The issue is reasonably priced even though the ICRA grading for this IPO is low. This grading indicates below-average fundamentals. The company also operates in a highly fragmented market. Make your choice!
Price: Rs127-Rs135 per equity share
Bid lot: 50 equity shares and in multiples thereof
No of shares on offer at Rs127 per share: 82.68 lakh equity shares
No of shares on offer at Rs135 per share: 77.78 lakh equity shares
Issue size: Rs10,500 lakh
Issue duration: 22 September 2010 - 27 September 2010
Listing: BSE and NSE
Pre-issue promoter and promoter group holding: Cantabil Retail India Limited (CRIL) is promoted by Vijay Bansal who has over 20 years of experience in the garment and garment accessories industry. In addition to Vijay Bansal, there are two more promoter directors, Deepak Bansal (son of Vijay Bansal) and Swati Gupta (daughter of Vijay Bansal).
Currently, the promoters have a 99.99% shareholding in the company, which will come down to 50.84% - 52.3% post IPO.
At the lower price band of Rs127 per equity share of Rs10 face value, the PE works out to 14.5 times the EPS of Rs8.7 for FY2010 on post-IPO equity. At the upper band of Rs135, PE works out to 15.0. Listed companies in the readymade garments sector, Koutons Retail, Provogue and Kewal Kiran Clothing, have PE of 11.3, 26.1 and 15.2 times EPS of FY 2010; while the sector PE works out to be 13.7 times.
Post-issue promoters' stake at Rs127 per share: 50.84%
Post-issue promoters' stake at Rs135 per share: 52.3%
Incorporated in 2000, Cantabil Retail India Ltd is in the business of designing, manufacturing, branding and retailing of apparel under the brand names of 'Cantabil' and 'La Fanso'. It has a network of 381 exclusive retail outlets spread across India.
The 'Cantabil' brand with 206 exclusive retail outlets offers formal wear, party wear, casuals & ultracasual clothing for men, women and children in the middle to high income group. The 'La Fanso' brand caters to the men's segment in the lower to middle income group and focuses on casual, ultra-casual and formal wear. They also retail various accessories like ties, belts, socks, caps and handkerchiefs under their brands.
The company has three in-house manufacturing/finishing units and four warehouses located in Delhi. It also has three third-party dedicated manufacturing units. Cantabil Retail's stores are situated at Delhi, Mumbai, Kolkata, Bengaluru, Hyderabad, Pune, Jaipur, Ahemdabad, Baroda, Lucknow, Kanpur, Patna, Ranchi, Dehradun, Meerut, Ludhiana, Jalandhar, Udaipur, Agra, Ghaziabad and Gurgaon.
Objects of the issue:
The objects of the Issue are to raise funds for:
1. Establishment of new integrated manufacturing facility (Rs31 crore)
2. Expansion of exclusive brand outlets (Rs25 crore)
3. Additional working capital (Rs30 crore)
4. Repayment of debt (Rs20 crore)
5. General corporate purposes
*(All figures in Rs crore)
The net worth of the company as of 31 March 2010 is Rs2,957 lakh.
The cash & cash equivalents at the end of 31 March 2010 are Rs68.3 lakh.
Analysts' notes on financials:
ICRA has assigned an 'IPO Grade 2' to CRIL's IPO. This means as per ICRA, the company has 'Below Average Fundamentals'. ICRA assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating 'Strong Fundamentals' and Grade 1 indicating 'Poor Fundamentals'.
The company has an established discount brand in the domestic apparel market with a diversified product portfolio for men, women and children. It has a wide network of exclusive retail outlets across metros, Tier-I and Tier-II cities in India. The proposed manufacturing facility will reduce dependence on third-party manufacturers and improve profitability. CRIL has a healthy financial profile with steady growth and improvement in operating profitability in the past. It has experienced promoters with around two decades of experience in the garment industry. There is also favourable demand outlook for organised retailing in the country.
