, with over 55 per cent exposure of the AUM. The company had reported an EPS of Rs 13.30 on a diluted basis for the year ended March 2020. The PE for the company at this EPS is 22.78-22.93 times. The period April-December 2020 has been tough for this sector and almost all companies have faced tough times with Suryoday being no exception. The NAV as on 31st March 2020 was Rs 123.13 which makes the price to book based on these numbers high at 2.48 when compared with peers. Secondly the size of the bank currently is quite small when compared with peers which makes like to like comparison difficult.

The final issue is from Kalyan Jewellers Limited which is tapping the capital markets with its fresh issue of Rs 800 crs and an offer for sale of 375 crs. The price band is Rs 86-87. The issue opens on Tuesday the 16th of March and closes on Thursday the 18th of March. The company which is a pan-India company selling gold and studded jewellery reported revenues of just over Rs 10,000 crs for the year ended March 2020. The only company which Kalyan considers as its peer, Titan reported revenues of double that amount. Over 83 pwer cent of Titan’s revenues came from the jewellery business and balance from segments like watches, wearables and others. Titan reported net profit of Rs 1,258 crs while Kalyan reported a net profit of Rs 142 crs. The EPS for Kalyan on a fully diluted basis based on March 2020 results was Rs 1.49. Based on this EPS, the PE ratio is 57.72-58.29 times. The nine-month numbers for December 2020 have not been considered as they were not comparable due to covid-19 situation. Jewellery companies barring a couple have not made money for investors in India.

The primary issue from Easy trip Planners Limited was subscribed over 160 times. The issue received excellent response from all categories. QIB portion was subscribed 77.95 times, HNI portion 384.26 times and Retail portion was subscribed 70.78 times. There were 19.94 lac applications.

On the covid-19 front, the world saw 12,00,57,633 patients, 26,59,836 deaths and 9,65,89,356 patients recovering. In India we saw 1,13,59,048 patients, 1,58,642 deaths and 1,09,89,897 patients recovering. Compared to the previous week, the world saw 29,75,870 new patients, 59,788 deaths and 39,28,361 patients recovering. In India we saw 1,48,249 new patients, 851 deaths and 1,21,377 patients recovering. Some significant events have happened where Brazil has again overtaken India in number of cases and gone to the second spot after the USA. Secondly the number of new cases in India continues to be on the rise and is a cause for concern. Thirdly as of date more than 3 cr people have been vaccinated and the number is increasing on a daily basis. Hopefully the increase in daily cases should come under check in the next couple of weeks.

The markets would continue to remain choppy and volatile. With the Dow hitting new high, liquidity being at unheard levels and interest in the market growing, markets should continue to trade in a broad range. With there being a predictable movement for two of the five days, expect markets to give opportunities to trade on both sides. Trade cautiously.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)–IANS

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