IPO ANALYSIS: GOENKA DIAMOND AND JEWELS LIMITED – MAY NOT GLITTER IMMEDIATELY – AVOID.

NAME OF THE COMPANY	GOENKA DIAMOND AND JEWELS LIMITED
ISSUE OPEN/CLOSE	23-03-10 26-03-10
PROMOTERS	NAND LAL GOENKA AND ASSOCIATES
PRICE BAND	RS 135 -145
BRLM	SBI CAPITAL MARKETS LIMITED
OBJECTS	EXPANSION, WORKING CAPITAL
FINANCIALS	FY -09 --TI 451.29cr. NP 27.38cr. EPS 20.60
RISKS	NO EXPERIENCE IN RETAIL, FAMILY OWNED, HIGH WORKING CAPITAL
IPO GRADING	CARE GRADE -2
RECOMMENDATIONS	AVOID

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REVIEW OF IPO RECOMMENDATIONS

NAME OF THE COMPANY	ISSUE PRICE	INITIAL LISTING PRICE	FIRST CHOICE RECOMMENDATIONS
1. EURO MULTIVISION	RS 75	BELOW OFFER PRICE	AVOID
2. INDIA BULLS POWER	RS 45	BELOW OFFER PRICE	AVOID
3. DEN NET WORKS	RS 195	BELOW OFFER PRICE	AVOID
4. COX & KINGS	RS 330	ABOVE OFFER PRICE	APPLY
5. JSW ENERGY	RS 95	ABOVE OFFER PRICE	APPLY
6. GODREJ PROPERTIES	RS 490	ABOVE OFFER PRICE	APPLY
7. BIRLA SHLOKA	RS 50	BELOW OFFER PRICE	AVOID
8. INFINITE COMPUTERS	RS 165	ABOVE OFFER PRICE	APPLY
9. VASCON ENGINEERS	RS 165	BELOW OFFER PRICE	AVOID
10.HATHWAY CABLES	RS 240	BELOW OFFER PRICE	AVOID
11. REC	RS 203	ABOVE OFFER PRICE	APPLY
12. MAN INFRACONST.	RS 252	ABOVE OFFER PRICE	APPLY
13. UNITED BANK	RS 60	ABOVE OFFER PRICE	APPLY
14. DB REALTY	RS 468	BELOW OFFER PRICE	AVOID
15.EMMBI	RS 45	BELOW PRICE	AVOID

THE UGLY SIDE OF MICRO FINANCING – TIME FOR REGULATOR TO ACT TOUGH

Micro financing started as a social cause enterprise is turning out to be blood sucking organizations of the poorest of the poor and hapless sections of the society. More and more entrepreneurs and PE funds are eager to do business in this segment.

Micro-finance has been celebrated for bringing institutional credit to the poor who have no security or collateral to offer. The model’s success lies in extremely high loan recovery rates of 98 per cent or more. This is why micro-finance is now considered mainstream and is attracting private equity funding from all over the world. Founders of some of the MFIs who started as philanthropists are exiting at phenomenal profit and giving MFIs hitherto undreamed of valuations.
Micro finance is the provision of financial services to low income clients, including consumers and the self employed that traditionally lack access to banking and related services. It is a movement whose object is to create a platform, for as many poor and near poor as possible, to have permanent access to an appropriate range of high quality financial services, including savings, insurance and fund transfers, at an affordable cost. Those who promote micro-finance generally believe that such access will help poor people out of poverty. Micro-finance is one of the tools that can reduce the suffering of people by financial services that enable the poor to use the existing knowledge and experiences.

The interest rate applicable to loans given by the micro-credit organizations to Self Help Groups/member beneficiaries is deregulated. The advances to MFIs, by banks are classified as priority sector advances, the applicable interest rate is around 15%p.a. However, the MFIs are charging interest between 24% to 36% p.a. from the hapless borrowers. The Micro Finance Institutions, instead of providing credit at affordable interest rate, exploiting the situation and looking for a return on investments in excess of 30% p.a. Thus, there is a danger of micro finance not only being unable to remove poverty but end up as debt enlarging institutions.
Micro finance should not be viewed as a business venture where one can expect very high return on investments. RBI should put a cap on the interest to be charged on the end users, as most of their income goes for servicing the debt with no savings. This kind of situation is no better than the one the poor borrowers had experienced with the traditional moneylenders. They also defeat the very purpose of establishing the Micro Finance Institutions.