The company's aggressive expansion plans may put pressure on the operating profitability as the company might adopt pricing strategy to gain market share in newer regions.
Increase in fixed costs such as rentals will have an impact on operating profitability; high working capital intensity coupled with rapid expansion in the past had resulted in negative fund flow from operations. This is likely to continue over the medium term as the company plans to scale up quickly by opening new stores and adding new product lines. Successful expansion of the retail network would be dependent on the ability to scale up and effectively manage the supply chain, especially given the high inventory requirements.
The market is highly fragmented and competitive, dominated by the unorganised sector.
Rising yarn and fabric prices could put pressure on the profitability of the company given the fragmented nature of the industry and vulnerability of retail sales to economic trends.
At Rs 127-Rs135, the issue is reasonably priced. Post IPO PE between 14.5 and 15 is close to PE of competitors in the readymade garments sector as well as sector PE of 13.7.
Curb your excitement. This rally is for momentum chasers
All these months, I had two medium-term scenarios in mind. One, after a 2,500 points rally in the Sensex over three months from the end of May, I felt we are about to give up some of the gains. A smaller possibility, which I have mentioned for several fortnights now, was that since institutional investors are ready to buy the dips and markets are trending up in the rest of the world, especially the troubled US market, the Sensex may go up further—all the way to 19,000 which would be followed by a violent downward move.
In leaning towards the first possibility, I was wrong about the market direction this time. The low-probability scenario has actually played out, even though fundamental and technical evidence were expected to weigh heavily on the market. For the record, corporate growth is slowing down; speculative positions in the market are huge; volatility has been low; and the recent move has been unusually long—stretched from late May to early September.
As I had said, it was a long rally and unusual at this stage of a bull market. We have had three months of rally without any meaningful correction, preceded by 15 months of rise. The market usually goes through a violent and substantial correction towards the end of such a long and continuous rally. We had said that “While there is every possibility of the market running away, thanks to the force of liquidity from foreign investors, there is no need to get tempted, certainly not by the large-cap, blue-chip stocks that are not cheap.”
Instead, what we got was a resounding upmove. At the time of writing, the Sensex is at 19,600. A 1,400-point move has come from nowhere, in just eight days of continuous rally. Does this change anything? We are in the camp that takes price signals seriously. While we don’t see fundamentals improving dramatically, and we don’t see how the Indian market can remain divorced from the slow growth in the rest of the world, we also recognise that an overvalued market can get even more overvalued. Haven’t we seen it in 2000, 2006 and again in 2008? As usual, foreign institutional investors cannot get enough of Indian stocks to buy. They have been pumping in thousands of crores of fresh money into India with the same anxiety as that of a passenger lunging at a train leaving the station.
There are two ways to play the situation. One, now that virtually everyone has turned bullish, there will be sharp rallies in highly volatile mid-cap stocks. They will yield quick gains if you can buy them before they make a big move, backed by a concocted story. As you can guess, we don’t advocate this. It is best played by hardcore professionals who have seen many such euphoric cycles and know very well how these end. The second strategy is to stay calm and wait for a sharp drop in prices and step in and buy stocks that are still cheap and growing. There are many such stocks. Since these are not what institutional investors buy, they are still available at reasonable valuations. Keep reading our Street Beat section and Cover Stories from time to time.
(Feedback at [email protected])
Pension committee considers changing stipulation of minimum four annual contributions to pension scheme; is also looking at maximising gains for subscribers by reducing the time lag in the investment of funds and reducing record-keeping charges
The New Pension System (NPS), which was thrown open to all citizens 16 months ago, is in the process of being revamped to make it more attractive. A committee appointed to overhaul the structure of NPS is considering giving pension subscribers the option to make the annual payment in one single instalment instead of a minimum of four instalments currently.
