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.