PUBLIC ISSUES – VALUATION THAT MATTERS, NOT MERCHANT BANKERS

The government, stung by the poor response to stake sale in NTPC, REC and NMDC has decided to review the performance of the investment bankers in the earlier issues managed by them, before it gives them the mandate. Under the new rules being considered, 70% Weightage for quality aspects and 30% for transaction fees. Currently, the merchant bankers are selected purely based on bids. Again, the thinking of the government on the above matters is off the track. Although the credibility and reputation of the merchant bankers are required, you cannot sell an issue on that alone. Pricing and valuation are very important.

UBS Securities, CITI group global, Edelweiss Capital, Kotak Mahindra Capital, Morgan Stanely, managed NMDC FPO. These private merchant bankers are reputed and have good track record in issue management. However, the FPO of NMDC got poor response and had to be bailed out by government controlled financial institutions. As compared to that, in the same week NMDC FPO opened for public, SBI capital Markets Limited, a public sector out fit, managed the public issue of DQ international which was over subscribed by 86 times. There was nothing wrong with the timing of NMDC issue. Then what went wrong? Definitely, there was some thing wrong with the pricing. NMDC FPO issue had all the plus points – operating margin is in excess of 75%, net profit margin of 51% and RNOW is around 40%. Zero Debt Company. Healthy dividend pay out record. The bonus component in the capital is 66.66%. However, the investor response to the issue was poor. In the FY 2010-11, government plans to mobilize Rs 40,000cr from disinvestment. The valuations of the issues have to be attractive to get good investor response. Government should think on this aspect instead of blaming the merchant bankers.

Other than preparing a quality offer document and giving sound investment advice, the strength and capability of all the merchant bankers, so far as attracting/inducing the investors for subscription for an issue, are the same. I don't think that there is any merchant banker in the country, who can sell an issue, only on his strength, irrespective of valuations and market conditions.

FINANCIAL INCLUSION: GREATER ROLE FOR CO-OP BANKS.

The Co-operative banks, in India, have a history more than 100 years. The Co-operative banks are an important constituent of the Indian Financial System.
Co-operative banks have certain advantages compared to scheduled commercial banks, in cost of operation, geographical reach and relationship banking (a rare commodity for ordinary customers in the changed banking scenario).
Role of co-operative banks are very important in the real last-mile financial inclusion. They can play a greater role than scheduled commercial banks in achieving the goals of financial inclusion, according to Uma Shanker - General Manager, RBI, (Urban Co-operative Banks Department).
At gross root level, these banks understand the needs of the needy better, and can play a larger role in financial inclusion.
Co-operative banks have to use advanced technology and recruit efficient people to compete with commercial banks.

NO STOPPING OF U S BANK FAILURES

The Park Avenue Bank, a New York City-based institution, was among three banks seized by regulators on Friday, and is the second area bank to fail in two days.

The other banks seized on Friday were small institutions in Florida and Louisiana, and brought the total number of failures so far this year to 30.

PERSISTENT IPO - INVEST

Persistent Systems commands a strong position in the OPD space by virtue of its ability to offer solutions across each stage of product development. The company has significant domain expertise in telecommunications, life sciences and healthcare and in infrastructure. Good business model. Strong corporate governance architecture with two of the independent directors on board since 2001. Good operating margins. Strong team of highly skilled professionals and management. CRISIL has awarded grade -4 indicating above average fundamentals. At the upper band of Rs 310, Persistent would be trading at P/E 16 on FY 09 earnings. The issue is very attractively priced. INVEST.

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CRACK DOWN IN PAK CRICKET – SIMILAR ACTION AGAINST TERRORISTS

In an unprecedented and ruthless administrative exercise, the Pakistan Cricket Board has banned, warned, suspended and fined the senior cricketers for poor performamence, indiscipline and mis behavior. Yonis Khan and Mohammad Yousuf have been indefinitely banned. Discipline is necessary in any sports and the board action is justified.