"That is something which is under consideration. This was done to give PoPs (point of presence service providers) a revenue model, but we are looking at making it a single contribution so a person can just contribute once," said Rani Nair, executive director, Pension Fund Regulatory and Development Authority (PFRDA). She said that allowing investors to make a single contribution would help generate volumes and this would ultimately benefit the PoPs.
Under the NPS, subscribers are required to make a minimum payment of Rs6,000 annually and the money is to be paid in at least four instalments a year. No instalment can be less than Rs500. There is no upper limit on either the total money that a subscriber can deposit in the scheme or the number of instalments. However, subscribers have to pay a fee of Rs20 to the PoPs each time they make a contribution. Therefore, a minimum of four instalments amounts to a fee of Rs80 every year.
In August, PFRDA set up a committee headed by GN Bajpai, former chairman of the Securities and Exchange Board of India (SEBI), to find out the causes why NPS had received a lukewarm response and to suggest remedial steps required to make it a viable pension system. Mrs Nair said the committee would take a few months to study the matter and submit its report.
The government launched the National Pension Scheme for central government employees joining service from 1 January 2004, but this was extended to all citizens from 1 May 2009. However, the scheme received little response with only about 8,000 subscribers joining in 14 months.
Subscribers have the option of investing their contribution under either of three categories - equity, government securities & corporate bonds and mutual funds. A maximum of 50% of the contribution can be invested in equities and this investment is made only through index funds. These investments are made through seven fund managers who have been designated by PFRDA. Beneficiaries can exit the scheme after reaching the age of 60, but they cannot continue beyond the age of 70.
Other members of the pension committee are Deepak Satwalekar, former managing director of HDFC Standard Life, Abhinandan Jain, IIM Ahmedabad Professor and Nachiket Mor, ICICI Foundation president. Praveen Kumar Tiwari, executive director, PFRDA, is the member secretary of the committee.
The National Securities Depository Ltd (NSDL), which is the record-keeping agency, charges Rs6 per transaction and these charges add up to the cost for subscribers. PFRDA is also in talks with NSDL to try and reduce the record-keeping charges that would significantly bring down the cost of maintaining an NPS account.
Another important issue that has been raised is maximising gains for subscribers by reducing the time lag in the investment of funds of subscribers. Currently, the clearing is done on a T+3 basis, that is the contributions from subscribers is to be invested within three days of the receipt of the money. The maximum prescribed limit for the clearing cycle is one week.
This is quite unlike the process in mutual funds where investors can participate in the market on the same day. In the case of mutual funds, investments are time-stamped and sent to asset management companies (AMCs) before the market closes, so the investor is allotted the NAV of that day. While the physical delivery of the forms can delay the actual investment even in the case of mutual funds, most intermediaries now use a software (called FinNet, launched by CAMS and Karvy Mutual Funds Services) which reduces the time and cost involved in submission of forms.
"As mutual funds are collecting the money and investing it themselves, it's possible to give the net asset value (NAV) of that day. But ours is an unbundled architecture, so it's not possible to invest on the same day," Mrs Nair explained.
Prabu Anand K, a Pondicherry based independent financial advisor has suggested that there should be a cut-off time for investment of the money, as is the case with mutual funds. "All contributions must be time-stamped and tracked. This will ensure that neither PoPs nor the record keeping agency can play about with the funds of subscribers, and that the investments would be updated in the account of the subscriber immediately," he said.
An official with a fund manager of the NPS pointed out that there is a penalty for PoPs, if the subscriber's account is not credited within a week. "If it is cash then it should happen on the same day. It depends on the clearing cycle of a city. Normally outstation cheques should not be submitted for subscription," the official said.
Contributions to the NPS are accepted through Allahabad Bank, Axis Bank, Central Bank of India, Citibank, Computer Age Management Services (CAMS), ICICI Bank, IDBI Bank, IL&FS Securities Services, Kotak Mahindra Bank, LIC, Oriental Bank of Commerce, Reliance Capital, State Bank of India, South Indian Bank, Union Bank of India, all of which have been designated as PoPs by PFRDA.