LNT Finance was one of the most avaited IPO of 2011 and has opened for subscription today.

Incorporated in 2008, L&T Finance Holdings is a financial holding company offering a diverse range of financial products and services across the corporate, retail and infrastructure finance sectors as well as mutual fund products and investment management services. Promoted by Larsen & Toubro Ltd, one of the leading companies in India, with interests in engineering, construction, electrical and electronics manufacturing and services, information technology and financial services, L&T Finance Holdings is registered with the RBI as a Systemically Important Non-Deposit Taking Non-Banking Financial Company and has applied for registration as a Core Investment Company.

Company’s operations are arranged into four business groups – the Infrastructure Finance Group, the Retail Finance Group, the Corporate Finance Group and the Investment Management Group. LTF’s customer includes individual retail customers as well as large companies, banks, multinational companies and small- and medium-enterprises.

Objects of the Issue:

1. Repayment of inter corporate deposit issued by Promoter to the Company;
2. To augment the capital base of L&T Finance and L&T Infra, to meet the capital adequacy requirements to support the future growth in their business;
3. To achieve the benefits of listing on the Stock Exchanges; and
4. For other general corporate purposes including meeting the expenses of the Issue.

Issue Detail:

Issue Open: Jul 27, 2011 – Jul 29, 2011
Issue Type: 100% Book Built Issue IPO
Issue Size: Equity Shares of Rs. 10
Issue Size: Rs. 1,245.00 Crore
Face Value: Rs. 10 Per Equity Share
Issue Price: Rs. 51 – Rs. 59 Per Equity Share
Market Lot: 100 Shares
Minimum Order Quantity: 100 Shares
Listing At: BSE, NSE

CARE / ICRA has assigned an IPO Grade 5 to L&T Finance IPO. This means as per CARE / ICRA, company has ‘Strong Fundamentals’. CARE / ICRA assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals. (Why use IPO grading?)

Analysis by various Websites/Blogs -

L&T Finance Raises Planned IPO Size; Valued At Premium – By VCCircle

L&T Finance IPO with Infographics – By OneMint

L&T Finance Holdings IPO opens: Should you subscribe? By MoneyControl.

IPO open/close date : 13th/16th Dec
Price band – Rs 113 – Rs 120

Subscription :
Total Issue Size : Rs. 480.00 Crores
No. of times issue is subscribed : 50.75 Times
Qualified Institutional Buyers (QIBs) : 49.80 times
Non Institutional Investors : 85.84 times
Retail Individual Investors : 44.45 times
Employee Reservations : 1.61 times
Overall : 50.75 times

Allotment Status :
Click here to check allotment status!

Listing date to be out soon!

IPO : ARSS Infrastructure

Price Band : Rs. 410 – Rs. 450 Per Equity Share

Date : Feb 08, 2010 – Feb 11, 2010

A relatively low asking price and a focus on government projects make the offer from ARSS Infrastructure Projects a reasonable bet, but only for investors with a high-risk appetite.

A construction contractor in the Railways and roadways segment, the company plans to raise Rs 103 crore from this issue to fund working-capital and joint ventures.

In its price band of Rs 410-450, the offer is at a valuation of 8.6 to 9.5 times the estimated FY-11 per share earnings on a post-offer equity. Reasonable valuations notwithstanding, given the risks to the business, investors are advised to exit the stock if it touches about a 21 per cent return.

ARSS has a high exposure to Railways (which offer higher margins) and roadways, a sizeable order book, strong sales and profit growth, and a secure client base in government contracts. The company also uses joint-ventures to bid for and execute bigger projects and build on execution capabilities. Strong margins and post-issue lower debt-equity are other positives for the company.

However, the order book has several contracts with a relatively short execution period. ARSS will have to keep up the pace of securing fresh orders to maintain current rate of growth.

A promoter facing criminal investigations, past instances of default in payment of power bills, default in servicing debt and decline in working capital turnover pose significant risk.

Background

ARSS executes construction contracts in Railways (laying and linking of tracks, earthwork and construction of bridges) and roadways (widening and strengthening of roads), with a recent move into irrigation. Geographically concentrated in Orissa, the company has moved into regions such as Tamil Nadu, Rajasthan, Jharkhand and so on. Almost 90 per cent of the contracts come from government-based institutions such as Ministry of Railways, Orissa Public Works Departments, and so on, providing a secure repeat client base. The company also has in-house design capacities.

Current order-book stands at Rs 2,877.5 crore (4.6 times 2008-09 revenues), and is well-diversified with 41 per cent in the Railways segment, 40 per cent in roads, 3 per cent in irrigation and the balance in other smaller works.

The order book is represented by over a hundred contracts, a smaller average contract value (about Rs 21 crore), and bulk of the order book is executable by FY-11 providing near-term earnings visibility. However, maintaining current growth rate depends on the company’s ability to continually secure fresh contracts which provide similar margins.

Issue objects

ARSS has used joint ventures with players such as Kalindee Rail and Patel Engineering to execute projects where it lacks capability. Such ventures could help it build on its own expertise and allow a bidding capacity for bigger and more varied projects.

Besides, gradual build up of expertise could help it eventually qualify for projects on its own strength. About Rs 5 crore from the issue proceeds will go to funding such joint ventures and Rs 86 crore towards working capital.

Turnover of working capital, however, has gradually declined from 3.36 in FY07 to 1.67 times (as of December 09). Huge increases in inventory could partly explain this slide.

The order book just about doubled in FY-08 over the year before, but work-in-progress (WIP), a part of inventory, jumped about nine times. This has continued in FY-09 as well where WIP more than doubled against an order-book growth of 64 per cent.