Pak is the epicenter of international terrorism. The 11/09 and 26/11 attacks were carried out by the terror outfits, having very strong roots in Pak. Will the establishment in Pak, take similar action against those terrorist organizations. This will help the Pak to regain their political credibility, worldwide. It is time to act for the establishment.

CARLOS SLIM REPLACES WARREN BUFFET AS THE RICHEST – 2010

Mexican telecom tycoon Carlos Slim made it to the top on the 2010 Forbes list of billionaires, replacing the legendary Warren Buffet.
Mukesh Ambani and steel tycoon Lakshmi Mittal made it to the top 10 on the 2010.
Ambani ranked fourth with $29 billion and Mittal ranked fifth with $28.7 billion on the Forbes list of billionaires.

HOME LOANS SHOULD BE OUT SIDE THE BASE RATE

The base rate, which will replace the current benchmark prime lending rate (BPRL) from July 1, should keep the all categories of home loans out side the base rate. Currently, home loans are offered at 8.5% p.a. The base rate is expected to be around 10% p.a. Even an increase of one percent in interest rate will push up the EMI of housing loans substantially, since the tenure of the loans ranges from 10 to 25 years. A shelter for themselves is what the middle class and the poorer section of the society always want to own. Affordable housing loans should be made available to these deserving sections of the society. The economics of cost of funds for banks, while lending to this section, must be kept out of the purview.

WOMEN RESERVATION BILL

There is apprehension in some quarters of the Congress that if the bill is passed, the party may lose allies it may need later. The so-called allies who are supporting the UPA from out side are – RJD and SP. The BSP may vote in favor or abstain on some frivolous reason. There are number of small parties and independents who will support the bill, which is pending since 1996. On the pretext of sub quota for OBCs and minorities, the Yadavs moving heaven and earth to stall the same. The Congress should ignore the threat of Yadavs and get the bill passed in both the houses. There is already dissent in JD (U) and the Bihar chief minister Nitish Kumar has come out in support of the bill. The Congress need not worry about the remaining tenure of the UPA. Even if RJD and SP withdraw their support, the UPA will have comfortable majority in the Lok Sabha.

BASE RATE FROM JULY 1, 2010

The RBI, which had set the April 1 as the deadline for banks to migrate to the base-rate regime, has given the banks a three-month breather to move to base rate. The loans against fixed deposits, staff loans and DIR loans are exempted from base rate. While determining the base rate banks have to take into account the cost of deposits, adjustments for negative-carry for CRR and SLR, unallocated overhead costs. Bankers request for lending below the base rate for corporates (short term) was not considered fauvorably by the RBI.

STILL IN DEEP WATERS

With the exception of Paramount Airways and Indigo Airlines, all other airlines reported losses for the financial year 2008-09. The national carrier, Air India reported the highest loss of Rs 5548cr. The following table shows the profit/loss reported by other airlines.

(Rs in Cr)
NAME OF THE AIRLINE PROFIT/LOSS

Kingfisher -1602
Jet Airways -402
Go Air -23
Spice jet -353
Jetlite -630
Paramount Airways +7
IndiGo +82


Indian and international air travel has rebounded from last year's slump because of an economic pick-up. Domestic Indian travel jumped 23 per cent in January to 4.1 million passengers, according to the Civil Aviation Ministry. Worldwide international airline passenger traffic rose 6.4 per cent that month, to the International Air Transport Association.

The last quarter of 2009 and early signs in 2010 gives an indication that the worst could be over, if the present growth is maintained, the Indian aviation sector is on a strong path of recovery by the beginning of 2011.

However, Air India is still struggling amid the upturn as its debt had more than doubled after paying for 100 odd new planes. The government last month approved Rs 800cr cash injection into Air India.

IT HAPPENS ONLY IN INDIA

It was saddening to note the death of 63 people, mostly women and children, in a stampede incident at an ashram in Kunda, Uttar Pradesh. The number may go up to 100, since many are still battling for life in the hospital. Stampedes at temples and other religious places in India have claimed more than 700 lives in the last eight years. Now the state government will order an enquiry, like most of the enquiry, nothing will come out and no action is going to be taken against the people responsible.

