The stock cannot be compared to its competitors because they are not listed
Ahmedabad-based Aster Silicates, a manufacturer of sodium silicate, hits the market tomorrow. The company has set the price band at Rs112-Rs118 per share and plans to raise Rs53.10 crore from the IPO. The issue opens on 24 June 2010 and closes on 28 June 2010.
Aster makes sodium silicate which is an intermediate product for the personal care industry. Sodium silicate is used to make adhesives, cements, detergent & soaps, gels, catalysts and zeolites. It also used for soil stabilisation, water treatment and coatings.
Aster plans to acquire plant and machinery worth Rs36.65 crore or 69.04% of the issue proceeds for its proposed projects.
Based on 2009-10 earnings per share (EPS) of Rs5.14 its P/E at the lower end of the price band stands at 21.79 and at the higher band at 22.96. Its EPS for 2009-10 is Rs5.14.
There are 13 criminal proceedings filed against the company relating to income-tax, excise and foreign trade.
The company posted a net profit of Rs4.42 crore on a total income of Rs61.87 crore for the year ended 31 March 2010. Its top three customers contributed 60.95% of its sales for the year ended 31 March 2010 and the top five customers contributed 83.08% of sales for FY 2010.
The proceeds of the IPO will be utilised for expanding its manufacturing capacity of 50 MTPD (metric tonnes per day) of sodium silicate to 350 MTPD and to fund its additional working capital requirements. Rating agency Brickwork has assigned 'IPO grade 2' to the offering, indicating 'below average' fundamentals.
The company's closest competitors like Swapna Chemicals, Saibaba Chemicals and Nenco Chemicals are unlisted entities. Saffron Capital Advisors Pvt Ltd is the sole lead book running manager to the issue.
The newly-entered fund house Pramerica Mutual Fund’s new fund offer comes with an option of a ‘dynamic plan’ that adjusts the fund’s exposure in tune with market valuation. It is a marketing gimmick—as the examples of three other funds show
Pramerica Mutual Fund, sponsored by the US-based Prudential Financial firm which received the Securities and Exchange Board of India (SEBI) approval to enter the mutual fund business in India last month, has filed a draft offer document to launch the 'Pramerica Growth Fund'. Pramerica has also filed its draft offer document with the regulator for its 'Pramerica Liquid Fund' and Pramerica 'Ultra Short Term Bond Fund' on 16 June 2010.
The 'Pramerica Growth Fund' scheme comes with two plans. The first one is an equity plan and the second is dynamic. The Equity Plan will invest 35% of its portfolio in debt and 65% in equity. Around 60% of this portfolio will be mainly invested in large-cap companies which comprise the top 75% of the total market capitalisation of the National Stock Exchange (NSE).
Under the dynamic plan, 30% of the portfolio will have exposure to equity and up to 70% in debt. The debt portion of the dynamic plan will be actively managed while the equity portfolio of the plan will closely replicate the equity investments of the 'Equity Plan'.
The fund house will use Pramerica Dynamic Asset Rebalancing Tool ('Pramerica DART' tool) which will determine the allocation between equity and debt.
According to the prospectus, Pramerica DART works on the philosophy of mean reversion. The theory of mean revision suggests that prices and returns eventually move back towards the long-term average. Such an average can be the historical average of price or return.
The model factors in three elements like fundamentals, liquidity and volatility. DART assigns a score which indicates whether the stocks are undervalued or over-valued. Based on these scores, the model then calculates the optimum equity-debt mix.
Will DART hit the bull's eye? Ideas of moving between equity and debt are old and usually add no value to investors. Tata Mutual Fund had launched a similar fund called 'Tata Equity Management Fund' in June 2006 which came up with a novel method of pre-deciding the exact quantum of hedging under different market conditions. TEMF, like anybody else, banked on historical data of high and low P/Es to determine degrees of overvaluation. Moneylife had previously reported about the scheme when it was first launched. (Read here: http://www.moneylife.in/article/81/5319.html). This was too simplistic and the scheme has not lived up to its promise. The fund has posted 9.14% return since inception while its benchmark S&P CNX Nifty has posted 18.96% since the fund's inception.
How have the other funds with similar strategies done? HSBC had launched its 'HSBC Dynamic Fund' in August 2007. This fund is benchmarked against the BSE 200. The fund has posted -1.79% returns since inception while its benchmark has yielded 7.53% returns since the fund's inception.
Similarly, ICICI Prudential launched 'ICICI Dynamic Fund' in October 2002. The scheme is benchmarked against the S&P CNX Nifty. The fund has yielded 34.98% since inception while its benchmark has yielded a whopping 58.07% return in the same period.
The ability of fund managers to time the market is a myth, as these three examples show. But fund companies never tire of marketing them, as the Pramerica example shows.