Financials

Sales recorded a strong 118 per cent three-year CAGR while net profits put up a 149 per cent growth. Given a higher component of railway projects, and price escalation clauses built into a majority of the contracts, operating margins have been maintained above 10 per cent FY-07 onwards, standing at 12.5 per cent for the nine months ended December 09.

Net profit margins as well have stayed at about 8 per cent. Funding position appears comfortable with debt-equity on a post-issue basis on the lower side at 1.23 times, and interest cover at 2.7 times (December 09). The company has, however, defaulted on interest and repayment of loans in FY-06, FY-04 and FY-03.

Offer details

The issue is open from February 8-11. IDBI Capital Market Services and SBI Capital Markets are the lead managers. HBL

IPO : Hathway Cable & Datacom

Price band of Rs 240-265

Date : 9th Feb – 11th Feb

Investors can avoid the initial public offering of Hathway Cable & Datacom, a cable distribution and broadband services provider, given the inherent challenges in driving realisations in both the segments that it operates in and the severe competition from well-entrenched players with alternative delivery platforms.

At Rs 265 (upper-end of price band), the stock trades at an EV/sales (enterprise value to sales) multiple of 5.7 times based on its FY09 numbers on a pre-offer equity base and a EV/subscriber of Rs 3,842.

The cable industry may face several scalability hurdles, what with the limited growth in television households, the pace conversion of analogue networks to digital ones and within that conversion of free-to-air viewers to pay-channel mode, all being subject to uncertainty.

Hathway has been in operations for over a decade now and has grown over the years, especially in the last two-three years largely by taking the inorganic route to expansion. Acquiring MSOs (multi-system operators) and LCOs (local cable operators) has enabled the company to grow at a fair pace in terms of revenues. With a negative return on networth and spiralling interest costs (only a small portion of debt is to be repaid from the offer), an acquisition spree, though the only way to grow in this business, may not help strengthen financials.

Cable business challenges

Between FY-06 and FY-09, the company grew its revenues at a compounded annual rate of 38.5 per cent to Rs 673.2 crore. Despite having a reach that is much higher than most other cable operators (estimated base of 8.2 million cable homes) Hathway lagged behind Den Networks in terms of revenues. This suggests that ARPUs (average revenues per user) are quite low for the company, a fact reinforced by its stated figure of Rs 55.8 per month.

Of its total subscribers, only a million of them are on digital cable, which is the key reason for these low ARPUs.

There are several inherent problems in the cable distribution business, which affects all companies in this business. One, there is always the menace of local cable operators understating revenues, which cripples financials for a player such as Hathway, till such time as most analogue connections are upgraded to digital ones, which could be time-consuming.

Second, even if large-scale digitisation of its cable network is achieved, the company still faces the challenge of getting its viewers to subscribe to pay channels, which is the key revenue driver. This is because a viewer has the option of not taking a set-top box and viewing only free-to-air channels. Regulatory controls on pricing also pose a threat with the regulator in fact mandating a Rs 77 package with 30 free-to-air channels. Third, the growth of the industry itself may not be that encouraging. A recent report from PricewaterhouseCoopers indicates that the number of TV households would grow at just 2.7 per cent annually over 2009-13 to 135 million. Further, the report states that the number of cable households would grow from 71 million in 2008 at just 2.4 per cent annually from 2009 to 80 million by 2013.

A FICCI-KPMG report predicts a higher 5.7 per cent annual growth rate.

Sure, the telecom regulator has mandated conditional access in 55 cities by 2011. But, experience suggests that the adoption of conditional access even in the metros has been slow, with most of the households content with free-to-air channels. A TRAI report gives out the fact that only a little over eight lakh set-top boxes have been installed in the four metros put together as of June 2009.

There may, therefore, be limited success in large-scale digitising of cables and driving revenues as a whole. Then there is competition from alternate platforms such as DTH (direct-to-home). Within just three years of its launch, this platform now boasts of as many as 18 million subscribers, thanks to large well-entrenched players such as Dish TV, Tata Sky, Airtel Digital TV, Big TV and Sun Direct, all having deep pockets. Videocon is a recent entrant to this race.

The platform, given its inherent advantage technologically, has greater scope for driving revenues for operators. Latest hit movies being made available within a month of release at a fraction of multiplex ticket rates and several other value-added services or tailored packages help enhance ARPUs.

It may, therefore, be fair to believe that this would be the preferred mode towards digitising cable viewing.

Broadband difficulties

Hathway also has a broadband business that contributes about 16 per cent of overall revenues. Given the under-penetration of Internet and, more specifically, broadband in India, there may be ample scope for expansion.

Indeed, Hathway cross-sells its broadband services to its cable subscribers. But here again, operators with strong wireline networks have made significant inroads by providing DSL broadband services. BSNL, the largest broadband service provider in India, Reliance Communications, Bharti Airtel, and Tata Communications have taken a lion’s share of the internet subscribers between them.

With the increase in the shipments and usage of laptops in India, most of these companies have also been able to drive growth through sale of data cards.

With a wireless last-mile being the preferred route for all technology adoptions in India, these companies may also benefit from winning WiMax licenses for providing wireless broadband access. All this would reduce the addressable pie for Hathway.

The offer

Hathway is looking raise about Rs 735 crore by sale of around 27.75 million shares at a price band of Rs 240-265. About Rs 200 crore would go to selling shareholders, Monet and MSPI Mauritius. Acquisition of customers, investment in developing the cable and broadband infrastructure are the stated objectives towards which the issue proceeds would go. Source : Hindu Business Line