US - ON RECOVERY MODE

The US economy continued to improve at a modest pace.

The unemployment rate fell from 10.0 to 9.7 percent in January 2010, according to data released by the U.S. Bureau of Labor Statistics.

Non-farm business sector labor productivity increased at a 6.9 percent annual rate during the fourth quarter of 2009.

Manufacturing sector productivity rose by 6.6 percent in the fourth quarter of 2009.

With the expected GDP growth of 5.8 %, for 2010, the recovery in world’s largest economy may happen earlier,than expected.

VINEET NAYYAR: MAY HIS TRIBE INCREASE

How many of the wealthy and rich persons have the mindset and heart to donate one-third of their wealth for a charitable cause. Not many, neither in our country or else where. Vineet Nayyar, managing director of Tech Mahindra has gifted one third of his holdings in the company, approximately valued around Rs 32cr to Delhi based NGO, a charitable organaisation that supports of education of underprivileged children. Even, if ten percent of the wealthy, follow his footsteps, the government tasks in providing quality primary education to the under privileged, handicapped and other unfortunate sections of the society becomes easier. One only hopes that many will follow Nayyar.

BUYING STOCKS NOT SO EASY

The stock market is always an opportunity for increasing returns on investments compared to other segments including real estate. However, investing in stock market is not so easy, including investments in mutual funds. There are many factors –both at macro and micro level, which influences the stock prices on daily basis. Stock index may go up by 3000 points (during a particular period), due to reforms, inclusive policies and other feel good factors. However, prices of all stocks will not go up proportionately. In fact some stock under perform inspite of index moving upwardly. Hence, blind investment,will not give maximum returns on investments. Apart from this, stock prices of companies, including the best managed and having highest corporate governance, are subject to manipulation in the exchanges. If investments in stock were to be so easy task, every one would have been in the business of investing in stocks. More importantly, not every one can make money. Some will lose and some gain. There is a golden saying in stock market investing – whenever buying or selling takes place, some one is committing a mistake. There is nothing like win – win situation.

VOLUNTARY RETIREMENT FOR AGEING CPM LEADERS

The CPI (M) leadership is thinking of voluntarily retire, the ageing, unfit ministers and functionaries to rejuvenate the party. The party has cited the example of CPM patriarch the late Jyoti Basu, who always volunteered for this kind of proposals. The CPM top brass need not have to initiate such a painful and unpleasant exercise. Just they have to wait for couple of months – for the assembly elections in West Bengal and Kerala. All leaders, irrespective of age and fitness will be forced to retire compulsorily. There is no necessity for the leadership to take such unpleasant decision now.

NO WAKE -UP CALL FOR THE CONGRESS

Pankaj Vohra’s views –Wake-up call for the Congress (HT 02-03-10) on the reactions of the opposition parties to the finance budget are wrong. Where is the unity among the opposition? It is all opportunistic. The unity has already withered away. Can Mulayam Singh, Lalu Prasad Yadav and BJP share a common platform and express their views against the ruling coalition. Will Yadavs accept the BJP as secular party? It is beyond the stretch of any kind of imagination. The writing on the wall is very clear for CPM. It is like Tiger census. Most of these leaders do not understand the long-term implications of the budget. They have come together since they are bereft of any real issues to fight, other than vote bank politics. The situation was different in 1977. After the emergency excesses, all opposition parties came together under JP’s leadership. The Advani’s rath yathra and Ram temple movement dramatically changed the saffron party’s fortune and in1989 the BJP led NDA came to power. Comparing those situations, to the current opportunistic move by the opposition parties, is ridiculous. The fortunes of Yadavs after the last Lok Sabha election has taken a severe beating. Going by the recent trend in the elections, young voters, who constitute nearly 70% of the total voters, are aware of this kind of opportunistic politics and are averse to see such leaders in Parliament. Hence, the chances of such parties/leaders being elected again in the 2014 elections are bleak. The brand equity of Man Mohan Singh, Pranab Mukherji, Sonia and Rahul Gandhi is strong and rising. There is no threat to Congress. There is no wake-up call.